Barely an hour after I reported the somewhat positive delinquency survey from the Mortgage Bankers Association, I received a soon-to-be released report from Lender Processing Services that threw a bucket of water on the cautious optimism of the Bankers.
The MBA reported a drop in overall delinquencies and foreclosures. The big focus was a drop in the pool of loans 90 days+ past due. That was due to fewer loans coming into the pool, modifications and bank repossessions, and the home buyer tax credit (which helped a lot of troubled borrowers to sell). The MBA warned that the one rough patch in the report, a rise in new delinquencies, could push the numbers back up again if the employment situation doesn't improve.
"On short term delinquencies, we look at continued increases in first time claims for unemployment insurance," notes the MBA's chief economist Jay Brinkmann. "Even though the number dropped somewhat this week from last week, it is still higher than where we need to be at this point. The anemic recovery in jobs that is feeding into now this increase in short term delinquencies may mean eventually more loans coming into this bucket."
The MBA's survey is for Q2, so backward-looking to the end of June. It has to be, given the amount of data they compile. As we all know, things started to turn this summer with the end of the home buyer tax credit and continued weak employment. Brinkmann noted that the drop in the 90-day bucket is due to fewer loans coming in, more short sales and loan mods and, finally, more bank repossessions. He's right.
The Realty Check got a first look at an upcoming report from Lender Processing Services which shows a huge jump up in foreclosure starts in July. "July showed an astounding 24.5 percent month-over-month increase in foreclosure starts, which dovetails with Treasury's latest report on HAMP [Home Affordable Modification Program] cancellations (approx. 50% according to Treasury's numbers)." It also reports that seriously delinquent (6 mos.+) cures have declined by 25 percent. Cures are loans that are made current again. So with fewer cures and more newly delinquent loans, that 90-day delinquency bucket is increasing, hence more foreclosures again.
We've been noting the improvement in new delinquencies as a sign of recovery for several months, but all this new data turns that tenet on its head.
"The market has been pointing to early stage delinquencies and defaults as a sign of "credit" improving for several quarters and in turn rallying bank stocks on the back of it forecasting "normalized earnings". Further, banks have been pulling back reserves in order to make their earnings number each quarter due to the same," notes mortgage analyst Mark Hanson. "If early stage delinquencies and defaults are picking up again -- which I believe they are and will due to modification redefaults that have created an entirely new channel of distressed loans few are modeling -- then it is a clear negative for the market."
It feels like one step forward, two steps back in this housing "recovery," which only feeds into consumer concern and lack of confidence; in other words, this has all turned into a self-fulfilling prophecy. As long as we think housing is still in deep trouble, nobody's going to make a move.
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