Home loan delinquencies in Orange County are below the nation but for how long?
Keith Carson is a senior consultant for TransUnion, which recently published a report on loans 60 days or more past due in the first quarter of this year. The report said O.C.’s delinquency rate of 3.14 percent, was less than California’s 4.34 percent and the nation’s 3.23 percent.
But, unfortunately, the county’s delinquency rate is rising more quickly than for both the state and nation.
Mortgage Insider quizzed Carson, 59, who once lived in Laguna Hills but now works out of TransUnion’s Cleveland office, on the disconcerting trend. Chicago-based TransUnion is one of the country’s three big credit reporting agencies.
Q. Your data shows mortgage delinquencies spiking in Orange County earlier this year while they began to level off somewhat nationwide. Why is that?
A. The national trends have been consistent. The database goes back to 1992. Every quarter, we randomly select data on 27 million consumers, or roughly one-ninth of the credit-using population. We track mortgages, credit cards, and auto loans, and also have the capability to forecast into the future. We are forecasting the delinquency rate nationally to reach 4 percent by the end of the year. We have seen five straight quarterly increases.
In Orange County, you are a little bit below the national average, but the rate at which you are accelerating is reason for concern. I think that is probably a function of the number of adjustable-rate loans that were made in Orange County in the 2005 to 2006 time frame. Some of those have reset (the interest rate has increased) to the point where occupants can’t afford the payments.
We are using 60-day delinquency as a benchmark. Once you get 60 days past due, it is awfully hard to get caught up, and usually the mortgage is heading to ultimate default.
Q. Do you expect Orange County’s 60-day delinquency rate to surpass that of the nation sometime soon?
A. If this rate of increase continues, then yes it would. It is a function of the ability of various homeowners to pay their mortgages and the economy. Candidly, people got mortgages who couldn’t afford them.
The other piece is a function of the economy in terms of if people are unemployed or not getting the hours they typically got. That could be contributing to it.
But I think it is mostly due to the price of homes in California. There were a lot more ARMs used so people could afford to get into a home. For a lot of people the only way they could get into a home was with an ARM. Some of those loans are very sophisticated, and some lenders may have been less than forthcoming. It can be a dangerous type of loan if someone is not fully aware of what they are doing.
Q. A recent study by several state attorneys general showed an increase in subprime borrowers missing payments before their loan payment reset, meaning before the low teaser rate ended. The study concluded mortgage fraud is a likely reason for the increase in delinquencies. Do you agree and are you seeing the same trend in your data?
A. Fraud is not as large a problem as some people believe. There are a lot of tools to help detect fraud. Basically a lot of it was very lax underwriting standards.
(Editor’s Note: Carson said his company has not looked at whether delinquencies are occurring before a rate reset.)
Q. On a different note, your recent report showed the average mortgage debt for a homeowner in Orange County increased slightly in the first quarter to $410,485. That’s surprising amid falling home prices. What happened?
A. It’s a bit of a surprise to us as well. It could be a little bit of a statistical anomaly. The nature of the beast is we are only looking at one out of every nine homeowners. Or we might have picked up more consumers in the Newport Beach and Laguna Beach areas, and that could have skewed that statistic slightly. Those are the two most probable reasons.
Q. When do you see O.C.’s loan delinquency rate peaking?
A. We haven’t run those numbers.
Q. What’s your best guess?
A. We see it tapering off during 2009 and (the housing market) starting to return to health in 2010.
Q. What might change your mind up or down?
A. The election will have a big impact with what the government does. If we see a massive increase in government spending and taxes you could see a prolonged economic downturn. There are so many unknowns until we get past the elections.
Q. In Econ 101, I was taught government spending is an economic stimulus…
A. It can be inflationary depending on where it is spent. We are cruising along with a very minimal inflation rate. If government starts spending, it’s back to the old supply and demand. When government issues debt (to fund spending), it competes with the private sector for money. That could drive up interest rates, including long-term mortgage rates etc.
Q. I hear inflation may already be here fueled by high gas prices?
A. You have that phenomenon, yes. We are already seeing this huge demand from China an India for gasoline, which drives gas prices up, and they have a high demand for commodities, such as wheat and corn. It’s a different world out there today, a different economy.
Related News:
- Former Countrywide No. 2 sees opportunities in troubled mortgages
- O.C. mortgage delinquency rate climbs faster than state, nation
- Is this it for mortgage rates?
- Tustin company hopes to lead lenders down the right path, this time
- Loan delinquencies fall! Are government aid efforts working?
- CA agency sees big foreclosure jump for O.C.
- 20 O.C. homeowners bilked in land grant scheme, authorities say
- Long Beach Congresswoman skips mortgage payments
- Banks take possession of record number of O.C. homes
- Supply of O.C. distressed homes for sale up again
Oh, and by the way, regarding so called local interest rates “spikes”, remember during the 2004-2006 boom years the average 30 year fixed loan was about 6.25% - just about where it was today – and just about where it WILL be in December.
By the way, the “temporary” High Cost Area Jumbo Conforming and FHA loan limits are already in the process of becoming permanent. Expect extensions of the provisions of the Stimulus package to be completed by November of this year.
Have a beautiful weekend, O.C.!
There was no local good news in Steve Thomas’ report for OC prices, other than his consistently-repeated, consistently wrong prediction that prices will decline slower than they did in the prior 12 months. Why the growing distressed sales is being interpreted as bullish I have no idea, Back those out and as Thomas points out, fewer people can sell, and fewer want to buy. That’s why prices continue to drop.
Sighburrdood, please STOP! While I can’t stand the overwhelming negativity of many on this board, your once “breath-of-fresh-air” cheerleading is sliding into the absurd. Your quote of current rates is patently FALSE! At the close of business yesterday, 1 point on a conforming 30-year fixed got you 6.75% as a rate (and realistically with all the little rate “hits” unless your are a 700+ FICO borrower with 75% LTV, 7.00%)! For a Fannie/Freddie/FHA Jumbo loan it was 7.00 to 7.25%! Rates are NO WHERE NEAR what they were during 2004-2006 when they were in the 5’s for conforming and the LOW 6’s for Jumbo and Alt-A 30 year fixed loans. Heck, I was getting people 30-year fixed rates at 5.25-5.5% in Sept-Nov’ ‘05! Rates only spiked into the mid-high 6’s to low 7’s for conforming at the height of the credit crunch last year July-Oct! Positive spin does not make it reality Sighburrdood!
Larry - Thanks for the update on rates. It’s unbelievable to me that bulls are rejoicing over a report that says almost 2/3 of inventory priced $500k and under is either a foreclosure or a short sale.
This is the same price range that accounts for nearly 50% of homes on the market. So, that means almost 1/3 of ALL the homes in OC for sale right now are either short sales or foreclosures.
Incredible and really scary.
The quality of life in the O.C. will still and always win out over time……………..
It’s not surprising that Orange County is seeing the delinquency rate surge. I’m sure most of our local mortgage brokers must have known this was going to happen.
Even though Orange County was the main facilitator of subprime, our local home prices were mainly propped up by Alt-A mortgages. We’re just now starting to see these mortgages rollover.
I think we’re all about to discover that the number one cause for foreclosure is negative equity, NOT mortgage rate re-sets. In other words, more people are walking away in Orange County because it no longer makes sense to continue to pay an inflated mortgage, when you can rent a similar home in the neighborhood for much less.
Lee - you are correct. Like I have been saying for months and months. 100%, subprime, alta loans are not bad when the collateral is valued properly. The banks are getting killed because they didnt look at the collateral close enough. Not the income or credit, they didnt look at the collateral close enough!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! Everyone wants to blame it on liar loans or sub prime loans because everyone still wants to believe the house they paid $250k for in 1998 is really worth $1 million. Pleasseeeeeeee!
Larry P had this to challenge me with: “Sighburrdood, please STOP! While I can’t stand the overwhelming negativity of many on this board, your once “breath-of-fresh-air” cheerleading is sliding into the absurd. Your quote of current rates is patently FALSE! At the close of business yesterday, 1 point on a conforming 30-year fixed got you 6.75% as a rate (and realistically with all the little rate “hits” unless your are a 700+ FICO borrower with 75% LTV, 7.00%)! For a Fannie/Freddie/FHA Jumbo loan it was 7.00 to 7.25%! Rates are NO WHERE NEAR what they were during 2004-2006 when they were in the 5’s for conforming and the LOW 6’s for Jumbo and Alt-A 30 year fixed loans. Heck, I was getting people 30-year fixed rates at 5.25-5.5% in Sept-Nov’ ‘05! Rates only spiked into the mid-high 6’s to low 7’s for conforming at the height of the credit crunch last year July-Oct! Positive spin does not make it reality Sighburrdood!”
OH, REALLY! Apparently YOU weren’t doing loans back then. Here are excerpts from 3 separate loan rate sheets from my preferred lender, that I just happened to have in my archives:
6/13/08
Conforming 30 Fixed $1.00 to $417k
6.250% 1.0 point
6/12/06
30 Yr. Fixed 7/1 ARM 5/1 ARM MTA ARM
6.625% 6.375% 6.250% 1.50%
6/11/04
30 Yr. Fixed 7/1 ARM 5/1 ARM MTA ARM
6.125% 5.500% 5.500% 1.250%
Seems to EXACTLY back up what I originally stated. Perhaps YOUR sources leave something to be desired - OR, perhaps YOU try to make too much money off your clients?
Methinks YOUR memory is a bit too short, and too selective. Nice try, though, dewfuss!
sigh your miopic.
Sighburrdood,
Yeah, I challenged you because your numbers are all wrong so it was EASY! You STATED that “the AVG. rate during the 2004-2006 boom was 6.25% about where it is today”! Wrong! The AVERAGE during that time was in the high 5’s to maybe 6%! And it was no MORE than the mid-High 6’s even for Jumbo loans at STATED INCOME during that time! Sure, there were occassional spikes into the mid-6’s during those times but those were VERY temporary spikes ALWAYS followed by rates plummeting into the 5’s yet again. You happened to pull two such examples of those spikes out from ‘04 and ‘06 for your examples! Had you said “the last TWO YEARS the average rate was above 6.25%” you would have been right (but of course that would have coincided with the massive DROP in home prices AND sales so would not have helped your points). But that isn’t what you said and is why I jumped on it…it was “spin”! Pulling two random dates out of the air do NOT make for a 3-year AVERAGE! They do make for good spin however! Any one who was doing loans during this time frame (non Subprime folks that is) would know this.
I do not know where you get your numbers but I am and have been a mortgage planner for years all in A paper and Alt-A loans. I have watched rates on 30-year fixed loans go from the 7’s and 8’s in the beginning of the decade down to the mid 4’s and back up to current levels. I have closed HUNDREDS of loans. You quote information others publish (and I have notes on other threads of how inaccurate those national average rate quotes are since rates change often several times a DAY!)…I actually WORK IN THE FIELD “dood”! Every day! Your rate quote from yesterday is ridiculous! There isn’t a bank in America that has a conforming 30-year fixed with 1 point on the back as of yesterday! A 1 point or more BUYDOWN to 6.25%, yes, but that is not what is normally referenced in any media reports…only the 1 point on the BACK as rebate! I receive about 10 rate sheets a DAY from the largest lenders in the country…as of yesterday two of the LOWEST, Flagstar and WAMU were BOTH at 6.75% with 1 point…ON THE BACK! With no adjustments for Fico, LTV, waived escrow, nada! That is a rise of 3/4 of a point in the past two weeks! To BUY DOWN the rate means something totally different from quoting rates “with 1 point”!
Your quotes from ‘04 and ‘06 are kind of funny! You do realize that the MTA “rate” you cite is for the “teaser” Neg Am portion don’t you? Of course you don’t…you’re just copying and pasting just like you do when you post yet another of Steve Thomas’ “reports” on a thread whose subject has nothing to do with anything Thomas is discussing…you’re like a lovesick teenager the way you promote that guy’s information everywhere like it were some lost book of the Bible or something!
Anyway, I used to enjoy reading your posts. They were a good counter to the rampant negativity others posted here, with many going so far as to trash the very area they choose to continue to live in. Now, when I read you throw another of Thomas’ reports on a thread about something unrelated you just sound like another spinmeister agenda-pusher like “National Bubble”. You have become a unreliable source and it is too bad because this blog is running out of anything BUT “agenda pushers” it seems!
One more thing Sigh, since you have a rate sheet “archive” to pull out selected rates from your “preferred lender”, why don’t you do the class a favor and pull out and quote the rates from say…June and Sept. ‘05, March, Sept., and Nov. ‘04 and Nov. and Dec. ‘06…just so the class can see that rates have gone up and down during that time you reference. Keep in mind, I have access to a couple “archives” myself so I will be monitoring you for accuracy. Yes, I am challenging you…..to be accurate and not to “spin”!
If only all the energy devoted to ‘pissing contest’ debates by online readers in America could be harnessed.
We’d be energy independent!!!!
AvlDao,
Lol! Post of the week! Lord knows I have been known to waste a lot of energy in such contests and I don’t even show up here everyday!