Defaults Rise to New Record
With delinquencies and foreclosures reaching new record highs in the second quarter, the industry remains mired in the worst downturn since at least the Great Depression.
The Mortgage Bankers Association quarterly survey found that 6.41% of homeowners were 30 or more days past due in the second quarter. When you add the 2.75% of borrowers who are in foreclosure to the mix, over 9% of homeowners are now past due or in foreclosure.
The overall delinquency rate is up 129 basis points from one year earlier. The foreclosure inventory is up 135 basis points. However, compared with the first quarter of this year, the delinquency rate rose by a modest six basis points. The foreclosure inventory was up 28 basis points.
Jay Brinkmann, the MBA's new chief economist, says it is an interesting time to be taking the leadership role in the trade association's economics department.
"I assure you, I look forward to a time when it's less interesting," he told reporters during a conference call to discuss the delinquency numbers.
There is something of a silver lining in the second-quarter numbers. The number of loans entering the 30-day delinquency category is "relatively benign," Mr. Brinkmann said. The problem is that an increasing number of loans that are already delinquent are rolling over to more serious categories of delinquency or default rather than curing.
"What we find is that home prices have a big impact on foreclosure rates, and that's what is driving the transition from delinquency to foreclosure," Mr. Brinkmann said. Were the economy to slow further and jobless rates climb higher, that would delay any chance of a recovery for loan performance, he said.
Mr. Brinkmann said that what drove the delinquency rate to a new high was an increase in loans 90 or more days past due, particularly in California and Florida. He said the national numbers continue to be driven by hard-hit states seeing conditions worsen.
"The increase in foreclosures in California and Florida overwhelmed improvements in states like Texas, Massachusetts and Maryland," Mr. Brinkmann said.
California and Florida together accounted for 39% of the foreclosures started during the second quarter. They also accounted for the vast majority of the increase in foreclosure starts compared with the first quarter.
The increase in foreclosures also continues to be concentrated by loan type, with subprime adjustable-rate mortgages accounting for the highest rate of foreclosure. Prime ARMs, which include the payment-option product, also have a high foreclosure rate.
Because of the option ARM problems, the MBA predicts that prime ARMs will account for an increasing share of foreclosure starts in the coming quarters.
Mr. Brinkmann said searching for signs of a bottom in the real estate market may be pointless.
"Real estate markets are local and some markets are already improving. For example, even Michigan, one of the worst hit markets in the country, has now gone three quarters with little to no increase in its rate of foreclosures. Likewise, Massachusetts showed a very large drop in foreclosure starts, perhaps signaling a bottom. Because of the sheer size of California and Florida, an improvement in the national numbers, whether delinquencies, home prices or any other measure, is unlikely until we see some turnaround in those two states." (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/