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Mortgage 'Deadbeat Deficit' Will Hurt US Economy

Thursday, 28 Apr 2011 | 6:18 PM ET

Call it squatters' income.

That’s the amount of money currently being spent on everything from clothes to cars by homeowners who aren’t paying their mortgages.

Mortgage
CNBC.com
Mortgage

Nobody knows what the exact amount is, but the theory goes something like this, according to mortgage maven Mark Hanson of M Hanson Advisors, who a year ago wrote: With holders of an estimated 15 percent of all mortgages “delinquent or worse, they have a hell of a lot of money to spend.”

Some of those obviously went into mortgage modification programs; others are unemployed, and really can’t spend the money. But that’s still a lot of cash.

Hanson’s best stab at the number a year ago was around $12 billion, using what he believed was a conservative estimate of 65 percent of the delinquent mortgage holders living rent free. Even if it’s somewhat less, it’s not chump change and is certainly enough to play a role in any economic tailwind.

Here’s the rub: At some point those deadbeat squatters will get kicked out of their homes and will have to divert their spending to either saving or rent.

In which case: There goes the tailwind, just as quantitative easing ends, oil, food and commodity prices rise and consumers—after an initial relief rally of their own—go back into hiding.

All of this as the stock market is acting is if the party will never end.

Makes the issue about the direction of rates, certainly now, somewhat moot.

Questions? Comments? Write to HerbOnTheStreet@cnbc.com

Follow Herb on Twitter: @herbgreenberg

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