Mortgage Delinquencies Break Record In Q2

Isn't the economy supposed to be improving? First, we heard today's awful news that jobless claims have risen and reversed course. Now we learn that in the second quarter mortgage delinquencies hit a new all time high since the Mortgage Bankers Association started keeping track in 1972. Here's some detail from the MBA's release:

The delinquency rate for mortgage loans on one-to-four-unit residential properties rose to a seasonally adjusted rate of 9.24 percent of all loans outstanding as of the end of the second quarter of 2009, up 12 basis points from the first quarter of 2009, and up 283 basis points from one year ago, according to the Mortgage Bankers Association's (MBA) National Delinquency Survey. The non-seasonally adjusted delinquency rate increased 64 basis points from 8.22 percent in the first quarter of 2009 to 8.86 percent this quarter.

That rate includes mortgages that are at least one payment past due, but not in foreclosure. The combined number including foreclosures is even uglier. Loans in delinquency or foreclosure totaled 13.16% in the second quarter, another new record.

Here's some additional detail from the release regarding foreclosure:

The percentage of loans on which foreclosure actions were started during the second quarter was 1.36 percent, down one basis point from last quarter and up 28 basis points from one year ago.

In other words, the rate of new foreclosures has been flat all year. Optimists might take heart in knowing that this rate isn't increasing, but cynics will also point out that it isn't decreasing either, despite Washington's efforts to stop the bleeding. I wrote earlier about some additional trouble for the Treasury's foreclosure prevention program. The program's problems certainly don't bode well for the prospect of bringing that number down in the 3rd quarter. Still, the program's architects might want to take credit for the fact that the number does not continue to climb. It is having some effect, just not as great an effect as most in Washington probably hoped.

And there's yet another depressing new record, from the MBA report:

The percentages of loans 90 days or more past due and loans in foreclosure both set new record highs, breaking records set last quarter.

Any loan 90 days past due is pretty much destined to fail. That's the point at which most banks will write-off the loan as a potential loss. After 90 days, they're generally considered "defaulted" instead of just "delinquent."

Which states' homeowners are feeling the most pain? It's the usual suspects. Unsurprisingly, Florida is the worst:

"Florida continues to establish itself as the worst state in the union for mortgage performance, closely followed only by Nevada. In Florida 12 percent of mortgages were somewhere in the process of foreclosure, the highest in the nation, and another 5 percent were at least 90 days past due as of the end of June. A total of 22.8 percent were delinquent at least one payment or in the process of foreclosure, which is almost twice the national percentage if the Florida numbers are excluded. In contrast, the next highest states are Nevada at 21.3 percent, Arizona at 16.3 percent and Michigan at 15.3 percent.

Nearly one in four mortgages in Florida are delinquent or in foreclosure. That's astounding. When I think about the street I grew up on in South Florida, it contained 12 houses. Statistically around three of those homes are having trouble paying their mortgage. From what I hear from my parents who still live there, that number sounds about right.

And finally some news that sounds good at first, but is really just bad:

"While the rate of new foreclosures started was essentially unchanged from last quarter's record high, there was a major drop in foreclosures on subprime ARM loans. The drop, however, was offset by increases in the foreclosure rates on the other types of loans, with prime fixed-rate loans having the biggest increase. As a sign that mortgage performance is once again being driven by unemployment, prime fixed-rate loans now account for one in three foreclosure starts. A year ago they accounted for one in five. While 41 states had increases in the foreclosure start rate for prime fixed-rate loans, 43 states had decreases in that rate for subprime adjustable-rate loans," said Jay Brinkmann, MBA's Chief Economist.

Yes, subprime mortgage foreclosures are decreasing, but prime loans going bad are taking their place. Way back in May I first noted this phenomenon. This trend will likely continue until unemployment begins tangibly decreasing.

I don't want to be all doom and gloom, so I will close with some reason for hope. The Conference Board's index of leading economic indicators continues to improve. Moreover, its index of coincident economic indicators appears to have bottomed out, and may begin increasing as well. (hat tip: The Curious Capitalist) See below:

cb econ indic.jpg