Mortgage delinquency rates fall
Two reports show improving numbers on mortgage payments. Could spring be far behind?
This post comes from Marilyn Lewis of MSN Money.
Two good jolts of news landed Monday about mortgage delinquencies:
- Delinquencies overall fell for the first time in three years. The numbers of homeowners 60 days late making a mortgage payment dropped last quarter for the first time in 12 consecutive quarters, according to the credit reporting agency TransUnion. The statistic is a sort of canary in the coal mine: It’s used to predict the direction of foreclosure rates. "The (delinquency) rate slipped to 6.77%, from 6.89% in the fourth quarter of 2009," says The Associated Press.
- Delinquencies among the so-called liars' loans fell, too. Fitch Ratings found that delinquencies on a specific loan type -- high-risk mortgages requiring no documentation -- also dropped, to 34.1% in April from 34.4% in March. It was the first month-to-month drop in four years. Fitch analysts cautioned that homeowners could be using tax refunds to catch up. April's rate is higher than a year ago, when it was 27.4%.
More good news
"Alt-A" residential mortgages were nicknamed liars' loans and stated-income loans, as lenders simply took a borrower's word on how much they earned. Riskier than prime loans but not as risky as subprime loans, the AP says that Alt-A loans were . . .
… a key part of the surge in subprime mortgage delinquencies that helped trigger a broader downturn in the housing market starting in 2007. Mortgages in California and Florida represent more than 50% of the nationwide volume of 'Alt-A' loans outstanding.
The falling rates of mortgage delinquencies imply that more homeowners are catching up with their payments, are refinancing or are getting mortgage modifications -- all of which are hoped to add stability to the roller coaster housing market.
"The fall in mortgage delinquency is indeed good news for the consumer, the mortgage industry, and the current economic recovery," said F.J. Guarrera, a TransUnion spokesman. If the economy keeps improving, 60-day delinquencies, overall, could drop as low as 6.3% this year, the company predicted.
Improving delinquency rates follow other heartening economic news recently:
- In February, home prices nationally rose -- by a hair, according to the S&P/Case-Shiller home price index, for the first time since 2006 (see the .pdf file here).
- Consumer spending -- a big engine of economic growth -- is rising at the fastest pace in three years.
- The economy grew 3.2% in the first quarter this year -- good news, but a reduced pace from the quarter before.
- Median prices for existing (not new) homes are rising in much of the country. The National Association of Realtors reported in February that, in the last quarter of 2009:
Strong gains in existing-home sales were the predominant pattern in most states … with many more metro areas seeing prices rise from a year earlier.
The big picture
These delinquency numbers are, many hope, very early signs of a possible turnaround in the epic mortgage and real estate downturn. But no one is calling an end to the mortgage crisis, yet.
For one thing, the 2010 first-quarter delinquency rate, while falling, still is a lot higher than at the same time last year. "Year over year, mortgage borrower delinquency is still up approximately 30% (from 5.22%)," TransUnion says. Before this recession, mortgage delinquencies stood at about 1.5% or 2%.
While the overall numbers are better, 11 of the 20 cities included in the Case-Shiller home price survey saw home prices drop between January and February. Prices in six of the cities had dropped lower than at any time since the housing boom began. "These data point to a risk that home prices could decline further before experiencing any sustained gains," the Case-Shiller analysts warn.
Delinquency rates are highest in Nevada (15.98%), Florida (14.65%), Arizona (10.94%) and California (10.68%). TransUnion expects that Florida's rate may hit 18% this year.
Other potential drags on the housing market include:
- The end, on May 1, of the $8,000 tax credit for home purchases by first-time buyers and the $6,500 credit for everyone else. Many analysts are expecting that housing sales and prices will slump without this stimulus.
- Housing news varies markedly from city to city and region to region. Some places appear to be recovering but others are still struggling.
- Foreclosure filings grew 7% in the first quarter this year, according to RealtyTrac, and Bank of America predicts that, because of job losses, failing loan modifications and dropping property values, foreclosures will continue to grow, the blog Calculated Risk reports.
- The number of foreclosed homes that banks own but haven't put on the market -- the so-called shadow inventory -- continues to depress prices.
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