Bank of America Mortgage Delinquencies

Bank of America has roughly 11% of its mortgages 30 days past due or worse. That's ticking up a little bit from recent quarters, according to this chart shown at the company's presentation during the most recent Barclays Conference.

Fannie Mae - Delinquent Mortgage Chart and Data - Things improved in 2010.

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Fannie Mae publishes seriously delinquent data each and every month for mortgages that it owns. The good news is that the delinquency rate has started to come down during 2010; the bad news is that it is still elevated versus historic norms.

Fannie Mae saw it's highest delinquency rates during February 2010, when 3.9% of single-family homes (non-credit enhanced / i.e. conforming mortgages) were seriously behind their monthly payment. Things were even worse for Fannie's credit enhanced notes (i.e. lower down-payment levels and likely paying mortgage insurance)---A whopping 13.8% of credit enhanced mortgages were deliquent in February, 2010.

Since that time, things improved to 3.4% andd 10.6% by the end of 2010.

Although things have improved, Fannie is still in a little worse shape than Freddie (That will be the topic of another post).

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:

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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.

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.

Conventional 30-Year Mortgage Rates reach 40 year lows

According to a chart from the St. Louis Fed the interest rates on 30 year-fixed conventional mortgages has hit all time lows in February 2009. (Or at least since the beginning of the chart---1970's).

What is also interesting is that for every recessionary period (highlighted in gray), the mortgage rate dropped.



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What does this mean? If you haven't yet looked into refinancing your mortgage, you may wish to consider it---However, given that unemployment continues to rise I think it's safe to say that the recession will continue for a few more months (or quarters). So there's a chance that mortgage rates could drop further---But if you can refinance, definitely look into it--and be sure to get 3 or 4 quotes from competing mortgage lenders.

Crisis of Credit --- The Video

Jonathan Jarvis has created a 'user-friendly' video that explains the credit crisis---and shows how mortgages, sub-prime mortgages, CDO's, Credit Default Swaps, Investors, Brokers and others created the credit crunch.

If you or somebody you know gets confused by the financial alphabet soup that the media is constantly talking about, this video does an excellent job of explaining the mortgage mess in laymen's terms...


The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

(10 min 50 sec)

Mortgage Lender Implode-o-Meter

If you're wondering how many mortgage companies have gone out of business during the current credit crunch, you should check out "The Mortgage Lender Implode-o-Meter" (http://ml-implode.com/).

As of 2/19/2009, 334 mortgage lending businesses have gone the way of the do-do and shuttered their doors since late 2006---never to write a mortgage again.

Moody's estimates more big drops in home values

Crains Chicago published a pretty interesting story today that shows what the drop in home values have been since the peak (to Q3-2008) and what Moody's Economy.com estimates the total home value price drops will be.

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According to Moody's:

• The United State's home prices will bottom in Q4-2009 after dropping 36%
• Miami's home prices will drop over 66% from the peak
  
• Phoenix home prices will drop 58% from the peak
• Las Vegas will drop 56% from the peak
• Los Angeles will drop 53% from the peak
• Washington DC will drop 38% from the peak
• New York City will drop 33% from the peak
• San Francisco will drop 27% from the peak
• Boston will drop 26% from the peak
• Chicago will drop 17% from the peak

These are big drops and mean that many many home owners will be underwater in their mortgages. This will be felt for many people who needed PMI and only put down a down payment of 5% or 10%---But in many areas (Miami, Phoenix, Vegas, California)---even conforming loans and jumbo loans that were issued in 2005, 2006 and early 2007 will be underwater.

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.


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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

25% of Mortgages are Underwater in Southern California's San Diego County

As this graphic shows many of the area codes in San Diego County California are underwater (More is owed on the mortgage than what the property is worth). In many zip-codes between 20% to 50%+ of the homes are underwater.

This makes it very difficult to sell your house, and consequently you can expect further increases in short-sales, foreclosures and property price declines in San Diego County.

19 Years of Mortgage Origination Data 1990 - 2008

The Mortgage Bankers Association publishes quarterly data on the amount of mortgage originations for homes (1 - 4 family homes)

If you plot the mortgage data (See chart below) you will see the quarterly flows of mortgage orignations for purchase (Blue bars) and Refinancing (Purple Bars)---You can see that in 1990 & 1994 there was very little refinancing--due to high interest rates, and then from 2001 - 2008 just about every quarter saw a greater amount of refinancing than purchase mortgage financing

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Whenever you look at quarterly data it can be a little lumpy, so I transformed the mortgage data to be a rolling 4 quarter average (i.e. the data shown below in Q4-1990 represents the average data for Q1, Q2, Q3, & Q4-1990).

What you will see is that amount of mortgage originations for purchases peaked at Q1-2006 and mortgage refinancing peaked in 2003.

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In my estimation, if the Obama stimulus package is successful in lowering mortgage rates during the first half of 2009, you may see an increase in refinancing and purchase mortgage originations---But much like a python swalling a pig---eventually (1) everyone who could refinance will have refinanced their mortgage and (2) market rates will creep back up---That coupled with fewer homes being sold and dropping real-estate prices will cause the purchase mortgage originations to be dropping in 2010 and 2011 as well.

What do you think?

Mortgage Debt Outstanding 1952 - 2007

If you look at Census data for total mortgage debt outstanding during the 55 years spanning 1952 to 2007 you will see that total mortgage debt outstanding grew at a 9.7% Compound Annual Growth Rate (CAGR) for the 55 year period.

Mortgage debt for single family homes grew the most--from $58 Billion in 1952 to $14.5 Trillion in 2007--A 10% CAGR over 55 years!

Multi-family mortgages grew at a 8.1% CAGR over the past 55 years, while Commercial Mortgage debt outstanding grew at 9.8% CAGR and Farm land mortgage debt outstanding grew at a 5.2% CAGR over 55 years reaching $117 Billion in 2007.
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If you look at the last 20 years more closely---you'll see that the growth in home mortgages has grown at an even faster clip. The CAGR for home mortgage debt outstanding for single family homes from 1997 to 2007 was 11%

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What you can see if you look at the annual growth rate in mortgage debt outstanding you'll see that over the last 55 years, the growth rate for single family home mortgage debt outstanding was teh most consistant and was never negative (Like Multifamily, Commercial, and Farm mortgage debt outstanding).

If you do a little "What-if"/"Scenario-Analysis"---And ask, "what if for the last 10 years (1997-2007) Household mortgage debt outstanding did not grow at the 9.2% CAGR which it did---but instead grew at the 6.6% CAGR seen in Commercial Mortgage Debt outstanding (1997 to 2007)---Well if that were the case, instead of having $11.1 Trillion of mortgage debt outstanding in 2007 for single family homes---it would have been $7.4 Trillion of mortgage debt outstanding for single family homes---That is a 34% difference!

Said another way---cheap mortgage debt thrown at millions of Americans households during the last decade likely has inflated home values by at least a third (as of 2007).

A Century of Home Ownership Rates 1900 to 2008

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According to the US Census the home ownership rate ended 2008 at 67.5%... This rate had steadily increased since WWII and significantly higher than the 40% - 50% home ownership rate seen in the first half of the twentieth century.

Given the current credit crunch and the disappearance of sub-prime mortgages and the shadow banking providing easy mortgage financing in addition to banks and credit unions, it's safe to say that the home ownership statistics will be declining in the next few years.

I also think that it's important to note that compared to the depression, far more people are home-owners---And with the drastic drop in home prices experienced in the last year, coupled with drops of almost all asset values, household spending is definitely going to be crimped for several years to come due to the 'wealth-effect'

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.

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.

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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%
    

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.

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."

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

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.