Bonds News

Foreclosures to affect 6.5 mln loans by 2012-report

NEW YORK, April 22 (Reuters) - Falling U.S. home prices and a lack of available credit may result in foreclosures on 6.5 million loans by the end of 2012, according to a Credit Suisse research report on Tuesday.

The foreclosures could put 12.7 percent of all residential borrowers out of their homes, Credit Suisse analysts, led by Rod Dubitsky, said in the report. That compares with a foreclosure rate of 2.04 percent in the last quarter of 2007, they said, citing Mortgage Bankers Association data.

The new forecast includes 2.7 million subprime loans whose risky characteristics sparked the worst housing market since the Great Depression. Subprime foreclosures, on top of the 676,000 already in or through the process, will hit 1.39 million in the next two years alone, an upward revision from the 730,000 predicted by Credit Suisse in October.

Falling home prices have made an increasing number of U.S. homeowners more vulnerable to default, they said. Nearly a third of subprime borrowers owed more than their home was worth at the end of last year, and that figure will double to 63 percent in 2009, they said.

The shutdown of mortgage bond markets that financed many risky borrowers during the housing boom has also made it harder to refinance into affordable loans, they added.

“These factors, coupled with snowballing negative psychology, are contributing to a rapid rise in foreclosures,” the analysts said.

Credit Suisse expects home prices will fall by 10 percent in 2008 and 5 percent in 2009, before rebounding.

Plans by lenders and lawmakers to curb foreclosures must be aimed at reversing price declines to be successful, they said. A public-private partnership to purchase delinquent loans at a discount could help set a floor in home prices, they said. (Reporting by Al Yoon; Editing by Neil Stempleman)