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

Click for a Sharper Image

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.
*************************************
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

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.

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

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.

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.

Q3-2008 vs Q3-2007 Alt-A Mortgage Originators

Q3-2008 (vs. Q3-2007) saw an even bigger decline in Alt-A mortgage originations than the Q2-08 vs. Q2-07 data point. The Top-10 Alt-A companies underwrote $1.55 Billion in Alt-A mortgages in Q3-2008, which is an 88% decline from the $13.2Billion of business done in Q3-2007.

Again, ResCap (GMAC) and Chase were the biggest drivers of the decline--Down $4.7Billion and $2.4Billion respectively.

Top-10 Alt-A Mortgage Originators Q2-2008 vs Q2-2007

The Top-10 Alt-A mortgage originators in Q2-2008 did 81% fewer Alt-A mortgages in Q2-2008 vs. Q2-2007, as Alt-A mortgages in Q2-2008 amounted to $2.6 billion vs $13.6 billion from those same companies in the prior year; with the biggest cut-backs coming from Chase and ResCap (GMAC) Mortgage.

Alt A and Option ARM resets to trigger next wave of foreclosures

Last night 60 Minutes had a very interesting story about how a second wave of defaults will hit the housing market. The first wave of course, has been the sub-prime loans that have gone bad. The second wave will consist of Alt-A loans and Option-ARM loans.

This potential wave of future resets in Alt-A and Option ARMs, according to Credit Suisse really begins in 2009, ramps up in 2010, and ramps up again in 2011.

These resets, coupled with increasing unemployment rates, in my opinion will continue to hold-down real estate values for the next several years.


Watch CBS Videos Online