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Not Getting Better

Here's a startling statistic: for every mortgage that improved (became one month less overdue) in the last 12 months, 2.9 loans deteriorated (became one month more overdue).

These numbers, courtesy of Lender Processing Services, Jacksonville, Fla., suggest that there is an enormous continuing backlog of deteriorating loans that will take years to work their way through a clogged disposition system, depressing home prices and everyone involved in the origination process.

Ted Jadlos, president of the applied analytics division of LPS, told a briefing at the MBA's National Mortgage Servicing Conference, "Everyone is looking for improvement, but you really have to appreciate how bad things are."

Mr. Jadlos told the San Diego briefing there's "a long way to go to get back to an element of normalcy" in the market.

Total noncurrent loans come to 6.6 million out of the LPS database of 45 million mortgages (he defines mortgages 60 days plus overdue as seriously delinquent).

Average delinquencies on problem loans 90 days and more overdue have now lengthened to an amazing 272 days, he said. On foreclosed loans, it's 410 days.

In an example of "a startling level of decay," Mr. Jadlos said that of 35 million loans current at Jan. 1, 2009, 2.45 million of those have become 60 days overdue.

Looking at the government's HAMP modification program, Mr. Jadlos predicted that 20%-50% of the government mods will fail.

Looking at real estate-owned, Mr. Jadlos said that for December 2009 in Los Angeles County, 53% of all real estate sales were so-called dirty sales, either a short sale or an REO sale. For homes under $250,000, 70% were dirty sales. His prescription for all these woes is simple: "Foreclosure is a disposition. Foreclosure moratoria are pointless."

The LPS numbers, along with other recent housing stats such as a dismally low 309,000 number for new home sales, seem to indicate the possibility of a housing "W"-shaped recession, with the second dip about to take place now.

With the end of a federal tax credit for first-time homebuyers rapidly approaching, as well as the withdrawal of the Federal Reserve from the mortgage-backed securities market, fundamentals for the originations business seem to be slipping rapidly.

The only plus side is that the servicing area, especially foreclosures, REO and short sales, seem to be booming.

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