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.

Click on image for a larger view
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.

Click on Chart for larger image

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.


Click on chart for a larger picture

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.