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:

Click for a larger image

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.