December 7, 2007
Despite the tentative relief effort floated by President Bush and Treasury Secretary Henry Paulson yesterday, the mortgage crisis continues to worsen, with more homeowners falling behind on their mortgage payments and a record number of homes in foreclosure.
According to the Mortgage Bankers Associations latest National Delinquency Survey, the delinquency rate for mortgage loans on one-to-four-unit residential properties stood at 5.59 percent of all loans outstanding in the third quarter of 2007 compared with 5.12 percent in the second quarter of 2007, and 4.67 percent one year ago.
The total delinquency rate is the highest in the MBA survey since 1986. The rate of foreclosure starts and the percent of loans in the process of foreclosure are at the highest levels ever.
The delinquency rate does not include loans in the process of foreclosure. The percentage of loans in the foreclosure process was 1.69 percent of all loans outstanding at the end of the third quarter, versus 1.40 percent in the second quarter of 2007 and 1.05 percent a year earlier.
The rate of loans entering the foreclosure process was 0.78 percent on a seasonally adjusted basis, up from 0.65 from the previous quarter and 0.46 percent from one year ago.
The increase in foreclosure starts was due to increases for all loan types. From the previous quarter, prime fixed rate loan foreclosure starts increased to 0.22 percent, prime ARM foreclosure starts rose to 1.02 percent, subprime fixed foreclosure starts increased to 1.38 percent, subprime ARM foreclosure starts rose to 4.72 percent, and FHA foreclosure starts advanced to 0.95 percent.
Since the third quarter of 2006, the foreclosure start rates for prime adjustable rate mortgages (ARMs) increased from 0.30 percent to 1.02 percent and the rate for subprime ARMs increased from 2.19 percent to 4.72 percent. The foreclosure starts rate for prime fixed loans increased from 0.13 percent to 0.22 percent and the rate for subprime fixed loans have increased from 0.97 percent to 1.38 percent.
The Bush-Paulson plan does not involve any federal money. Instead, the government would issue "guidelines" to lenders. That proposal drew fire from both consumer advocates and Wall Street, where financiers said investors should not be penalized for lenders' and consumers' mistakes.
Adding to the economic gloom is a report from Moody's that warns home prices could fall as much as 30 percent in some areas before the market begins to recover.
Sunbelt Hardest Hit
Florida and California are the two largest states in terms of mortgages outstanding and are the key drivers of the increase in the national foreclosure rates. While those two states together have 36.4 percent of all of the prime ARM loans in the country, they had 42.4 percent of the nation's foreclosure starts for prime ARMS. Similarly, California and Florida together have 28.1 percent of the subprime ARMs and 33.7 percent of foreclosure starts for subprime ARMs.
Florida, Ohio, Michigan and Indiana have 16.4 percent of the prime fixed loans in the country but 29.3% of the foreclosures started on prime fixed loans, and 18.9 percent of the subprime fixed rate loans and 26.3 percent of the foreclosure starts.
"As conditions in the housing finance market continue to deteriorate, several factors are clear, said Doug Duncan, MBA's Chief Economist and Senior Vice President of Research and Business Development:
• This is the first quarter which registers the full combined effects of the seizure of the nonconforming securitization market, broad-based home price declines, continued weakness in some regional economies and rate adjustments on monthly payments. The predictable results are increased delinquency and foreclosure.
• In areas where the supply of homes far exceeds demand at current prices, home prices are falling and leading to more foreclosures. In Michigan and Ohio the problem continues to be the declines in demand due to drops in employment and population that have left empty houses in cities like Cleveland, Detroit and Flint. In states like California, the problem is excess supply due to speculative over-building and properties coming back onto the market.
• While subprime ARM delinquencies and foreclosures are climbing in all states, in most states the actual number of loans involved is fairly modest. For example, the number of subprime ARM foreclosure starts in California during the third quarter equaled the starts in 35 other states combined.
• While this quarter's numbers show the highest level of foreclosure starts (on a seasonally adjusted basis) for prime fixed rate mortgages in the last 10 years, that increase is largely due to increases in Florida, Ohio, Michigan and California. In most states the increase in prime fixed rate foreclosure starts is due to borrowers who will fall behind on their payments for the traditional reasons (employment, medical, marital, etc.) but who cannot sell their homes due to market conditions."
