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.

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.


Click for a Larger Image

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

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.

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.

A Decade of Mortgage Delinquency Rates and Default Rates

According to data released by the Federal Reserve Board, the levels for Delinquency Rates and Charge-off Rates for mortgages related to single family homes and commercial properties have reached decade-level highs.In Q3-2008, Delinquency rates for mortgages on single family homes and Commercial Real Estate both were ~5%, and the charge-off rate for these loans were 1.1% for Commercial loans and 1.45% for single family home mortgages.

Commercial Loan defaults could Triple

Commercial Loan Defaults May Triple as Rental Income Declines

By Hui-yong Yu

Dec. 22 (Bloomberg) -- U.S. commercial properties at risk of default could triple if rental income from office, retail and apartment buildings drops by even 5 percent, a likely possibility given the recession, according to research by New York-based real estate analysts at Reis Inc.

Lenders that used optimistic rent estimates to grant mortgages beginning in 2005 stand to lose as much as $23.1 billion, or 7.02 percent, of total unpaid balances if landlords lose 5 percent of net operating income, according to Reis. Analysts examined data on 22,890 properties that together may account for unpaid loans of about $329 billion in 2009, said Victor Calanog, director of research.

Banks are at risk as office vacancies are forecast to rise to 15.6 percent next year from an estimated 14.6 percent at the end of 2008. Lenders who sold commercial mortgage-backed securities to pension funds, investment banks and foreign governments have been hit by more than $1 trillion in losses and asset writedowns connected to bad residential loans.

Read the rest of the Bloomberg story here