Mortgage Delinquencies Continue to Climb,
Watch Out for Other Loans

TRADER MARK / Seeking Alpha 23sep2008

It's beginning to get really ugly out there... unfortunately 13 months ago when we were told "this is just a subprime issue" we repeatedly said subprime is a symptom of the problem, not the problem — it is the tip of the iceberg — we have alt A mortgages, option ARMs, prime mortgages, credit card loans, auto loans, student loans, credit card debt. It's all coming down the pike. It appears the pike is coming right at us. This is why I cringe each time 1 data point "improves" slightly and all the Kool Aid drinking bulls clutch to it and say "ignore the rest of the data". At some point we have to move from denial to acceptance. Specific to foreclosures we are probably 70%+ of the way through the subprime — by mid 2009 they should be "done" as they were the first to falter — now we move onto the red meat. Read on for the latest round of statistics via the Wall Street Journal

• The mortgage problems behind the havoc in financial markets climbed back last month, as delinquencies jumped at the fastest pace since last year for many loan categories. Overall, 6.6% of mortgages were at least 30 days past due at the end of August, up from 5.8% at the end of June and 4.51% a year earlier
  
  
• "The disturbing thing is that mortgage quality is bad and getting worse," said Mark Zandi, chief economist of Moody's Economy.com, which has data showing a similar trend. Mr. Zandi said the latest data "argues that foreclosures will remain very, very high well into 2009 and 2010." (agree) The rise in bad loans is being driven by higher delinquencies for mortgages originated in 2006 and 2007, when lending standards were loosest.
  
  
  
• All loan categories were affected in the latest data, though the largest percentage-point increase came on subprime loans, where the delinquency rate jumped more than 2.2 percentage points from June and July levels to 24.48% in August.
  
  
• But other types of loans deteriorated rapidly, too. Delinquencies on option adjustable-rate mortgages, which let borrowers make minimum payments that may not even cover the interest due, jumped 1.17 percentage points, to 14.38% in August. Delinquencies on Alt-A mortgages, a category between prime and subprime, also rose 1.17 percentage points, to 10.73%. In previous months, increases were smaller.
  
  
• Nearly 2.4% of jumbo loans made to borrowers with good credit were at least 30 days past due at the end of August, a fourfold increase from two years ago.
  
  Loans originated before 2004 are less likely to be delinquent, largely because lending standards were tighter and borrowers are more likely to have equity in their homes. (interesting "out of box" concepts, eh?)
  
  
• Job losses also are taking a toll on borrowers, said Thomas Lawler, an independent housing economist. Until recently, "so much of the horrendous credit performance has had nothing to do with the economy," Mr. Lawler said. "Now, we clearly see the employment picture deteriorating." (and that's the next shoe — usually the economy leads housing down. This is the first case that housing leads the economy down — now we'll pile the economic malaise on TOP of the housing issues)
  
  
• Delinquencies are highest in Florida, Nevada, California and Arizona. Unemployment rose in all four of those states between July and August. The unemployment rate for California rose to 7.7% in August, up from 5.5% a year earlier, according to the Bureau of Labor Statistics. In Florida, the unemployment rate climbed to 6.5% from 4.2% during the same period.
  
  Home sales also were weak in August.. completed sales of homes in August were down 17.5% from a year earlier. That was worse than the 14% decline in July from a year before (we have "official" figures later this week)
  
  
• The new analysis suggests foreclosures are increasing at a slower pace or leveling off for subprime mortgages and Alt-A loans. That, said analysts, may partly reflect the widening use of foreclosure moratoriums and efforts by lenders to modify troubled mortgages.
  
  
• Both delinquencies and foreclosures continued to climb for option ARMs. The share of option ARMs in foreclosure jumped to 7.8% from 7.3% over the two-month period. Nearly 30% of option ARMs originated in 2006 were at least 30 days past due or in foreclosure 2½ years after origination. (that's pathetic) [Aug 13: Option ARMs — Who Thought Up These Time Bombs? (offsite link)]

source: 24sep2008