The MBA just put out a new foreclosure study with results that match exactly what I have been seeing for months and mirrors where I think it is going. This is in-line with my long-term predictions made in 2006 about the fall-out.
As a matter of fact, when a good friend Herb Greenberg (rest his journalistic soul) published my time-line in Nov 2007 the story was one of the most ‘read and responded-to’ blog posts in MarketWatch history. If you read through the comments section, the number of mortgage and real estate professional comments and confirmations is staggering. How could so many have known exactly how this would play out, yet each development always catches everyone off-guard. Link: Straight-Talk From a Mortgage Insider
This newly released MBA research is solid. It is some of the only solid research I have read as of yet. When reading, pay special attention to the underlined portion below. It is especially concerning and what many still don’t fully appreciate…home owners looking at the home as an investment and not a place to live with the negative equity effect being a driver in foreclosures. This is also what many fear the most.
This is what has led to the jump in paper-grade defaults from Subprime to Alt-A to Jumbo Prime then Prime that I have been watching occur now for six months, about which others are just beginning to speculate.
For those die-hard Mr Mortgage readers, you already knew this was happening…but it is great to get public confirmation from a source that has every reason to hide it. Hat-tip to the MBA.
There is no doubt that 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 at this stage anyway. It is all nonsense because after so many rounds of downgrades from the raters, values being off so much and between 2003 and 2007 the line between all paper grades becoming 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. At this point in time, they are all just ‘mortgages’.
My data showed me in real-time that subprime defaults were at a plateau (at least temporarily) five months ago and Alt-A defaults, led by the Pay Option ARMs spiking around the same time. 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 simultaneously putting an even greater strain in values.
Prime Conforming will be the last to blow but will blow, as those 20% down 30-year fixed buyers from 2003-2007 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
Homes in foreclosure process set another record. California, Florida continue to drive national numbers in MBA survey – By Amy Hoak. MarketWatch reporter based in Chicago.
-The rate of mortgages entering foreclosure hit another record high in the second quarter, as did the percentage of loans somewhere in the foreclosure process, the Mortgage Bankers Association reported on Friday.
-The survey covers 45 million loans on one- to four- unit residential properties, representing between 80 to 85% of all first-lien residential mortgage loans outstanding in the country.
-The delinquency rate was the highest ever recorded in the 39-year history of the MBA‘s quarterly survey.
-Altogether, more than 9% of mortgage loans are either delinquent or somewhere in the foreclosure process, Brinkmann said.
-States hit hard by the foreclosure crisis continue to drive the national numbers.
–Increases in foreclosures seen in California and Florida overshadow improvements seen in states including Texas, Massachusetts and Maryland.
-Only eight states — Nevada, Florida, California, Arizona, Michigan, Rhode Island, Indiana and Ohio had rates of foreclosure starts that were above the national average.
-Together, the two states (CA & FL) made up 73% of the increase in foreclosures between the first and second quarters, according to the MBA.
-“The worst states are getting worse,” Brinkmann said, noting that overbuilding occurred in California and Florida, and their numbers will continue to drive the national ones.
-The delinquency breakdown supports the argument that the foreclosures are being driven by housing fundamentals as opposed to economic issues such as job losses, he said. Drops in home prices seem to be driving the transition between a loan that is delinquent and one that goes into the foreclosure process.
-Subprime ARM loans accounted for 36% of all foreclosures started.
-Prime ARMs, which include option ARMs, represented 23%.
-The increase in prime ARMs foreclosure starts was greater than the combined increase in fixed-rate and ARM subprime loans.
-In future quarters, foreclosure start numbers will probably be increasingly dominated by problems with prime ARMs.
Where’s the bottom?
-Brinkmann called the idea of a national bottom “meaningless.”
-“Because of the sheer size of California and Florida, an improvement in the national numbers, whether delinquencies, home prices or any other measure, is unlikely until we see some turnaround in those two states,” Brinkmann said.
Amy Hoak is a MarketWatch reporter based in Chicago.
Other Related Mr Mortgage Posts
- Wells Fargo Absolutely Did Subprime, Stated, Interest Only, No Ratio Etc (55)
Posted on October 3, 2008 3:59 PM
- Bank’s Bad Math – Home Price Indexing Responsible (17)
Posted on September 30, 2008 8:23 PM
- CA Association of Realtors Needs a Math Class…Perhaps Ethics as Well (33)
Posted on September 29, 2008 1:46 AM
- Wachovia Finally Addressing Their Pay Option Portfolio (22)
Posted on September 26, 2008 11:26 AM
- BofA CEO Says ‘Half the Banks Will be Gone’ in 5-Years (13)