Economist: Recovery Has Set In, But More Bad News to Come

While a macroeconomic recovery has set in and will continue in 2010, Freddie Mac's chief economist Frank Nothaft said at the SourceMedia Loan Modification Conference in Dallas more bad news is coming for the mortgage market going forward. "We haven't seen the peak of the mortgage delinquency rates." Currently, he said, the serious delinquency rate — or number of loans 90 days plus late in mortgage payments among Freddie Mac loans — is the highest it has been since the 1930s. Compared to 0.5% in 2006, it spiked up to 5.4% in 2009, showing how the mortgage crisis has moved from the subprime to the conventional arena. Also, in 2005 the share of subprime loans serviced in the U.S. that defaulted represented 46%, or almost half, during the first half of 2009 that percentage dropped to 11%, with most defaulted loans being prime or alt-A. The economist noted, nonetheless, that there will be a recovery, however modest. The most recent unemployment data are not heartening and will continue next year at least during the first quarter, he said. However, Mr. Nothaft theorized that the aggressive monetary policy, the fiscal policy and the stimulus package benefits will lead to sustained recovery over time.