11/19/2009

Foreclosure Numbers Up: A new report from the Mortgage Bankers Association shows foreclosures are not improving as we had hoped. The villain this time is the weak job market. This concern had been raised some time ago as these defaulting loans are not the more risky variety but are with prime borrowers. Jay Brinkmann, Chief Economist for the MBA, broke the bad news today in D.C. He reports that 33% of the new foreclosures are with prime fixed rate loans. Hopes for a rebound in housing could be thwarted with a large increase in distressed inventory. This also threatens the broader economy. There is a lag time between job loses and mortgage defaults as people struggle to stay in their homes. There are currently 5.5 million more people in the US out of work since the beginning of the year. Consensus seems to be that the employment picture will not improve until well in to 2010 and even then it will be a weak improvement to start. Even though it is believed that a recovery has started, employment usually lags behind. The MBA survey covers about 44.5 million home loans and is 85% of the prime residential mortgage market. Loans that were delinquent in the 3^rd quarter rose to 9.64% of all loans. That is up from 9.24% in the 2^nd quarter and 6.99% one year ago. That is a total of about 4 million loans that are 3 months behind or in foreclosure which is an increase of 2 million during this last year. The current inventory for sale nationally is 3.9 million, Brinkmann reports, and says there is probably some overlap in those numbers. Regardless, that is a lot of inventory that will hit the market next year. Brinkmann also speculated that even when there is a job recovery it may not be in areas that have the largest amount of distressed properties. He reports that loans in foreclosure have broken a record with the 3^rd quarter number coming in at 4.47%, up from 2.97% one year ago.

While prime fixed rate and ARM loan defaults are getting worse, sub-prime loan default rates are improving. Even Option ARM loans are getting some relief as they have the highest rates of modification by the banks.

Four states continue to drive the default numbers; Florida, California, Arizona and Nevada have 43% of all foreclosures according to the report. This is down from 44% but that may not be encouraging to those markets.

Seattle area mortgage default rates continue to be in the middle of the pack of all states. Seattle mortgage options have improved as many lenders do not consider this area a declining market any longer due to an improvement in home values. Bellevue mortgage options are just as good, if not better, due to stabilizing values.

FHA loans have also suffered higher default rates, most likely due to job losses. Brinkmann reports that number should be 1.76% of all FHA loans if you remove newly originated loans this year. He speculates that the new loans are much less likely to default. FHA loans have been the first time homebuyer's loan of choice for most. The credit and down payment restrictions are much lower than conventional loans. Seattle mortgage rates for FHA currently are in the low 5% range depending on credit and Closing Costs. Call for details.