Prime fixed-rate mortgage delinquencies increased in Q2
The Economy, Real Estate August 20th, 2009
We have been saying this for a long time here on our blog and the latest numbers from the Mortgage Bankers Association (MBA) confirmed it. Our current foreclosure mess is not a subprime problem anymore, but it is now moving to prime mortgages. According to the MBA:
The delinquency rate for mortgage loans on one-to-four-unit residential properties rose to a seasonally adjusted rate of 9.24 percent of all loans outstanding as of the end of the second quarter of 2009, up 12 basis points from the first quarter of 2009, and up 283 basis points from one year ago.
“While the rate of new foreclosures started was essentially unchanged from last quarter’s record high, there was a major drop in foreclosures on subprime ARM loans. The drop, however, was offset by increases in the foreclosure rates on the other types of loans, with prime fixed-rate loans having the biggest increase. As a sign that mortgage performance is once again being driven by unemployment, prime fixed-rate loans now account for one in three foreclosure starts.
Evidently, high unemployment is pushing more prime borrowers into the foreclosure process and that was also reflected in the RealtyTrac foreclosure numbers published last week.
Although mortgage rates have come down a bit over the past few weeks, they still remain stubbornly high for the average family which in this weak economy, encourages more and more people to consider foreclosure or short sale as an option to get out of mortgage payments they just cannot afford.
Yes, it is true that 5% interest rate is still low by historical standards, but let’s keep in mind that many of these borrowers (even the ones with perfect credit scores) are trying to get out of teaser rates, interest-only loans, and even negative amortization loans. In other words, loans that allowed them to buy houses they just couldn’t really afford. Now that the free money is gone, these homeowners find it extremely difficult to afford even a low 5% mortgage rate.
The fact is that we can expect to see more prime borrowers default on their loans in the coming months, which will put even more pressure on the weak housing market. I wouldn’t expect a true recovery in the housing market until all these bad loans our finally flushed out of the system. It will take time but unfortunately time is exactly what many of these families do not have anymore.
June 23rd, 2010 at 6:49 pm
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