7.2 Million Mortgage Loans In Default With An Estimated 1.0 Million REO's
According to this LPS Mortgage Monitor (a mortgage industry performance report provided by LPS Applied Analytics), LPS Mortgage Monitor: January 2010 Mortgage Performance Observations: Data as of December 31, 2009 Month-end and the Executive Summary, in December 2009 mortgage loan delinquencies and defaults increased significantly and foreclosures (REO's or bank owned properties) reached the one million mark. The Executive Summary noted the following:
- Delinquency rates have surpassed the 10% level; factoring in foreclosures, the total non-current rate sits at 13.3%.
- Industry extrapolations indicate that over 7.2 million loans are currently behind on payments with an estimated nearly 1 million properties in REO status.
- Average number of days delinquent for loans in foreclosure has increased 63 percent from January 2008 to December 2009, rising from 249 to 406 days delinquent.
- Prime loans have experienced a worse pace of deterioration on a relative basis than subprime, FHA and all loans as a whole. Within prime loans, those with current unpaid principal balances between $417,000 and $600,000 have performed the worst.
- The percent of “new” serious delinquencies (from the population of loans that were current as of year-end 2008) sits at 4.64%, higher than any other year analyzed for the same period. Extrapolated counts result in approximately 2.3 million “new” 60-day delinquent loans from December 2008 to year-end 2009.
- Roll rates show the largest percentage increase in loans improving since the same period in 2008.
- 2009 marks the only time during the last five years that the six-month deterioration ratio has dropped from September to December.
- Foreclosure starts increased slightly in December – still the second lowest month in 2009 based on volume. Foreclosure sales were stable month over month and remain at relatively low levels.
- 2009 vintage loans are performing better than loans from any of the prior five years and have been steadily improving as more origination months are added to the loan pool. However, more restrictive underwriting is driving this behavior rather than actual improved consumer behavior. Liquidity is still not available where it is needed most.
- Most of the information above shows that mortgage loan delinquencies, and therefore, foreclosures, are getting much worse. For example, the total percentage of delinquencies at 13.3%, the average number of days per delinquent loan, the continued deterioration of prime loans and the new mortgage loans serious delinquent rate of 4.64% are reasons to believe that things are getting much worse.
- The information which shows a positive trend is, for the most part, artificially and temporarily skewed. For example, the improved roll rates, the 6 month deterioration ratio showing improvement and the 2009 vintage loans performing better are all skewed by the fact that most of these new loans are made to buyers/borrowers who perceive that their home or real estate purchase was a "good deal". Since most of these buyers/borrowers used FHA/VA/USDA Rural Housing loan programs (see my blog post Our Phony Real Estate Market) they have little to no initial equity. Due to the continued housing market decline, huge numbers of these buyers/borrowers will soon be in negative equity positions, which will result in increasing mortgage loan default rates among these buyers/borrowers in the near future. In addition to that the relatively low foreclosure starts in December 2009 were artificially held down by government mandated loan modification and foreclosure moratoria, which will go end soon with the result of foreclosures increasing again.
