Deutsche Bank Report Projects 25 Million Mortgages Underwater By 2011

I found the Deutsche Bank Report by Karen Weaver and Ying Shen published August 5, 2009. it's at the website shown below and i've attached it as a .pdf file and here are the first five paragraphs below.

They looked at a Massachusetts study from the early 1990's that established a floor of 7% defaults for negative equity mortgages. Although they declined to project default rates today, their report suggests that default rates are significantly higher today.

It is very clear from this report that we are in a growth industry. For example, the report projects that 51% of Los Angeles County mortgages are underwater today, but that will rise to 62% by 2011.


http://www.docstoc.com/docs/9509772/Debt

Drowning in Debt - A Look at "Underwater" Homeowners [footnotes omitted]

The U.S. economy has been overwhelmingly a consumer economy. For much of the past decade, U.S. consumers have been greatly enriched by rising home
values coupled with "easy credit," enabling them to monetize their home equity early, and often. Some economists estimate that homeowners were extracting
25-30% of every dollar of increase in home equity, primarily for consumption.[2] But now, the Joint Center for Housing Studies reports that home equity had fallen
43%[1] - $5.9 trillion - from 2005 (peak) levels to the end of 2008.

Even if home prices stabilize, it seems unlikely that we will again see the confluence of factors (or one might say mistakes and debacles) that facilitated the
millennial wave of consumption. For many, the home has morphed from piggy bank to albatross. The questions now are, how will this wealth destruction drag on
consumption and how will outsized mortgage burdens be resolved?

In this paper we look at the issue of "negative equity,"[3] the situation where the borrower's total debt obligations exceed the home's current market value. We
estimate both the number of borrowers who currently have negative equity, and, using our home price forecast,[4] the number of borrowers who we believe will
reach a negative equity position before prices stabilize.

There are approximately 110 million households in the U.S. Of the 110 million, about 75.5 million are homeowners. Of those 75.5 million homeowners, approximately 68%, or 51.6 million have mortgages.[1] DB estimates that, as of the end of 01 2009, 14 million U.S. homeowners had negative equity, or approximately 27% of all homeowners with mortgages. Applying DB's most recent MSA-Ievel home price projections,[2] we estimate that 25 million homeowners will have negative equity before home prices stabilize, or 48% of all mortgagors.[3]

In Figure 1 below, we include other's estimates of the negative equity problem. First American CoreLogic,[4] estimated that 20% (or approximately 11 million) of U.S. homeowners had negative equity as of December 31, 2008 (their most recent work). According to the latest update from Economy.com[5], approximately 15 million homeowners had negative equity at the end of Q1 2009, and they project that number to climb to 17.5 million by Q1 2010. Economy.com's home price outlook calls for a further 9.8% decline from Q1 2009, on average nationwide, considerably less that [sic] our 14% HPD.[6]


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