Five to One Baby, One in Five, No One Here Gets Out Alive,

Yes, I am dating myself quoting a thirty year old Doors song, but it seemed fitting given the latest news that a whopping 20% ( one in five) of subprime loans made in the last two years may face foreclosure. That is HUGE.

According to the New York Times "about one in five subprime mortgages made in the last two years are likely to go into foreclosure, according to a report released yesterday, ending the dream of homeownership for millions of Americans...The report offers a somber assessment of loans that had helped millions of Americans with blemished credit attain homeownership. About 2.2 million borrowers who took subprime loans from 1998 to 2006 are likely to lose their homes."

"The report, written by the Center for Responsible Lending, a research group in Durham, N.C., was based on data supplied by Moody’s Economy.com. Researchers examined more than six million mortgages made from 1998 until the third quarter of 2006; the report is the first nationwide study on the performance of subprime mortgages. It includes projected foreclosure data for all major metropolitan statistical areas. The highest default rates are expected to be in cities in California, Nevada, Michigan and New Jersey as well as Washington, D.C."

Furthermore, "The foreclosures will cost those homeowners an estimated $74.6 billion, primarily in equity."

And, "The center suggests that risky lending practices could lead to the worst foreclosure crisis in the modern mortgage market. "

As we finish with 2006, 2007 will be a watershed year which will decide whether we are in a correction or a full out crash. If studies like this are any indication, it is going to be a very rough year for overleveraged borrowers.