For those die-hard Mr Mortgage readers, you already knew this was happening. The ooze is spreading from Subprime to Pay Options, Alt-A, Jumbo Prime and A paper. It is what it is. It is kind of funny that we have all of these names differentiating the paper grades anyway. It is all nonsense because after so many rounds of downgrades from the raters and between 2005 and 2007 the line bewteen all paper grades becomming so blurred due to all sensibility and risk management leaving the mortgage sector, everything is likely several paper grades lower than its initial ratings anyway.
My data showed me that subprime defaults were at a plateau (at least temporarily) 4-months ago and Alt-A, led by the Pay Option ARMs spiking around the same time. Being in the mortgage business for 20-years primarily working the West Coast region, logic told me this 2-years ago.
Just remember the implosion order: Subprime, Pay Option, Alt-A, Jumbo Prime and then Prime. The HELOC Implosion has been ongoing and will accelerate into the Pay Option, Jumbo Prime and Prime implosions because the universes are larger than subprime and more piggy-back financing was used in these paper grades.
The Pay Option Implosion will kick start the Alt-A and Jumbo Prime implosions as it will bring down values considerably in higher-priced, Pay Option heavy regions. All three will be happening simultaneouslyputting an even greater strain in values. Prime will be the last to blow but will blow, as those 20% down 30-year fixed buyers from 2004-2007 find themselves 30% upside down and it being cheaper to rent. Remember, a large number of the 20% down crowd went out and stuck 90% to 100% HELOC’s on their homes, making them less than prime now as well. All of these things are happening right now but to nowhere near the degree they will as housing prices continue to fall and we move closer to peak resets for higher grades of ARM paper. -Best Mr Mortgage
Home loan troubles break records again
Friday September 5, 10:56 am ET
By Alan Zibel, AP Business Writer
Delinquencies, foreclosures rise to more than 9 percent of US home loans in second quarter.
WASHINGTON (AP) — A record 9 percent of American homeowners with a mortgage were either behind on their payments or in foreclosure at the end of June, as damage from the housing crisis continues to mount, the Mortgage Bankers Association said Friday.But the source of trouble in the mortgage market has shifted from subprime loans made to borrowers with poor credit to homeowners who had solid credit but took out exotic loans with ballooning monthly payments.
The problem is also concentrated in a handful of states, the worst being California and Florida. The real estate markets in those two states were fueled by some of the riskiest lending practices and rampant speculation during the housing boom that has turned into a devastating bust.
“That’s clearly the problem,” said Jay Brinkmann, the association’s chief economist. “The national numbers are driven by the two largest states” with the most outstanding home loans.
The latest quarterly snapshot of the market broke records for late payments, homes entering the foreclosure process and for the inventory of loans in foreclosure. The trade group’s records go back to 1979.
The percentage of loans at least 30 days past due or in foreclosure was up from 8.1 percent in the January-March quarter, using figures that were not adjusted for seasonal factors.
New foreclosures were concentrated in eight states: Nevada, Florida, California, Arizona, Michigan, Rhode Island, Indiana and Ohio.
But for the first time since the mortgage crisis started, delinquencies on subprime adjustable-rate loans declined. While more than one out of every five homeowners with a subprime ARM is still in default, that portion dipped 1 percentage point from the first quarter to 21 percent.
What’s driving the delinquency rate up now is the number of homeowners with risky, adjustable-rate prime loans made with little or no proof of the borrowers’ income or assets.
Many of these loans allowed the borrower to pay only the interest on the loan for a fixed period of time. Others gave borrower the option to “pick-a-payment,” adding any unpaid interest to the principal balance.
More than one out of 10 borrowers with a prime adjustable-rate loan is now delinquent or in foreclosure. That portion, 11.3 percent, was up from 9.7 percent in the first quarter and is expected to continue to rise as more homeowners see their monthly payments spike.