Foreclosure Crisis: Here, Let Me Draw You a Picture

Dang, I really appreciate it when someone comes up with a visual to illustrate something I've been struggling to articulate in words. Here is a chart showing that resets under adjustable rate mortgages (the trigger for home foreclosures) won't peak until March of 2008:

This is from the blog Calculated Risk by way of Bank of America analyst Robert Lacoursiere in the Orange County Register. The fallout from ARM resets lags by a few months, so the peak impact won't be felt until mid-to-late 2008. Mark Zandi, chief economist for Moody's Economy.com, doesn't see a turnaround in the housing market until some time in 2009.

See how the peak looks kind of like a wave? A really, really big wave? Kind of like this:

In other words, don't buy into this comforting talk about how the federal and state regulators "get it" now and this thing is under control. It isn't. It's going to get worse, and it's going to be a long time before it gets better.

We're looking at something like 200,000 Ohio households facing ARM resets this year. Right-leaning commentators will talk about how borrowers are at fault for entering into these loans and the market will adjust and come back into balance. They fail to grasp the scope of this impending crisis. When there is a tsunami approaching, it is no comfort to think about how the ocean will eventually adjust and recede. People are going to be drowned, and the time to take preventive action is now. We need assistance to homeowners at risk and assistance to municipalities ravaged by foreclosures and vacancies, and an increase in the credit available for refinancing, and a moratorium on foreclosures may be necessary as well. Before it is too late, and our neighborhoods and financial stability are washed away.

Cross-posted at Wide Open.

UPDATE: In case you are wondering whether many borrowers facing a rate reset default, or only a few, please see my post at Wide Open about September foresclosures doubling last year's number, including this:

"Rick Sharga, a vice president at RealtyTrac, is quoted as saying "the truth of the matter is that borrowers are going into default as soon as they hit their adjustments."

We're not talking about a few of them, we talking about basically all a lot of them.

A commenter at Wide Open asked how a moratorium would work. I'm interested in all ideas about this, but a proposal by blogger Bill Callahan looks promising:

How about legislation to forbid HUD, Fannie Mae, other secondary mortgage holders, and persons engaged in interstate mortgage transactions from proceeding with foreclosures against owner/occupants for a full year -- or until the foreclosing party has:

* clearly identified the mortgage-holding entity and its legally responsible agent; and
* demonstrated to a Federally authorized consumer protection agency that the original mortgage was not the product of fraud or deceit, and that a good-faith effort has been made to work out the delinquency and/or restructure an impossible payment requirement; and
* demonstrated its readiness to bring the foreclosed property up to code prior to resale, or the existence of an alternative plan acceptable to the local code authority?

On another point. People tend to treat the crisis like the only victims are homeowner-borrowers. This is not the case. Whole neighborhoods are victims, as vacant homes attract crime and lower property values. Municipalities are victims, as plummeting property values reduce revenue just as the huge cost of dealing with vacant buildings (upkeep or demolition) goes up. A large portion of the resets are what Callahan aptly calls "predator real estate speculators," who purchased property using non-conforming sub-prime loans in hopes of making a quick killing and have no intention of meeting the reset higher interest rate. Nobody should feel sorry for those individuals, but the devastation of neighborhoods and harm to municipalities is the same whether the foreclosures concern people we care about or people we don't.