Realty Check

Despite Government Aid, Foreclosure Crisis is Not Improving

We've been saying it all along: Jobs jobs jobs. Without one, you simply can't pay your mortgage. And that's exactly what the Mortgage Bankers Association said in its Quarterly Delinquency Survey today: "Job losses continue to increase and drive up delinquencies and foreclosures because mortgages are paid with paychecks, not percentage point increases in GDP."

So while you may think the economy is improving a bit, that doesn't mean that the foreclosure crisis is improving.

But what about that government's Home Affordable Modification Program (HAMP) which is supposedly helping hundreds of thousands of borrowers to avoid foreclosure? Well it is, but it's not keeping pace with the problem. 

The MBA reports that in Q3 the seasonally adjusted delinquency rate rose to 9.64 percent of all loans outstanding, up 40 basis points from Q2. Loans in the foreclosure process rose to 4.47 percent, up 17 basis points from Q2. Add it up and 14.41% of all loans in the U.S. are either delinquent or in foreclosures. Do I really need to tell you that that's a new record?

Now for a few caveats. Many the loans that are in the modification trial period under HAMP (which is supposed to be three months) are listed in the 90-day+ delinquency bucket, so it's quite possible that those loans will not go into foreclosure. However, the increase in the overall delinquency rate was driven by prime, fixed-rate loans, and those are loans that are far harder to modify. Why? Because they're not delinquent due to some reset or faulty loan product or bad underwriting, they're going bad because the borrower has lost his/her job and has no income. The bank can try to wait it out a few months to see if the job situation changes, but it's likely that loan is going to fail, period.

Should I get started on the FHA now? You know I have to. Here's the MBA's work:

The foreclosure rate on FHA loans also increased, despite having a large increase in the number of FHA-insured loans outstanding. The number of FHA loans outstanding has increased by about 1.1 million over the last year. This increase in the denominator depresses the delinquency and foreclosure percentages. If we assume these newly-originated loans are not the ones defaulting and remove the big denominator increase from the calculation results, the foreclosure rate would be 1.76 percent rather than 1.31 percent reported.

So just go back to 10th grade math. You would think that if there were so many more FHA loans in the total pool that even if the delinquencies bumped up a bit, the percentage share would decrease. Not so, because a whole lot of FHA loans are going bad.

"Yesterday’s subprime is today’s FHA,” said Toll Brothers CEO Bob Toll at a UBS home builder conference in New York.  “It’s a definite train wreck and the flag will go up in the next couple of months: Bail us out. Give us more money.”  And that from the luxury home builder.

One more thing from the MBA:

The number of loans 90 days or more past due or in foreclosure is now a little over 4 million as compared with 3.9 million new and previously occupied homes currently for sale, although there is likely some overlap between the two numbers. The ultimate resolution of these seriously delinquent loans will put added pressure on the hardest hit sections of the country.

Yes, four states (CA, NV, AZ, FL) continue to bear the brunt of the crisis, accounting for 43 percent of total U.S. foreclosures. 25 percent of all loans in Florida are in trouble. But the problem is spreading, especially in the Carolinas and Georgia and in states you might not expect like Utah.

I'd feel a little better about it if I had any idea whatsoever how many of the loans in the government's trial modification program are actually performing well with the new payments, but alas we still have nothing from the Treasury Department on that. I put in yet another request yesterday for an interview with the HAMP czar, Michael Barr, but was once again declined.

I realize it may be too soon to tell how many loans have gone into permanent modifications because excess paperwork is dragging out the process and lenders are offering extensions, but by now Treasury must know at least how many borrowers in the program have missed a payment and, under the supposed rules, been disqualified.  If that number is small, great! Just tell us, because the way things are going right now, a double-dip in housing is seeming less and less like a theory and more like the status quo.

Questions?  Comments?

Related Tags