US Mortgage Delinquencies Rose and Spread in Q1

Any way you look at it, extraordinary numbers of people are having trouble paying their mortgage.

What started as a subprime crisis, where borrowers defaulted because they could not handle the payments as their loans reset, has now become a crisis among prime borrowers, who lose the ability to pay their loans when they lose their jobs …

What is less clear is the extent to which the problem is getting worse, better or is simply holding its own.

Any way you look at it, extraordinary numbers of people are having trouble paying their mortgage.

What started as a subprime crisis, where borrowers defaulted because they could not handle the payments as their loans reset, has now become a crisis among prime borrowers, who lose the ability to pay their loans when they lose their jobs …

What is less clear is the extent to which the problem is getting worse, better or is simply holding its own.

Data released Wednesday by the Mortgage Bankers Association showed the mortgage delinquency rate rose in the first quarter to 9.38 percent of all loans outstanding, from 8.22 percent in same period last year.

When adjusted for seasonal variations, the default rate rose over 10 percent for the first time …

Other than delinquencies, the housing data clearly showed a market changing for the worse.

Home prices fell 0.3 percent in March from February, according to the CoreLogic Home Price Index. 

It was the latest in a string of declines, according to this article in the New York Times.

Prices are likely to drop further in the wake of the expiration of the government’s tax credit for buyers, which ended April 30. 

Applications for mortgages to buy homes last week plummeted 27 percent to the lowest level since 1997, the Mortgage Bankers said in a separate report.

The drop occurred despite mortgage rates falling to their lowest levels since November.

That drew in people wanting to refinance but was not enough to convert any prospective owners.

“The panic to buy is over,” said Tim O’Shea, manager of the Weichert Realtors office in Summit, N.J. “People are decompressing. It’s like a hangover.”

At the late April meeting of the Federal Open Market Committee, the Federal Reserve’s policy making arm, worries about housing increased.

The minutes of the meeting said the housing recovery “appeared to have stalled in recent months despite various forms of government support.”

Some participants thought that elevated numbers of foreclosures might add to the large inventory of vacant homes, “posing a downside risk to home prices,” the minutes said.

Lower prices would be good for entry-level buyers, but would further erode equity among current owners, many of whom owe more than their home is worth.

If prices fall further, these owners could walk away from their houses. That would increase the number of foreclosures.

Mortgage bankers, who have been conducting a quarterly survey since 1953,

define delinquency as being at least one payment behind but not yet in foreclosure,

which is a legal action initiated by the lender after at least three months.

Foreclosures can stretch on for more than a year, particularly if the homeowner actively tries for a loan modification or other remedies.

Several broad trends are visible from the mortgage data.

The widest range of people in trouble — from those who have missed one payment to those awaiting eviction —

is roughly one in seven of the 52 million households with mortgages.

While fewer people are entering this group, thanks to an economy that is stabilizing, not many seem to be exiting it either.

The government’s efforts to encourage lenders to modify loans is leaving a lot of strapped borrowers in limbo, for better or worse.

“There are still a lot of bad loans we need to work through,” said Mr. Brinkmann.

The percentage of loans in foreclosure increased to 4.63 percent in the first quarter, from 3.85 percent a year ago, the bankers group said.

The rate was essentially flat with the rate at the end of the year, however, indicating a possible leveling off …

The percentage of new foreclosures in the first quarter that were prime fixed-rate loans — traditionally the most conservative kind of mortgage — was 36.7 percent,

up from 28.9 percent last year. Meanwhile, the rate for subprime loans fell.

Another shift is becoming evident:

the crisis is moving away from the “sand states” where the housing bubble was the biggest — Southern California, Nevada, Arizona and Florida — to those with troubled economies.

The states where the percentage of severely delinquent borrowers increased the most over the last year include Rhode Island, Illinois and Michigan.