Despite a recent slowing in the rate of new foreclosure activity (thanks largely to new legislation), Credit Suisse last week increased its foreclosure estimate while warning of a “subprime society” going forward.
The Swiss bank now forecasts 8.1 million foreclosures over the next four years, up from its April estimate of 6.5 million, thanks to rising unemployment, higher prime delinquencies, and outright recession.
The grim forecast represents 16 percent of all mortgages, and could be as high as 10 million if a more severe recession were to take place.
Additionally, the Credit Suisse analysts, headed by Rod Dubitsky, said the housing collapse and resulting negative impact on credit scores could transform the U.S. into a so-called “subprime society.”
That’s assuming a re-default rate of 40 percent, though numbers released yesterday by OCC head John Dugan suggested the rate was upwards of 50 percent.
However, it remains to seen whether the more aggressive loan modification programs recently enacted will have greater success.
While it’s certainly early, the first bundle of the FDIC’s new streamlined loan modifications recently completed in September have seen no “new protocol” re-defaults, according to Michael Krimminger, special policy advisor to chairman Sheila Bair.
It’ll be interesting to see if the aggressive loan workouts actually work, given the rather poor success rate of more conservative modifications seen thus far.