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,
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
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