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In the Feb 25 2010 Bloomberg article, Laurie Goodman, senior managing director at Amherst Holdings LLC made the most incisive statement I’ve heard in 30 months, “You can’t throw 12 million people out of their homes“. Even for someone who specializes in downside risk, this statement got my attention.

I would add one tiny correction – 12 million families.

Using the reported January median home price of $164,700 and the assumption of an average low equity of 20% in these mortgages, $12 million foreclosures translates to $395 billion or $0.4 trillion loss of individual homeowners’ wealth.

To give some idea of the size of this figure, it is about 2x that of the CMBS industry at its peak in 2007, and about 20% of the MBS industry. The question we need to ask ourselves is, do we really want to destroy $0.4 trillion of other people’s wealth? This $0.4 trillion figure would suggest that optimistic near term economic forecasts are too rosy. 

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Disclosure: I’m a capitalist too, and my musings & opinions on this blog are for informational/educational purposes and part of my efforts to learn from the mistakes of other people. Hope you do, too. These musings are not to be taken as financial advise, and are based on data that is assumed to be correct. Therefore, my opinions are subject to change without notice. This blog is not intended to either negate or advocate any persons, entity, product, services or political position. Nor is this blog post to be construed as investment advice.

Contact: Ben Solomon, Managing Principal, QuantumRisk
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One Trackback/Pingback

  1. By Quantum Risk Management « Ddoingit1's Blog on 08 Apr 2010 at 9:21 am

    […] « Some Lessons from RMBS & CMBS Defaults The Most Incisive Statement in 30 Months […]

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