The Mess: Ugly Numbers Get Uglier

Over the past eight weeks I've been promoting a book I co-authored on the mortgage mess called "Chain of Blame, How Wall Street Caused the Mortgage and Credit Crisis." I've done more than 25 radio and TV interviews during this time and one question I keep getting asked is this: When is the housing bust going to end?

If only I was that smart and knew the answer. It's like getting a copy of tomorrow's paper a day early and buying shares in all the stocks that go up. There is no easy answer because every time we think a bottom has been reached another shoe drops that takes the industry down another step toward the basement (which is filling up with water).

For instance, in early September right after the share prices of Fannie Mae and Freddie Mac recovered somewhat from their ugly multiyear lows (after a few analysts said they had enough capital to last through early 2009), GMAC/Residential Capital LLC lopped off 60% of its production workforce, sending 5,000 mortgage workers toward the unemployment office. (Chances are many of these employees have mortgages - probably with GMAC.)

A few days before GMAC dropped its bomb, it felt like perhaps we had reached a bottom - that maybe the worst was over. The inventory of homes for sale was starting to decline and the rate of home purchases was no longer in a freefall. I thought, maybe we're resting on the basement floor where we'll remain for a few months before light begins to shine through a window.

Then in early September the unemployment rate reached a new multiyear high (6.1%) and the feeling that the flesh-eating zombies had stopped banging on the basement door vanished. Poof. It was "Night of the Living Dead" all over again. As anyone in the mortgage industry knows, unemployment is the straw that stirs the delinquency cocktail. When unemployment rises, so do late payments.

And let's talk about late payments. According to figures compiled by Mortgage Servicing News and the Quarterly Data Report, the subprime delinquency rate is just shy of 30% (10.86% of that represents foreclosures). The Mortgage Bankers Association, in its regular quarterly release, found similar results. These are the ugliest delinquency numbers since (you got it) the Great Depression.

As we all know, the mortgage industry (at least, most of it) is trying to restructure troubled loans and mortgages that may soon be in trouble. According to the Hope Now alliance, it has helped 2 million consumers avoid foreclosure.

That sounds like a nice number. Recently I asked HNA executive director Faith Schwartz if she could give me a dollar volume on the principal amount of mortgage debt that had been forgiven in these workouts. She could not. HNA can't yet track that, she said. Does HNA know how many loans have been refinanced into FHA products? They don't know that either. It also has no idea how many of the 2 million loans many have fallen back into delinquency.

The mortgage industry is all about numbers. If the numbers are unreliable, what good is it? We're just flailing away in the dark, making crazy guesses.

So, where are we in the recovery? Are we in the bottom of the fifth inning? The top of the sixth or the third? We don't know. No one knows. And we won't know for another year or two when we can finally look back at the data and say, "Yes, that was the bottom."

Rest assured, the delinquency numbers will get worse if unemployment continues to rise and oil spikes. Thanks to recently declining gasoline prices, the nation has received a shot in the arm. Cheaper oil means some relief for household budgets. More money in the consumer's pocket means more money available to pay the monthly mortgage. But will oil prices continue to fall and will the U.S. dollar continue to rise? If only I was that smart ... (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/

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