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The Housing Market Has Nowhere to Go but Down

Given that President Obama’s recently announced mortgage assistance program is only 2 percent of what he gave to banks for the mostly unsuccessful mortgage modification program, one might be forgiven for thinking that the housing market is on an upward trajectory. If JPMorgan Chase’s recent SEC filing is any guide, that assumption is just plain wrong.

Chase’s recent filings, as reported by Shahien Nasiripour at the Huffington Post, anticipates some pretty bleak times ahead, despite Chase’s nearly $12 billion profit in 2009. Chase anticipates billion dollar increases in the housing loans it will have to write off, including prime, subprime and home equity loans — meaning that they anticipate having to foreclose on billions of dollars worth of Americans’ homes in 2010.

In 2009, the firm wrote off $1.9 billion in prime mortgage loans. In 2010, it expects to write off $2.4 billion. For subprime loans, it wrote off $1.6 billion. This year, it expects $2 billion to be written off. And the lender expects home equity loan losses, a $4.7 billion hit last year, to reach $5.6 billion in 2010.

In addition, recent reports indicate nearly one-quarter of American homeowners have mortgages in excess of the value of their homes, and an additional 5 percent have mortgages amounting to 95 percent of the value of their homes.

Nasiripour speculates that Chase’s figures don’t take into account the number of homeowners whose mortgages are underwater that may simply walk away from their mortgages. Patrick Newport with IHS Global Insight tells why:

“The price that you pay for walking away is you probably won’t be able to borrow to buy a home for about four to five years [and] you probably won’t be able to use your credit card for two to three years,” he said.”But, you’ll have this big weight off your shoulders and you’ll probably save tens of thousands — and in come [sic] cases hundreds of thousands — of dollars by walking away.

These are the very homeowners Obama’s expensive mortgage modification program was designed to assist — not simply for their own sakes, but for the sakes of their banks, whose losses will be expensive. But the recalcitrance of the banks to do more than pay lip service and give homeowners the runaround on modification may end up hurting them more than a few years of bad credit will hurt their customers.

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