Foreclosures Set Records as Housing Troubles Worsen
By Kevin G. Hall
Washington - More than one of every 20 home mortgages was delinquent during the last three months of 2007, the highest level in 23 years, according to a report Thursday by the Mortgage Bankers Association.
The group's National Delinquency Survey also found that the rate of foreclosures and the percent of loans in the process of foreclosure reached record levels during the period.
Homeowners with adjustable-rate subprime mortgages, loans given to borrowers with the weakest credit records, were particularly hard hit. One in every five outstanding subprime ARM was delinquent in fourth quarter 2007; one in every 20 already was in foreclosure.
The percentage of overall home loans in delinquency, 5.8 percent, is second only to a period in 1985, when low oil prices caused an economic downturn in the nation's oil-producing region.
More than 938,000 home loans were in foreclosure nationwide in the fourth quarter of 2007, a record 2 percent of all outstanding home loans. In all, more than 3.6 million mortgages were past due or in foreclosure proceedings across the country during the final three months of last year. Of those, nearly 381,700 entered foreclosure in the quarter, another record.
Borrowers with good credit weren't immune. About 5.5 percent of all adjustable-rate prime mortgages were past due in fourth quarter 2007, more than double the rate at the beginning of 2006, shortly before the housing market became unhinged.
California and Florida, which together account for one of every five home loans nationwide and 30 percent of new foreclosures, are dragging down the national housing numbers. Their housing problems matter to the rest of the nation because together they account for about 18.5 percent of the nation's economic activity.
"To the extent that there is an intermingling of economics of the housing market and the economy ... it will have an effect on the broader marketplace," said Doug Duncan, the chief economist for the bankers' group.
More than 5.3 percent of the nearly 6 million outstanding home loans in California were delinquent in the fourth quarter, and more than 7.4 percent of Florida's 3.5 million loans were past due. Mississippi, Michigan and Georgia have the highest overall delinquency percentages (11.07, 8.97 and 8.37, respectively), but California and Florida drag down the national average by their sheer size.
The outlook grows more complex when Arizona and Nevada are added to California and Florida. The four states suffer from a glut of new and existing homes, have a higher-than-average number of adjustable-rate loans and are seeing the biggest price drops.
Late last year, Treasury Secretary Henry Paulson secured a pledge from mortgage lenders to work expeditiously to modify loans and prevent foreclosures. The effort began in December, so the fourth-quarter data don't reflect its results.
Federal Reserve Chairman Ben Bernanke on Tuesday called on lenders to be more aggressive in modifying problem loans. It was seen as a rebuke of Paulson's efforts with lenders.
Modifying loans is no easy task. Banks no longer hold loans on their books; instead, they sell them into a secondary market where loans are bundled with others and sold to investors as mortgage bonds. It's a process called securitization or syndication.
Securitizers have stopped bundling loans given to the weakest borrowers. Federal Reserve Governor Frederic Mishkin on Tuesday described subprime lending as "already dead as a doornail."
And the resale of loans representing anything but the best credit also is drying up.
Investors right now have little appetite for mortgage bonds since the collateral that backs the loans - the homes themselves - are falling in value.
And since investors, not banks, now hold mortgage bonds, it further complicates a workout to prevent foreclosure.
"What's unusual now is so much of the housing debt has been syndicated, placed in complex structures, so you cannot have face-to-face negotiations between the bankers and the homeowners," said Martin Feldstein, a Harvard University economist and head of the National Bureau of Economic Research.
Thursday's numbers confirm a downward spiral. Lenders have tightened their underwriting standards, making it harder to get loans. That also makes it harder to sell a house, and the longer a home sits on the market, the more it drives down local prices.
The Federal Housing Administration announced on Wednesday higher limits for the loans it guarantees in 14 hard-hit California counties. The FHA now will be able to guarantee loans worth up to $729,750 in California, and the agency is set to announce new loan limits nationwide.
This temporary increase in loan limits was part of a fiscal stimulus package passed by Congress and signed by President Bush last month. The package also allows government-sponsored mortgage bundlers Fannie Mae and Freddie Mac to increase the maximum loan value they can purchase to up to $729,750. Actual limits will vary nationwide based on median home prices.
But the effects of the stimulus package won't be felt anytime soon.
"It won't start affecting the marketplace for three to six months," said Duncan, the chief economist. "That will not be a near-term solution, but will provide some assistance down the road."
As Foreclosures Rise, Investors Pull Back
By Vikas Bajaj
The New York Times
Friday 07 March 2008
Washington - Defaults on home mortgages touched another historic high late last year as foreclosures on adjustable-rate mortgages surged, an industry group reported on Thursday.
The figures are expected to increase pressure on policy makers and the mortgage industry to move faster to contain losses and help homeowners. In recent days, regulators and lawmakers have begun suggesting that the federal government might need to take a bigger role in the mortgage business.
The Mortgage Bankers Association reported Thursday that loans past due or in foreclosure jumped to 7.9 percent of the total in the fourth quarter, from 7.3 percent at the end of September and 6.1 percent from December 2006. Before the third quarter, the rate had never exceeded 7 percent since 1979, the earliest year for which figures are available.
The report, along with news that some investors were having trouble paying back their banks, helped drive down the stock and credit markets on Thursday. The Standard & Poor's 500-stock index fell 2.2 percent and the Dow Jones industrial average fell 1.8 percent.
Though defaults increased across the country, much of the rise came from a handful of large states like California and Florida. Those two states account for about 21 percent of all mortgages but 30 percent of the new foreclosures. Nevada, Arizona, Michigan and Ohio also had high default rates.
Defaults were highest on adjustable-rate mortgages, those that start with lower fixed interest rates but reset to higher, variable rates after a few years. The mortgage bankers group, however, said the "bulk" of the troubled loans have been defaulting even before rates have been reset.
"The massive wave of foreclosure and delinquencies is overwhelming," said Rod Dubitsky, who heads asset-backed securities research at Credit Suisse. "A large percent of people didn't have equity to begin with, and their ability to pay was stretched because of stated-income loans," for which lenders do not verify borrowers' incomes.
While more than a quarter of loans made to people with blemished, or subprime, credit were past due or in foreclosure, the number of prime adjustable-rate loans in trouble also rose rapidly, to 8.1 percent from 4.3 percent in 2006. By contrast, only 3.1 percent of prime fixed-rate loans were past due or in foreclosure, up from 2.7 percent a year earlier.
The Mortgage Bankers figures are based on a survey of 46 million first mortgages, about 85 percent of all home loans. Among the loans surveyed, about 3.6 million were past due or in foreclosure.
Analysts and industry officials say they expect default rates will continue rising as home prices fall and banks and investors remain unwilling to lend and buy mortgage securities. Reinforcing that view, Citigroup, one of the nation's largest mortgage lenders, said Thursday that it would reduce its holdings of mortgage and home-equity loans by about 20 percent over the next year.
The Federal Reserve, meantime, released data on Thursday showing American households' combined net worth fell by $532.9 billion, or 3.6 percent, in the fourth quarter. Falling real estate values accounted for a third of the total decline.
This week, the Fed chairman, Ben S. Bernanke, called on lenders to move more aggressively to reduce the principal on delinquent loans to adjust them for the drop in home prices. He also said the Federal Housing Administration, a government mortgage insurance program, should guarantee more loans. The F.H.A. said Thursday that more than 20 counties across the country would see limits on mortgages backed by Fannie Mae and Freddie Mac rise to $729,750, the maximum set by the economic stimulus bill.
Representative Barney Frank, Democrat of Massachusetts and the chairman of the House Financial Services Committee, plans to unveil the details of a proposal to refinance hundreds of thousands of mortgages and provide the new loan insurance from the F.H.A. He has also said that some of the loans or homes could be bought by the federal government, a step that the Bush administration opposes.
In a speech Thursday, the president of the Federal Reserve of Boston, Eric S. Rosengren, said a more aggressive plan that involves the F.H.A could benefit mortgage investors and borrowers by reducing the costs and delays associated with foreclosure. In exchange for writing down the amount owed on the loans, investors could receive a share of any profits from a sale of the home in the future, he added.
Noting that others had proposed similar ideas, Mr. Rosengren said "there may be a significant cost to delaying needed actions."
Still, even if politicians move quickly to agree on a plan, it will take time to implement any recovery effort and many delinquent borrowers will not qualify for help.
Mr. Rosengren noted that a regional effort being coordinated by the Boston Fed with six banks had received over 1,000 inquiries and taken in 50 loan applications in two months. But only a dozen loans have been closed.
He also said that an analysis of subprime loans in Rhode Island, Connecticut and Massachusetts showed that only 16 percent of those borrowers could refinance their loans with a mortgage backed by the F.H.A. under the program's current guidelines. A proposal to liberalize the program that Congress is considering could expand the program to 250,000 more borrowers, according to the administration.
Further, the owners of 18 percent of the homes in foreclosure do not live in their properties, according to the Mortgage Bankers Association, indicating that they were owned by speculators who are walking away from soured investments.
In 1985, the last time delinquency and foreclosure rates were near today's rates, the problems were concentrated in a handful of states like Texas and Oklahoma that were suffering because of a big drop in oil prices. That forced many people to leave their homes to look for work in other states, said Jay Brinkman, a vice president for research and an economist at the Mortgage Bankers Association.
"Those homes then went to foreclosure but you didn't have the same sort of national issue," Mr. Brinkman said. "What we have now is a more broad-based oversupply of homes."
Loan Limits Raised
Washington - The government on Thursday raised the limits for loans that can be purchased by the mortgage companies Fannie Mae and Freddie Mac in more than 220 cities and counties.
As result of the economic stimulus package signed by President Bush last month, the limits have been temporarily raised to a new maximum of $729,750 for the continental United States.
Areas affected range from Flagstaff, Ariz., to Boston to Virginia Beach, and include more than 20 rural areas, according to the Office of Federal Housing Enterprise Oversight, which regulates Fannie Mae and Freddie Mac.
The Department of Housing and Urban Development made a similar change for loans backed by the Federal Housing Administration, where limits were raised to as high as $729,750 in expensive areas.