1 in 5 Predicted to Default

Share |

Nearly one U.S. homeowner in five could eventually default on their mortgage unless Congress adopts new policies to prevent it, according to a leading mortgage securities firm.

Some 10.4 million additional homeowners are likely to default on their mortgages and lose their homes over the coming years, said Laurie Goodman, senior marketing director for Amherst Securities Group. That's out of a total of 55 million U.S. homeowners who currently have mortgages.


Goodman was testifying on behalf of her firm before a U.S. Senate subcommittee hearing today on ways to address the glut of properties in foreclosure.


More than twice current number


The 10.4 million is more than twice as many as the 4.5 million mortgages currently in arrears, and in addition to some 1.6 million homes already lost to foreclosure since the beginning of 2010. Even the company's lowest estimate predicts at least 8.3 million homes lost to default over a period of approximately the next six years, she said.


The larger estimate includes some 3.8 million homeowners who have never been delinquent on their mortgages, but are at risk of default. Another 2.5 million defaults are expected to come from homeowners who had previous delinquencies, but now are current.


Previous delinquencies, underwater borrowers at risk


The firm expects that 65 percent of borrowers with previous delinquencies will eventually default, with a low-end estimate of 50 percent. Of borrowers who are at least 20 percent underwater on their mortgages (owing more than the home is worth), the firm predicts 40 percent will eventually default, even if they've never missed a payment to date (25 percent is the low end).


Even for borrowers who aren't underwater on their loans and have always been current on their payments, Amherst Securities is predicting a 4-5 percent default rate over the coming years.


More loan modifications called for


Preventing such a scenario would require policy changes from Congress to increase the rate of successful mortgage loan modifications, she said.


"We actually know exactly what it takes to create a successful modification - reduce principal, give the borrower substantial payment relief, and modify the borrower in the early stages of delinquency," Goodman said. "Since negative equity drives defaults, principal reduction is the key to a successful modification."


Other measures, she said, should be focused on increasing demand to sop up the glut of foreclosures that do occur in order to stabilize the housing market. She said the best way to start would be through a government program to boost investor participation, with an eye toward converting foreclosed properties to rentals, since tight credit requirements limit the number of potential homebuyers.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Personal Finance , Banking and Loans

Referenced Stocks:



More from MortgageLoan.com:

Related Videos



Most Active by Volume

  • $16.197 ▲ 0.42%
  • $59.3143 ▼ 0.68%
  • $26.69 ▲ 2.18%
  • $86.47 ▲ 0.34%
  • $23.99 ▲ 6.72%
  • $23.165 ▲ 0.59%
  • $22.91 ▲ 34.76%
  • $40.0401 ▼ 0.89%
As of 4/17/2014, 02:15 PM