Troubled Mortgages Near 10 Percent of Borrowers, MBA Says
Single-family residential delinquencies soared to nearly 7 percent during the third quarter, reaching 6.99 percent in the Mortgage Bankers Association's latest delinquency survey data; that's up 140 basis points from one year ago and 58 points from Q2 on a seasonally-adjusted basis. In other words: we continue to have a problem. But it gets worse. That total doesn't include loans somewhere in the process of foreclosure, which reached 2.97 percent at the end of Q3, up 22 basis points from one quarter ago and 128 basis points from one year earlier. A basis point is one one-hundredth of a percent. Taken together, then, 9.96 percent of all existing mortgage loans were delinquent or in the foreclosure process as we headed into October; and that's despite efforts from lawmakers and others to stem the foreclosure tide. The MBA said the the number of loans in foreclosure, as well as the seasonally-adjusted total delinquency rate, continues to be the highest in the history of the MBA survey, which goes back to 1953. The effect of moratoria Despite the jump in foreclosures and delinquencies, the percentage of loans on which foreclosure actions were started during Q3 actually fell one basis point to 1.07 percent, a full 29 basis points below year-ago totals. That drop is likely false hope for recovery, however, according to Jay Brinkmann, MBA's chief economist. "These numbers are being influenced by several factors including various moratoria on foreclosure filings and by mortgage companies holding loans in the 90+ day bucket during the modification and workout process," he said. "Evidence of this can be seen in the large increase in loans 90 days or more past due but not yet in foreclosure." Indeed, the 90+day delinquency bucket rose by 45 basis points in just one quarter, the highest such increase ever recorded in the history the MBA survey, and well above the 4 basis point jump Brinkmann said would usually be expected given the rest of the data. "While 20 states showed declines in the rate of foreclosure starts between the second and third quarters, every state showed an increase in the 90 days or more delinquent category with the exception of Alaska," Brinkmann said. Forced moratoria may only be suppressing foreclosures, not preventing them. It’s instructive to consider the case of Massachusetts: initial foreclosure filings in the state soared 465 percent between August to September after being much lower than normal in June, July and August. That temporary lull happened after a new law took effect in May requiring lenders to give homeowners a 90-day right to cure notice before initiating foreclosure. Fundamental drivers move to forefront The mortgage mess began with overbuilding, poor underwriting and incorrect credit pricing, Brinkmann said, but the jump in delinquencies now being seen has as much to do with macro-economic factors as it does with the industry's own lax practices. "We have not gone into past recessions with the housing market as weak as it is now," he said, "so it is likely that much higher percentage of delinquencies caused by job losses will go to foreclosure than we have seen in the past." No kidding. The U.S. economy shed more than half a million jobs during November, the most in 34 years. Of course, the question remains just how much more intervention Washington wants in a troubled mortgage market, relative to more fundamental factors now affecting housing and mortgages in key markets. The MBA said that it expects to see 2.2 million foreclosures started by the end of 2008, with more to come in 2009. "Absent a recession, the 2009 number would likely have fallen by several hundred thousand," said Brinkmann. "But the effect of job losses and general economic deterioration make the 2009 outlook worse, particularly if mortgage problems become more widespread." HW will have a more in-depth look at the MBA's delinquency numbers in a separate story. Write to Paul Jackson at email@example.com.