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Number of homeowners underwater could soar from 23-percent to 40-percent

Housing is in big trouble. Excess inventories remain a big problem, so weakness in prices isn’t surprising.

According to Gary Shilling, President of A. Gary Shilling & Co., an investment research firm, he thinks there will be another 20 percent decline, though that decline has been held up by the moratorium on foreclosures.

But those things seem to be clearing away, so he thinks we’ll be seeing more houses on the market soon. And as prices go down, more people get underwater, leading people to walk away. So prices are going to be the leader in the whole complex of sales.

“If we go down another 20 percent, the number of people underwater will leap from 23 percent to 40 percent, and that will probably lead to another round of write-offs for lenders. That will be Act II in the whole drama of the housing collapse,” says Shilling.

This makes the need for banks to write down the principal balance of loans being negotiated for loan mods even more urgent.
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Source: http://www.reuters.com/article/idUSTRE6AT2P220101130

Technorati Tags: housing market, underwater mortgages, principal writedowns

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