Interest Rate Roundup

Thursday, November 19, 2009

MBA: Q3 mortgage performance deteriorates ... again

The Mortgage Bankers Association's figures on home loan performance just keep getting worse and worse. Here is what things looked like in Q3 2009:

* The overall mortgage delinquency rate surged to 9.64% in Q3 2009 from 9.24% in Q2 2009 and 6.99% a year earlier. Once again, this is a fresh record high for the data series, which goes back 37 years. For some historical perspective, the recent low for the delinquency rate was 4.31% in Q1 2005.

* Breaking it down by loan type, the subprime DQ rate rose to 26.42% from 25.35% a quarter earlier and 20.03% a year earlier. The prime-only DQ rate climbed to 6.84% from 6.41% in Q2 2009 and 4.34% a year earlier.

* And how about the "new subprime" behemoth -- the Federal Housing Administration? Delinquency rates there continue to march higher, rising to 13.9% from 13.62% a quarter earlier and 12.27% a year earlier. That's the worst FHA credit performance in U.S. history. The increase occurred despite a large increase in the overall number of FHA loans, which should lower the delinquency rate, all else being equal.

Like I said last quarter, the FHA program has become the "go to" place for borrowers who previously might have taken out subprime or Alt-A loans. By keeping lending standards incredibly lax (3.5% down payments anyone?) FHA is playing with fire. Grab your wallets taxpayers!

* The percentage of mortgages entering the foreclosure process resumed its climb, rising to a record high of 1.42% from 1.36% a quarter earlier. The overall percentage of mortgages in any stage of foreclosure climbed to 4.47% from 4.3%. Just over 14 out of every 100 loans in the U.S. are now distressed in one form or another, the most ever.

* Regionally, delinquency rates were still the worst in Mississippi at 14.4%. Nevada was a close second at 14%, followed by Georgia at 12.93% and Michigan at 12.64%. Florida had the highest percentage of loans in foreclosure at 12.74%, followed by Nevada at 9.44%.

Lousy mortgage performance continued into the third quarter. Both delinquency and foreclosure rates rose to new all-time records, with deterioration virtually across the board. The FHA loan program is now joining the Alt-A and prime markets in the woodshed, which just goes to show how silly it is to maintain lax lending standards in the midst of the worst housing downturn on record. Even the CEO of home builder Toll Brothers, Robert Toll, yesterday called FHA "a definite train wreck and the flag will go up in the next couple of months: Bail us out. Give us more money."

Going forward, aggressive modification programs and a nascent stabilization in the housing market will eventually lead to a turn in performance ratios. But this process will play out with a lag. And it goes without saying that nothing can change the fact we binged on real estate as a country ... and now we're paying a heavy price.


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