More than 1 in 10 Behind or in Foreclosure

June 1, 2009
Matt Isleib

 

The sub -prime mortgage crisis that the media spun as the end of mortgages and home values as we know it is extremely pale in comparison to the current number coming in on borrowers whom had excellent credit ratings. In the 1^st quarter of 2009 a record 12 percent of homeowners were either behind or in foreclosure. As unemployment continues to rise so will the number of delinquent and in foreclosure homeowners.

            It certainly does not take an economist to figure out that the figures that represent sub-prime loans still on the books are going to reflect extremely high default rates. The majority of these loans are adjustable mortgages and have since re-set at higher rates. Not that the borrowers who qualified for these loans have nowhere to turn seeing as sub-prime loans catered to borrowers with dinged credit. There is zero and I mean no market at all for poor credit borrowers. Not even in FHA land, for the most part credit score minimums are 620 across the board. That leaves one option and that is a loan modification. Not very assuring if you are still in your sub-prime mortgage, the default rate on these loans in some states are over 50 percent.

            The onslaught of delinquent mortgages is directly fueled from the labor market. Unemployment is continuing to gain momentum toward 10 percent. So now the A credit quality loans are leading the delinquency rise. Loss of work is the major factor at this point that is fueling the foreclosure figures. The same troubled states are leading the way. California, Nevada, Florida and Arizona account for almost half of new foreclosures in the country.

            It is baffling to me how some economists have recently said that the worst may be over for the economy and that the recession could end in 2009. I find that hard to believe seeing as unemployment is not expected to peak until mid 2010 and if that is the case then the foreclosure pace will continue its course and not subside until around six months after the job market improves. If you are going to call bottom on this market it may be prudent to look first at the job market before making a bold call. But hey that is just my humble opinion