The scope of defaults

Ben Stein says in Feeling the Crunch on Yahoo Finance: "No one, and I mean no one, knows how large the losses have been as the buyers of the mortgage pools have seen their investment dry up and blow away. By my rough calculation, with help from the president's Council of Economic Advisers, about 6 trillion dollars of new mortgages were issued between 2005 and mid-2007. Of this, about 20 percent might have been subprime. That makes $1.2 trillion.

Of that, about a third might default (many more from the last period of the lending binge, when standards simply vanished), which would indicate losses of about $380 billion. Of that, about 60 percent will be recovered when the houses are seized in foreclosure and, after the legal fees are paid, sold to shrewd buyers. That leads to a net loss to pension funds, municipalities, labor unions, hedge funds, and wealthy foreigners of about $150 billion, as a very rough number.
That number may be even greater when upwards of $40 billion in losses on mortgages call Alt-A's -- where the borrowers didn't have poor credit, but the interest rates reset too high for them to afford -- are added. "

I don't agree with his conclusions - subprime and ALT-As aren't the only problems, and I don't think he's fully accounting for the new variables - but it's a starting point. The new variables include a different cultural perspective on foreclosure - after a major housing boom where flipping houses for profit became big business, foreclosure is less of a stigma and more of a business failure - and the new credit reality where people pay their credit cards instead of their mortgages. People are more willing to walk away from their mortgage than I ever expected. People see their homes lose value, and they wonder why they are paying far, far more than rent to hold onto a depreciating asset. It is foolish in this environment to assume that the foreclosures will be neatly confined to subprime and Alt-A.