Mortgage Delinquencies - Lying in Wait

The headlines are all abuzz with the headline that mortgage foreclosures are down to 9.47%. This is from the MBA Q4 Delinquencies Conference Call.

The delinquency rate for mortgage loans on one-to-four unit residential properties fell to a seasonally adjusted rate of 9.47 percent of all loans outstanding as of the end of the fourth quarter of 2009, down 17 basis points from the third quarter, and up 159 basis points from one year ago.

Don't you believe it. Firstly, 14.05% of all mortgages are delinquent or in foreclosure, not seasonally adjusted, 15%. Then, this from Calculated Risk:

As MBA Chief Economist Jay Brinkmann noted, the 90 day and 'in foreclosure' rates are at record levels. Obviously the lenders have been slow to start foreclosure proceedings - and the 90+ day delinquent bucket is now very full. And lenders have been slow to actually foreclose - and the 'in foreclosure' bucket is at record levels.

What impacts prices are distress sales; homes coming out of the 'in foreclosure' bucket without being cured. Since the lenders slowed foreclosures to a trickle, prices have stabilized or even increased slightly in some areas.

CBS Market Watch also points out foreclosures are just in delay:

  • For one, foreclosure moratoria were in place in many parts of the country in 2009, and while most have been unwound you have no way of knowing how big an effect they have had on lenders' behavior -- and don't forget those lenders already have a huge backlog of foreclosure inventory and may not be in the mood to add to it just yet.
  • And you had a more concerted push by the federal government on its mortgage-modification and foreclosure-prevention efforts in the second half of last year, efforts that may be paying off in bigger numbers than before. But so few of those trial modifications have been made permanent that it is impossible yet to say how successful the plans will be in the long run -- many temporarily salvaged homeowners could be back in the dumps within the year.

Even the Wall Street Journal is peering behind the headlines and showing that while maybe new 30 day delinquencies dropped:

3.63% of mortgage borrowers were between 30 and 59 days overdue in the fourth quarter, according to its latest survey of lenders. That was down from 3.79% in the third quarter

and notes more people stiff the mortgage due to trying to pay their heating bill in winter, here is the reality:

So if fewer people are falling behind, why are more people behind than three months ago? Because those that have fallen behind are tending to remain that way for a long time, sometimes for years.

In other words, people delinquent on their loans are staying in their homes longer before losing them to foreclosure. Lenders tend to be bureaucratic and are overwhelmed with paperwork from foreclosure cases. So are the courts in states such as Florida that have a judicial process for foreclosures. At the same time, federal and state programs aimed at saving many borrowers mean that lenders are going through lengthy procedures to determine which people are eligible for easier loan terms. While waiting to be helped or evicted, many people don’t make payments. Some borrowers say they have trouble getting in touch with employees at lenders and often are asked to provide the same documents repeatedly.

About 2.9 million households are 90 days or more behind on payments, but not yet in foreclosure, nearly triple the total of two years ago, according to LPS Applied Analytics, a data provider. On average, those households are nine months behind on payments.

So, maybe a few less didn't turn in their payment late, but it's clear the MBA statement foreclosures are ebbing is wishful thinking and more like a tsunami wave receding from the beach....remember, those come in 3's.

So, while the report and many headlines claim the foreclosures and delinquencies are ebbing, behind those numbers appears to be quite a tidal wave waiting to unleash.

As always, the best objective housing market watchdog is Calculated Risk, at least the best housing market graphs on the web.

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