Housing's Newest Threat: More People Are Losing Their Jobs
I just received a troubling report from the FHFA, the overseer of Fannie Maeand Freddie Mac . It shows just how much job losses are exacerbating the housing crisis.
The report, which is a monthly event, gives the usual numbers on the Enterprises' homeowner assistance programs, but this time breaks out some new data to give us a better idea of why exactly so many loans are going into foreclosure.
FHFA reports that due to recent foreclosure "suspensions" that expired March 31 of this year, completed foreclosures and third party sales fell 77 percent in December from the prior three-month average and fell 79 percent in January.
No surprise there, and no surprise that at the same time, loans that were 60+ and 90+ days delinquent increased, overall by 47 percent. Now here's the bad part: Non-prime loan delinquencies increased by 23 percent. Prime loan delinquencies increased by 70 percent.
The prime loan delinquency increase is driven not by faulty loan products or falling home prices, but by job losses, plain and simple.
This current housing crash has distinguished itself from all previous because it was not caused by any economic downturn. Quite the contrary, it caused the economic downturn.
Exotic mortgage products turned into pumpkins and reckless lending came home to roost. Now, as the housing market is struggling to come back this spring, thanks to much improved affordability, POW, the double whammy of unemployment.
For the first time, this month the FHFA listed the top five reasons for default:
1. Curtailment of income (34.1 percent) ...this can be salary reduction or self-employed losing clients
2. Excessive obligations (19.8 percent)...i.e. too much personal debt
3. Unemployment (8.1 percent)
4. Illness (6.5 percent)
5. Marital difficulties (3.5 percent)
So whereas divorce and illness used to be the top reasons historically for foreclosure, now it's all about job losses and excessive debt. And neither of those are getting any better.
The subprime mortgage crisis is for the most part over. Most of the really bad subprime loans have already been lost. Now the second housing crisis is upon us. Too much debt, too little income.
This all begs a reassessment:
The administration's Making Homes Affordable programwas all kind of rationalized on the basis of predatory lending and faulty loan products. That is, it wasn't all your fault, so we're going to help you.
But if the bulk of the foreclosures now are on prime loans, not faulty loan products, and the reasons for the defaults are excessive personal debt, well that's a different premise. And as for job losses, the modifications are designed to bring your monthly payment to 31% debt to income ratio. If you have no income, you're not eligible.
Again, welcome to the second housing crash.
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