Thursday, November 19, 2009

MBA Forecasts Foreclosures to Peak in 2011

by Bill McBride on 11/19/2009 11:08:00 AM

On the MBA conference call concerning the "Q3 2009 National Delinquency Survey", MBA Chief Economist Jay Brinkmann said this morning:

  • The problem is moving to prime loans, including fixed rate prime loans, and also FHA loans. "We are seeing the first hit on the weaker prime fixed borrowers."

  • Remember the delinquency rate includes loans in modification (something to remember - especially for the 90 day delinquent loans).

  • MBA expects unemployment rate to peak in Q1 or Q2 2010, and delinquencies to peak sometime after the unemployment rate peaks.

  • Brinkmann expects foreclosures to possibly peak in 2011 (last quarter he said late 2010). He changed the forecast for two reasons: he expects unemployment to stay fairly high, and he thinks the prime borrowers will hang on before defaulting, and all the foreclosure moratoria will delay foreclosures - a longer trailing effect than usual.

    Note: Many more questions this time!

    A few graphs ...

    MBA Prime Delinquency and Foreclosure Rate Click on graph for larger image in new window.

    The first graph shows the delinquency and in foreclosure rates for all prime loans.

    Prime loans account for about 76% of all loans.

    "We're all subprime now!" NOTE: Tanta first wrote this saying in 2007 in response to the 'contained to subprime' statements.

    MBA Prime Fixed Rate Delinquency and Foreclosure Rate The second graph shows just fixed rate prime loans (about two-thirds of all loans).

    Prime ARMs have a higher delinquency rate than Prime FRMs, but the foreclosure crisis has now spread to Prime fixed rate loans.

    Note that even in the best of times (with rapidly rising home prices in 2005), just over 2% of prime FRMs were delinquent or in foreclosure. However the cure rate was much higher back then since a delinquent homeowner could just sell their home.

    MBA Suprime Delinquency and Foreclosure Rates The third graph shows the delinquency and in foreclosure process rates for subprime loans.

    Although the increases have slowed, about 40% of subprime loans are delinquent or in foreclosure.

    And a final comment: historically house prices do not bottom until after foreclosure activity peaks in a certain area. Since the subprime crisis delinquency rates might be peaking, it would not be surprising if prices are near a bottom in the low end areas. But in general I'd expect further declines in house prices - especially in mid-to-high end areas.

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