18 months is a good estimate.  We’ve said that before (see previous post) and now others have more eloquently presented supporting evidence.

David Leonhardt of the NY Times has an excellent piece on this today.  (registration may be required)  Basically, he says what we’ve been telling our clients for over a year now:  The problems with the residential real estate market is not one of valuation (the overly hyped ‘wealth effect’ in reverse), but one of upwardly adjusting mortgages challenging borrowers (both good and bad credit risks).  Take a peek at the graph below.

And Chris Whalen of Institutional Risk Analytics takes a more detailed look at Countrywide’s results, especially its banking subsidiary (thanks to details required in public filings to regulators).  Chris’ article backs up David’s article: "you would know (or at least suspect) that loan defaults were likely to bounce sharply in 2007-2009 as CFC and the rest of the mortgage peer group revert to the LT mean — figure at least two standard deviations from year-end 2006 levels."
 

Thank you to both David and Chris for continued excellent writing on this and related subjects.

We continue to counsel detailed monitoring of all non-GSE residential mortgage exposures, especially any tranche tied to a subprime deal or whose rating has not been updated/reviewed recently.

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