Drip Drip Drip You're Underwater

The reckoning of the next wave of the foreclosure crisis has started to reach critical mass. Bloomberg reports on the record first-quarter numbers.

Mortgage delinquencies and foreclosures rose to records in the first quarter and home-loan rates jumped to the highest since March this week as the government’s effort to fix the housing slump lost momentum.

The U.S. delinquency rate jumped to a seasonally adjusted 9.12 percent from 7.88 percent, the biggest-ever increase, and the share of loans entering foreclosure rose to 1.37 percent, the Mortgage Bankers Association said today. Both figures are the highest in records going back to 1972. Fixed rates rose to 4.91 percent, Freddie Mac said, and an increase in bond yields earlier this week shows rates may continue rising.

AP adds that 12% of all homeowners are either behind in their bills or in foreclosure. 1 in 8, with most of the foreclosures coming from the bubble states of California, Nevada, Florida and Arizona. And top economists see this trend continuing through the end of next year.

David Sokol, chairman of Berkshire Hathaway Inc's (BRKa.N) MidAmerican Energy Holdings and a contender to succeed Warren Buffett, warned that the U.S. housing market still has a ways to go before bottoming out [...]

"As we look at the economy, I have to be honest: we're not seeing the green shoots," Sokol said at the annual Ira Sohn Investment Research conference, which drew some 1,200 hedge fund executives to hear top investors share trade ideas.

"That's not surprising to us. It took us 11 years to get into this mess where it is. We went into the emergency room last fall and by January the banking system and economy generally were in intensive care, and we'd expect it to stay there for some time," Sokol said.

If anything, the glut of housing supply could grow larger as a new wave of foreclosures and pending sales breaks on the market.

"We think the official statistics of 10 to 12 months' backlog is actually nearly twice that amount," he told the gathering, which raises funds for the treatment and cure of pediatric cancer.

Other economists agree.

The banks may feel safe and warm right now, but another foreclosure wave will increase the toxicity of their assets exponentially. Unemployment-driven foreclosures and more rate recasts will feed on themselves.

I just don't see a great policy response to this. Maybe that housing bill will help. It'd help a lot more with cramdown.