“The inventory of new and old [U.S. Mortgage] defaults rose to 3.85 percent, the MBA said today. Prime fixed-rate mortgages given to the most creditworthy borrowers accounted for the biggest share of new foreclosures at 29 percent, and prime adjustable-rate mortgages were 24 percent, [Jay Brinkmann, the MBA’s chief economist] said. It shows the mortgage problem has shifted from a subprime issue to a job-loss problem…”
Mortgage Delinquencies, Foreclosures, 30-Year Rates Increase [Bloomberg]
San Francisco County Unemployment Dips To 8.8 Percent In April ’09 [SocketSite]
SocketSite’s Residential Real Estate Outlook For 2009 [SocketSite]

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Comments from “Plugged-In” Readers

  1. Posted by Rillion

    Well since people keep throwing out the figure that 70% of mortgages in SF during the last few years of the boom were ARM’s then this is great news that it is the prime fixed rate loans that are accounting for the plurality of new defaults right? :)

  2. Posted by Jake

    Interesting – that’s one way of interpreting the data… another could be that subprime defaults have crested and fallen thereby inflating the pending prime ones we all knew would come. I haven’t looked at any numbers or the article, but I wouldn’t be so quick to jump to conclusions.

  3. Posted by EBGeek

    @Jake
    It would be impossible for a decrease in subprime defaults to account for an increase in total defaults. Both the total trend and the breakdown of the stats are driving the conclusion, which seems fair.

  4. Posted by tipster

    Jake: DON’T READ THE ARTICLE!!! DON’T READ THE ARTICLE!!!
    If you don’t read the article, everything will still be fine!
    If you DON’T READ THE ARTICLE, then you can assume that subprime is going down, leaving only a tiny trickle of prime foreclosures to represent a larger share of foreclosures. See, everything is fine!
    But if the article says mortgage delinquencies and foreclosures rose to records in the first quarter and home-loan rates jumped to the highest since March as the government’s effort to fix the housing slump lost momentum, then you’re screwed.

  5. Posted by Trip

    Yes, the total delinquency and default numbers are both up. But Jake’s point is not entirely off-base:
    “Half the loans now in foreclosure, adding the new and existing defaults, are held by prime borrowers, according to the trade group’s report. About 43 percent are subprime mortgages, and 7.1 percent are Federal Housing Administration loans. A year ago, subprime mortgages accounted for 54 percent of the U.S. foreclosure inventory. Prime fixed rate mortgages accounted for 19 percent of new foreclosures in the year earlier period.”
    So it looks the the subprime phase of the foreclosure wave has crested or is close to it, and the foreclosure crisis is now moving up-market and accelerating in that segment.

  6. Posted by eddy

    It’s baffling that this is surprising to people. You can’t have one class of housing change without impacting all other classes. The negative impacts here are forming a perfect storm and taking down lots of marks.

  7. Posted by Jimmy (No Longer Bitter)

    Moving along right on schedule (according to the now-famous Credit Suisse chart of loan resets/recasts). This trend should peak around mid-2010/2011.
    There’s no indication that it’s affecting Pac Heights/Hillsborough/Palo Alto in any meaningful way, however (apart from one isolated case of apparent mortgage fraud).

  8. Posted by tipster

    Jimmy,
    You need to read the book, The Millionaire Next Door. Although there are a lot of people in those neighborhoods and towns you listed who have money, they also attract poseurs who want to appear as though they have money.
    The boom allowed everyone to move to hoods that were several notches above their actual stations in life. There was no gatekeeper in Pac Heights keeping such people out.
    The tide is now moving out and you’re about to find out who was swimming naked. 70% is a lot of naked swimmers, and they are in every area.

  9. Posted by Jimmy (No Longer Bitter)

    I read that book. It was swill. By that reasoning, there are probably more (net) millionaires lurking in Millbrae than in Pacific Heights.
    I gotta question the reasoning in that book — which is basically — scrimp and save, live modestly and squirrel away money everywhere so that when you’re old you can … do what exactly? Die, just like the people who lived well, spent it all and … well, they’re still dead too.
    Its all the same in the end you know.

  10. Posted by ex SF-er

    Well since people keep throwing out the figure that 70% of mortgages in SF during the last few years of the boom were ARM’s then this is great news that it is the prime fixed rate loans that are accounting for the plurality of new defaults right?
    I know that was tongue and cheek… but I would actually agree with this if it weren’t for the fact that prime ARMs are doing horribly too! (29% vs 24%) it is worrisome that the Prime numbers are worsening across the board.
    also: some of this is a numbers game. I THINK (and could be wrong) that there are more prime fixed rate loans than there are prime ARMs, in absolute number terms. If so, you could have a higher percentage of prime ARM borrowers foreclosing, but still making up less of a percentage of overall foreclosures.
    Regardless, this data is not surprising. many of us have been awaiting this for 2 years given Ivy Zellman’s research back in late 2006 and early 2007. it also showed that we have another 2 years of RE pricing pressure related to these horrific loans.
    people have been talking a lot about “green shoots” and there clearly has been a market rally these last few months. However much of this rally is clearly due to massive central govt intervention, and is IMO unsustainable.
    have we really had a recovery, or simply a devaluation of the dollar? (almost all dollar denominated assets are up up up these last few months… and the worth of the dollar is down). Even my upside down oil trades that I talked about earlier in the year are roaring lately.
    IMO the key right now is the Treasury market, and the mortgage market secondarily, as those two markets are financing the debt being taken on to artificially support the economy. there seems to be some strain lately on both markets. not surprising since it takes a lot of $$$ to try to move those markets. The govt has flooded those areas with cash… but clearly with a cost. We’ll find out how insane Ben Bernanke and those who are financing his experiments really are.

  11. Posted by tipster

    I gotta question the reasoning in that book — which is basically — scrimp and save, live modestly and squirrel away money everywhere so that when you’re old you can … do what exactly? Die, just like the people who lived well, spent it all and … well, they’re still dead too.
    Well, Jimmy, you missed the whole point of that book. It was that the spendthrifts living in Pac Heights make lots of money and spend almost all of it, so they live month to month. If they lose their jobs or their businesses turn down due to a bad economy, they have nothing to fall back on.
    It’s those people who are hurting the most right now, and it’s why AMEX default rates are shooting through the roof. They have stopped paying on that card. It’s the same people who bought condos in Pac Heights using creative loans they would never really be able to afford.
    The people with real net worth don’t always feel the need to impress others with their expensive lifestyles, though there are some who do. The actual net worth (as opposed to incomes) of people in Palo Alto is probably lower than the net worth of less flamboyant towns. This is more likely true at the end of a period in which loans for the flamboyant towns were handed out like candy.
    If you are one of those people with a need to impress, and you can get a loan for Mountain View or Palo Alto, you probably went all the way. And at zero down, 0% of $2M is the same as 0% of $750K, so that didn’t stop anyone either.

  12. Posted by EBGuy

    I was at a child related event recently and got to hobnob with a bunch of folks “above my station in life” (much like SS :-) I was sitting across from an investment banker (probably ten years younger than me) and he looked at me like I had two heads when I mentioned that my wife was staying at home with the kids (his wife, evidently, has to work, as do most of his peers). I really didn’t have the heart to tell him that he probably makes more than me (oh, and nice BMW that you’re driving). At any rate, I think it was a good reflection at how out of whack things have gotten with the bubble.
    As a footnote, when I asked if he was affected by the downturn, he told me what had happened at his firm. The row of junior analysts that sat by him — gone. His firm was then bought out by a larger, more stable invest bank.

  13. Posted by unearthly

    The reset/recast chart has been updated by Credit Suisse (1/09). In other news the the Fed is having trouble controlling the 10-year treasury; good luck to all ARM holders…

  14. Posted by Jake

    Tipster, I will make no such assumptions. I’m no housing bull or bear, I was only commenting off the top of my head first thing in the morning about how DATA can be used in various ways. Although I can see looking back at my two second post above how you might have gotten the idea that I’m Fluj jr. or something, such a sarcastic CAPS response is really unnecessary.
    For the record, I can’t ever recall completely disagreeing with you, and if you look at any of my prior posts it should be relatively apparent that characterizing me as an ignorant bull is entirely unfair.

  15. Posted by tipster

    Sorry, Jake, I didn’t mean to portray you as a housing bull. And ignorant? Never!
    And there really is no such thing as an ignorant bull on this site. The so called bulls see what is going on. They are scared, maybe, but not ignorant. Anonn, NVJ, even the real estate agent, ester and others know exactly what is happening. They are simply trying to portray a different viewpoint for a wide variety of reasons.
    With interest rates now shooting almost straight up, and home prices falling almost straight down, however, it could be that the end is near for any bull to say anything other than the whole market is tanking. Of course that will let other bulls argue that TODAY really is the bottom, etc., the whole way down.

  16. Posted by sparky-b

    you know what we haven’t talked about in a while the Google Lazy Indicator.

  17. Posted by Trip

    “interest rates now shooting almost straight up”
    Yeah, this surprised me. I guess it takes a lot of money to keep a lid on things, and it looks like the govt is about at the limit of what it can do. Pretty big jump in mortgage rates, especially jumbos:
    http://money.cnn.com/2009/05/28/real_estate/mortgage_rates/?postversion=2009052812
    We may or may not be having a spring bounce in SF, but this is going to dampen whatever bounce there is.

  18. Posted by anonn

    ooooh. the dreaded %5.45 — scaaaaaaaaaaary.
    Please. Last year Tipster and Trip were talking about “the 30 year is dead. Six point two is way too high for anybody who is considering buying in SF.”
    Always the same thing from you guys.
    That was a reaction to a successful bond auction! And it wasn’t even for the 10 year!
    The market of course yo-yo’d up a little today. It cannot always be, “Let’s find a way to buy buy buy even if the news is mediocre.”
    Fake quotes baby. Fake quotes.

  19. Posted by Trip

    Last year Tipster and Trip were talking about “the 30 year is dead. Six point two is way too high for anybody who is considering buying in SF.” Always the same thing from you guys.
    Show me one time, anywhere, ever, where I made a statement like this.
    And then you have the utter lack of awareness to end with “Fake quotes baby. Fake quotes.”
    Too much. Tipster has it right. You know exactly what’s going on. But you used to at least try to provide some substance.

  20. Posted by ex SF-er

    In other news the the Fed is having trouble controlling the 10-year treasury;
    Yes. this is the news to watch IMO.
    @anonn: mortgage rates are still very very low by historical standards.
    However, it was not long ago that the Fed was threatening/promising to drop the mortgage rates to 4%. and yet here we are still way above 4%. worse, the Fed seems to have lost its ability to keep the 10 year treasury down. It was as low as 2.2% as recently as January and 2.5% in March. now it’s up to nearly 3.5%
    The Fed has spent a lot of money buying the Treasuries to keep the 10 year down. And yet the 10 year is rising.
    it brings up one of the essential problems with housing as it relates to Quantitative Easing and inflation:
    as the markets heat up due to Central Government intervention then interest rates will tend to rise.
    But housing relies on low interest rates.
    Therefore, central govt action can paradoxically worsen the housing market due to future higher interest rates.
    If the higher interest rates are due to organic growth of the economy then this is not as much of a problem, as the constituents have the income to afford the higher interest rates. But in this case, the “growth” is really dollar devaluation and central tinkering… so the wage growth is absent.
    so now the govt has another dilemna:
    continue Quantitative Easing and continue purchasing the 10 year Treasury to bring the rate down, but this causes more and more govt debt and the creditors are starting to worry about default. also the QE is crowding out private investment, leaving the Fed/Govt to be the only buyer of Treasuries. the Fed can only buy and sell Treasuries to itself for so long.
    or slow the Quantitative Easing, and see the 10 year Treasury float to where it “should” be, which will crush housing and crush the bear market rally.
    thus far, our Govt has shown time and time again that they enjoy more debt and more central interference to help bail out their bankster buddies… thus I guess they’ll stop when the Tresasury market breaks. that’ll be fun (sarcasm).
    quick summation: the 10 year treasury story is a big deal.

  21. Posted by anonn

    quick summation: the 10 year treasury story is a big deal.
    I know it is. But yesterday’s big spike wasn’t even about the 10 year per se.
    And Trip, if I accidentally lump you in with the likes of Tipster that’s because you have brought it upon yourself.

  22. Posted by Trip

    Here is a bit of fun for those interested in this topic — also answers some of the questions ex SF-er raised about the dollar volumes of the various loan types:
    http://www.businessinsider.com/henry-blodget-a-field-guide-to-the-mortgage-collapse-2009-5

  23. Posted by Legacy Dude

    Good stuff, Trip, thanks for the link. The full T2 presentation can be accessed here:
    http://moremortgagemeltdown.com/download/pdf/T2_Partners_presentation_on_the_mortgage_crisis.pdf
    Anyone who thinks this is ending soon needs to read through those slides (notably pages 62-65, which read like SocketSite regulars could have written them). Then augment this info with ex SF-er’s comment above at 1:38PM.
    Seems like every other story in the media these days is focusing on the housing bottom. The worst is behind us, we’ve hit or are near the bottom, etc.
    I know hope springs eternal, but somebody please tell me how the housing market is going to rebound anytime soon given A) trillions in debt that can never be repaid, combined with B) a government trying to dig its way out of the hole? The eggs are in the scramble.

  24. Posted by FormerAptBroker

    Legacy Dude wrote:
    > Good stuff, Trip, thanks for the link.
    > The full T2 presentation can be accessed
    > here…
    One of my best friends was in Whitney Tilson’s section at HBS (Tilson is one of the “T’s” in “T2″) and I have met him many times. He is a super smart guy (one of the sharpest guys I have ever met) and his research is top notch*.
    *Disclaimer I have been an investor in his hedge fund since 2000…

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