Data, Predictions and Taking It All In

Upward delinquency trends make it difficult to predict to what extent today's defaults will turn into a long-term supply of foreclosures waiting to happen this year.

And as the debate over the validity of government programs is still on, data can be confusing.

An increase of 21% compared to yearend 2008, and a staggering 120% increase compared to 2007 in the number of default notices, scheduled foreclosure actions and repossessions were reported in the RealtyTrac Yearend 2009 Foreclosure Market Report as foreclosure filings. Insiders were quick to give credit to the federal intervention as one of the reasons behind the restrain or relative improvement. A total of 3,957,643 foreclosure filings were reported on 2,824,674 U.S. properties in 2009. And "as bad as the 2009 numbers are," said James Saccacio, CEO of the Irvine, Calif.-based online marketplace, "they probably would have been worse if not for legislative and industry-related delays in processing delinquent loans."

What remains consistent is the mix of bad with better news.

During the year the number of delinquencies continued to increase as up to 349,519 foreclosure filings were reported in December alone, up by 14% from November, and 15% from December 2008.

At the same time, while foreclosure activity in 4Q09 increased by 18% from 4Q08, it dropped 7% compared to 3Q09. So after all improvements are plausible.

The LPS December Mortgage Monitor report based on data as of Nov. 30, 2009 showed the total number of noncurrent U.S. loans, which combines foreclosures and delinquencies as a percentage of all loans, reached to 13.2%, of which 10% were delinquencies.

According to Lender Processing Services Inc., Jacksonville, Fla., one in every 7.5 American homeowners is either behind on mortgage payments or in foreclosure. Total delinquencies excluding foreclosures increased month-over-month by 5.46% to 9.97% while loan modifications and a steady increase in the number of seriously delinquent loans keeps feeding the "shadow" inventory of distressed assets.

Year-over-year delinquencies increased by 21.29% further deteriorating the ratio of loans that improved vs. those that deteriorated into a more delinquent status.

Only 1.52% of loans improved compared to 5.01% that became more delinquent.

For example, 4.37% of the loans that were current in December 2008 were 60 days or more delinquent, or in foreclosure by the end of November 2009, which is higher than any other year for the same period, LPS said.

Aforementioned data illustrate once again the relative value of the mortgage asset performance from one period to the next.

LPS also reported that at 3.19% foreclosure inventories increased by only 1.46% month-over-month and a dramatic 81.41% on a year-over-year basis.

Similarly, First American CoreLogic data showed that by the end of 3Q09 the estimated number of foreclosed or pending foreclosure homes reached 1.7 million, up from 1.1 million in 2008.

The good news, First American said, is that at the same time the increase is feeding into higher home sale rates and compensating for the shrinking of the visible supply of unsold inventory, which decreased from 4.7 million in 3Q08 to 3.8 units in September 2009.

The visible inventory supply fell to 7.8 months in September 2009, down from 10.1 in 2008. Meanwhile the supply of real estate-owned home estimations, also referred to as shadow housing inventory, includes mortgages that are 90 days or more delinquent and are not included in unsold inventory, is at 3.3 months, up from 2.4 months a year ago.

Combined, the total unsold inventory by September 2009 reached 5.5 million units, down from 5.7 million in 2008.

Now the hope is that the Home Affordable Modification Program combined with a more aggressive government approach to assisting servicer efforts in bailing out borrowers in need will perform better this year.

The December update from the Department of the Treasury and the Department of Housing and Urban Development on the nationwide campaign to assist borrowers in the trial phase of a modified mortgage convert to permanent HAMP modifications showed "a significant acceleration." Over 100,000 approved permanent modifications included 66,000 awaiting only the borrower's signature. Under HAMP, more than 850,000 homeowners have had a median payment reduction exceeding $500.

"Treasury is committed to working with servicers and borrowers to sustain this improved pace," said Phyllis Caldwell, chief of Treasury's Homeownership Preservation Office.

Following that report some nonprofit media reports closely scrutinized the data and expressed concern that in spite of Treasury’s efforts to speed up the process, up to 75% of trial loan modifications started during the last quarter of 2009 are still on trial.

If and when they will turn into final modifications is as questionable as the performance of some of the largest servicers. For instance, the worst-performing servicers are four of the country’s largest banks: Bank of America, JPMorgan Chase, CitiMortgage and Wells Fargo, which together account for over 60% of the 3.4 million mortgages eligible for the program.