Foreclosure roulette 

Flickr image courtesy of stoneflower.

I spoke last week at a real estate investment club and shared with the audience my belief that foreclosures will trickle out over a very long time rather than come as a wave of foreclosures as others continue to inaccurately predict.

I do, however, understand the nature of those predictions. Given the number of households that aren't paying their mortgage (delinquencies), we should be seeing a massive wave of foreclosure notices and ultimately foreclosure sales. It's a logical conclusion.

But this has become a political problem in a world of financial fantasy, so I don't believe that simple logic applies.

The reality is that through financial engineering (interest-only, subprime, swaps, option adjustable-rate mortgages, negative equity, stated-income loans, etc.) we created trillions in excess mortgage debt that has left millions of homeowners underwater, financial institutions on the brink of collapse, and the Federal Deposit Insurance Corp. nearly insolvent.

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