Foreclosure rate is still climbing
Survey indicates foreclosure rate is still climbing
Lax lending standards, wave of refinancings credited for spike
dallasnews.com
03/25/2003
By DANIELLE DiMARTINO / The Dallas Morning News
The effects of the lingering economic slowdown showed up in the National Delinquency Survey released Monday by the Mortgage Bankers Association of America.
Foreclosures hit a record of 1.18 percent in the fourth quarter of last year, up from the previous record of 1.15 percent at the end of the third quarter.
The 1.18 percent rate represents more than 400,000 households in foreclosure among the nation's 34 million primary mortgages.
"If you think about it, that's a lot of people losing their homes," said Jan Hatzius, senior economist at Goldman Sachs Group in New York. "Of course that's one of the costs of making the American dream more widely accessible."
According to the most recent data in the American Housing Survey of the National Census Bureau, almost one in seven Americans now owns a home.
Some experts say the record foreclosures may reflect mortgage companies' lax lending standards.
Others remain uncertain about the effects of the multiple waves of refinancings that have left Americans' equity in their homes near a postwar low of 55.2 percent. Some worry that a drop in home prices could push this ratio to a record low.
"It does appear that house price growth is slowing, and that will start to limit the options that are available in working out loans that are delinquent," said Doug Duncan, chief economist with the MBA. "So, yes, it is a matter of concern for us, but it's not a matter of panic or fright."
The data also showed areas of improvement in the housing market.
"We still do see a decline in foreclosures started," said Celia Chen, director of housing economics at Economy.com. "So it is kind of hard to judge the degree of how poor the situation is at the end of the quarter because it is also a reflection of foreclosures started in previous quarters."
The percentage of loans entering foreclosures declined in the last quarter, from 0.37 percent to 0.35 percent, according to the MBA. In some states foreclosure proceedings can take up to two years.
Meanwhile, the delinquency rate, a measure of late mortgage payments, fell from the 4.83 percent peak it hit in the third quarter of 2001 to 4.53 percent in the latest quarter. It is still well above its recent low of 3.75 percent in the first quarter of 2000.
In a recession, a peak in foreclosures typically lags a peak in delinquencies. In the last recession, delinquencies peaked five quarters before foreclosures, which stayed at 1.04 percent for a full year before they began to ebb in 1992.
Delinquencies appear to have peaked in the third quarter of 2001, five quarters ago.
On the surface, last quarter fits neatly into the pattern. But some housing analysts worry that the worst is yet to come.
Most of the fourth-quarter 2002 falloff in delinquencies came from a steep decline in the subprime category, which involves borrowers with poor credit.
Prime loan delinquencies, a much broader measure of the mortgage market, increased from 2.54 percent last quarter to 2.65 percent in the fourth quarter. This is the first quarter in a year that the rate has increased.
"We've seen a moderate overall decline in delinquencies," Mr. Duncan said. "But the environment is still very uncertain. If the economy doesn't turn around, I'd expect to see a reversal in the declines."
The uptick in prime loan delinquencies may be a sign that the jobless recovery is taking a toll on the growing number of unemployed Americans.
"It could well be the softness in the employment sector," Mr. Duncan added. "Some people who have staved off becoming delinquent may have finally run out of their ability to service their mortgage."
Delinquencies in Texas have nearly hit the record high of 6.7 percent in the fourth quarter of 2001. After dropping off for three quarters, delinquencies have shot back up to 6.69 percent, more than 2 percent above the national average.
Unemployment in Texas has remained stubbornly above the national average. If national unemployment trends as high as Mr. Hatzius predicts, at 6.5 percent, it's conceivable that national delinquency rates will pierce the highs they set in 2001.
"I would anticipate more labor market deterioration going forward," Mr. Hatzius said. "And if you plot unemployment against serious delinquencies, you see a pretty amazing relationship. This could be a big source of slowing further out."
E-mail ddimartino@dallasnews.com |
