Foreclosure rates will soon decline, so says the Mortgage Bankers Association (MBA), the main mouthpiece for our nation’s mortgage lending institutions. In the fourth quarter of 2009, the delinquency rate for all outstanding loans slipped to 9.47%, down from 9.64% in the third quarter of 2009. Unless a delinquency is cured, foreclosure usually begins within five months by recording a notice of default (NOD).
Furthermore, Jay Brinkman, the MBA’s chief economist, says the shrinking rate of new loans going into delinquency means “…the size of the problem now is about as bad as it will get,” implying a one-month, downward slip in the 30-day delinquency rate indicates a bottom to the foreclosure crisis.
The report also draws a connection between jobs and mortgage delinquencies, highlighting the relationship between those able to pay a mortgage and those with a job. No mention of the dreaded negative equity problem.
first tuesday take: The fact that fewer homeowners are defaulting is a bright spot in these troubling times, a reason for an economist’s optimism.
One of the facts weighing in is the millions of homeowners still wrangling with lenders to obtain permanent loan modifications — and 60% of those who get one will still re-default and end up losing their home to foreclosure. Optimism about the future is necessary to motivate individuals to be creative; to take risks in a gamble to earn more money — despite a lack of certainty about what the future holds. For those talented optimists who act by taking on additional risks (buying property, leasing space, borrowing money or hiring more agents), they must do so based on their knowledge of information presently available which will affect their future if they are to succeed. The results of their gamble will be based on the quality of information they obtain and their desire to learn.
To imply that the foreclosure situation is “about as bad as it will get” is not instructive; at worst it is misleading. Many more delinquencies than foreclosures are to come by the third quarter of 2010 as even more of the notorious five-year adjustable rate mortgages (ARMs) are scheduled to reset upward between 2010 and 2011. We also know lenders have been dragging their feet on delinquencies, delaying foreclosure to avoid reporting their losses. Lenders in California now take seven months to get from the recorded NOD to the trustee’s sale.
Nevertheless, the MBA gets it right when it says mortgage delinquencies mirror the pattern of employment. This correlation — a simultaneous loss — has been pointed to time and again: jobs move real estate. Having the foresight to see how jobs and real estate move in tandem, one would think the minds at the MBA would look at the stagnant state of job numbers and realize we are nowhere near being out of the woods.
But these issues should not deter the well-informed, optimistic individuals from planning and acting to create their own futures. An optimist will never let a crisis go to waste. Get informed on it, understand it, organize to act, then DO something. Do not fuss and do not standstill. [For more information on California employment numbers, see the February 2010 first tuesday article, “Jobs Move Real Estate.”]
Re: “Delinquencies, Foreclosure Starts Fall in Latest MBA National Delinquency Survey,” from Mortgage Banker’s Association