Atlanta Real Estate Blog

Mortgage Delinquencies Soar - Is a Double-Dip In Housing Likely

The Mortgage Bankers Association said in its Quarterly Delinquency Survey today:  "Job losses continue to increase and drive up delinquencies and foreclosures, because mortgages are paid with paychecks, not percentage point increases in GDP."

Hint:  Just because the economy may be improving, it doesn't mean that the foreclosure crisis is ending.

Remember the Home Affordable Modification Program (HAMP)?  Its purpose was to help hundreds of thousands of  borrowers avoid foreclosure. HAMP seems unable to keep pace with the problem.  For instance,

MBA reports that the Q3  seasonally adjusted delinquency rate

Seasonally adjusted delinquency rate rose :            9.64 percent of all loans outstanding, up 40 basis points from Q2.

Loans in the foreclosure process rose:                  4.47 percent, up 17 basis points from Q2. 

                                                                          ==========  

                A           RECORD!                             14.41% of all loans in the U.S. are either delinquent or in foreclosure

It's all about EMPLOYMENT!

Here's where the tracking becomes complicated.  HAMP has a modification trial period of three months.  Many of these loans are listed in the 90-day+ late category.  Some of these loans may not go into foreclosure.  Nevertheless, MBA reports that it was delinquent prime, fixed-rate loans that increased the overall delinquency rate.  These loans are far harder to modify since they are delinquent because the borrower has lost his/her job and has no income. 

They are not delinquent because of a reset of the interest rate/payment on an adjustable rate mortgage, a questionable loan product, or bad underwriting.  It's unlikely that even if the banks hold off on foreclosing, that the employment picture may improve.  It's far more likely that the new modified loan would also fail.

MBA says that FHA loans are the culprit: (FHA loans require less down payment (3.5%) and are made to borrowers with credit scores as low as 620 - riskier credit, less resources).

The foreclosure rate on FHA loans also increased, despite having a large increase in the number of FHA-insured loans outstanding.  The number of FHA loans outstanding has increased by about 1.1 million over the last year.  This increase in the denominator depresses the delinquency and foreclosure percentages.  If we assume these newly-originated loans are not the ones defaulting and remove the big denominator increase from the calculation results, the foreclosure rate would be 1.76 percent rather than 1.31 percent reported.

So, FHA loans are becoming delinquent faster than programs like the Home Affordable Modification Program (HAMP) can save other loans.

Bob Toll, the CEO of Toll Brothers , a luxury homebuilder quipped at the UBS home builder conference in New York, "Yesterday’s subprime is today’s FHA,”   “It’s a definite train wreck and the flag will go up in the next couple of months:  Bail us out. Give us more money.” 

One more thing from the MBA:

The number of loans 90 days or more past due or in foreclosure is now a little over 4 million as compared with 3.9 million new and previously occupied homes currently for sale, although there is likely some overlap between the two numbers.  The ultimate resolution of these seriously delinquent loans will put added pressure on the hardest hit sections of the country.

       (This means that there are now more homes in foreclosure than there are new and existing homes for sale combined, and it's spreading ! )

Four states (CA, NV, AZ, FL) are the worst offenders with 43 percent of total U.S. foreclosures.  Twenty-five percent of all loans in Florida are in trouble.   Now  the problem is spreading to other states - the Carolinas, Georgia, and Utah.

Meanwhile, there is no news on how well or whether the HAMP program is working, i..e., how many people qualify for a loan modification, and of those who qualify, how many result in permanent modification and do not slip back into foreclosure later (BACKSLIDING).

It appears that between the government red tape, excessive paperwork, and foot-dragging from the lenders, plus rising unemployment, a double-dip in housing may occur in the near future.

Tags: Mortgage Bankers Association, MBA, Quarterly Delinquency Survey, FHA, Federal Housing Administration, HAMP, Home Affordable Modification Program, mortgage delinquencies soar to a record, foreclosures now outnumber all new and existing homes for sale, loan modification, Toll Brothers, foreclosure crisis, unemployment, government red tape, excessive paperwork, foot-dragging by lenders, foreclosures spread to more states, double-dip in housing, ATLShortSales.com.