Housing market diagnosis: Bipolar
The foreclosure inventory rate, which represents the percentage of mortgaged homes repossessed by lenders, was fairly flat quarter-over-quarter, inching up to 4.63% from 4.58%. But it jumped a lot from 12 months earlier, when the rate stood at 3.85%.
Nearly all varieties of loans suffered increased delinquencies compared with 12 months earlier. Prime fixed-rate loans hit 6.17%; prime adjustable-rate mortgages (ARMs) tipped 13.52%. Subprime fixed-rates jumped to 25.69%; and subprime ARMs are a whopping 29.09%.
The one bright spot was that delinquencies for FHA loans, the mortgages guaranteed by the Federal Housing Authority, dropped slightly to 13.15%, which is likely due to tighter FHA underwriting standards, which it adjusted after loans issued in 2007 and 2008 started souring.
Most of the overall rate increases are attributable to the seriously delinquent loans which are 90 days or more late, are going all the way through to foreclosure, but are not being foreclosed, keeping people in the system longer.
In the pre-housing-bust world, many borrowers would have already lost their homes and their delinquencies would no longer be counted in the survey.
Shift in problem-loan types
Lenders have slowed repossessions from foreclosing for various reasons: They may not have enough staff yet to handle the volume; the foreclosure prevention initiatives, such as the Home Affordable Modification Program, is postponing many foreclosures; and the banks themselves are trying to prevent defaults by approving more short sales.
The biggest fundamental change in the nature of the loans causing the most default problems could be the high unemployment rate, and driven by driven by the recession than by any one loan type now.
Some of the prime loan defaults stem from an increase in people deliberately "walking away" from mortgages. These are homeowners who can pay their loans but choose not to because their homes have dropped so much in value. This is also known as Strategic Defaulters.
According to a recent report, as much as 31% of all defaults in March were strategic, and many of these "strategic defaulters" may be underestimating the impact of walking away. It may take them much longer to repair their credit histories than they realize as lenders assess more than their credit ratings to determine whether to finance future home purchases. However, they may be able to repair their credit scores, and remaining “cash-heavy” will improve their ability to buy a home in the future
Source: CNNMoney.com- By Les Christie, staff writer May 20, 2010: 1:22 PM ET
