Thanks for your kind comments, and I appreciate all the interesting articles you post.
One other idea occurs to me in speaking of mortgage loans, originators and servicers. Mortgage loans made with a loan-to-value (LTV) higher than 80% are insured against default, with the borrower paying an insurance premium that is added on top of the monthly P&I payment. It is the INSURERs of these loans that will be in trouble when (if) foreclosures begin in earnest.
That said, statistically we know that the bulk of foreclosures occur when the borrower has less than 20% equity interest in the property (the less money invested, the easier to walk away). A loan product I've seen in the market the past 5 or 6 years is a purchase-money combination of an 80% LTV first mortgage and a 20% LTV second mortgage (institutional, not seller-financing), totalling 100% financing, yet requiring no mortgage insurance since neither loan in and of itself exceeds the 80% LTV limit. Of course, it is the holders of the second loans who are in danger, because in the event of default, to protect their interest, they must bring payments on the first current and maintain them and the property taxes while instituting foreclosure on their second. If property values drop 10% or more, it is not economically feasible for the holder of the second to do this, leaving the holder of the first mortgage to foreclose, whereupon the holder of the second most likely loses their entire 20% interest in the property. Often these seconds are financed by groups of private r.e. investors and not institutions per se.
The R.E. crash we experienced back in the early '90's precipitated an S&L debacle, with many bankruptcies. At that time, normally only government-backed mortgages (VA, FHA) were issued with less than 10% downpayment funds from the buyer. Um-ummm, how times have changed, yes, indeed. . .
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