One in 10 American homeowners fell behind on mortgage payments or were in foreclosure

Mortgage Delinquencies, Foreclosures Rise to Record (Update3)
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By Kathleen M. Howley

Dec. 5 (Bloomberg) -- One in 10 American homeowners fell behind on mortgage payments or were in foreclosure during the third quarter as the world’s largest economy shed jobs and real estate prices tumbled.

The share of mortgages 30 days or more overdue rose to a seasonally adjusted 6.99 percent while loans already in foreclosure rose to 2.97 percent, both all-time highs in a survey that goes back 29 years, the Mortgage Bankers Association said in a report today. The gain in delinquencies was driven by an increase of loans with payments 90 days or more overdue.

“Until we see a turnaround in the job situation, we’re not going to see these numbers improve,” said Jay Brinkmann, chief economist of the Washington-based bankers group, in an interview. “We’re seeing more loans build up in the 90-days bucket as lenders work to modify loans and states put in place programs that delay foreclosures.”

The U.S. economy has shed 1.91 million jobs this year, while falling home prices have made it difficult for people who can’t pay their mortgages to sell their property. Payrolls declined in each month of 2008 through November, the Labor Department said today in Washington.

New foreclosures fell to 1.07 percent from 1.08 percent in the second quarter as some states enacted laws to temporarily stop home repossessions and lenders increased efforts to modify the terms of loans, Brinkmann said.

Home Sales Sink

“Some servicers keep a loan in a delinquent state until they see customers carrying through on their agreements, and then they’ll switch it to performing,” Brinkmann said.

U.S. home sales and prices began to tumble in 2006 after a five-year boom, dragging the economy into a recession that began in December 2007, according to the National Bureau of Economic Research.

The median home price in the fourth quarter probably will be $190,300, down 19 percent from the record $226,800 in 2006’s second quarter, according to a Nov. 24 forecast by Fannie Mae, the world’s largest mortgage buyer.

Purchases of existing homes in October slid to an annual rate of 4.98 million, lower than forecast, the National Association of Realtors said in a Nov. 24 report. The median price fell 11.3 percent from a year earlier, the most since the group began collecting data in 1968.

Federal Reserve Chairman Ben S. Bernanke yesterday urged using more taxpayer funds for new efforts to prevent home foreclosures, saying the private sector is incapable of coping with the crisis on its own.

Bernanke’s Plans

The Fed chief outlined four possible options, including buying delinquent mortgages and providing bigger incentives for refinancing loans. He called for addressing the “apparent market failure” where lenders aren’t modifying mortgages even in cases where it’s in their own economic interest to do so.

Bernanke’s proposed changes would go beyond those announced last month by Housing and Urban Development Secretary Steve Preston, who oversees the FHA. The agency will change the amount of the loan a lender must forgive and allow banks to extend the payback time of a mortgage.

There were 111.7 million occupied housing units in the U.S. in the third quarter, 68 percent used by owners and the remainder leased by renters, according to the Census Bureau. One in three U.S. homes has no mortgage, the bureau said.

The bankers’ report cites percentages without providing the number of mortgages. The U.S. had $11.3 trillion of outstanding home loans at the end of June, according to Federal Reserve data. Mortgage lending fell to $80.8 billion in the second quarter, down from $764 billion a year earlier, the Fed said.

The Mortgage Bankers report is based on a survey of 45.5 million loans by mortgage companies, commercial banks, thrifts, credit unions and other financial institutions.

A break for some Mortgage Crisis Humor...

I thought this was funny.

Delinquency Rates Soar According to Bloomberg...

Bloomberg U.S. Mortgage Delinquency, Foreclosure Rates (Table)

2008-11-17 12:33:09.850 GMT

By Alex Tanzi

Nov. 17 (Bloomberg) -- The following table shows residential mortgage delinquency rates for U.S. loans as reported by the Bloomberg non-agency database comprised of over 45 million securitized loans.

*T

=========================================================================

10/31/08 09/30/08 08/31/08 10/31/07 10/31/06 =========================================================================

Bankruptcy 1.35% 1.28% 1.23% 0.77% 0.85%

of which Prime 0.60% 0.53% 0.50% 0.18% 0.13%

of which Alt-A 1.06% 0.93% 0.87% 0.35% 0.02%

of which Subprime 2.52% 2.44% 2.38% 1.60% 2.08%

Foreclosure 7.20% 7.10% 6.83% 3.37% 1.34%

of which Prime 3.34% 3.25% 3.03% 0.87% 0.22%

of which Alt-A 6.04% 5.82% 5.56% 1.73% 0.37%

of which Subprime 12.54% 12.39% 12.03% 6.66% 2.80%

Real Estate Owned 4.20% 4.13% 3.96% 1.64% 0.49%

of which Prime 1.66% 1.54% 1.42% 0.37% 0.07%

of which Alt-A 2.89% 2.76% 2.52% 0.70% 0.13%

of which Subprime 7.96% 7.90% 7.67% 3.37% 1.03%

=========================================================================

10/31/08 09/30/08 08/31/08 10/31/07 10/31/06 =========================================================================

Delinq. (30,60,90,REO&Fore) 20.87% 20.22% 19.27% 11.48% 6.09%

of which Prime 10.12% 9.57% 8.80% 3.96% 1.78%

of which Alt-A 18.96% 18.10% 16.74% 7.95% 3.48%

of which Subprime 35.14% 34.23% 33.16% 20.37% 10.85%

Delinquency (30 days) 3.59% 3.56% 3.28% 3.09% 1.97%

of which Prime 2.02% 2.04% 1.81% 1.48% 0.85%

of which Alt-A 4.09% 4.06% 3.64% 3.22% 1.93%

of which Subprime 5.31% 5.18% 4.91% 4.73% 3.15%

Delinquency (60 days) 2.07% 1.99% 1.86% 1.50% 0.73%

of which Prime 1.15% 1.09% 1.01% 0.56% 0.21%

of which Alt-A 2.22% 2.14% 1.93% 1.24% 0.45%

of which Subprime 3.15% 3.02% 2.85% 2.58% 1.37%

Delinquency (60+ days) 17.28% 16.66% 15.99% 8.05% 3.53%

of which Prime 8.09% 7.53% 6.98% 2.26% 0.70%

of which Alt-A 14.87% 14.04% 13.10% 4.68% 1.32%

of which Subprime 29.81% 29.03% 28.23% 15.47% 7.18%

-------------------------------------------------------------------------

=========================================================================

10/31/08 09/30/08 08/31/08 10/31/07 10/31/06 =========================================================================

Delinquency (90 days) 3.80% 3.44% 3.34% 1.50% 0.97%

of which Prime 1.95% 1.64% 1.52% 0.44% 0.19%

of which Alt-A 3.72% 3.32% 3.08% 1.00% 0.36%

of which Subprime 6.12% 5.68% 5.64% 2.80% 1.97%

Delinquency (90+ days) 15.20% 14.67% 14.13% 6.55% 2.80%

of which Prime 6.94% 6.44% 5.98% 1.70% 0.49%

of which Alt-A 12.65% 11.90% 11.16% 3.44% 0.86%

of which Subprime 26.64% 25.99% 25.36% 12.88% 5.81%

=========================================================================

SOURCE: Bloomberg non-agency database of 45 million securitized loans.

--Editors: Alex Tanzi

Homeowners Find Loan Modifications Slow, Difficult

SAN FRANCISCO (CBS 5) ― Ask anyone who has tried a loan modification, and chances are the process took months or wasn't successful.

The numbers say it all. HUD's loan modification program was supposed to help 400,000 borrowers. So far it's helped only 42. Countrywide's program was so ineffective the bank was sued.

Greg Jewell, a loan negotiator has figured out the only way to get heard is to go right to the top. He's bombarding bank executives. "That's the person I got a hold of Saturday," he explained to his client, Toni Dalrymple.

Dalrymple bought in Mountain House -- a town southwest of Stockton -- where the majority of homes are underwater. She paid $800,000 and it's now worth less than half that.

The clock is ticking. If she doesn't get payments reduced fast, she'll have to walk away. The delay is caused by a common problem for Bay Area residents. Many have big loans that were sliced up and sold to investors here and overseas.

"My mortgage loan was sold to another investor and there's a problem getting another investor to jump on board," said Dalrymple.

Glen Brown faces similar obstacles. The car salesman lost a third of his income, and went to his bank, Wells Fargo, to adjust his loan payments. The bank told him he wasn't eligible until he went late on payments. So he skipped two payments on purpose to get attention.

Five months later, "It was like a cat chasing his tail. There was always a roadblock. You never talk to the same person," said Brown.

Brown said that's because banks don't want to talk to the homeowner. The call centers are often filled with inexperienced operators. It's a complicated game that has taken him over a year to figure out.

FDIC lays out broad home loan modification plan

By Karey Wutkowski

WASHINGTON (Reuters) - The federal agency that insures most U.S. bank deposits unveiled a plan to prevent about 1.5 million home mortgage foreclosures by promising to share any losses with mortgage companies that agree to refinance certain home loans.

The agency, the Federal Deposit Insurance Corp, said on Friday the plan would cost the government about $24.4 billion, which could be paid from the U.S. Treasury's $700 billion bailout program for the financial industry.

So far, most of the money in the bailout program, the Troubled Asset Relief Program, or TARP, has been injected as capital into banks.

FDIC Chairman Sheila Bair, who spent weeks unsuccessfully lobbying Bush administration officials for the foreclosure prevention plan, unveiled her agency's proposal two days after Treasury Secretary Henry Paulson dismissed the idea of the government underwriting failing home loans.

Paulson told reporters on Wednesday, "That (foreclosure plan) is a subsidy, or spending, program. The TARP was investment, not spending."

The FDIC pushed forward with its plan, posting it on its website Friday morning (http://www.fdic.gov/consumers/loans/loanmod/index.html).

"Although foreclosures are costly to lenders, borrowers and communities, the pace of loan modifications continues to be extremely slow," the FDIC said. "It is imperative to provide incentives to achieve a sufficient scale in loan modifications to stem the reductions in housing prices and rising foreclosures."

The FDIC said its plan would modify about 2.2 million mortgage loans by offering financial incentives to mortgage servicers. It would pay servicers $1,000 to cover expenses for each loan modified to the required standards, and would promise to share up to 50 percent of losses incurred if a modified loan defaults.

Eligible borrowers would include those who have missed at least two monthly payments on loans for homes they live in. Servicers would be expected to lower those borrowers' monthly payments to about 31 percent of the borrowers' monthly income.

The Treasury Department said on Friday that it was aggressively looking at ways to reduce skyrocketing home foreclosures under the TARP.

"We continue to aggressively examine strategies to mitigate foreclosures and maximize loan modifications, which are a key part of working through the necessary housing correction and maintaining the strength of our communities," Treasury Interim Assistant Secretary Neel Kashkari said in testimony prepared for delivery to a U.S. House of Representatives committee.

Upside Down? Go Short!

http://www.sandiegoreader.com/news/2008/oct/08/city-light-1/

In San Diego’s hemorrhaging real estate industry, it’s better to be upside-down and rich than upside-down and poor. That may sound axiomatic — it’s always nicer to be rich than poor — but carriage-trade folks whose homes are underwater can work the system more easily than poor folks in the same sorry situation.
The key is the short sale, in which a lender agrees to discount a loan balance when a house is upside-down — that is, the home is worth less than the balance on the mortgage. In a short sale, the homeowner sells the asset for less than the outstanding balance of the mortgage on the property, and the bank is willing to accept the lower figure, often to avoid the expense and hassle of foreclosing and dumping the property on a glutted market.
A short sale can be a good deal for the seller because, generally speaking, one’s credit record is less damaged from a short sale than a foreclosure.
I checked HouseRebate.com for information on short sale and foreclosure homes that are currently for sale. I got information on average single-family home prices from DQNews.com. Generally, there are more short sales and foreclosures in the poorer areas than the richer ones. For example, in Encanto, there are 101 foreclosures and 191 short sales on the market. In the 92067 zip code of Rancho Santa Fe, there are zero foreclosures and 7 short sales. The ratio of short sales to foreclosures is higher in the affluent areas. On a relative basis, wealthier people are taking advantage of short sales more than poor and moderate-income people are.
On the surface, this would seem to be an anomaly. “Banks check out clients to be sure they need a short sale,” says John Smith of Old Mission Mortgage. “They are not going to let Donald Trump do a short sale. They do due diligence on the client. Possibly we [have had] some very unqualified borrowers in some big homes — people buying on speculation that they could flip [sell] the house in a year.” These flippers may or may not qualify for a short sale.
Here are some examples: listed are the name of the market, the median price of a single-family home there, and the ratio of short sales to foreclosures. Coronado, $1.3 million, 5 to 1; La Jolla, $1.8 million, 5.6 to 1; Scripps Ranch, $620,000, 4.4 to 1; Tierrasanta, $499,000, 9.3 to 1; Del Mar, $1.5 million, 2.8 to 1; and Carmel Valley, $865,000, 9 to 1.
By contrast, here are prices and ratios from representative lower-scale areas: National City, $212,000, 1.8 to 1; City Heights, $221,000, 2.25 to 1; Encanto, $245,000, 1.9 to 1; Logan Heights, $147,000, 2 to 1; Golden Hill, $178,000, 2.5 to 1; Paradise Hills, $260,000, 2.4 to 1; and Lemon Grove, $263,000, 2.1 to 1.
So why do the poorer people less often take advantage of the short sale? “Look at the socioeconomic base,” says Brian Yui, whose company runs the HouseRebate.com website. “People haven’t been informed about the short sale process.” Also, the foreclosure proceeding has its advantages. The family lives in the house for three or four months essentially rent-free. Then, before seizing the property, the bank pays the household $500 to $1000 to move out.
Banks take a long time to approve a short sale. “Most real estate agents steer away from short sales,” says Smith of Old Mission. “Banks are so hard to work with. However, agents get a bigger payday on a $1.5 million property than a $250,000 one.” So there is less aversion to a short sale in the upscale areas.
The affluent “have time to make a short sale,” says Sharon Hanley, market analyst for Oceanside’s New Housing Monitor. “They realize they are upside-down. Why sit here with a million-dollar loan when their house is worth $700,000? They are in a position where they can continue to make the payments” until the bank approves the deal. The opposite is true with people in poorer markets. “They were put into these crazy loans where payments are doubling and tripling.” There is urgency. Foreclosure is the easier route, and they can’t afford to worry about their credit rating.
Those blessed with prosperity “have more access to real estate attorneys or have better lender relationships,” says Peter Reeb, president of Reeb Development Consulting. “They are better able to negotiate on their own behalf.” The home may be the third or fourth or fifth they have bought through the years. “These people know how to better protect their assets, minimize losses,” while protecting their credit rating.
Agrees Peter Q. Davis, retired San Diego banker, “I would think…that those with higher home prices may have a better understanding of the tools available to them and a stronger desire to protect their credit ratings. A lot of times the high-end folks deal with friends or associates for their loans, and this could also affect their actions.”
“One reason short sales are more successful in upscale areas is that demand is higher,” says Stan Sexton of La Mesa’s New Horizons Realty. Sophisticated buyers “can afford a more expensive home and get 30 to 40 percent off.” Both buyers and sellers “are very sophisticated people with higher incomes; they know how to play the short sale game. People at the lower end are very strapped, unemployed or underemployed. Mexicans are leaving California for Mexico. They can’t get jobs here.”
Short sales can be complicated — one reason it takes banks so long to approve them. Sexton has one client with a $1.06 million mortgage. There is one offer on the property for $790,000, one for $810,000 and two for $800,000. But the bank is holding up the deal; there is a second mortgage on the property that must be unraveled. Sexton was showing property in EastLake on which the loan is $1.2 million and the bid is $639,000. “Can you imagine the amount of money these banks are eating in short sales? And they usually lose even more on a foreclosure.”
It may take eight weeks for a bank to approve a short sale, says Sexton. But the foreclosure “is approved very quickly,” he says. One reason the bank takes a long time on short sales is it doesn’t want to foster a sweetheart deal. The homeowner may sell the house to his brother-in-law at an excessively low price. Understandably, the bank wants to get all it can out of the transaction.
“Many people try the short sale first, then go into foreclosure,” says Yui. “The bank may decide [the offer] won’t qualify.”
However, a loan in the $1.5 million range “will get attention right away,” says Smith. “It’s in the bank’s interest to work with those [affluent] people” — as long as they are playing it straight.

40% Upside Down in Miami who bought in Last 5 Years

WSJ: 1 in 6 homeowners upside down, and growing
posted at 3:00 pm on October 8, 2008 by Ed Morrissey Send to a Friend printer-friendly
The Wall Street Journal paints a grim picture of the housing market today in its analysis of debt-to-equity ratios in the residential market. The rate of homeowners who owe more than their equity has increased to 16% after a 30% decline in housing values. That’s almost three times the rate in 2007 and four times the rate in 2006, and it’s likely to keep going higher:
About 75.5 million U.S. households own the homes they live in. After a housing slump that has pushed values down 30% in some areas, roughly 12 million households, or 16%, owe more than their homes are worth, according to Moody’s Economy.com.
The comparable figures were roughly 4% under water in 2006 and 6% last year, says the firm’s chief economist, Mark Zandi, who adds that “it is very possible that there will ultimately be more homeowners under water in this period than any time in our history.”
Among people who bought within the past five years, it’s worse: 29% are under water on their mortgages, according to an estimate by real-estate Web site Zillow.com.
The majority of homeowners still have equity, and even among those who don’t, many continue to make their mortgage payments on time. The financial-bailout legislation could at least “keep things from getting much worse” by helping banks avoid the need to tighten credit further, says Celia Chen, director of housing economics at Economy.com. Still, she expects housing credit to remain tight and home prices to decline in much of the country for another year or so.
The problem is more regional than national, at least at the extremes. Texas and North Carolina are experiencing a slight increase in home values, at least at the moment. The hardest-hit areas are Florida, Los Angeles, Las Vegas, and San Diego. Percentages of under-water homeowners who bought in the last 5 years go over 50% in San Diego and Las Vegas, and above 40% in Miami and Phoenix.
What will this mean? The WSJ warns that a consumer-spending freeze is coming that will slam the economy. Right now, lenders aren’t interested in selling car loans or credit on other big-ticket items, and people aren’t likely to buy them anyway. The decline in sales will result in plenty of lost jobs, which will in turn hit the residential housing market all over again. Ad sales will drop as consumer spending declines, meaning that many who rely on that for revenue will find themselves gasping for resources. And of course, as foreclosures mount, they will deepen the decline on home values.
On a brighter note, the decline has brought home prices much closer to their historical relationship to income. As that point approaches, housing prices should hit bottom and start rebounding, assuming that a massive load of foreclosures doesn’t create its own revaluation.
In looking at the WSJ’s map, in fact, the problem appears mostly concentrated in Florida and California, with hot spots in Green Bay, up the West Coast, and to a less intense extent on the northern East Coast. What does that mean politically? Does it mean that the fallout from the housing bubble can be quarantined to these regions? Interesting questions, with no real answers at the moment.