Jobless Rate Doubles; Fannie & Freddie Delinquencies Septuple

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Here is an update of a set of data that I've been paying attention to for the last year. It compares the unemployment rate (Blue Line), the U6 Broader Unemployment Rate (Purple Line, which includes the jobless, and the people working part-time for economic reasons) with the delinquency rate on Fannie Mae (Red Bar) and Freddie Mac (Green Bar) mortgage loans on single family homes.

The picture isn't pleasing---You can see that as broad unemployment rate increased from less than 10% to 17.5% (in October, 2009)---The delinquency rate on home loans for Fannie & Freddie (which are typically Prime Loans) have increased by almost 6 - 8 Fold!

Let me repeat that---In Late 2006 and Early 2007, the prime mortgages were delinquent at merely ~0.5%. Now Freddie Mac has a 3.33% Delinquency Rate (September, 2009) and Fannie has a Delinquency Rate of 4.45%.

People should remember that in 2007, the economy & markets started tanking because sub-prime mortgages started going delinquent... Granted, those loans were going bust a significantly higher rate than the Freddie & Fannie notes---but also remember that Freddie & Fannie loan out significantly more money than what was ever given out to sub-prime borrowers... I don't have the data, but I'd venture to say that in order-of-magnitude--these loan delinquencies could be as bad or worse than the sub-prime crises.

Foreclosures to set a Record in 2009

According to a story on the Washington Post, the rate of home foreclosures in 2009 is expected to crest over 1.8 million (vs. 1.4 million in 2008). The main cause for the sharp uptick in foreclosure filings is not the continuation of the sub-prime crisis---but actually the sharp increase in unemployment rates.

As more and more borrowers are significantly underwater on their homes and have living pay-check to paycheck a prolonged bout of unemployment can really drive them to stop paying the bank and walk away from their home.

1H-2009 saw 1.5 million homes start the foreclosure process

According to CNN, during the first half of 2009 1.5 million homes began the trek down the foreclosure process---representing 1 in every 89 households.

CNN which used data provided by realtyTrac broke down the data to show the 10 states where the most mortgage foreclosure activity is taking place. Here's the data:

1. Nevada 1 in every 16 houses in foreclosure
2. Arizona 1 in every 30
3. Florida 1 in every 33
4. California 1 in 34 houses
5. Utah 1 in 69
6. Georgia 1 in 70
7. Michigan 1 in 74
8. Illinois 1 in 76
9. Idaho 1 in 79
10. Colorado 1 in 80
11. Ohio 1 in every 86

The case for "Do-Nothing"

Jeffrey Miron a senior lecturer at Harvard University's Economics Department puts forth the case of "doing nothing" in the bank bail-outs and tactfully shows how the bailouts to date are an enefficient redistribution of capital that penalizes the prudent and encourages excessive risk taking.

Freddie Mac Delinquency Rates Continue to Climb--1 in 38 Freddie Mortgages Seriously Delinquent

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Freddie Mac recently published the data for its seriously delinquent mortgages through May-2009. And the results continue to worsen.

2.01% of "Non-Credit Enhanced Mortgages" are seriously delinquent--These are mortgages that would have had at least a 20% down payment.

And 5.45% of Credit enchanced Freddi Mac Mortgage loans are delinquent---Think of these as folks who couldn't pony up the 20% down payment and may be using PMI (private mortgage insurance) to get the safety that Freddie wants.

Overall (combining the above 2 catagories) 2.62% of F-Mac's mortgages are seriously behind in their payments... And to make matters worse for all those "green-shooters" out there, the second derivative of delinquencies increased in May. (That essentially means that the rate of increase in delinquencies in May has increased vs. what it was in April).

Commercial Mortgage Delinquencies Quickly Climbing

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Crains Chicago today showed a chart that shows just how bad the Great Recession is impacting the rate of commercial mortgage delinquencies. At the end of Q1-2009, 3.6% of American Commercial mortgages were delinquent and 5.6% of Chicago area loans were behind in their payments---Both are almost 4 times worse than what was typical during 2006.

Of the Top-100 US Metro Areas, Foresight Analytics says that these 10 areas have the worst delinquency rates for the commercial mortgage market:

1. Warren-Farmington Hills-Troy, Michigan 6.3%
2. Miami, Florida -- 5.7%
3. Chicago -- 5.6%
4. Grand Rapids, Michigan 5.4%
5. Milwaukee, Wisconsin 5.2%
6. Indianopolis, IN -- 5.1%
7. Jacksonville, FL 5.0%
8. Sarasota, FL--4.9%
9. Dayton, Ohio -- 4.5%
10. Lake County, IL / Kenosha County, WI 4.4%

In the 1990's commercial mortgage delinquencies peaked around 9% and it's likely that as this recession lingers, unemployment climbs and vacancies rise--the rate of delinquencies will continue to escalate.

What I found quite interesting is that most of the "top-10" come from the Midwest and Florida---but as we all know the credit crunch has hurt consumers in California, Nevada, Arizona and Oregon as hard as the midwest---so I'm guessing in a few more quarters time you'll be seeing communities like Phoenix, LA, Las Vegas, and Portland creeping to the top of the list as well.

Fannie & Freddie's Serious Delinquencies Continue to Worsen

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Data released from Freddie and Fannie show that the rate of serious delinquencies continue to worsen in March (Freddie) and February (Fannie).

Freddie saw a 2.29% serious delinquency rate in its single family home mortgage portfolio, while Fannie Mae saw almost 3% of it's single family home loan portfolio in the seriously delinquent category. [both of these data points are shown as bars & use the left hand scale on the chart].

Fannie and Freddie have large amounts of prime mortgages on their books and as you can see, as the unemployment rate and underemployment rate in the US continue to increase (Lines on the chart using the right hand scale), the numbers of people with prime mortgages who fall behind and run into payment problems continue to increase.

Since we can see that the unemployment continued to rise in April, 2009 I think we can safely forecast that the GSE's delinquency rate will continue to climb upwards.

Two Thirds of Las Vegas Home Mortgages are Underwater

According to zillow some metropolitan areas of the country have just HUGE amounts of homes with mortgages in a negative equity situation.

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The hardest hit locations include Las Vegas, NV (~2/3rds of home owners are underwater), many parts of California (Stockton, Modesto, Merced, Riverside) and Phoenix and Florida.

According to zillow, around 22% of homeowners with a mortgage in the US have negative equity. This makes it much less likely that these home-owners would be able to refinance---and should a negative life event (health issue, divorce, loss of job) occur you count on increased mortgage delinquencies, defaults and foreclosures.

Zillow says that 22% of Mortgages are Underwater

According to zillow, at the end of Q1-2009 22% of homes with mortgages on them were underwater--i.e. the debt outstanding on the home was greater than the value of the home.

This is up from 17.6% of motgages being underwater in Q4-2008 and 14.3% in Q3-2008.

Inflation or Deflation

Every so often I like to post a light hearted item. Hat tip to Greg Mankiw for featuring this funny video of Merle Hazard and Bretton Woods singing a country song about if we're heading for inflation or deflation.

Either scenario is bad for the mortgage market---If there's inflation, mortgage rates will rise causing slower principal repayments and possibly lower property values in the short term (as the monthly payments increase b/c of higher interest rates). If there's deflation, consumers will postpone spending b/c their dollars will buy more stuff in 1 year than what it will buy them today.

Mortgage Delinquencies Continue to Worsen for Sub-prime, Jumbo, and Option ARM loans

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According to data from JP Morgan Chase 60+ delinquency rates across all loan catagories continue to rise.

The latest statistics from March 31, 2009 show that mortgage delinquencies for Subprime loans reached ~40% in March, and Option ARM loans (sometimes called pick-a-payment) went north of 30%, and this group has the steepest rise in default rates. [You can count on the Option ARM loans to continue increase in defaults as the resets roll through during 2009 - 2011]

These segments were followed by Alt-A mortgages with almost 20% of loans being 60 days or more behind and Home Equity Lines of Credit (HELOC) hovering around 10%...

Another disturbing trend is the early uptick in Jumbo Prime loans that are past due.
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On the other side of the chart is the recovery values by loan type...

As you'd expect HELOC loans have the worst recovery values---this is because they are typically not the first lien on the property---But another disturbing trend is that the recovery rates across all types of loans has been on serious downward spiral.

Hat tip to: Dr. Housing Bubble for the chart

Game Theory on the Toxic Asset Purchase Plan

A few weeks ago, the government suggested a plan that would allow financial companies to bid on "toxic assets" and use government money to help lever up the transaction.

I won't get into the exact details, but roughly speaking select financial firms can bid to buy assets that other financial firms want to sell---If the market price is $100 million, the buyer can put up some equity ($10 million) the government would match the equity ($10 million) and provide some cheap FDIC financing for the remainder ($80 million). And according to the treasury the loans will be non-recourse ("Through this new program, non-recourse loans will be made available to investors to fund purchases of legacy securitization assets.").

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If everyone were to bid honestly what they think the assets are worth, the plan could work---But I wanted to investigate if firms would have an incentive to overbid---or to somehow screw the taxpayer for the firms benefit.

The following example is very extreme, and more of a mental exercise---Suppose that there are two Companies (A & B)---And they are identical, and each owns a worthless asset on their books that is currently being held on their books at $100 million.

There are 4 Different Scenarios that could happen (See the Game Theory diagram above for Nash Equilibrium).

1) Neither firm sells nor buys toxic assets---In a few quarters they each must recognize a 100% loss (or a $100 million loss) and the government loses nothing.

2) Both firms decide to sell and buy $100 million (The Carrying value) of toxic assets---essentially they swap assets, paying $10 million in equity to buy the others' toxic asset. In a few quarters' time the toxic assets go to zero---Each firm loses their $10 million in equity by buying the other's assets---But at the time of the transacation they were paid $100 million in cash ($10 million from their competitor and $90 million from the government). So even though the 'buying firm' loses $10 million of it's equity investment (which is recognized as a loss), as long as another firm purchases assets at an inflated value, it gains. However, the government loses $90 million from each loan it made--or a $180 million loss.

3) & 4) Are the same---One firm decides to not to sell it's asset AND buys a toxic asset---In a few quarters, the firm that bought bad assets for $10 million equity investment and did not sell their assets---loses $110 million dollars. The firm that sold and did not buy does not have write anything off and loses nothing, while the government loses $90 million.

With no collusion, the Nash Equilibrium is for neither bank to buy toxic assets at inlated prices. (However, they may still choose to buy them at appropriate market prices). However, there are huge gains to be had by colluding---with only the threat of jail time and congressional hearings being the factors to sway decision makers away from such devious tactics.

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It's anybody's guess to see if the purchase of illiquid mortgage backed securities and other investments will help the financial system (or hurt the tax payer)---but in 1 year's time we will have a pretty good idea.

Fannie & Freddie Delinquency Rates vs Unemployment Rate

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It has been a couple of months since I've compared the serious delinquency rates at Fannie Mae and Freddy Mac with the unemployment rate and (U6) underemployment rate provided from the Bureau of Labor Statistics.

The news doesn't appear to be getting any better---The Fannie Mae delinquency rates on single family homes have incrased from 2.13% in November, 2008 to 2.77% in January, 2009 (The latest data-point available)---The delinquency rate at Freddie Mac has increased from 1.72% in December, 2008 to 2.13% in February 2009.

Given that the March Unemployment Rate is 8.5% and the U6 unemployment rate (which includes underemployed workers is 15.6%)---I estimate that you'll see Freddie's delinquency rates for March 2009 come in over 2.5% and Fannie's to be north of 3%... Keep in mind most of these mortgages were of significantly higher quality than your run of the mill sub-prime loan, Alt-A loan or Option Arm Loan---Those delinquency rates are significantly higher.

Expect More people to walk away from their mortgages

It's been over 1 1/2 years since the "credit crunch" began in August 2007, and things don't appear to be getting any better---It's as if the economy continues to chug along the road of "death by 1,000 cuts" and it doesn't help that so many home owners are underwater in their mortgages and considering walking away from their financial obligations.

Case in point, 2 recent stories:

1. The New York Times recently wrote a piece that details the process from walking away from your home and how to play chicken with your mortgage lender.
2. Detroit City Councilman Kwame Kenyatta has walked away from his house---According to the story, the councilman paid $225,000 for the property in 2004 and now it's only worth 100,000...
   

With the media and our politicians setting the stage for people to walk away from their home loans, you can bet that many more people will be doing the same in 2009... And once the mortgage resets ramp up in 2010 and 2011, the real estate market will continue to deflate.

Homer Simpson gets foreclosed on

Foreclosure has become so prevalent in our society even the writers at Fox's "The Simpsons" have decided to take on the issue. Marge & Homer have Countryfine auction off their house after blowing refinance money on Mardi Gras parties.

(Episode length ~ 22 minutes---but you get the gist in the first 10 minutes)

Foreclosures continue to rise

According to a story released today on cnn.com the number of foreclosures continue to be up significantly vs last year.

Some states with the worst levels of foreclosure include:

1. Nevada (1 in 70 houses in foreclosure)
2. Arizona (1 in 147 houses in foreclosure)
   
3. California (1 in 165 houses in foreclosure)
   
4. Florida (1 in 188 houses in foreclosure)

Things in South Carolina got significantly worse compared to last year---As South Carolina's unemployment rate jumped to double-digits, foreclosure filings jumped 254%---and now foreclosures represent 1 in every 818 South Carolina homes.

Almost 1 in 9 Michigan Mortgages are Delinquent

According to the Detroit Free Press more than 1 in 10 Michigan home owners are 30 days (or more) delinquent on their mortgages and almost 1 in 25 Michigan mortgages are in foreclosure as of Q4-2008.

The story references a recent Mortgage Bankers Association report that cites 8.6% of all U.S. mortgages are delinquent in the U.S. (compared to 11.1% in Michigan) and 3.7% of Michigan's mortgages are in foreclosure.

The report also stated:

... five states – California, Florida, Nevada, Arizona and Michigan – continue to dominate the delinquency numbers. Yet five other states – Louisiana, New York, Georgia, Texas and Mississippi – had the sharpest increases last quarter in loans 90 days or more late, which are signs that the recession’s impact is spreading, he said.

Times are tough in Michigan as demand for durable goods continues to decline and the state saw 11.6% unemployment in January, 2009.

20% of homes with a mortgage are under-water

Data released today shows that 20% of home owners with a mortgage owe more than what their homes are currently worth.

This amounts to over 8 million residential properties that have negative equity.

The article goes on to state:

Arizona, California, Florida, Georgia, Michigan, Nevada and Ohio remained the most stressed states, with 62 percent of underwater borrowers and just 41 percent of mortgages.

You can read the rest of the article here

You can be sure that as long as states like California, Florida, Georgia, Michigan and Ohio continue to see unemployment rates rise, delinquency rates on mortgages will go up and with many of those home-owners in a negative equity situation on their loans, and significant amounts of resets yet to come---the collapse in housing prices will continue for a couple of more years.

Wave of Mortgage Resets to hit 2009 - 2012

One of the best blogs out there covering the current mortgage market is Dr. Housing Bubble and today they issued a post that included the chart below:

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This is a Credit Suisse chart that shows the the oncoming mortgage resets for ARMs, Option ARMs, Subprime Loans, Alt-A Loans, Prime Mortgages and Agency Mortgages. And the outlook is grim---There is a significant amount of mortgage resets that are scheduled to occur in 2009, 2010, 2011 and 2012.

Currently in 2009 Mortgage rates are at all-time lows---but if your house is underwater, you can't refinance and will face a mortgage reset. Looking into the future, many people are seeing much higher rates in the outer years---So when the 2010 - 2012 resets occur, home-owners' monthly mortgage payments could take a quantum leap up.

As I've blogged about before, this housing bubble took years to climb in value---and it will likely take years to come to a bottom.

Jumbo Mortgage Defaults on the Rise

According to bloomberg Jumbo Mortgage Defaults are rising at their fastest pace in over 17 years.

Jumbo-loan defaults rise at fastest pace in 17 years
BLOOMBERG

NEW YORK — Owners of luxury houses are falling behind on mortgage payments at the fastest pace in 17 years.

About 2.57 percent of prime borrowers who took out jumbo loans last year were at least 60 days delinquent within 10 months, according to LPS Applied Analytics, a mortgage data service in Jacksonville, Fla.

That big a proportion at that speed hasn’t been recorded since at least 1992, when LPS began tracking the market. It took 19 months for as large a proportion of borrowers from 2007 to be so overdue.

The jump in late payments on jumbo loans, although still lower than the 20 percent delinquency rate in subprime mortgages, signals that the borrowers with the most money and the best credit are hurting as the U.S. recession deepens in its second year. It also means these loans will be even more difficult to obtain and more expensive to pay off.

President Obama’s homeowner aid proposal has no provision to help jumbo-mortgage borrowers.

About 1.92 percent of home­owners with 2008 mortgages backed by Fannie Mae and Freddie Mac fell at least 60 days behind, LPS Applied Analytics said. Jumbo loans are bigger than what the two government-controlled agencies buy or guarantee.

Currently the Fannie-Freddie cap is $417,000 in most places and up to $729,750 in areas with higher home prices.

Foreclosure Comic

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A Decade of Delinquency and Charge-offs

According to data from the Federal Reserve the Delinquency Rates seen by US Banks in Q4-2008 reached 10-year highs in Q4-2008.

The Delinquency Rate on Single Family homes in Q4-2008 was 6.29%---Up 107 basis points from Q3-2008's 5.22%. Clearly as unemployment continues to rise, delinquencies will continue to rise.

The Delinquency Rate on Commercial Mortgages rose from 4.74% in Q3-2008 to 5.36% in Q4-2008---Also a rate much higher than anything we have seen in the past decade.


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What is interesting is when you look at the Charge-Off Rate for Single-family homes. Q4-2008 mortgage charge-off rate was only at 1.58%--compared to 1.46% in Q3-2008. I believe this is because many more banks started to try "work-outs" with the delinquent consumers and also wanted to "wait and see" what Obama's plan would be help out homeowners behind in their payments. I predict that Q1-2009 (Data to be released ~May 2009) will show continued slow growth in charge-offs, but sooner or later the banks will have to pay the piper and charge-off rates on single family home mortgages will spike up (Likely Q2 & Q3-2009).

The Charge-off Rate for commercial real estate was up from the 1.16% in Q3-2008 to 2.04% in Q4-2008. This is the highest rate since 1992, and could continue to climb as businesses fall on hard time and demand for office and retail space dwindles making the leverage taken out on such properties much more difficult to service, and much more likely to be charged-off.

History 101---Comparing Japan's Real Estate Bubble to our own

Recently, I was watching TV and a commercial for the National Association of Realtors came on saying something to the effect of, "There has never been a better time to buy a home"---Obviously the were referencing the recent price drops in property values---But what's to say that they can't drop even more.

Just this week,JP Morgan cut its dividend so that it could be prepared for a 40% Peak to trough drop in housing prices in the united states---But what if things get worse.

So I went to the trusty source of Wikipedia and found the following chart from the Economist in June 2005.

The article starts off hitting the nail on the head--stating, "The worldwide rise in house prices is the biggest bubble in history. Prepare for the economic pain when it pops"

The Chart Compares Japan from 1980 - 2005, and an index of US, UK & Australia from 1995 - 2005. If you look at Japan---House prices dropped for at least 15 Years! (1990 - 2005)

It's also important to note 2 things (1) The UK & Australia had higher home appreciation from 1998 -2005 (2) The US Market continued to appreciate in 2005, 2006 and 2007.

Looking at this chart and better understanding what happened to Japan, I'd say Caveat Emptor--Buyer beware---Prices were being inflated for over 12 years in the US, UK and Australia, and it will likely take longer than just 2 years to make the National Association of Realtors correct in their premise that, Now is the best time to buy a home.

JP Morgan's Dividend Cut Announcement cites Unemployment Rate & House Price Decline Estimates

This afternoon JP Morgan announced that it is cutting its dividend from $0.38/share per quarter to $0.05/share per quarter. What is interesting what they shared as their rationale for cutting the dividend.

Below, I have attached Slide #2 from the presentation in which JP Morgan provides a "highly stressed environment" in which they model a:

• 2 Year Recession
• 10% Unemployment Rate
• 40% Decline in Housing Prices (Peak to trough)
  

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Should this "stress case" come to a reality, many more mortgages will be underwater and millions more homeowners will lose their income and possibly lose their homes---This will cause the mortgages and mortgage securities that JP Morgan holds to lose value a pressure their capital base.

Conventional 30-Year Mortgage Rates reach 40 year lows

According to a chart from the St. Louis Fed the interest rates on 30 year-fixed conventional mortgages has hit all time lows in February 2009. (Or at least since the beginning of the chart---1970's).

What is also interesting is that for every recessionary period (highlighted in gray), the mortgage rate dropped.



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What does this mean? If you haven't yet looked into refinancing your mortgage, you may wish to consider it---However, given that unemployment continues to rise I think it's safe to say that the recession will continue for a few more months (or quarters). So there's a chance that mortgage rates could drop further---But if you can refinance, definitely look into it--and be sure to get 3 or 4 quotes from competing mortgage lenders.

Crisis of Credit --- The Video

Jonathan Jarvis has created a 'user-friendly' video that explains the credit crisis---and shows how mortgages, sub-prime mortgages, CDO's, Credit Default Swaps, Investors, Brokers and others created the credit crunch.

If you or somebody you know gets confused by the financial alphabet soup that the media is constantly talking about, this video does an excellent job of explaining the mortgage mess in laymen's terms...


The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

(10 min 50 sec)

Mortgage Lender Implode-o-Meter

If you're wondering how many mortgage companies have gone out of business during the current credit crunch, you should check out "The Mortgage Lender Implode-o-Meter" (http://ml-implode.com/).

As of 2/19/2009, 334 mortgage lending businesses have gone the way of the do-do and shuttered their doors since late 2006---never to write a mortgage again.

Moody's estimates more big drops in home values

Crains Chicago published a pretty interesting story today that shows what the drop in home values have been since the peak (to Q3-2008) and what Moody's Economy.com estimates the total home value price drops will be.

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According to Moody's:

• The United State's home prices will bottom in Q4-2009 after dropping 36%
• Miami's home prices will drop over 66% from the peak
  
• Phoenix home prices will drop 58% from the peak
• Las Vegas will drop 56% from the peak
• Los Angeles will drop 53% from the peak
• Washington DC will drop 38% from the peak
• New York City will drop 33% from the peak
• San Francisco will drop 27% from the peak
• Boston will drop 26% from the peak
• Chicago will drop 17% from the peak

These are big drops and mean that many many home owners will be underwater in their mortgages. This will be felt for many people who needed PMI and only put down a down payment of 5% or 10%---But in many areas (Miami, Phoenix, Vegas, California)---even conforming loans and jumbo loans that were issued in 2005, 2006 and early 2007 will be underwater.

Unemployment/Underemployment Rates vs Freddie Mac and Fannie Mae Mortgage Delinquency Rates

Given Barack Obama's Stimulus Package and efforts to curtail the amount of mortgage foreclosures that are occurring in the market place, I thought it would be an interesting exercise to compare the unemployment rate and underemployment (U6) rate in America with the mortgage delinquency rates that Freddie Mac and Fannie Mae are experiencing.

Looking at data for 2006 - 2008, you can see the impact of a vicious feedback cycle. As people get delinquent in their mortgages, banks and other investors have to write assets down and constrict credit, this feeds into the economic contraction which causes more companies to scale back on headcount and hours worked--causing increases in the unemployment rate and underemployment rate.


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In my opinion, as you look out into 2009 (and 2010) the economic contraction and credit crunch will continue to cost people their jobs--and this will cause an escalation in delinquent loans throughout 2009 and part of 2010---It will hit conforming loans, Alt-A loans, sub-prime and jumbo mortgages.

Expect Helicopter Ben to try and solve much of the problem by printing more money and trying to push long term rates near all-time lows.
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For more information on underemployment click here: unempmloymentadvice.blogspot.com

Freddie Mac vs Fannie Mae Mortgage Delinquency Rate 2005 - 2008

In a couple of recent posts I showed how from 2005 to 2008 Fannie Mae's Delinquency rate on single family mortgages has more than tripled and during the same time Freddie Mac's delinquency rates on single family mortgages have more than doubled---so I thought it would be useful to put all that data on a single chart.

Below you will see delinquency statistics for Freddie Mac (Green Lines) and Fannie Mae (Red Lines) from 2005 to 2008. Throughout 2005 and much of 2006, the difference in delinquency rates between the two firms was ~10 basis points. However, by the end of 2008 Fannie Mae was seeing significantly higher delinquency rates than Freddie Mac.

In November 2008, Fannie had delinquency rate that was 61 bps higher than Freddie for "Total Single Family" mortgages---And 228 bps worse for Fannie when you are only looking at single family mortgages with credit enhancements (i.e. Private Mortgage Insurance)


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Freddie Mac Mortgage Delinquency Rate More than Doubles from 2005 to 2008

According to data from Freddie Mac it saw delinquency rates on single family more than double from 2005 to 2008. Total Single-Family home mortgage delinquency rate (3+ months behind or in foreclosure) for Freddie Mac mortgages was 1.72% in December 2008, and rose more than 100 basis points in 2008.


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The delinquency rates for Freddie Mac mortgages with Private Mortgage Insurance (PMI) or other credit enhancements was 3.79% in December 2008---Up over 200 basis points in 2008.

Fannie Mae's Mortgage Delinquency Rate more than triples from 2005 to 2008

According to data & statistics from Fannie Mae the amount of mortgage delinquencies on single family home mortgages have more than tripled from early 2005 (0.64% in 2/2005) to the end of 2008 (2.13% seriously delinquent in 11/2008).

The chart below looks at conventional single-family mortgages that are three months ore more past-due or in foreclosure as a percent of the total number of conventional single family mortgages.


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The figures for Credit Enhanced Fannie Mae mortgages is worse than average with a serious delinquency rate of 5.69% in November 2008 (and rising). (These are loans with Private Mortgage Insurance (PMI) or some other type of credit enhancement).

60 minutes segment on a Golden West Financial Whistleblower

For those of you who missed 60 minutes last night, they did a 13 minute segment on Paul Bishop a whistle blower at World Savings Bank (which was Golden West Financial's bank subsidiary) who tried to alert bank management to the risks associated with the Pick-a-Payment Option ARM mortgages.

Wachovia bought out the bank near the peak of the market at $25 billion

"World of Trouble" (13 minutes)


Watch CBS Videos Online

25% of Mortgages are Underwater in Southern California's San Diego County

As this graphic shows many of the area codes in San Diego County California are underwater (More is owed on the mortgage than what the property is worth). In many zip-codes between 20% to 50%+ of the homes are underwater.

This makes it very difficult to sell your house, and consequently you can expect further increases in short-sales, foreclosures and property price declines in San Diego County.

19 Years of Mortgage Origination Data 1990 - 2008

The Mortgage Bankers Association publishes quarterly data on the amount of mortgage originations for homes (1 - 4 family homes)

If you plot the mortgage data (See chart below) you will see the quarterly flows of mortgage orignations for purchase (Blue bars) and Refinancing (Purple Bars)---You can see that in 1990 & 1994 there was very little refinancing--due to high interest rates, and then from 2001 - 2008 just about every quarter saw a greater amount of refinancing than purchase mortgage financing

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Whenever you look at quarterly data it can be a little lumpy, so I transformed the mortgage data to be a rolling 4 quarter average (i.e. the data shown below in Q4-1990 represents the average data for Q1, Q2, Q3, & Q4-1990).

What you will see is that amount of mortgage originations for purchases peaked at Q1-2006 and mortgage refinancing peaked in 2003.

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In my estimation, if the Obama stimulus package is successful in lowering mortgage rates during the first half of 2009, you may see an increase in refinancing and purchase mortgage originations---But much like a python swalling a pig---eventually (1) everyone who could refinance will have refinanced their mortgage and (2) market rates will creep back up---That coupled with fewer homes being sold and dropping real-estate prices will cause the purchase mortgage originations to be dropping in 2010 and 2011 as well.

What do you think?

Mortgage Debt Outstanding 1952 - 2007

If you look at Census data for total mortgage debt outstanding during the 55 years spanning 1952 to 2007 you will see that total mortgage debt outstanding grew at a 9.7% Compound Annual Growth Rate (CAGR) for the 55 year period.

Mortgage debt for single family homes grew the most--from $58 Billion in 1952 to $14.5 Trillion in 2007--A 10% CAGR over 55 years!

Multi-family mortgages grew at a 8.1% CAGR over the past 55 years, while Commercial Mortgage debt outstanding grew at 9.8% CAGR and Farm land mortgage debt outstanding grew at a 5.2% CAGR over 55 years reaching $117 Billion in 2007.
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If you look at the last 20 years more closely---you'll see that the growth in home mortgages has grown at an even faster clip. The CAGR for home mortgage debt outstanding for single family homes from 1997 to 2007 was 11%

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What you can see if you look at the annual growth rate in mortgage debt outstanding you'll see that over the last 55 years, the growth rate for single family home mortgage debt outstanding was teh most consistant and was never negative (Like Multifamily, Commercial, and Farm mortgage debt outstanding).

If you do a little "What-if"/"Scenario-Analysis"---And ask, "what if for the last 10 years (1997-2007) Household mortgage debt outstanding did not grow at the 9.2% CAGR which it did---but instead grew at the 6.6% CAGR seen in Commercial Mortgage Debt outstanding (1997 to 2007)---Well if that were the case, instead of having $11.1 Trillion of mortgage debt outstanding in 2007 for single family homes---it would have been $7.4 Trillion of mortgage debt outstanding for single family homes---That is a 34% difference!

Said another way---cheap mortgage debt thrown at millions of Americans households during the last decade likely has inflated home values by at least a third (as of 2007).

A Century of Home Ownership Rates 1900 to 2008

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According to the US Census the home ownership rate ended 2008 at 67.5%... This rate had steadily increased since WWII and significantly higher than the 40% - 50% home ownership rate seen in the first half of the twentieth century.

Given the current credit crunch and the disappearance of sub-prime mortgages and the shadow banking providing easy mortgage financing in addition to banks and credit unions, it's safe to say that the home ownership statistics will be declining in the next few years.

I also think that it's important to note that compared to the depression, far more people are home-owners---And with the drastic drop in home prices experienced in the last year, coupled with drops of almost all asset values, household spending is definitely going to be crimped for several years to come due to the 'wealth-effect'

Jumbo Mortgage Delinquencies are increasing

According to the the WSJ

By NICK TIMIRAOS

Rising defaults by affluent homeowners are raising the specter of another cloud over banks and investors, which could get stuck with thousands of expensive homes.

About 6.9% of prime "jumbo" loans were at least 90 days delinquent in December, according to LPS Applied Analytics, a mortgage-data research firm. The rate was up sharply from 2.6% a year earlier. In comparison, delinquencies of non-jumbo prime loans that qualify for backing by government agencies climbed to 2.1% from 0.8% in December 2007.

Jumbo mortgages average about $750,000 and can run as high as $5 million or more. More borrowers with such loans are being hit by layoffs that are spreading through practically every sector and pay level of the U.S. economy.

On Tuesday, the Labor Department reported that the jobless rate rose in December in all 50 states, hitting at least 10% in Michigan and Rhode Island. States that suffered the biggest jumps in unemployment in the past year include California and Florida, where the largest number of jumbo loans were made.

Bankers fear 10% unemployment rate...

From the WSJ

By PETER EAVIS

Despite all the pain in the financial sector, bank executives' biggest fear has yet to materialize. Now, it is rearing its ugly head.

Bankers' worst nightmare is the unemployment rate climbing toward 10%, a level at which credit losses could balloon unpredictably because of high defaults among people with previously strong credit histories.

Right now, bank balance sheets don't appear in a position to deal with unemployment moving sharply higher from its current 7.2% rate.

Building up bad-loan reserves to deal with a 9% to 10% rate could produce enormous losses and pulverize capital when banks are trying to preserve the thin cushions they have. And fear of rising unemployment could deter lending when the government wants banks to expand credit. True, the Obama administration's stimulus plan could reduce unemployment expectations. But right now, banks are hoisting their joblessness forecasts.

Last week, consumer lender Capital One Financial increased its unemployment forecast to 8.7% by the end of 2009, from its previous expectation of 7% by midyear. And Capital One added that it is building more-severe unemployment scenarios into lending decisions.

Also last week, Kelly King, chief executive of regional bank BB&T, said unemployment of 8% to 8.5% is "kind of manageable," but 9% to 10% would "have a dramatic impact on our scenarios."

read the rest of the story here.

Nevada leads the nation in the highest rate of houses in foreclosure

Realtytrac.com today issued a report that included data on the percentage of housing units in foreclosure. Overall, the United States has 1.84% of home mortgages in foreclosure---That is up 81% from 2007.

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The Top-10 worst states for foreclosure rates are:

1. Nevada--7.3%
2. Florida--4.5%
3. Arizona--4.5%
4. California--4.0%
5. Colorado--2.4%
6. Michigan--2.4%
7. Ohio--2.3%
8. Georgia--2.2%
9. Illinois--1.9%
10. New Jersey--1.8%
    

30 Year Mortgage Rates reach record lows

According to the St. Louis Fed, the rates on Conventional 30 Year Mortgages are at record lows. Needless to say, this is one of several factors that is driving the frequency of Adjustable Rate Mortgages (ARMs) to record lows as well.



If you haven't already, you should consider refinancing your existing property with a 30 year fixed, if you can.

Commercial Mortgage Delinquency Rates Q4-2008

Today WSJ.com published a Deutsche Bank report that compares the delinquency rates for 5 sectors of commercial real-estate (Office, Industrial, Hotels, Retail, and Multi-family) with the overall Delinquency Rate for commercial properties.

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As you can see, Hotels, Retail, and Multi-family commercial properties are really seeing a tremendous uptick in delinquency rate with Multi-family delinquencies crossing 2.5%.

New Jersey's Alt-A Mortgage and Sub-Prime loan performance

The New York Fed published data in October that shows how the Alt-A and Sub-prime Mortgages have been performing in New Jersey.

The percentage of loans that are current are much higher for Fixed Rate Loans than for the Adjustable Rate Loans. 84% of Alt-A fixed rate loans in New Jersey were current in October 2008, while just 41% of Adjustable Rate Mortgages (ARMs) in New Jersey's sub-prime mortgage universe were current with their payments.


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The states with the highest rates of non-owner occupied sub-prime housing.

The states with the highest rates of non-owner occupied sub-prime housing in the United States are Washington DC, Hawaii, Ohio, Indiana, Georgia, North Carolina, Florida, Michigan and Wisconsin.



These figures are important because an investor is far more likely to walk away from a property that is underwater and not generating income than what would be expected from an owner-occupied property.

California Sub-prime Loan Status-November 2008

Less than half of the sub-prime borrowers in California are current on their mortgage.

According to November 2008 data provided by the New York Fed, only 47% of sub-prime loans are current while 12% are in foreclosure and 14% are already real-estate owned (REO). Over 13% of the loans are over 90 days behind and well on their way into foreclosure while an additional 14% of loans are 1 or 2 months behind.

As California's unemployment rate continues to climb, odds are these numbers will continue to worsen.

Alt-A Loans Delinquent, Foreclosed and REO'd

According to the New York Fed, as of November 2008, 78% of the $705 billion worth of Alt-A Loans were current with their payments. That means that ~$150 billion of loans are delinquent, in foreclosure or already Real-Estate Owned (REO) by the banks.



But as I've blogged about earlier, more than half of the Alt-A Loans are from California & Florida... So how are those two states doing?

As of November, 2008 the Fed shows that 72% of California's $300 billion Alt-A portfolio is current with their payments while 5% (~$15 billion) is 30 - 59 days behind, 3% (~$10 Billion) is 60-89 days behind, and 8% (~$25 billion) is over 90 days behind... An additional 12% is either in Foreclosure or REO... So California is clearly worse off than the rest of the nation, but Florida is even worse:

In November, 2008 only about 2/3rds of the $64 Billion of outstanding Alt-A mortgages were current, with a whopping 17% in foreclosure and another ~15% over 30 days delinquent.

California and Florida Account For Half of the Alt-A mortgage market

According to the New York Fed, as of November 2008 there was $705 Billion of Alt-A Loans outstanding with 42% of those loans coming from California and 9% of the mortgages coming from Florida---Two States which are experiencing some of the steepest drops in home prices.

Additionally, New York accounted for 5% of Alt-A loans, while New Jersey, Virginia and Washington accounted for 3% each... The remaining 44 states accounted for the remaining 35% Alt-A mortgages.

FHA reduces guarantee amount on Chicago area mortgages

story from Chicagobusiness.com

Home loan setback

A key support for mortgage lending just shrank, dealing a new blow to the moribund housing market.

As of Jan. 1, the Federal Housing Administration reduced the amount it will guarantee on mortgages in the Chicago area to $365,700 from $417,000. FHA-backed mortgages filled part of the gap left by private lenders retreating from the mortgage market as housing values plunged.

FHA loans accounted for about 30% of weekly mortgage applications nationwide during the last half of 2008, vs. about 10% during the same period in 2007, according to the Washington, D.C.-based Mortgage Bankers Assn.

Homes priced between $380,000 and $450,000 will no longer qualify for FHA guarantees, affecting neighborhoods across metropolitan Chicago, from northwest suburban Arlington Heights to Oak Park in the western suburbs to parts of Chicago's North Side. Sellers in that price range will face more pressure to cut their asking prices, exacerbating the decline in home values throughout the region.

"We need every possible tool we can use to bring first-time buyers into the market," says Kathe Doremus, senior mortgage loan consultant with Community Bank-Wheaton/Glen Ellyn, who says at least 70% of the mortgage loans her bank makes in the western suburbs are now FHA-backed. "All we have left is FHA, and we need every piece of it we can get."

FHA loan limits are dropping in cities across the country as home prices fall. The limit for each metropolitan area is based on prevailing market prices in that city. In the Chicago area, the median home price fell to $207,745 in November, a 16% drop from November 2007.

Lower FHA limits will squeeze sellers in many local communities. In Arlington Heights, for example, 63 of 134 homes on the market at prices between $350,000 and $450,000 will lose access to FHA backing, according to the Illinois Assn. of Mortgage Professionals.

Jorge Gomez, president of the association and a mortgage broker on the Northwest Side, estimates that 50% to 60% of mortgages he handled last year were FHA-backed last year, up from less than 10% in 2007. He worries that home sellers looking to expand the pool of potential buyers will lower prices to meet the new FHA threshold, establishing pricing benchmarks that will force values down for everyone. He says many of the homes in the Old Irving Park neighborhood where he lives are in the price range that has been affected.

"You're depressing an entire neighborhood now," he says.

All but ignored during the housing boom, FHA loans are popular now because they allow borrowers to make small down payments — as low as 3.5% of a home's value. Other lenders, including those offering mortgages backed by federal loan agencies Fannie Mae and Freddie Mac, require at least 5% down.

And, for some home types such as condominiums, mortgage insurance is particularly hard to get without an FHA guarantee. The lower limit will put a major damper on sales of affected condos, real estate professionals say.

"If we could just get some continuity (in lending) and get the ball rolling, I think we'd be OK," says David Hanna, president of the Chicagoland Assn. of Realtors. "This (FHA change) is just not going to help."

Alt-A Loans vs Subprime Loans

Youtube's Mr. Mortgage created a very interesting video a while back comparing the sub-prime loans (& defaults) with the Alt-A universe of Loans and upcoming wave of resets which will likely cause more defaults.

Sub-prime loans made in CA, NY, FL, NV, AZ and TX

The Wall Street Journal online has published an interesting interactive map that shows the percentage of mortgages that went to sub-prime borrowers between 2004 & 2007.

Specifically you can view what the market looked like for California, Florida, New York, Arizona, Nevada and Texas.

http://online.wsj.com/public/resources/documents/hispanics08_map.html

Jumbo Mortgage Refinance rates remain high

According to the Boston Globe:

Jumbo mortgage loan rates put damper on refinancing

Kerry and Rebecca Scarlott, shown in their Hingham home with their daughter, Meghan, and dog, Dory, refinanced their jumbo loan with two smaller loans. (John Tlumacki/Globe STaff)

By Jenifer B. McKim Globe Staff / January 5, 2009

While plunging mortgage rates have spawned a frenzy of refinancing, borrowers with larger, so-called jumbo loans are still seeing interest rates in the 7 percent range, prompting many to abandon refinancing plans altogether or resort to creative transactions.

The high rates are particularly an issue in Greater Boston, where expensive housing forces many people into jumbo-loan territory, which is currently $465,750 and above. In 2006, more than 10 percent of borrowers in Massachusetts took out jumbo mortgages.

Borrowers with conventional mortgages - those at or below $417,000 - are getting rates as low as 5 percent, while the national average for a jumbo loan hovers around 7 percent.

There is a new, third category of mortgages between jumbo and conventional loans, created last year by Congress, called conforming jumbos, which now average about 5.6 percent, according to a provider of industry data, HSH Associates.

"I think it is crazy you can't get as good a rate," said Julia Blake, 36, who with her husband is looking to refinance the Cape they bought in Wellesley for $695,000 in 2007. "To me, a jumbo loan should be a luxury house, and in Wellesley it is not. You can't get anything less than $600,000."

Another Wellesley resident, Paul Barnhill, wants to refinance his adjustable-rate jumbo loan into a fixed-rate loan, but not at current rates.

"I would refinance in a heartbeat if I could get 5 percent," said Barnhill, 44.

Jumbo mortgage rates are higher because lenders who initiate the loans are having trouble selling them on the secondary market, where the resale of mortgages provides funds for new loans. The banks and investment groups that buy mortgages are reeling from the credit crisis and the subprime mortgage debacle, and are steering clear of any loans that smack of higher risk. The major players on the secondary market, government-sponsored Fannie Mae and Freddie Mac, do not purchase jumbo loans.

Industry groups are calling on the federal government to intervene. For example, the Federal Reserve Bank is purchasing huge amounts of mortgages and related securities, which industry officials said would result in even lower rates for conventional loans. The National Association of Realtors wants the Fed to do the same with jumbo loans.

"It's unfortunate that the jumbo interest rates are very high and the government is not being responsive to that," said Lawrence Yun, the trade group's chief economist. "It is not only hurting the Main Street, but it's a fairness issue. Why are people who are slightly over the loan limit being punished?"

Last year, Congress raised jumbo limits when it allowed Fannie Mae and Freddie Mac to buy or guarantee higher-balance loans. In Massachusetts, the limit increased to $523,750, from $417,000, with jumbo loans being above the higher amount, and conforming jumbos between the two figures.

read the rest of the story here

Mortgage Bankers Association predicts declining amounts of Mortgages

According to the Mortgage Bankers Association (MBA), the amount of Mortgages originated in 2008, 2009, and 2010 will be significantly less than what the market saw in 2007.

This forecast from December 11, 2008---will likely be updated now that the feds have agreed to buy mortgage related securities and the rates on the 30 year mortgage are at-or-near record lows. Consequently, I think the refinance estimates for 2009 may be on the low-side.

Weekly Mortgage Rates continue to drop

The rates on 30 year mortgages are close to crossing below 5% as we enter the start of 2009. And the spread between Jumbo loans and conforming loans continue to widen.

The WSJ has published an interesting article outlining how Mortgage rates on 30 year bonds could drop to 4.5% in 2009 as the government starts buying up mortgage securities.