Mortgage Delinquencies Set to Soar: Report

Severe delinquencies among mortgage holders increased more than 50 percent from year-ago levels during the third quarter, according to data released Tuesday morning by credit reporting agency TransUnion LLC. At the end of Q3, 3.96 percent of homeowners were 60+ days in arrears, compared to 2.56 percent one year earlier; historically, the severe delinquency rate has held the line at roughly 2 percent. No more. Not in the face of a housing and mortgage mess that, as of yet, shows little sign of slowing down. And with the nation’s recession already 12 months old — longer than the average length of most prior recessions — it might be time to ask if strategies employed thus far by government officials and lawmakers in the name of helping bolster the economy might be doing more harm than good. “It’s nothing short of staggering,” Ezra Becker, principal consultant in TransUnion’s financial services group, told the Associated Press. Staggering, perhaps. But certainly not surprising, given the wealth of data we’ve already seen suggesting fundamental imbalances remaining in key housing markets nationwide. The agency also said that severe delinquencies could reach as high as 4.7 percent before this year is out, an estimate that reflects the effect of job loss and an extended recession. The culprit here shouldn’t surprise, if you’ve read HW for any meaningful period of time; a looming group of resets is staring down the mortgage market, many outside the subprime sector and many underwritten on 2 and 3-year timeframes. With an estimated 7.6 million U.S. households currently owing more on their home than it is worth, according to a recent study by First American CoreLogic, very few of these households will be able to refinance, even if incomes remain stable. “There are a lot more loans that will be resetting throughout 2009 through 2011,” Becker told the Wall Street Journal. “There may be an ongoing flow of consumers who may now be able to pay their mortgage but may not be able to a year from now.” Also not surprising is where those delinquencies are likely to be located — Florida, Nevada, California, and Arizona, to be more specific. All four states were among the most unsustainably overheated during the recent run-up in real estate prices; TranUnion said it now expects as many as 7.8 percent of homeowners in Florida to be delinquent by the end of this year, and another 7.7 percent of Nevada borrowers to find themselves in a similar position. Where are borrowers least likely to get into trouble? The states where no mortgages are, of course: the agency forecast that North Dakota would see a 1.4 percent severe delinquency rate, followed by South Dakota, at 1.6 percent, Montana at 1.7 percent, Vermont at 1.8 percent and Wyoming at 2 percent. California, Nevada, Florida and Arizona accounted for 38.4 percent of all originations in 2006, according to HDMA data. North Dakota, South Dakota, Montana, Vermont and Wyoming totaled just 0.6 percent of the entire market for mortgages — in fact, four of the five states were the very bottom of the market share table, according to HDMA data. It’s possible that TransUnion’s data could be understating the true amount of delinquent borrowers, as well. While the agency pulls its data from a sample of 27 million consumer records and assesses past-due payment histories, a growing number of servicers are waiting to report missed mortgage payments to credit reporting agencies, according to various HousingWire sources in the field. The reason: servicers are increasingly subject to voluntary or involuntary foreclosure freezes, and face growing pressure to find a workable solution for troubled borrowers. “The credit ding makes refinancing that much more difficult,” said one source that spoke with HW Tuesday morning, a loss mitigation counselor at a large servicer that asked not to be identified in this story. “We’re usually waiting to notify credit agencies until foreclosure has been initiated formally at 90 or 120 days, so that all options remain on the table for borrowers as long as possible.” From a data standpoint, the practice may merely be suppressing reported delinquencies temporarily; once a borrower is 60 days or more in arrears, the majority progress into foreclosure proceedings. Write to Paul Jackson at [email protected].