We’ve written about the morphing of the subprime crisis into a prime mortgage one before, but it’s a point really driven home by the Mortgage Bankers Association’s latest US delinquency report.
Here, via Calculated Risk, are a couple of poignant charts from the MBA’s second-quarter report.
You can see that while subprime mortgages still form a large slice of the foreclosure/delinquency pie, prime mortgages (which include Alt-A under MBA methodology) now account for over half of the overall picture.
Here’s the MBA’s chief economist Jay Brinkmann on the subject:
“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” .
And on those federal assistance loans, or FHA mortgages:
“We also saw a major jump in FHA foreclosures. The percentage of loans with foreclosures started, the percentage of loans in foreclosure and the percentage of loans 90 days or more past due are all records for FHA. While the foreclosure starts rate for FHA loans at 1.15 percent is lower than all other loan types with the exception of prime fixed-rate loans, the FHA percentages have remained low due to a large increase in the number of loans outstanding, the so-called “denominator effect”. If the number of FHA loans had stayed the same as a year ago and we saw the same number of foreclosures, the FHA foreclosure rate would be almost 1.5 percent. “
And on the overall mortgage outlook:
“As for the outlook, it is unlikely we will see meaningful reductions in the foreclosure and delinquency rates until the employment situation improves. In addition, in some areas where a number of borrowers have mortgages that are larger than the current value of their homes, any life events such a divorce or loss of a job are likely to translate into foreclosures until prices in those areas recover, not just flatten.
“Finally, while the various loan modification programs continue to have an impact on holding foreclosure rates below where they otherwise would be, the issue is that many of the foreclosures involve homes that are vacant, borrowers who no longer have jobs, or loans where there was fraud involved. Therefore, in measuring the effectiveness of industry or government loan modification programs it is necessary to compare the results not with the total foreclosure and delinquency numbers reported here but with the smaller subset of borrowers who can and want to qualify,” Brinkmann said.
Got that? Not only are foreclosures rapidly extending into prime mortgage territory — but it will actually take an increase in house prices before that steady spreading is stopped, according to the Association, not just a flat-lining. Oh dear.
Incidentally, for a glimpse into just how difficult the past year has been for the mortgage market, look no further than to the MBA’s own finances.
As reported by Structured Finance News on Thursday, citing an MBA tax filing, the association took an $8.6m loss for the fiscal year ending September 2008, after its revenues fell by 31 per cent to $39.4m. In contrast, the group generated a $6.7m surplus in fiscal 2007 on revenues of $57.1m.
There’s a rather telling commercial real estate data point too:
The MBA moved into its newly constructed headquarters in June 2008 that is listed as a $98.6 million asset on the IRS report. MBA planned to lease out 60% of the building but reported no rental income.
How’s that for mortgage-backed irony?
Related links:
Charting the mortgage crisis – FT Alphaville
Deutsche Bank on those drowning US homeowners – FT Alphaville