Dramatic rise in delinquency rate validates analysis of downturn

An alternative to the hype

It’s not even Jan. 1, but my analysis regarding the housing market trend of continuing on the path of a downturn rather than recovery in 2015 is already being proven sound. According to a published report in HousingWire by Brena Swanson on Dec. 30,” the national delinquency rate has come off its seven-year low and surged to its highest level in 10 months, as reported by Black Knight Financial Services' November “First Look” mortgage report."

This is most unfortunate “news” for those who bought into all the hype about our experiencing an economic as well as housing “recovery.” I am certainly not gratified to continue writing about our stagnant housing market, and wish that I was wrong in my analysis, but the fact remains that things are far worse than was consistently reported in much of the media leading up to and even following the most recent elections. 

Although Ms. Swanson also noted in her article that foreclosure inventory continued to decline, reaching its lowest level since January 2008, the rise in delinquencies points to a likely future increase in foreclosure activity. Anyone who disagrees with that fact probably believed we would not have a housing crash in 2007. The magnitude of a 12% jump in delinquencies in November over the 6% rate in October should be a wake-up call for those still wearing rose-colored glasses.

A previous article in HousingWire, written by market-savvy Trey Garrison and published on Dec. 23, stated that new home sales took a nosedive in November, plummeting 6.1%, according to the U.S. Department of Housing & Urban Development.

Adding fuel to the downturn “fire” is the report that the National Mortgage Risk Index for Agency purchase loans rose in November to 11.69%, which is up from an average of 11.29% for the prior three months, as reported in HousingWire on Dec. 19. The risk indices for Fannie Mae, Freddie Mac, the FHA, and the VA all hit series highs in the month of November. This report raised the specter that FHA loans could face a dramatic rise in defaults.

In the article, Stephen Oline, co-director of American Enterprise Institute’s International Center on Housing Risk, is quoted as stating that the increase in risk for all major government agencies over the past two years is “cause for concern,” and, “This is especially true for FHA loans, which would experience a tidal wave of defaults if we have another severe financial crisis.”

Some of the other points of interest that are perhaps validating my analysis that deserve close perusal include, but are not limited to, the following:

·      Nonbank lenders are generating an ever-increasing percentage of riskier mortgages and are not under the same regulatory scrutiny as traditional banks.

·      Some lenders, including Ditech and Mortgage 360 are actively promoting 97% LTV mortgages, as is Fannie Mae.

·      As published in the MReport last Sept. 18, former Goldman Sachs executive Joshua Pollard sent a shocking 18-page report to the White House warning of a potential plunge in home prices that said, “Could put the country back into a recession before the ripples of the previous one settle.”

·      The employment picture has not improved anywhere near that which is being reported in the media. Millions of Americans are no longer counted in the unemployment numbers because they have been unable to find decent-paying or meaningful jobs, or have simply stopped looking. The job participation rate remains dismal. Until that materially changes, our economy in general, and the housing market in particular, cannot substantially improve. This I repeat quite often because it is the number one factor keeping us from experiencing a real rather than artificial recovery.

The latest report on the delinquency rate surge, coupled with other obvious indicators such as those above, would certainly seem to validate my analysis over the past many months. Only time will tell — many factors could intervene to stem the tide of negative news. In any case, I will be observing and reporting the facts as they present themselves.



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