FHA serious delinquencies (90+ days delinquent) peaked at around 13% sometime back in 2009. They’re currently at 5.8%. I’ll take the under on your 50% prediction.
F&F serious delinquencies are currently at 4.5%, which is pretty bad (particularly considering how much has been charged off), but not End of Times bad.
Again, these aren’t pretty, but considering the crisis we’ve been through and the unemployment situation… I’m actually cautiously optimistic that these numbers are going to continue to very slowly improve over the next several quarters. I’m very slightly bullish on the economy for the next two years (which is a change from how I felt a year ago) and mildly bearish on housing (no change there). And, yes, we’ve got too much debt on many levels (govt. and household). But… we’ve hardly built anything at all for the last couple of years, hardly anything’s in the pipeline, so… general equilibrium will be upon us in the real estate sector within a few years. And once we start building again – even at a well-below-bubble level – employment will pick up in earnest. So, I think it’s going to be a tough few years and even when things begin to “look” better we have the secular debt issue to deal with, but… I simply don’t see the disaster you envision. I think most of it is behind us, although a mini-crisis or two wouldn’t surprise me going forward. (And the S&P at 900 wouldn’t surprise me either.)
Personally, I think it’s interesting that John Paulson’s (he of the Big Short) exposure to bank stocks is now second only to his position in gold. That’s a leveraged bet on recovery. I’m not saying he’s right; merely pointing out that he’s capable of changing his mind when the facts change.[/quote]
IMHO, the FHA loans made in the past few years have become the “new subprime.” They were less risky during the bubble because they were more prudently underwritten than the sub-prime/NINJA loans, so they fared better relative to other loans. After 2007, FHA loans took the place of the subprime/NINJA/neg-am loans, and are now the riskiest residential loans being made (as far as loans that have any significant market share), which increases their risk relative to other loans. These FHA buyers are underwater the minute they sign their loan docs, as they cannot immediately get out of their houses and pay the selling costs unless housing prices are going up. If people think “negative equity” is the cause of foreclosures (I agree, but for different reasons than most think), then these FHA loans are a time bomb.
A 50%+ default rate would mean that things were getting VERY bad over a prolonged period of time, but I definitely think that’s the trajectory for the majority of working people in the U.S.
As for John Paulson’s optimism, there is no doubt that those with capital can do very well right now. All the money that’s been printed is pretty much being handed to them. OTOH, people like John Paulson are not the ones paying the mortgages in this country — regular, working people are, and their plight is not aligned with the likes of Paulson.
I was shorting the market (specifically, indexes, builders, lenders, ratings agencies, car manufacturers, etc.) since early 2005, when everything looked much rosier than it does today. Closed my last major short position in October 2008, and have only dipped my toe in a couple of times with tiny positions which got wiped out, naturally. Though I haven’t been long stocks outside of a single retirment account, I’ve also not been short (nothing significant), and was warning others back in late 2008/early 2009 who were trying to short the market then. Wish I would have had the guts to go long, but even though I’m a bear, it was obvious that shorts were going to have their heads handed to them during the period of unprecedented “stimulus.”
