Submerged and Subprime

The mortgage malaise is enduring
And frustrates our efforts at curing,
When a fourth of all dwellings
Are currently selling
For less than the loans they're securing.

The Wall Street Journal reports that the Consumer Financial Protection Bureau, as part of an effort to unify and update mortgage lending standards, has developed the concept of a "qualified mortgage" which, if adhered to by lenders, would provide them with a safe harbor against borrower lawsuits. The CFPB would like to simplify regulation and hopes that offering sought-after legal relief and regulatory certainty to lenders will induce them to lend again.

While such initiatives are commendable, I cannot escape the thought that they ignore the elephant in the room: that roughly a quarter of all US residential mortgages are underwater, and half of those underwater mortgages are delinquent. To clear this market imbalance will take a combination of foreclosures, lender write-downs and the passage of time; there are no quick fixes.

Adrift on the Red Sea

A maritime man from Schenectady,
Surveying the seascape dejectedly,
Said: "A fifth of home loans
Are, like Davy Jones,
Underwater, with negative equity."

"Are homeowners fixing their balance sheets?" asks the Wall Street Journal's real estate blog, and cites lower-trending US mortgage default figures as a hopeful sign. However, it goes on to say that the "shadow inventory" of homes in foreclosure -- as well as those with defaulted or delinquent loans likely to be foreclosed on -- has remained consistent. CoreLogic recently estimated that 22.7% of all homes have negative equity, a figure essentially unchanged over the last two years. Bewarrrre Davy Jones locker, all ye mortgage lenders!