The Drowning Pool: underwater mortgages

Deutsche Bank is predicting that nearly half of all mortgages across US will be "underwater" by 2011; meaning that in half of the current cases, the outstanding mortgage will be larger than the market value of the house. Analysts estimate that 41% of prime conforming loans will be underwater by the Q1 of 2011, up from 16% at the end of the Q1 2009. Even worst, 90% or more of loans in the city of Las Vegas and across parts of Florida and California are predicted to be underwater by 2011.

The drop in home prices is fueling a vicious cycle of foreclosures as it eliminates homeowner equity and gives borrowers an incentive to walk away from their mortgages. The more severe the negative equity, the more likely are defaults, since many borrowers believe prices will not recover enough.

Homeowners with the riskiest mortgages taken out during the housing boom have seen the greatest erosion in equity, in part because they were "affordability products" originated at the housing peak, Deutsche said. They include subprime loans, of which 69 percent will be underwater in 2011, up from 50 percent in March, Deutsche said.

The following table summarizes the overall situation.

Welcome to 'nightmare on main street' America.

When the history books are written, it won't be the Soviet Union, Fascist German industrialists, the Chinese, or immigrant Latinos who brought America to its knees. It will be recognized that the true enemy of the state were the high-rollers of casino-capitalism and their moneyed whores in Congress who sold 300 million Americans down the toilet for personal greed.