Category: Articles

I was going to piece this in but it really needs to be read in its entirety. Any bold highlights are mine.

The Mortgage Bankers Association came out with their Q1 report today and then updated their forecast:

WASHINGTON, D.C. (May 28, 2009) — Foreclosure actions were initiated on 1.37 percent of first mortgages during the first quarter of 2009, according to the Mortgage Bankers Association. This was a 29 basis point increase over the fourth quarter of 2008 and a 36 basis point increase from one year ago. Both the level of foreclosures started and the size of the quarter over quarter increase are record highs.

According the MBA’s National Delinquency Survey, the delinquency rate for mortgage loans on one-to-four-unit residential properties was 8.22 percent on a non-seasonally adjusted basis, down 41 basis points from 8.63 percent in the fourth quarter of 2008. Delinquency rates always decline in the first quarter of the year due to a variety of seasonal factors. After accounting for these factors, the seasonally adjusted delinquency rate was 9.12 percent of all loans outstanding as of the end of the first quarter of 2009, up 124 basis points from the fourth quarter of 2008, and up 277 basis points from one year ago.

The seasonally adjusted rate is the highest in the MBA’s records going back to 1972 and the unadjusted rate is the highest recorded in the first quarter of any year back to 1972.

This means now that on every quantifiable level, this housing bust is far worse than the most recent one in the early 1990’s. Read more on that and its effect here.

The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure. The percentage of loans in the foreclosure process at the end of the first quarter was 3.85 percent, an increase of 55 basis points from the fourth quarter of 2008 and up 138 basis points from one year ago. Both the foreclosure inventory percentage and the quarter to quarter increase are record highs.

The combined percentage of loans in foreclosure and at least one payment past due, meaning the percentage of mortgage holders not current on their mortgages, was 12.07 percent on a non-seasonally adjusted basis, the highest ever recorded in the MBA delinquency survey.

“The increase in the foreclosure number is sobering but not unexpected. The rate of foreclosure starts remained essentially flat for the last three quarters of 2008 and we suspected that the numbers were artificially low due to various state and local moratoria, the Fannie Mae and Freddie Mac halt on foreclosures, and various company-level moratoria,” said Jay Brinkmann, MBA’s chief economist. “Now that the guidelines of the administration’s loan modification programs are known, combined with the large number of vacant homes with past due mortgages, the pace of foreclosures has stepped up considerably.”

“In looking at these numbers, it is important to focus on what has changed as well what continue to be the key drivers of foreclosures. What has changed is the shifting of the problem somewhat away from the subprime and option ARM/Alt-A loans to the prime fixed-rate loans. The foreclosure rate on prime fixed-rate loans has doubled in the last year, and, for the first time since the rapid growth of subprime lending, prime fixed-rate loans now represent the largest share of new foreclosures. In addition, almost half of the overall increase in foreclosure starts we saw in the first quarter was due to the increase in prime fixed-rate loans. More than anything else, this points to the impact of the recession and drops in employment on mortgage defaults.

This means that the housing bust has cycled from a sub-prime to Alt-A to now an employment issue. Since we were already in the midst of the drop when the layoff began, those losing job had no way to sell their homes. Now even good borrowers with conforming loans are defaulting at a record rate.

“What has not changed, however, is the oversized impact of California, Florida, Arizona and Nevada in driving up the national numbers. Those states continue to account for about 46 percent of the foreclosure starts in the country, and represented 56 percent of the increase in foreclosure starts, including half of the increase in prime fixed-rate foreclosure starts.

“It is difficult to overstate the severe impact home price declines have had on mortgage performance in those four states. 10.6 percent of the mortgages in Florida are now somewhere in the process of foreclosure. In Nevada it is 7.8 percent, Arizona 5.6 percent and California 5.2 percent.

“In the first three months of this year, foreclosure actions were started on 3.4 percent of the mortgages in Nevada, 2.8 percent of the mortgages in Florida, 2.5 percent of the mortgages in Arizona and 2.2 percent of the loans in California. In comparison, the states with the highest foreclosure rates in the hard hit Midwest were Michigan and Illinois at 1.5 percent and Indiana and Ohio at 1.3 percent.

“While the national foreclosure start rate was 1.37 percent in the first quarter, in California, Florida, Nevada and Arizona it was 2.45 percent. Absent those four states, the national rate would have been 1.01 percent.

“Looking forward, it does not appear the level of mortgage defaults will begin to fall until after the employment situation begins to improve. MBA’s forecast, a view now shared by the Federal Reserve and others, is that the unemployment rate will not hit its peak until mid-2010. Since changes in mortgage performance lag changes in the level of employment, it is unlikely we will see much of an improvement until after that,” said Brinkmann.

Wanr more bad news? What could be worse? Well, we are actually in a trough for Alt-A and Option Arm resets as the following chart shows:

Simply put? It gets worse from here and here is already real bad…

Socialism, Harvard, Cuban, Dasan

– Funny what the NY Times determined was socialism before today

– In financial trouble. Hat tip reader Alex

– Always fighting somebody

– Nice post on an investment thesis

Disclosure (“none” means no position):

Note to CNBC: Watch and Learn, this is how to be prepared for an interview. First watch the muddles mess that was CBNC’s effort this am then watch this. Unlike CNBC who had no idea what Bruce has invested in, this interviewer knew and had good questions related to it.

Disclosure (“none” means no position):

This is disappointing that CNBC has one of the best and honest fund managers on and only gives him 3:50 to talk, a big whiff on their part. Meanwhile, they’ll give Kneale and Gasparino 10 minutes to call each other names. Just when I forget why I stopped watching, they remind me…

Anyway, here is Bruce

Disclosure (“none” means no position):

TAX, Shorts, Audible, Girlfriends

– Maybe will not raise you income tax, but Obama is considering taxing everything else..

– Money to be made in lightly shorted stocks

– Audible book on the Blackberry

– Another Onion classic

Disclosure (“none” means no position):

Interview and discussion with David Rosenberg of the Gluskin Sheff & Associates on both Fox Biz and Bloomberg. He talks about the comments from Krugman and Greenspan.

Rosenberg is one of the few that have nailed everything to date. Whether you agree with him or not, you must take his thoughts with a huge grain of salt. He also boosts his cause in my eyes as not being as dire as either Roubini or Taleb who seem to call for the “end of days” on a regular basis. Rosenberg is far more rational.

Disclosure (“none” means no position):

After having spoken about the “time factor” in housing so much recently, I decided to put some hard data to the words.