Looking at $5 Trillion in Losses and Zombie Debt in Residential Mortgages

Includes: FMCC, FNMA
by: Michael David White

(Click chart to enlarge)

Mortgage debt of $5.6 trillion is a bubble legacy and the most obvious source of a renewal of the financial crisis.

The application of bubble logic has been defiantly resisted by all quarters in contemplation of residential mortgage debt. High loss projections by masters of doom, Nouriel Roubini and T2 Partners, reach $1.5 trillion to $2 trillion. History may look upon these brave prognosticators as mere pansy pretenders.

A standard projection of mortgage debt levels prior to the bubble oddity shows “erroneous” debt issued of $5.6 trillion. The same figures show our lighthearted bankers writing off 1% of these “payless” balances. Fully 99% of the balances remain “active”. Isn’t it refreshing to believe in the kindness and solvency of strangers?

Real estate values have fallen 30% by the Case-Shiller index. These losses approach $7 trillion. They are regarded as realistic and obvious.

So tell me, sir, are you saying we will lose $1 or $2 in mortgages for every $7 we will lose in house value? The basis of this superstition is that a house value can fall, but not a mortgage value.

Fannie (FNM) and Freddie (FRE) own or guarantee a mammoth $5.3 trillion. A squirt-gun-like credit line of $200 billion has been issued to bring the flying dinosaur pigs back to earth.

Were that credit line a girlfriend, she would be both frumpy and dumpy. There’s no exit from this romance. Thus, the latest fashion in banking: A grocery bag over the head very tightly secured by the neck tie. And always paper. Never plastic.

It looks very smart on you sir. Can you breath? Can you think?

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