Something new to worry about

The subject is earthquakes - specifically a 7.8-magnitude shaker - and how it would further devastate the housing market. A new study by Impact Forecasting (hat tip to OC Register's Matt Padilla) concludes that lots of homeowners would just walk rather than continue to make mortgage payments. Keep in mind that only 14 percent of California homeowners have earthquake coverage. The remaining 86 percent would be left only with FEMA's allowance of $28,800, of which only $5,000 can be used for structural repairs. (Those with earthquake coverage would be eligible for federal help as well.) The study uses the 94 Northridge quake as a basis for its conclusions:

The quake cost the mortgage industry up to $400 million in mortgage defaults due to foreclosure expenses, property repair costs, lost interest income, write-downs of existing loan balances and other administrative costs. The three main reasons why homeowners ended up defaulting on their loans were because they: could not manage both their mortgage payments and the expenses of repairing their damages homes; decided it was easier to walk away from their damaged homes and mortgages altogether; or lost their jobs or important rental income due to the disaster. After the event, mortgage default rates continued to climb through 1995 and 1996 before starting to recede in 1997, returning back to pre-Northridge levels by 1998 and 1999 and continuing a decline until 2006 and 2007.

It's worth noting that all these nasty scenarios ignore any political pressures that might be placed on Congress and the administration to provide additional help. In normal times, that would be a no-brainer. But with a deficit of several trillion dollars? Like I said, something new to worry about.