Tags: Wave | Foreclosures | Hurt | Economy

Expert: Wave of Foreclosures to Hurt Economy

Tuesday, 29 Dec 2009 09:07 AM

The U.S. economy has yet to feel the full brunt of the housing crisis because foreclosures have been to slow to occur, says John Geanakoplos, a partner at Ellington Capital Management.

One way out of the housing mess would have been to write down the principal on bad mortgages.

Houses often lose value between the time owners are notified of foreclosure and when they eventually leave.

The problem, Geanakoplos tells CNBC, is that mortgages that are securitized, especially the subprime ones, are largely owned by separate service companies owned by the big banks, which have little interest in cutting down principal.

That means more foreclosures are on the way.

“I think we haven't seen the full effect of (the housing crisis) yet, because the servicers are not foreclosing that fast on homeowners…they realized they can leave these people in houses for a while, not paying,” Geanakoplos says.

The U.S. housing markets continues to be weak.

The seasonally adjusted annual rate of new home sales fell 11.3 percent to 355,000 in November compared to October, according to a Census Bureau report, CNN reported.

The November figure was the worst since April.

“It's clearly a disappointing number, but I don't know that it changes the outlook all that much. You're going to get bumps along the road every so often as far as recovery is concerned,” Nick Bennenbroek, head of currency strategy at Wells Fargo in New York, told Reuters.

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The U.S. economy has yet to feel the full brunt of the housing crisis because foreclosures have been to slow to occur, says John Geanakoplos, a partner at Ellington Capital Management. One way out of the housing mess would have been to write down the principal on bad...
Wave,Foreclosures,Hurt,Economy
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2009-07-29
 

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