August 20, 2009
New Subprime Foreclosures Ease But Prime Foreclosures Exacerbate
Americans fell behind on their mortgage payments at a record pace in the second quarter as job losses and falling real estate prices thwarted government efforts to stabilize the housing market.
The share of loans with one or more payments overdue rose to a seasonally adjusted 9.24 percent of all mortgages, an all- time high, from 9.12 percent in the first quarter, the Mortgage Bankers Association said in a report today. The inventory of homes in foreclosure increased to 4.3 percent, the most in three decades of data, and loans overdue by at least 90 days, the point at which foreclosure proceedings typically begin, rose to 7.97 percent, the highest on record.
“We’ve seen a significant drop in the problem with subprime loans and we’ve moved now to a problem with prime fixed-rate loans,” Jay Brinkmann, the Washington-based trade group’s chief economist, said in an interview. “Job losses are driving it, and we expect that to continue into next year.”
First Published: August 20, 2009 7:45 AM
Comments from "Plugged In" Readers
The second clause of the headline needs an object.
[Editor's Note: We know, transitive verb. But we only had a line and had hoped 'the problem" would be inferred by the end of the third paragraph.]
Posted by: anon at August 20, 2009 8:27 AM
More "green shoots".
Posted by: LMRiM at August 20, 2009 9:10 AM
you can't say that the 'doom and gloom' crowd didn't try and warn you.
Posted by: badlydrawnbear at August 20, 2009 9:42 AM
and isn't it correct to say that a small number of prime loan foreclosures can have the same effect as a large number of subprime?
that is, though smaller in number, we're talkin' about a lot more money here right?
(and thus a lot more taxpayer-backed bank/Fannie/Freddie losses)
Posted by: Rubicon at August 20, 2009 9:46 AM
Rubicon, actually it is a large number.
Prime loans are a much larger share of the mortgage market then subprime loans, so 1% of prime loans is a lot more mortgages then 1% of subprime loans.
Further down in the article you can get a sense of the weight of each group (prime vs. subprime):
"The percentage of loans on which foreclosure actions were started was 1.36 percent, down from 1.37 percent in the first quarter, driven by the decline in subprime loans. New foreclosures on prime loans increased to 1.01 percent from 0.94 percent, while subprime loans dropped to 4.13 percent from 4.65 percent, Brinkmann said"
So subprime dropped .52% and prime increase .07%, for a net drop of .01%. The estimates I've seen online for the subprime market is that it is approximately 15% of the overall mortgage market (or at least it was in 2007).
Posted by: Rillion at August 20, 2009 10:08 AM
Foreclosures on subprime loans have not even crested yet -- 3 years into the trend -- thanks to all the efforts to draw out the process. And there will be a lot more to go on the back end of the wave after it has crested.
And delinquencies and foreclosures for prime mortgages have not even come close to cresting yet. The rising trend for that class really just started in Q3 2007, and we at least a year or two away from the peak. We may or may not be at a bottom for the economy as a whole, and unemployment is likely to continue to rise even after we hit that bottom. But no way are we near the bottom for housing price declines yet. These reports show that is years off. All the modification and moratorium programs may have slowed the decline, but the tangential effect has been to draw it out. Probably exactly what the powers-that-be hoped to accomplish. Keep people paying on their more slowly declining asset rather than have them dump their rapidly declining one -- like boiling a frog, as I've heard it described elsewhere.
Posted by: Trip at August 20, 2009 10:18 AM
speaking of foreclosure forecasts
On the MBA conference call concerning the "Q2 2009 National Delinquency Survey", MBA Chief Economist Jay Brinkmann said this morning:
# The problem is moving to prime loans, and fixed rate prime loans. Although the delinquency rate is lower for prime fixed rate than for other loans, these loans make up 65.5% of all loans - so the increase matters.
# Brinkmann expects delinquencies to peak in mid-2010.
# Brinkmann expects foreclosures to peak at the end of 2010.
Posted by: badlydrawnbear at August 20, 2009 11:18 AM
Price compression toward the median, baby.
Posted by: Debtpocalypse at August 20, 2009 11:18 AM
Trip, actually it seems to me that subprime defaults have crested. The percentage of subprime loans that are falling into foreclosure is falling. Also all the mortgage charts I've seen show the big wave of subprime resets already happened. The problem is that while the subprime mortgage problem has crested, the prime mortgage problem and the alt-a reset wave have not yet peaked.
If there were not a problem with prime loans then it would be likely we could actually say the mortgage crisis was over, but we can't since the number of prime loans falling into foreclosure continues to increase.
Posted by: Rillion at August 20, 2009 11:46 AM
Rillion, I agree with you that we may be seeing the crest for subprime defaults -- although the data that bdb cross-posted indicates we may not be there yet. But I was referring to subprime foreclosures. The same charts show the lengthening and deepening pipeline for that group. Delinquencies have grown tremendously, and the process of moving them through the process to foreclosure has not kept up for a number of reasons (official programs and lenders holding back). So it doesn't even look like we're at the peak yet. And we're not even close yet with the growing prime problem.
Of course, once the river crests, you still get flooding for a while afterwards until the flow recedes far enough. Even if you accept the late 2010 peak, we're looking at a couple more years after that before it's finally washed out and prices stabilize.
Posted by: Trip at August 20, 2009 12:08 PM
Okay, so I was not some seer or prophet that fully foretold the housing pop. But, I was at least aware that some sort of bubble was forming; that much was obvious.
Still, though, it's hard to believe so many of us fell for it/into it, and it doubly hard to believe so many are holding on to their finances by the thinnest of threads. I expect job losses to create foreclosures, but the foreclosure rate is running only slightly behind the unemployment rate here. And what fraction of the unemployed were renters?
Posted by: rr at August 20, 2009 12:58 PM
Price compression toward the median, baby.
And you know what's funny about medians? They get overshot sooo easily. A median trend is a series of ups and downs, of data points under and over that median. To maintain a consistent trend, prices will either have to flatline at or around median, or simply boldly overshoot.
In real life, this means fundamentals like paychecks (or lack thereof) and tolerable debt levels, will guide prices. But psychology will also be at play. If (I am just picking a random number there) 1.2M is the price you've been shooting for to get one kind of house and you see that price going to 1.1M then 1M, you have to revise your views and your standards. These 1.2M will buy you a better house, or these 200K saved will allow you more fun in your life.
Of course there are a lot of panicky trigger-happy people who will still see this 1.2M as normalcy and think 1.1M is a bargain. They forgot that 600K was probably the "normal price" for the same house 10 years ago before the second bubble run up. Let them catch that tricky knife. More bargains down the drain and less competition for these future sweet deals.
Posted by: San FronziScheme at August 20, 2009 1:18 PM
rr - I have no specific knowledge of what % of unemployed are renters but I would not expect there to be any noticable difference in that percentage compared to the general population. I see no reason for there to be any correlation between being laid off and if you were a renter or a homeowner BEFORE losing your job.
So for example in SF we have about ~70% renters in the general population, so I would expect that of the newly unemployed you would see a similar percentage of renters. Now the percentage of homeowners might decline among the unemployed after an extended period of unemployment (perhaps after about 9 months...).
Posted by: Rillion at August 20, 2009 2:08 PM