New Loan Delinquencies on the Rise Again


Just when you thought things might be turning around, the mortgage crisis takes yet another little dip to the downside.

Lender Processing Services just put out its May "Mortgage Monitor,"and some promising trends aren't so promising anymore, specifically new delinquencies and cure rates.

While the total delinquency rate rose 2.3 percent, which is not surprising given how much is in the pipeline, the 30-day delinquent bucket jumped 10 percent. That is surprising because the that number had been coming down of late. The LPS data report says that's because the "seasonal improvement period has expired," but I'm not sure normal seasonal patterns really apply to this market anymore.

More likely is that home prices are not rebounding at the expected/hoped for pace, prompting more borrowers who are underwater on their loans to choose not to pay. And while the job market isn't bleeding so much anymore, it's not adding jobs back at the rate we need, nor is it re-instituting those full time jobs that were slashed to part-time, leaving many borrowers still "underemployed." So the delinquency rate nationwide now stands at 9.2 percent from this particular data set, and with the rise in new delinquencies, it won't be coming down any time soon.

How do I know this?

Because the report also finds that the "cure rate," which is the rate at which bad loans actually get better, i.e. the borrowers start to pay again, is getting worse.

After a two-month decline, deterioration ratios increased, with 2.5 loans rolling to a "worse" status for every one that has improved. The number of delinquent loans that "cured" to a current status declined for every stage of delinquency, except in the "greater than six months delinquent" category. This improvement was likely the result of trial modifications made through the Home Affordable Modification Program (HAMP) that transitioned into permanent status.

Oh good, so the HAMP program is helping "cure" those 6 month+ delinquencies. No, they're just delaying them yet again, since we know that the re-default rate on HAMP is only rising. Forget cure and think remission.

Good news?

Well, the report shows that both delinquency and foreclosure rates have stabilized.

The trouble is that they've flat lined at "historically high levels."

And what does that mean for the rest of the world? Continued pressure on home prices. Yes, we will see a bunch of new reports this month, looking backward two months, that show slight improvements in home prices thanks to the run-up to the end of the home buyer tax credit; that's not reality, that's subsidy.

Questions? Comments?