Bloomberg reports:
Delinquency rates on the least risky mortgages more than doubled in the first quarter from a year earlier as U.S. efforts to help homeowners failed to keep pace with job losses that pushed more borrowers toward foreclosure.
Prime mortgages 60 days or more past due climbed to 2.9 percent of such loans through March 31 from 1.1 percent at the same point in 2008, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said today in a report. First-time foreclosure filings on the loans rose 22 percent from the fourth quarter, the report said.
“I’m very concerned about the rise in delinquent mortgages and foreclosure actions,” Comptroller of the Currency John Dugan said in a statement released with the quarterly report. President Barack Obama’s plan to create “sustainable, payment- reducing modifications is a positive step that should show significant benefits in the coming months,” Dugan said.
Obama’s program, unveiled Feb. 18, aims to help as many as 4 million borrowers by modifying loans and calls for Fannie Mae and Freddie Mac to refinance mortgages for as many as 5 million borrowers who owe more than their homes are worth. Foreclosure filings surpassed 300,000 for a third straight month in May, according to RealtyTrac Inc., and the U.S. economy has shed about 6 million jobs since the recession began in 2007.
The agencies also said, not for the first time, that mortgages modified to help struggling borrowers stay in their homes fail about half the time. For example, about 53 percent of mortgages modified in the first quarter of 2008 were 30 or more days delinquent after six months. That increased to a 63 percent default rate after a year.
The only thing that would significantly improve the loan mod success rate would be principal reductions. But banks almost never willingly reduce debt on a property, which would mean recognizing a loss without gaining control of a property. And bankruptcy cramdown legislation keeps getting stuck in Congress. So the foreclosure tsunami continues.
In other news…
- Banks reject toxic-asset plan
- Frenzied bidding on discounted foreclosures
- FDIC seizes Irvine bank
- Is paying off a mortgage the best option?
- These O.C. homes are about to be foreclosed
- Fed trims emergency lending
- Federally insured home loans keep growing
- Fed to keep buying mortgage securities
- Mortgage applications rose on dip in rates
- 7 lenders escape state foreclosure moratorium
- Bigger loan limit considered for ‘underwater’ borrowers
- Share loan-industry scuttlebutt
- Foreclosures account for 34% of May home resales
- More O.C. folks ignore credit-card bill
Matt, I wish you would answer my question from the previous post:
“Matt, so what’s the bottom line? Are we going to see a flood of foreclosures coming on the market soon as predicted, or are banks holding off on them, delaying them somehow or selling them off at auctions?”
My bottom line: I expect monthly foreclosure totals to continue to equal or surpass the peak of the ’90s, more than 600 in a month, for the next year, and probably next two to three years. I don’t think we will go back to the 1,300 to 1,400 a month range we saw in summer 2008. Basically, a big chunk of foreclosure inventory is being delayed by bankruptcies, loan modifications etc.. As we have seen, loan mods work maybe 1/2 the time. Bankruptcy also is a delaying tactic, since the law doesn’t allow cramdowns on mortgages.
On the flipside buyer demand has picked up. As I said in the comments to my “Frenzied” post, some 30% sold at a recent foreclosure auction, and I am starting to hear from others the trend is similar in other places. Also, REOs under say $600,000 are selling, with anything under $400,000 moving very quickly (unless it’s total junk). But what do investors plan to do with these properties? Will they rent them out for a few years? Or will they dump then when prices rebound say 10%, and thus add a bunch of inventory as soon as the market recovers? I have no idea.
My guess, and it is just a guess, is the lower end may be nearing a bottom of prices and higher end (to pick a number maybe above $700,000) is going to see a long slow drag on prices.
With that said, I am conservative by nature. I have thought about buying a cheap property and renting it out, but I think I will wait until mid to late 2010. I am too worried about the unemployment rate (above 8% in O.C.). If nothing else, what if you buy a property, find a renter, and the renter loses his job? As I said, I am very conservative.
Thank you Matt. So in your opinion, the so called second wave of foreclosures isn’t coming anytime soon, as some have predicted. I mean foreclosure rate that surpasses that of 2008. Many thought that it would be here by now due the historical high NOD at the beginning of the year.
i’m with matt. no reason to buy now. prices aren’t going to go up anytime soon. the only question is how much will they go down and how much can you reasonably afford without having to eat mac and cheese every day for the next 30 years
What about letting a family buy a house to live in instead of people buying them as an investment to rent out. I have been out bid on 5 houses only to see them put up for rent. Decades ago LA was a wonderful area but too many investors came in and bought houses to rent out and now it is a cesspool. I see OC trending this way as well. Too many rentals and no pride of ownership in many areas. It is a shame.
Another factor that I have noticed in Orange County: SFH’s are no longer Single Family Houses in quite a few communities. They should be a category for Multiple Families in a Single House. At least, that is what’s happening in Garden Grove & Westminster. The Vietnamese are in a frenzy overpaying for these properties, add a room or two and then rent the rooms out to boarders treating their SFH’s like Motel 6. That’s the only reason how these people can afford to keep up the monthly payments. I understand that what people do to their own properties is their own business; but, when your neighborhood street is packed with vehicles taking up every parking inch of the sidewalks and room renters are moving in and out every couple of months… It does not create a friendly and safe neighborhood
This is happening everywhere. Generations of families are moving in to one house so they can all make the payment. I also see many more cars parked on the streets as well as cementing the frontyards and using them for parking. My brother’s neighborhood looks like a used car lot.
yes, many of the new townhomes they’re building in OC have three floors. the first can either be used as an office or a bedroom for extended family or a renter. with prices rising beyond what’s affordable for most families, I see this trend continuing.
Another factor that I have noticed in Orange County: SFH’s are no longer Single-Family Homes in quite a few communities. They should be catergorized as Multiple Families in a Single House. At least, that is what’s happening in Garden Grove & Westminster. The Vietnamese are in a frenzy overpaying for these properties, add a room or two and then rent the rooms out to boarders treating their SFH’s like Motel 6. That’s the only reason how these people can afford to keep up the monthly payments. I understand that what people do to their own properties is their own business; but, when your neighborhood street is packed with vehicles taking up every parking inch of the sidewalks and room renters are moving in and out every couple of months… It does not create a friendly and safe neighborhood.
The home modification bill signed by Obama made the foreclosures much worst than it is. If I was a dead beat home owner, why wouldn’t I take advantage of the mortgage modification? All you have to do is stop paying your mortgage for 2 months and yet, you get to keep your new car in the driveway, new HDTVs, new flooring, and etc… These dead beat homeowners would rather not make any sacrifices to keep their houses. With the bill, they all want a piece of American handouts, courtesy of the US Federal Reserves!!
Why cant the gov just cut rates for eveyone’s mortgage to be 5% for 5 years. This will stimulate the economy by freeing up cash ALL home owners. For those that are forclosing during that 5 five years, the gov will take the house and sell it cheap to first time home owner only.
I called BofA to modify my loan, and since my wife and I both have jobs, they can’t help us. On the other hand, one of our friends stopped making payment on their house for 6 months, BofA is willing to lower their payment.
It’s only a matter of time…people with good credit will abuse the system.
VOTE RON PAUL next time.
peace
I agree that we would be better off with Ron Paul, but Ron never would manipulate the market like you are suggesting. Manipulating the market only postpones the day of reckoning. As soon as the government stops trying to fix the problem, the market can correct, and we can begin rebuilding. Right now, they are only delaying the inevitable.
Matt I feel you are smart to wait. I own rentals and I can’t tell you over the years the amount of people not able to pay their rent. It is much worse in 2008 & 2009, wait till you feel the time is right.
“For example, about 53 percent of mortgages modified in the first quarter of 2008 were 30 or more days delinquent after six months. That increased to a 63 percent default rate after a year.”
Look at this “success rate.” It is less than 40% and that is after only one year. Pathetic. The ultimate success rate is likely to be less than one in four.
In the 1990s the price peak to trough was what, about four years? Odds are this time around (given the absurdity of the bubble and the unprecedented government meddling) it will take even longer. That means we are talking late 2010 or 2011 at a minimum, but it could easily be 2012 or later.
A shame.