News & Politics

Mortgage Defaults Expected to Dwarf Anything We've Seen Before

Image by Gerd Altmann from Pixabay

Bloomberg reports that mortgage lenders are hunkering down for the biggest wave of defaults in history in the wake of coronavirus, making 2008 look like a walk in the park:

Mortgage lenders are preparing for the biggest wave of delinquencies in history. If the plan to buy time works, they may avert an even worse crisis: Mass foreclosures and mortgage market mayhem.

Borrowers who lost income from the coronavirus — already a skyrocketing number, with a record 10 million new jobless claims — can ask to skip payments for as many as 180 days at a time on federally backed mortgages, and avoid penalties and a hit to their credit scores. But it’s not a payment holiday. Eventually, they’ll have to make it all up.

As many as 30% of Americans with home loans – about 15 million households –- could stop paying if the U.S. economy remains closed through the summer or beyond, according to an estimate by Mark Zandi, chief economist for Moody’s Analytics.

“This is an unprecedented event,” said Susan Wachter, professor of real estate and finance at the Wharton School of the University of Pennsylvania. “The great financial crisis happened over a number of years. This is happening in a matter of months — a matter of weeks.”

THIRTY PERCENT. In a matter of months. That number is astronomical.

The huge numbers in such a short time, along with no end in sight for the economy to get back up and running, means everyone from borrowers to lenders to employers to the government is operating completely in the dark. There is no roadmap for this economic crisis.

Along with the catastrophic job numbers – 701,000 jobs lost in March – the mortgage crisis is something we’ve never seen. We’re just seeing the tip of the iceberg. Treasury Secretary Steve Mnuchin has debated whether to bail out mortgage lenders facing intense fiscal pressures with all these expected defaults.

Of course, the question must be asked: How can we pay for this when we just passed a $2 trillion economic stimulus package, mere weeks after injecting almost $2 trillion into the banking liquidity markets?

More fundamentally, how can the federal government stimulate an economy that we’ve shut down in response to a pandemic? Can that even pencil out?

A financial crisis of unprecedented proportions seems inevitable. Shouldn’t we be sure that pouring all this money into the fire is having any effect before we approve more debt for our grandchildren to pay off?

Jeff Reynolds is the author of the book, “Behind the Curtain: Inside the Network of Progressive Billionaires and Their Campaign to Undermine Democracy,” available now at www.WhoOwnsTheDems.com. Jeff hosts a podcast at anchor.fm/BehindTheCurtain. You can follow him on Twitter @ChargerJeff.