The Real Deal New York

Housing analyst says “death spiral” could come to U.S. housing market

January 16, 2012 01:00PM

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Laurie Goodman, an oft-cited national housing analyst, warns that the U.S. housing market may be in a “death spiral,” CNN reported.

According to Goodman’s calculations, 2.5 million homes have already fallen into foreclosure since Lehman Brothers Holdings’ collapse, and another 4.5 million mortgage holders have “given up paying and are likely to lose their homes,” CNN said. Goodman said that more than 10 million of the nation’s 55 million mortgage-holders could default by 2018. If home prices fall much more than the 6 percent or so she’s projecting over the next 12 to 18 months, foreclosures will drive prices even further down, in a sort of snowball effect.

Goodman also said that lenders lose as much as 70 percent when mortgage-backed securities are foreclosed on. And although lenders can reduce their principal to limit their exposure, many mortgage-holders, including Fannie Mae and Freddie Mac, are refusing any kind of principal-reduction deals.

Both Goodman and New York University economist Nouriel Roubini suggest “shared appreciation mortgage” modifications. Recently, Goodman convinced one private servicer to try out modifications. “Progress is slow,” Goodman said, “but I feel like I am getting some traction.” [CNN]

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