Friday, February 27, 2009

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.

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