Even the good die young? High-quality mortgages approaching foreclosure
Posted Nov 20th 2009 2:30PM by Tom Johansmeyer
Filed under: Economic data, Housing, Recession
The loans that got us into this mess were generally the first to fall. Variable rate mortgages written without documentation for people with sketchy credit histories shocked nobody as their slide became an avalanche. But, the good stuff is starting to follow. An increasing amount of fixed rate mortgages offered to borrowers with solid credit histories are feeling their ways to foreclosure. Blame unemployment for this one. When people can't work, it gets pretty hard to pay the mortgage.
Fixed rate, high quality mortgages had a foreclosure a year ago. Last quarter, it jumped to 33%, according to a Mortgage Bankers Association report. As this happened, the amount of homeowners behind on their payments or in foreclosure just set another record high ... for the ninth month in a row. Subprime mortgages are headed in the other direction. Low quality adjustable rate mortgages are now 16% of new foreclosures -- compared to 35% last year. And, more than 18% of Federal Housing Administration loans are anywhere from one payment behind to in foreclosure, with California, Nevada, Arizona and Florida worst off: together, they accounted for 44% of new foreclosures.
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The fact that the job market is now to blame for the foreclosure rate does mark a turn in the financial crisis. Until this point, the loans themselves were blamed, especially those involving insane amounts of risk with little verification and (sometimes temporarily) low interest rates. Lending practices have tightened, but the looseness unleashed a contagion on global financial markets which has found its way to the labor market and has revisited housing, though in a different form.
Some are hopeful, but the situation could worsen. Jay Brinkman, chief economist with the Mortgage Bankers Association, notes to The Associated Press that if only a quarter of the 4 million homeowners either three months behind on their payments or in foreclosure are able to stay their homes, "there's a lot of potential inventory coming into the market next year." The foreclosures and subsequent inventory increases would drive prices down, pushing some borrowers into negative equity situations and threatening even more loans.
So, it looks like we're in a footrace. If the job market can recover faster than the foreclosure rate can worsen, it will stabilize the housing market and probably kick us into a virtuous cycle of job growth and home value increases. But, if foreclosures move more swiftly than jobs, the spiral could accelerate.
Tags: default, foreclosure, Foreclosures, home prices, housing, housing market, inthenews, job market, mortgage, mortgage bankers association, mortgage rates, MortgageBankersAssociation, MortgageRates, mortgages, real estate, RealEstateMarket, RealEstateMarkets, subprime, subprime lending, subprime loans, subprime mortgages, SubprimeLending, SubprimeLoans, SubprimeMortgages, unemployment rate |
