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More Mortgage Woe to Come.

For 50 years (1950-2000) housing had been a stable investment, increasing at less than half of one per cent per year after inflation. Starting in 2000 house prices exploded. Housing in many areas became unaffordable. From 2000-2006 the borrowing power of the homeowner more than tripled and owners borrowed heavily against their homes.

There was a dramatic decline in mortgage lending standards, which led to a surge in subprime mortgage origination, spurred on by Wall Street's demand for more loan product. Which in turned spawned a surge of toxic mortgages over the past ten years. But subprime mortgages are only a tiny part of the problem.

Private label mortgages (those securitized by Wall Street) are 15% of all mortgages, but are 51% of seriously delinquent mortgages. Amongst all homeowners with a mortgage, 24% owe more than the home is worth. For people who bought a house in the past five years, over 30% are underwater.

All types of loans, led by subprime, are seeing a surge in delinquencies. Defaulting subprime drove the first leg of the mortgage crises, the next leg down will be driven by defaulting; Alt-A, option ARM, jumbo prime, prime loans, home equity loans and second liens. Followed by the many other types of loans that are now with longer reset dates, and are now starting to default at catastrophic rates. The third leg down has started to escalate, and that is the commercial real estate sector.

Today, we are only at the half way mark of an enormous wave of defaults and foreclosures, with an estimated loss of $2.1 - $3.8 Trillion, and less than half this amount has been realized to date. Meanwhile real estate asset values continue to plummit putting more mortgages underwater.

Disclosure: No position.