Lesson 19 of 25 · 7 min
The 2008–2010 US foreclosure wave, as a sequence
Negative equity plus a missed payment is LTV above one hundred plus a failed cash-date test.
The 2008–2010 US foreclosure wave is a category-wide episode, not a story about one lender. Housing prices fell, widely reported at the time. Combined loan-to-value on many books crossed 100 percent. Foreclosure clocks that take months still took months, and they ran in large numbers. US foreclosure filings in 2009 were widely reported at the time as in the millions. That rounded figure is a historical magnitude for 2009. It is not a current rate.
The sequence is the lesson. A price fall moved the mark. LTV, Track 1 lesson 6, crossed 100 percent: the loan sat above the house. A cash date then failed, Track 9 lesson 1's comparison. Lesson 12's months-long clock began. A sale, much later, converted the house into proceeds. Negative equity did not, by itself, start the clock. The missed payment did. Negative equity changed what the sale could retire when the clock finished.
No individual is named. No counterparty or regulator is named as the cause. Prices fell, ratios crossed 100 percent, cash dates failed, and a slow recovery process ran at scale. The rules that govern foreclosure vary by state, and a reader's own situation belongs with a qualified professional. Nothing here is a live foreclosure rate, and nothing here is a recommendation about any house.
Price fall, LTV through 100 percent, missed payment, months-long clock, sale. That is the 2008–2010 sequence. Filings in 2009 were widely reported at the time as in the millions.
Key terms
- Negative equity on a house
- Loan above the mark. Track 1 lesson 6's LTV above 100 percent, stated as a leftover.
- Failed cash-date test
- Track 9 lesson 1 on a due date. The comparison that starts the foreclosure clock.
- 2009 filings, reported magnitude
- US foreclosure filings in 2009 were widely reported at the time as in the millions. A historical rounded figure, not a current rate.
Worked example
One invented house, 125.2 percent LTV, then three misses
Illustrative figures scaled down so the arithmetic is followable; they are not the reported amounts. Loan $268,000. Mark $214,000. Then three missed payments of $1,642.00. Rules vary by state.
- LTV after the price fall
- 125.2%
- Negative equity
- $54,000
- Three missed payments
- $4,926.00
- What the LTV did not do
- Start the clock
- What the LTV will do at a sale
- Cap what proceeds can retire
$268,000 ÷ $214,000.
$268,000 − $214,000.
3 × $1,642.00. The cash-date test.
The missed cash did.
The mark is $214,000 against $268,000.
LTV is 125.2 percent after the fall. Three misses total $4,926.00 and start the months-long clock. The ratio and the cash date are two tests.
Check yourself
An invented house has a $268,000 loan and a $214,000 mark. Three payments of $1,642.00 are then missed. What is LTV, what starts the foreclosure clock, and who does a reader's own situation belong with?
Negative equity plus a missed payment is LTV above 100 percent plus a failed cash-date test, Track 1 lesson 6 and Track 9 lesson 1 on a house. Open Loan to value, and how to compute it →
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Educational only. Nothing in this lesson is investment, legal or tax advice, or a recommendation to enter into any transaction. Figures are illustrative and computed from the inputs stated in the lesson.