In absolute terms, foreclosures are a small number of total households but we are still seeing record levels. And because of the way leverage works (and how banks have levered themselves), $1 of foreclosure loss means the bank has to restore much more than $1 in capital reserves. "Un-winding" is a painful process.
Moreover this graph shows that the only borrowers who are not trending negative are fixed-rate prime. Everyone else is failing to meet their debt obligations. We are also seeing articles that point out this problem is not limited to houses - credit cards and car loans are also increasingly delinquent and consumer loans for things like elective surgery are way down.
This is just the beginning. Expect another 6 months of blue news.
Home Foreclosures Surge to a New High
December 7, 2007
Wall Street Journal
The number of homes starting foreclosure jumped in the third quarter to the highest level since the Mortgage Bankers Association began keeping track in 1972, while the fraction of homeowners behind in their payments rose to the highest level in 21 years.
Both reflect the continuing credit-market turmoil, a slowing economy and falling house prices.
Foreclosures rose for all types of mortgage loans, according to the association's quarterly survey. But the upturn was sharpest for adjustable-rate mortgages, including homeowners with better records who are considered to be in the "prime" loan category.
