Mortgage delinquencies at historic highs

We’ve got another post that will be coming up later tonight (or tomorrow morning, depending on time frames) that addresses the often repeated statement by the National Association of Realtors –  ”It’s a Great Time to Buy a House!”

This is another of those type of reports.   If you listen to a lot of the news reports, it would appear that the mortgage delinquencies are going down.   They really aren’t, at least not according to this report.    They are just not getting worse as quickly.

Isn’t that sort of like, “Gee, the water in my basement is only rising by 6 inches an hour rather than a foot an hour.   That’s nice……”

Huh?

The state of the housing market has long reached a point where it’s good news to hear, “It’s not getting worse.” Unfortunately, according to a firm that tracks borrowers behind on their mortgages, you can conclude at best, “It’s getting worse, but less quickly.”…..

……LPS says, “The pace of deterioration has slowed.” Thats the supposed good news. But I have a hard time thinking optimistically about this, not just because in January alone 346,000 borrowers fell behind on their payments for the first time. The other disturbing statistic is that older loans make up a higher percentage of new delinquencies — that means people who already had fallen behind and pulled themselves out of it maybe through a loan modification program are delinquent again. This confirms what many have said about the federal programs to reshape mortgages into loans people can actually pay: Theyre not doing the job for enough people.

via Mortgage delinquencies at historic highs – Personal Finance blog – Money Magazines More Money.

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Existing Home Sales and Contradictory Statements by the National Association of Realtors

Quick glance at the numbers this morning shows some surprises:

• While it appears that first time home buyers are jumping on the bandwagon to buy a house before the tax credit runs out in November, the overall home sales are down in August.
• This caught the market by surprise.

Now read the statement in bold print at the bottom of the article.   And then ask yourself two questions:

• If Lawrence Yun really believes that the market is reaching a self sustaining recovery, then why is the National Association of Realtors lobbying so hard for the tax credit extension?
• If NAR believes that the  market is reaching a place of recovery, then why should we continue to pay $43,000 for every additional home sale due to the tax credit?

It doesn’t balance out, not by a long shot.

Tom

Existing home sales drop 2.7% to 5.10 million – MarketWatch

WASHINGTON (MarketWatch) – Resales of U.S. homes dropped 2.7% in August to a seasonally adjusted annual rate of 5.10 million, the first decline in five months, the National Association of Realtors reported Thursday.

The August existing-home sales figures represent “a mild retreat from a very strong gain in July,” said Lawrence Yun, chief economist for the real estate trade group. The August sales pace was the second highest in 23 months, he said.

The decline in sales was unexpected by most economists. The median forecast by economists surveyed by MarketWatch was for a small gain to a 5.40 million annual rate from 5.25 million in July.

Sales are up 13.6% from January’s bottom.

“We are very close to reaching the point of a self-sustaining recovery,” Yun said. The realtors are still “lobbying very hard” for Congress to extend and expand the $8,000 tax credit for first-time home buyers.

Technorati Tags: National Association of Realtors, Existing Home Sales

Investor Sues to Block Mortgage Modifications

The battle over the mass modifications of troubled mortgages has begun in earnest. On Dec. 1, William Frey, a private investor in mortgage-backed securities, filed a lawsuit in New York State Supreme Court alleging that the proposed modification of some 400,000 home loans originally underwritten by the defunct lender Countrywide Financial is illegal.

Investor Sues to Block Mortgage Modifications – Yahoo! News.

At first glance, you’re probably thinking what I was (well, maybe not…) but seriously, why would some mean hearted investor want to prevent Bank of America from helping 400,000 home owners stay in their homes?

Let me attempt to explain:

1. Countrywide wrote the loans and sold them on the secondary market.
2. When they sold them, they didn’t sell them in 1 piece, they sold sections (called tranches) to a multitude of different investors and investment companies.   It’s actually possible that parts of one mortgage end up being owned by 30 different “parties.”
3. The parties who bought these loans bought them as contracts that had a prepayment risk but didn’t buy them with a modification risk.
4. When a loan gets modified, it changes that contract which inherently changes the value of the investment.
5. The investors who are suing to stop it are saying that if you start changing the contracts, you are going to effectively ruin the secondary mortgage market because suddenly the value of the loans that are sold becomes an unknown.
6. If the secondary mortgage market dies, then the housing market dies.   It’s just that simple, without mortgage money, the party is over.

Are the investors saying that the loans shouldn’t be modified?   No they aren’t.   What they are saying is, “I didn’t buy this investment with the thinking that it could be modified going forward.”   So if you, Mr. B of A, want to change the terms, that’s fine, buy it back and change the terms.

The investors are, it seems to me, hoping for one of two results:

1. That Bank of America will buy the loans back (with our help of course).
2. That they take their chances with foreclosures.  Given the report that the National Association of Realtors issued earlier on Mortgage Modification Defaul Rates of 50%, that’s not a compelling case for loan modifications.

So are the mean, evil heartless investors really that bad?  Nope, they made a contract with Bank of America and they are saying that there is something bigger at stake than modifying a “few” loans.

Stay tuned, it’s going to be an interesting thing to follow…..

Tom Vanderwell