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Delinquencies: Roadblock to a Housing Recovery?

More Delinquencies=More Foreclosures= More Supply=Lower Prices

The current economy has devastated the finances of so many families in every income bracket and in almost every neighborhood in this country. More and more people are falling further and further behind in their mortgage payments. In the past people would take a second job or borrow money from family to catch up. Today, many people can’t even find a first job and few families still have the savings to help.

The 90+ day delinquency rates in every state are at historic levels. And the percentage of these borrowers who will be able to catch up on their payments are at all time lows. In this graph from Calculated Risk, we can see that delinquencies (the blue section of each bar) far outnumber current foreclosures (the red portion).

Below is a graph showing the cure rates on mortgages 30, 60 and 90 days behind in 2005 and the cure rates today.  The cure rate is the percentage of homeowners that will catch up on their payments.  Notice the severe drop between 2005 and today.

Cure Rate

Let’s only consider those mortgages that are already 90 days+ behind. Once a home falls ninety days behind, there is less than a 1% chance the homeowner will catch up without outside help. If we calculate the number of homes currently 90 days behind based on numbers from the Mortgage Bankers Association, we get over two million homes. Ninety nine percent of them will fall into the modification, foreclosure or short sale category.

What could this do to home prices this year? A Wall Street Journal Blog 12/29/09 titled Economists React: ‘Prices Have Further to Fall

One in four mortgages are currently underwater. Foreclosure and delinquency rates, which hit a record high at the end of the third quarter of 2009, are therefore likely to continue to rise, perhaps sharply. In addition to this, the inventory of homes for sale remains near record highs. … Despite the recent positive reports on housing prices, we believe that prices have further to fall—about another 5%-10%. — Patrick Newport, IHS Global Insight

And the luxury market could be hit the hardest. Below are two interesting graphs from data collected by First American CoreLogic. The first shows the percentage delinquencies of homes with different mortgage balances:

As we can see, the highest percentage of houses 90+ delinquent is in the $1,000,000 and above category. And that number is up over 250% from just a year ago which is shown in the second slide:

Delinquencies have to be considered one of the greatest challenges to a real estate recovery in 2010. We will keep our eye on this category and report back as this topic evolves.

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8 replies
    • Steve Harney
      Steve Harney says:

      Hi John,
      Great question. I think the differences can be explained in two points.

      1.) The Fed report you have attached (btw, thank you) has a different definition of seriously deliquent. They see it as loans 60 days delinquent.

      “With all of that said, we test the proposition that servicers engage in other loss mitigation actions by looking at the “cure rate.” This is the percentage of loans that transition to current status after becoming 60-days delinquent.”

      Our post was concentrating on loans 90+ days delinquent.

      2.) The Fed Report is dated.

      The Fed report is dated July 6 , 2009. Much has changed since then. Just seven weeks after this report was issued there was a dramatic decrease in cure rates. In a press release dated August 24,2009, Fitch reported:

      Delinquency cure rates refer to the percentage of delinquent loans returning to a current payment status each month. Cure rates have declined from an average of 45% during 2000-2006 to the currently level of 6.6%. …

      Then in September, Amherst Securities reported that the ‘cure rate’ for 90+ day delinquencies dropped to 0.8%

      Cure rates for these distressed loans remain low. Amherst noted a near 0% cure rate of all loans in foreclosure, 0.8% for 90 plus days delinquent, 4.4% for 60 days delinquent and 26.5% for 30-day delinquencies. All told, Amherst expects 12.42% of units (from the 13.54% of properties delinquent and in foreclosure) to eventually liquidate.

      Hope this helps explain the broad difference.



Trackbacks & Pingbacks

  1. […] posted on the fact that, once a borrower has fallen 90 days behind on their mortgage, there is less than a 1% chance they will ever catch up on their payments. The home will become a distressed property (foreclosure or short […]

  2. […] Foreclosures Homeowners can’t pay their mortgages and are being forced from their homes. Others can pay but decide to just ‘walk away’ […]

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