Thursday, August 09, 2007

Sub-Prime Mortgages

Jerry Brower at NRO has a nice piece explaining the real impact of the sub-prime mortgage "meltdown". In short, while foreclosure are up (slightly) there is little or no reason to think the financial markets are going to go bellyup. Of the 44 million mortgages in the US, just under 14% of these are being serviced by the sub-prime market, and only about 13% of those sub-prime loans have payment issues. That's about 6/10 of one percent of the US housing market as a whole.

"With approximately 254,000 mortgages in foreclosure at the moment — up from roughly 219,000 last year — the sub-prime meltdown has given us an increase of 35,000 mortgage foreclosures over the last quarter. Since the average sub-prime mortgage clocks in at almost exactly $200,000, we’re looking at an approximate $7 billion increase in foreclosed value in the first quarter of this year."

That $7 billion increase in foreclosed value equates to about .01 percent of the total US household wealth, which measures approximatley $53 trillion. The scale of this issue appears to be much overhyped.

1 comment:

Trent said...

I work for, a foreclosures site and have seen a huge increase in the number of foreclosures in the past 7 months. I believe it is a combination of not only sub-prime and ARM mortgages, but also the high number of people who have gotten loans with interest rates at an all time low... in addition to the rapid depreciation in some areas and the difficulty some are experiencing in selling their homes.