Magazine article Mortgage Banking

Trillion-Dollar Gap between Normal Equity Levels and Current Equity

Magazine article Mortgage Banking

Trillion-Dollar Gap between Normal Equity Levels and Current Equity

Article excerpt

At a panel session at the Ntional Mortgage Servicing Conference & Expo put on by the Mortgage Bankers Association (MBA), a Federal Reserve economist put the current mortgage credit situation bluntly for those attending. William Emmons, an economist with the St. Louis Federal Reserve Bank, told the audience: "Things are not as bad as they seem--they're worse."

Emmons went on to use a battery of slides to illustrate his key point--the problem is there is not enough equity in the nation's housing market. He stressed, "LTVs |loan-to-value ratios] matter."

He asked the servicing audience how big they thought the gap was between the equity the industry would normally like to see versus what we have out there today. His answer: "I think that's a 13-digit number--it's in the trillions."

Emmons proceeded to use slides based on Santa Ana, Califor nia-based CoreLogic's third-quarter 2011 data to illustrate how many current borrowers are underwater versus in prior periods. He said in 2005 just 6 percent of borrowers had negative equity. Whereas in 2011, between 22 per cent and 23 percent had negative equity.

Emmons said he thinks the economy currently is neither in recession nor in recovery it's more like it's in remission. …

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