The Obama administration and all the agencies at its disposal are working around the clock to save troubled loans but it is simply not good or fast enough.
In the third quarter there was a 6.2% rise of all seriously delinquent (i.e. 60 days or more past due) and 3.2% increase of all loans in the process of foreclosure.
What is even scarier is that even prime mortgages, those loans with the best interest rates and conditions also rose heavily.
However banks and loan servicers do seem to have stepped on the gas a little and supported the government’s efforts through the HAMP program, or Home Affordable Modification Program. Out of every 6 troubled homeowner one received a permanent or trial loan modification. Unfortunately the homeowners that get a trial but don’t get a permanent modification make up most of that figure. The bad news is that even those who do get a permanent loan modification (31,000 out of 750,000 in the last count) half tend to re-default with 6 months. The good news is that that loan mods done in the second quarter show a lower initial re-default rate. This could be because lenders are making more generous loan modification and reducing monthly payments more aggressively to make payments more likely.
So how are mortgages performing? Badly seems to be the sad consensus. 87 percent of all US home loans are listed as performing, which obviously means 13% aren’t. Government backed mortgages are not faring much better, in some cases worse. Only 83% of the Veterans Benefits Administration loans are “performing”. Fannie and Freddie mortgages (with government backing) are not celebrating with 8% of their mortgages “not performing.
It is not all bad news. The housing market with low interest rates and a large portfolio of “cheap” homes is attracting buyers. This large inventory is likely to stay with us for a while as banks continue to try to unload their distressed properties and troubled homeowners continue to agree to “short sales”.
According to First American CoreLogic one in four home loans is still “under water” or has a mortgage that is worth more than its current value.
What is the government doing to fight this situation?
Two main strategies: 1) Keep the housing market stable by keeping the interest rates low.
2) Loan Modifications.
The first strategy does seem to be helping by encouraging buyers to invest in a new home. Loan modifications are not meeting with the expectations but the latest figures do show that re-defaulting has dropped with the latest more generous mods.
Related posts:
We live in the age of information. That is good and it is bad. It is good because you can get information from a great variety of sources and have the choice of seeing the world from a number of perspectives. The bad news is that you really need to get your information from a variety of sources because it is hard to know who to trust or who got the story right.
An example of this occurred last Wednesday when we received conflicting reports. The Mortgage Bankers Association said mortgage loan applications were up 16.1% for the week ending August 7 in relation to the same week last year. This news item seemed feasible because there has been an increase in the home sales in the second quarter in 39 states. Other figures also seemed to support this with mortgage refinancing accounting for 52.3% OF mortgage applications and adjustable rate mortgage applications also rose by 0.4%.
On the other hand, Reuters saw the situation in a completely different light by focusing on a different perspective of the situation. Reuters looked at a week over week seasonally adjusted decline of 3.5% which is not exactly the good news the Mortgage Bankers Association reported. Reuters cites the increase in interest rates as the reason for the drop coupled with the current 9.4% unemployment rate which is keeping homebuyers shy and cautions because of the economic climate.
So who is right? Are mortgage rates rising or dropping? The answer is that both are right, they just are focusing on different data to express their opinion. It is left to you to decide what argument is more compelling.
The Mortgage Bankers Association chose to compare this last week with the same week last year while Reuters analyzed the behavior of the market week over week.
To illustrate how this can affect our view of the situation look at these mortgage figures. The Mortgage Bankers Association reported that the cost to borrow on a 30 year fixed rate at 5.38% a rise of 0.21 percentage from the previous week. The lowest interest rate or cost to purchase a mortgage hit an all time low of 4.61% in the end of March. If you look at these figures it does seem like things are going rather badly and that the Mortgage Market is falling.
However if you compare this week’s interest rate with last year’s in the same week you see that last year the 30 year fixed rate mortgage was a the hair rising rate of 6.57%! A far cry from the 5.38% we now have.
So are we rising or falling? We are both it just depends what point of reference you choose.
Related posts:
Two reports out say if you’re thinking of buying, wait. The prices are going to continue to drop. The reason they offer are the same: Continuing increases in the number of homes worth less than their current mortgages.
Zillow reports that 23% of US mortgage holders owed more than their homes were worth in the second quarter of this year. This number is challenged, but not in a good way, by Deutsche Bank which says it’s actually 26%.
Both numbers are a stark contrast to recent upbeat spins on real estate news. National Association of Realtors report that pending home sales rose for a fifth straight month in June. (Remember, the NAR’s last chief economist admitted lying about his numbers.) And the most recent Case-Schiller numbers which were widely misreported as showing a price increase in May.
While the Zillow report makes the relatively sure prediction that underwater mortgages will increase to 30% by mid-2010, DB goes all in and says it will be 48% by 2011.
This will further decrease prices as it increase the amount of housing for sale. There were 3.8 million homes for sale in June which take 9.4 months to sell at the current pace of transactions, and those numbers are from the ever-optimistic NAR.
The number of homes for sale doesn’t (and perhaps can’t) include the huge number of shadow homes out there. These are homes being kept off the market by banks, investors and individual owners waiting for prices to improve before putting them on the market. “If” prices continue to descend look to these folks to hit the market in a big way as they try to get anything back on their investments. This, of course, will further depress the price of homes. That’s a helluva catch, that Catch-22.
Related posts:
