Take pity on Republican Congressman Mario Diaz-Balart.
The man in charge of Florida’s 25th congressional district has just been singled out by Deutsche Bank as the US Congressional representative with the hardest-hit constituency in terms of mortgage arrears. Diaz-Balart, it seems, is running a district where a third of mortgages are seriously delinquent.
The mention is part of a Deutsche note — ‘Politics by default’ — on the delinquency rates of Congressional districts. The main point being that the average Congressional district currently has 9.4 per cent of its mortgages delinquent by 90 days or more, compared with 3.3 per cent back in 2008.
That means, says Deutsche’s Steven Abrahams, that mortgages are likely to be big on the political agenda — especially in light of November’s mid-term elections:
When U.S. Congressional campaigns go into high gear after Labor Day this year, housing and mortgage finance look likely to get plenty of attention. Mortgage delinquencies stand near historic highs, and both incumbents and challengers alike will probably feel their constituents’ pain—or at least play to it. The headlines this fall could make for a real rodeo in MBS with the market chasing one bit of speculative news after another.
The dispersion is also important. Not all districts have serious delinquencies at 33 per cent — or even 9.4 per cent. According to Deutsche, more than than a quarter of all districts have 11.5 per cent or more of their mortgages seriously delinquent, and a tenth of all districts have 16.8 per cent or more.
And there’s a divergence across the political spectrum too.
The 256 districts represented by Democrats have an average delinquency rate of 9.9 per cent, and the 179 districts represented by Republicans have an average rate of 8.7 per cent.
In terms of geography — and going back to Diaz-Balart — Florida and California are (unsurprisingly) the hardest-hit in terms of mortgage arrears. Texas and the Midwest have the lowest delinquencies.
So housing reform could potentially get very local, or political.
Back to Abrahams:
Having housing and mortgage finance potentially play a key role in the majority of Congressional races raises the odds of dramatic proposals—along a continuum from realistic to ridiculous—to solve these problems. Although speculative, it’s easy to imagine the form that some of those proposals might take:
- * Easing or elimination of Fannie Mae or Freddie Mac delivery fees for high LTV, low FICO borrowers.
- * Various forms of principal forgiveness.
- *Mass refinancing of selected loans.
All of these would have material impact on the value of [Mortgage-Backed Securities] MBS, whether agency or non-agency. Nevertheless, it would be highly unlikely for any legislation to pass in the middle of campaign season. That would have to wait for the new Congress.
The implication is that the mere possibility of such proposals will have a nerve-wracking effect on the MBS market (already nervous what with increased prepayments, QE II, etc.).
And once the new Congress actually takes office:
Once Congress is seated, however, odds change. The state of housing in each district should have a clear impact on representatives’ sympathy for political solutions to problems in housing and mortgage finance—especially in districts hosting competitive races. That was the finding of researchers from the University of Chicago when they looked at the impact of mortgage defaults on representatives’ votes for 2008 housing and GSE rescue legislation.2 Since Democrats generally support housing legislation, the University of Chicago team found the strongest impact with Republications. Constituent interests apparently cut through many Republicans’ philosophic reservations about government intervention.
If, as many analysts speculate, Republicans capture a majority in the House this fall, then they may inherit a political landscape where housing and mortgage finance are central issues. Despite Republicans’ traditional resistance to most government support for housing, history suggests the door may open to surprises. After all, it did take Nixon to go to China.
A full list of delinquences by Congressional district available here.
Or in the usual place.
Related links:
US housing: Sunset Boulevard - FT
US house mortgage arrears mount – FT
The Great Mortgage Refinancing, by the numbers - FT Alphaville