By: Ellen Chang
U.S. banks face a tsunami of home foreclosures soon, says David Karsbol, chief economist at Saxo Bank.
Homeowners may be faced with no choice and will just stop paying their mortgages, he warns.
“I believe we are about to see a tsunami of foreclosures in the U.S. A lot of homes have been held back because if the banks are foreclosing on them they will have to do a writedown on the mortgages they have on their balance (sheets),” Karsbol told CNBC.
“That’s why they have been reluctant to do so.”
Soon homeowners may be looking around their neighborhoods and realizing that their neighbors have opted to stop paying their mortgages and are living scot free, he said.
“The fact that many homeowners are allowed to stay in their houses without paying on their mortgages begs the question: Why should you pay on your mortgage when your neighbor doesn’t?” Karsbol said.
Rising unemployment in the United States is the main cause behind foreclosures, economists and bankers told the Washington Post. Subprime mortgages are becoming less of a culprit.
“It’s a much harder nut to crack, unemployment,” says Mark A. Calabria, director of financial regulation studies at the Cato Institute.
“It’s much easier to bash lenders than to create jobs.”
In 2009, the first three months reported the largest share of foreclosures moved to prime loans from subprime loans, according to the Mortgage Bankers Association.
“Rising unemployment, for the sake of this downturn, has magnified things considerably,” notes John Snyder, manager of foreclosure programs for NeighborWorks, a large housing counseling group.
“It’s less about the payment adjustment.”