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Mortgage Meltdown Continues

Posted by Larry Doyle on December 21, 2009 1:22 PM |

While the equity market continues its ascent into the heavens, our housing market continues its descent into hell.

How long can these two indicators continue their contradictory movements? It is extremely hard to believe that the price actions and underlying dynamics in these indices can continue for an extended period. While Uncle Sam’s liquidity has been phenomenal in generating support for the equity markets, it has been decidedly less supportive to the housing market.

The Wall Street Journal addresses the ongoing meltdown in the housing and mortgage markets in writing, Mortgage Markets Continued to Falter in 3rd Quarter:

The U.S. housing market continued to deteriorate in the third quarter as even the most credit-worthy borrowers increasingly fell behind on their mortgages, highlighting the problems policy makers have faced in trying to address the problem.

A new report from the Office of Thrift Supervision and Office of the Comptroller of the Currency found that the percentage of current and performing mortgages dropped for the sixth consecutive quarter, as foreclosures in process topped 1 million mortgages at the end of September. The report covers roughly 34 million loans totaling $6 trillion in principal balances, or approximately 65% of the U.S. mortgage market.

The regulators said that serious delinquencies, loans that are at least 60 days past due, increased across all loan categories and climbed to 6.2% of the loans in the portfolio during the third quarter. The report said that just 67.7% of option adjustable-rate mortgages were considered current at the end of the third quarter, while 27.9% were either seriously delinquent or in the process of foreclosure.

The most troubling finding was that even borrowers considered “prime,” or the least risky, increasingly can’t pay their loans. The report said that 3.6% of prime mortgages were more than two months behind on payments, more than double from a year ago.

The regulators noted that banks and thrifts have increased their efforts to help some borrowers, implementing more than 680,000 loan modifications, trial period plans or payment plans during the third quarter. That includes roughly 274,000 plans initiated through the Obama administration’s Home Affordable Modification Program, which provides borrowers with a three-month trial period to successfully pay for their modified loans. Borrowers who meet the requirements then have their loans permanently modified.

But even attempts to modify loans are yielding a low rate of success, a problem that policy makers have been unable to deal with successfully over the last several years as they seek to right the housing market. The report said that more than half of all modified loans were more than 60 days past due or in foreclosure within six months of modification, and less than 1% of loans modified under the administration’s plan had been permanently modified through the end of September.

Additionally, banks and thrifts remain unable to keep the pace of modifications anywhere close to the number of struggling borrowers who need help. The report said that only one in six borrowers who were seriously delinquent or facing foreclosure at the end of the third quarter received a load modification or trial payment plan. There were more than 369,000 new foreclosure actions during the third quarter.

While analysts have promoted the concept of a jobless recovery, is it reasonable to think that we can have both a jobless and a ‘housing’-less recovery?

I’ll call challenge on that.


  • Hi Larry –

    Revised third quarter GDP came in this morning at only 2.2%? Wasn’t the initial report 3.5%? That is a HUGE difference. Is it possible the unemployment reports are also just as far off?


    • Larry Doyle


      Great minds thinking alike! I just posted a piece on this very topic.

      Happy Holidays!


  • Shannon Phillips

    So, for those contemplating upgrading to a larger home in the same geographic area as their current home, is it better to sell and buy now or it is better to wait to see what happens?

    Because the houses are in the same market, their prices should both fluctuate together, right? It doesn’t make any difference whether you upgrade now or later, does it? I’m not sure that it true. A home that is valued closer to the area’s median should weather the storm better than those above the median house value. And ,when and if values fall, the median priced house should fall less in terms of dollars and percentage. So, if the person moves to a higher priced home now, and prices fall, they will lose more in terms of dollars and percentage of value than the median priced homes.

    Let’s assume home values fall an average 12% in the area over the next year. The median priced homes lose less in terms of dollars because 12% of a lower price is less than 12% of a higher price. However, I would suggest that because lesser valued homes are more affordable, and thus there is more of a market for them, their average price will fall less than 12%.

    If a person wanting to upgrade moves now, they will likely lose more in terms of percentage of home value and dollars than if they’d stayed in the median priced home.

    So, the best move is no move?

    Or maybe the best thing to do is to sell the median priced home and rent until things shake out. Then the person gets the advantage of selling high(er), doesn’t lose value with owning either depreciating asset, and then they can purchase their dream home after the market reaches its low and starts creeping back up.

  • W Harvey

    Another troubling aspect to the housing
    mess is the increasing burden imposed by
    real estate taxes and the nearly impossible
    system of remedies. In Houston, where I
    live, the Harris County Appraisal District
    has increased the assessed valuation on
    my home by the maximum allowed 10% for
    each of the past 10 years. They do this by
    maintaining that the market value has also
    increased by that much each year, even in
    the last 2 years. What an investment!
    My RE taxes have gone from $2,500 p.a to
    $20,000; my tax bill is much higher than
    my mortgage payment! The sham arbitration
    set up for arguing the annual increase
    is rigged. For example, for 2009, the
    value on my land stayed even but to get
    my total value in line with “comps” they
    raised my improvements by 46%!! This after
    the biggest RE meltdown in history. No
    wonder people can’t pay their bills. It is
    modern day extortion to pay for ineffective
    bloated state and local government.

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