According to Clayton's first quarter U.S. Central investment report, losses from mortgage backed securities aren't expected to peak until early 2011, when principal and interest distribution also peaks. The firm said a number of "interdependent economic variables" will determine if its $2.2 billion base case loss estimate holds true; in particular, home price appreciation will have the greatest impact.
Credit loss estimates vary widely when comparing optimistic, base and pessimistic scenarios, from a best-case $500 million write down to a worst-case loss of nearly $6.5 billion.
Clayton's pessimistic scenario reflects an additional 20% loss in home values beyond early 2009 numbers, a national unemployment rate around 15%, and further distress to financial markets. The optimistic scenario includes home prices bottoming in 2009 and unemployment remaining below 10%.
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California has reported increases in home prices since February. Reporting firm DataQuick said median home prices in Orange County increased to $418,000 in June, after bottoming out around $370,000 in January. However, June 2009 prices are still well below June 2008′s median price of $470,000. That trend held true throughout much of the state, from San Diego north to the greater San Francisco Bay area.
The median price increase is largely due to an increase in sales of higher-priced homes; in Los Angeles County, foreclosures accounted for less than half of all sales for the first time in nine months.
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