Almost Half of All Subprime ARM Loans are Past Due

The Mortgage Bankers Association released Delinquency data today and almost half of all subprime loans, in the United States are now past due.

Subprime ARM loans and prime ARM loans, which include Alt-A and pay option ARMs, continue to dominate the delinquency numbers. Nationwide, 48 percent of subprime ARMs were at least one payment past due and in Florida over 60 percent of subprime ARMs were at least one payment past due.

The overall delinquency rate is 7.88% by the end of Q4, 2008. This breaks the record of their delinquency data going back to 1972.

If one includes the number of mortgages with one payment behind the percentages hit 11.93%.

The delinquency rate includes loans that are at least one payment past due but does not include loans somewhere in the process of foreclosure. The percentage of loans in the foreclosure process at the end of the fourth quarter was 3.30 percent, an increase of 33 basis points from the third quarter of 2008 and 126 basis points from one year ago. The combined percent of loans in foreclosure and at least one payment past due was 11.18 percent on a seasonally adjusted basis and 11.93 percent on a non-seasonally adjusted basis.

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It will get a lot worse.

Because the majority of outstanding Pay out ARM are scheduled to reset in 2010-2012. And with unemployment increasing Jumbo loans are starting to default.

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And yet one class has only a 1% default rate

And that is subprime loans from charity organizations. Perhaps the banks need to take a look at what groups like Habitat for Humanity have been doing for the last 30 years when working with subprime loans. I'll give them a couple hints- ARMs don't work, nor does loan origination with nothing down, nor do payments that exceed 30% of a family's income.

Moral hazards would not exist in a system designed to eliminate fraud.

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Maximum jobs, not maximum profits.

These subprime loans were desiged to fail

Adjustable rates, pre-payment penalties, high closing fees tacked on to principal. They were designed to fail by greedy mortgage brokers and their investors. But they didn't care because they didn't have any skin in the game. They were selling them to Bear Stearns or Fannie/Freddie.

Habitat for Humanity got it right and so did some community development banks and credit unions.

Our home mortgage system is screwed up beyond repair. We need a new way to finance home purchases.

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