Mortgage Delinquencies Accelerating

The mortgage crisis is bad and getting worse. The latest evidence suggests that any bottom in real estate is some ways off in the future:

"Newly delinquent mortgage borrowers outnumbered people who caught up on their overdue payments by two to one last month, a sign that nationwide efforts to help homeowners avoid default may be failing.

In April, 73,880 homeowners with privately insured mortgages fell more than 60 days late on payments, compared with 39,584 who got back on track, a report today from the Washington-based Mortgage Insurance Companies of America said. Mortgage insurers pay lenders when homeowners default and foreclosures fail to cover costs.

Foreclosure filings surged 65 percent and bank seizures more than doubled in April compared with a year earlier as rates on adjustable mortgages increased, according to RealtyTrac Inc. Lawmakers and Federal Reserve officials are trying to ease the worst U.S. housing slump since the Great Depression through tax rebates, expanded federal mortgage insurance and other programs."

According to RealtyTrac, one in every 519 U.S. households is in some stage of the foreclosure process.

There is some good news amongst the dire foreclosure data: In April, a 183,000 homeowners were able to work out new borrowing terms with lenders and avoid foreclosure filings. Thats a record, according to the Hope Now Alliance.

However, that month’s 54% "cure ratio” among defaulted mortgages compares unfavorably with 80% a year earlier, and 87% in March 2008. This is mostly due to the accelerating foreclosure filings in April — more than 243,000 properties, a 65% YoY increase (RealtyTrac).

As long as defaults are occurring faster than workouts, the supply of foreclosure properties and REOs remain at uncomfortably high levels for some time to come . . .

Foreclosure By State, April 08

via Realty Trac


New Overdue Home Loans Swamp Effort to Fix Defaults
Josh P. Hamilton and Bob Ivry 
Bloomberg,  May 30 2008

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  1. Bob A commented on May 31

    Millionaire buddy just walked away from home at posh ski resort after having it on the market for nearly two years and seeing value drop from $400k above loan to about equal to loan value. Holding cost $75k/year. Gave it back to the bank and hooked them up with buyer willing to assume the 5% range loan. Lender? Wamu. “It might mess up your credit for awhile”… “I don’t need credit. I don’t credit”

    Do you think he’s the only one like that out there? I’m thinkin probably not.

  2. JC commented on May 31

    While the comments about cures is literally true, given the one time adjustment to delinquencies, it will be interesting to see what the numbers look like for next month. So yes, the situation may (and probably is) be getting worse, i’m not sure that it’s appropriate to draw that conclusion from this misleading number. looking through the cure ratios from the past year, it’s a mixed bag; february and march look great (relative to april’s number), but prior to that there isn’t a clear downward, worsening trend. even if there is some seasonality, looking back at last year’s summer months, the cure ratio was the same as aprils.

  3. megamike commented on May 31

    I have been reading for some time this blog and other economic oriented blogs and I would like to ask what i think is a simple question:
    Where do all these people that have had their home foreclosed go? Do they move in with others, rent or what? And if they do become renters does that not decrease the availability of rental units thus i increasing the cost of renting?

  4. Dan commented on May 31

    megamike, There are two groups:

    1) The speculators. Some of them were renting out their houses (no net impact) and some were empty (inefficient use of houses). So, getting them out of the market lowers prices.

    2) Legit homeowners. At the margin, the mortgage market was causing them to over-buy. So, there is some efficiency gain from them moving to rentals. but you’re right, rental prices are creeping up.

    The rent-to-buy price ratio is closing from both ends.

    In late 2004 (a bit too early), I sold my house and moved into a rent-controlled condo on the beach. The housing market is moving down slower than I hoped, but I expect to re-buy around 2010. In the meantime, new rents in my building are up 26%.

  5. bumble commented on May 31

    Where do all these people that have had their home foreclosed go?

    To homes vacated by foreclosed owners OR rentals vacated by the buyers of those homes.

    Seriously, where do you think the foreclosed homes will end up? In a bank locker?

  6. Bob A commented on May 31

    If it was a second home they don’t need it. They rent went they go on vacation. And now they have money to do that with.

    If they were a low net worth zero down first time buyere, they go back to renting something, probably more modest. And for a lot less money than the interest only payments they were making on the house that was worth less than what they paid.

    There’s a bright side, because the move frees up money that was going down the interest toilet to be spent on other things.

    It was pointed out here a year ago that companies like Walmart could benefit.

  7. J. commented on Jun 1

    Initially rents go up when the bubble pops, but then rent comes down too, presumably because

    1. owners of empty for-sale houses try to rent them to offset expenses, causing an increased rental supply.

    2. when times get tough people move in together to save on expenses. You can get a housemate, move in with your parents, etc, and this decreases rental demand.

    Anyway that’s what happened when I lived in CA in the early 90s – rents went up at first, then down again.

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