August 13, 2009

Has the mortgage market stabilized?

No, says Matthew Padila. And we actually haven’t yet seen the crest of the wave of foreclosures that began in early 2007. Government has been fiddling with the REO [Real Estate Owned] numbers through various schemes, but the important thing to look at is the 90+ day delinquency rate—which is still pushing inexorably upwards. According to Deutsche Bank, 50 percent of residential mortgages in the U.S. will be “underwater” by 2011. Something wicked this way comes.   

There is no second foreclosure wave coming, says Sam Khater, senior economist, First American CoreLogic.

?To say there is a second wave implies the (current) wave has receded,? Khater told me. ?I don?t see that the wave has receded.?

Khater shared his historical data of 90-day delinquency rates for Orange County, as well as the foreclosure-in-process rates and rates of REOs, or foreclosures on banks? books. The 90-day rate includes all outstanding first mortgages at least three months late but not yet foreclosed. The foreclosure rate is just first mortgages with a notice of default or trustee?s sale filing. (Previously the person who distributes the report for First American told me the two rates did not overlap, but Khater, who compiles the data, said they do.)
If you look at the 90-day rate it has been heading straight up ? it has not receded.

Khater said the foreclosure rate and REO rates have been impacted by government tinkering in the market. He said federal and state efforts have mostly delayed foreclosures, preventing few. The same is true for loan modifications ? they fail about half the time.

So to tune out the noise, just look at the 90-day rate. In Khater?s view it shows ?one giant wave.?

[ht: Ed Steer]



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