Mortgages, Foreclosures & the Fed

The WSJ discusses one of the nasty side effects on Mortgages and Real Estate of rising rates and slowing real estate: Delinquencies and foreclosures:

"As home-price appreciation has tapered off and mortgage rates have risen, foreclosures have started to pick up, with the Midwest region hit hardest.

Yield_curveThe rate of foreclosure — the process by which banks can ultimately take back the properties that secure mortgages — is a key indicator that real-estate analysts and investors use as a signal of market distress.

In the past several years, foreclosures across the U.S. have been hovering around historically low levels, as home prices have risen nearly 50% in five years. This appreciation enabled borrowers to sell their homes relatively easily to resolve mortgage difficulties.

Now, a survey of the latest data confirms, that is starting to change, with an uptick across the U.S. in foreclosure rates and mortgage delinquencies (or late mortgage payments). But even the new higher rates of foreclosure and delinquencies are still low in historic terms.

Nationally, the number of mortgage loans that entered some stage of foreclosure rose to 117,259 in February, up 68% from the same month a year earlier, according to Irvine, Calif., online foreclosure-data service RealtyTrac.

Delinquencies are up as well. Data provider LoanPerformance, a subsidiary of First American Real Estate Solutions, reported that 3% of the most vulnerable loans — those made to borrowers with less than a stellar credit history — were 90 days delinquent in February. That is up from 2.84% in February 2005. Meanwhile, 90-day delinquencies for loans made to borrowers with better credit were up to 0.76% in February, from 0.67% a year earlier."  (emphasis added)

Getting the blame for the uptick in delinquencies is the "greater prevalence of riskier adjustable-rate and subprime mortgages, as well as higher interest rates and energy costs." 

Surprisingly, the Midwest is the region with highest rates of loan foreclosures and delinquencies:  the big three are Indiana, Ohio and Michigan. One must suspect the fallout from GM is to blame in part.

Then, there is the uptick in treasury yields. Higher rates are not a blessing in disguise –despite what you may have read by Charles "Whoopee-higher-rates-are-here-again" Biderman.

Foreclosures Pick Up With Midwest Hardest Hit

April 14, 2006; Page A8

See also

Mortgage-Bond Market Stays Strong
WSJ, April 14, 2006; Page B5

As Markets Bet on Rate Increases, Fed Officials Seem Less Committed
April 14, 2006; Page A1

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  1. Uncle Bob commented on Apr 15

    Anecdotally, I understand that in Albuquerque, some 40% of houses 3 to 5 years old are in some phase of foreclosure. Since they are competing with new homes on the market, they are very difficult to sell since they were financed with little or no down and interest only ARMs and new home builders can undercut existing home sellers with many different types of buyer incentives.

  2. Dan Green commented on Apr 15

    Great coverage, Barry. You know me well enough to know that I am not a Doomsday guy, but I blogged on something similar (

    You can also look at Detroit’s problems with foreclosure as being related to the Auto industry. No job, no means to repay the lender. No means to repay the lender, no mortgage approval.

    Home sales stall because mortgage applicants are denied access to money.

  3. Kevin commented on Apr 15

    Having started to rise from a very low level, how do foreclosures etc. compare with historic levels? How high might we go?
    How high a level of foreclosures would be reversion to mean? How high would be reversion to mean plus overshoot? How high would be reversion to mean plus overshoot plus catchup (people heading for a foreclosure but saved for the past few years by appreciation)? How high would be reversion to mean plus overshoot plus catchup plus deterioration (people who would not have needed to be saved by appreciation in the past but whose position in the global scheme of things has deteriorated, such as the assumed GM workers in the Midwest)?

  4. Larry Nusbaum, Scottsdale commented on Apr 15

    “Surprisingly, the Midwest is the region with highest rates of loan foreclosures and delinquencies: the big three are Indiana, Ohio and Michigan. One must suspect the fallout from GM is to blame in part. ”

    Similar to So Cal in the early ninties, when the defense contracting plants were closing putting tens of thousands out of work all at once, this is not due to a housing bubble or particular loan products but rather to prices going down when everyone is forced to sell at the same time due to job loss. It’s regional in nature.

    Now, the risk here in Phoenix is that all of the new jobs that were created for the housing boom suddenly start to dry up and then we could have a problem since our economy is construction and vacation driven.
    Only one thing that could keep us going is the fact that 288 people a day are moving to our county and our population is expected to grow from 3.4 million to 6.5 million by 2030. (according to ASU)

  5. Paul commented on Apr 15

    Detroit has both GM & Ford, if you want to go down that road. But they’ve both been laying off workers for many years now – Michael Moore’s _Roger & Me_ was 1989, based on the downsizing from the prior years. It’s continued and reaches further into management.

    For those following global trends, Kia and Hyundai have built a joint technical center an hour from Detroit, just a few miles from where I live. Within the next year or so it will be up to about 500 jobs. Of course there are about 1,000 units in subdivisions planned, with all the builders expecting demand from the 500 new jobs. (And very few will end up living that close.) Toyota has discussed building a headquarters just south of Ann Arbor (MI), although I don’t think they’ll go through with it.

    Seems to me we should stop building subdivisions on corn fields, open an ethanol plant – and wait for the Asian carmakers to boost the housing market.

  6. Gladstone Real Estate commented on Dec 29

    Oh yeah its only getting worse. In my city its seems like the foreclosures are doubling every 6 months, for the past year. The short sales are really hot right now also. I’m wondering if there would be more foreclosures if it wasnt for the short sales. I guess will see what happens in the next few years.

  7. Chuck Marunde commented on Apr 25

    Good post. I think we’re a long way from seeing the end of the foreclosure nightmare across the U.S. Like a stone thrown in a pond, the little circles will reach further and further.

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