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Editorial: Glass Half-Empty

Those of us who held out hope for a soft landing a year or two ago underestimated the depth and severity of the housing market downturn. Those of us who thought the correction would be over relatively quickly also have been disappointed.

The most recent delinquency numbers from the Mortgage Bankers Association are a reminder that in much of the country, things have gotten worse in recent months. Not better. Every once in a while we see a glimmer of hope, such as last month's dip in the inventory of existing homes for sale, but weakness in the spring homebuying season reminds us that all is not well. The MBA's delinquency numbers for the first quarter held few such glimmers of hope, anyway. The overall delinquency rate, foreclosure starts and the inventory of loans in foreclosure all stand at record highs. All told, 8.82% of home loans outstanding were at least 30 days past due or at some more serious stage of delinquency or in foreclosure. With the overall delinquency and default rate approaching double digits, the mortgage servicing industry is likely to feel some pain for the foreseeable future.

Already, we've seen that industry veterans with experience in default management are in hot demand. Numerous hedge and equity funds have set up shop to buy nonperforming, reperforming, "scratch and dent" and other loans. But despite all the bottom fishers swimming around in the lake, most experts think we haven't seen the bottom of the housing market correction yet.

We all know the housing market will recover at some point. Many economists have pushed back their forecast for a turnaround to sometime in 2009. Some, worried by the number of hybrid-ARM loans that will reset between 2009 and 2011, think a real improvement might not come for several years. While the weakness in the housing sector is likely to soften mortgage loan performance for some time, loan servicers are adapting to this new market, upgrading systems and investing in default management expertise. We hope these steps are enough to help the industry weather the current crisis. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/

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