The WSJ discusses one of the nasty side effects on Mortgages and Real Estate of rising rates and slowing real estate: Delinquencies and foreclosures:
"As home-price appreciation has tapered off and mortgage rates have risen, foreclosures have started to pick up, with the Midwest region hit hardest.
The rate of foreclosure — the process by which banks can ultimately take back the properties that secure mortgages — is a key indicator that real-estate analysts and investors use as a signal of market distress.
In the past several years, foreclosures across the U.S. have been hovering around historically low levels, as home prices have risen nearly 50% in five years. This appreciation enabled borrowers to sell their homes relatively easily to resolve mortgage difficulties.
Now, a survey of the latest data confirms, that is starting to change, with an uptick across the U.S. in foreclosure rates and mortgage delinquencies (or late mortgage payments). But even the new higher rates of foreclosure and delinquencies are still low in historic terms.
Nationally, the number of mortgage loans that entered some stage of foreclosure rose to 117,259 in February, up 68% from the same month a year earlier, according to Irvine, Calif., online foreclosure-data service RealtyTrac.
Delinquencies are up as well. Data provider LoanPerformance, a subsidiary of First American Real Estate Solutions, reported that 3% of the most vulnerable loans — those made to borrowers with less than a stellar credit history — were 90 days delinquent in February. That is up from 2.84% in February 2005. Meanwhile, 90-day delinquencies for loans made to borrowers with better credit were up to 0.76% in February, from 0.67% a year earlier." (emphasis added)
Getting the blame for the uptick in delinquencies is the "greater prevalence of riskier adjustable-rate and subprime mortgages, as well as higher interest rates and energy costs."
Surprisingly, the Midwest is the region with highest rates of loan foreclosures and delinquencies: the big three are Indiana, Ohio and Michigan. One must suspect the fallout from GM is to blame in part.
Then, there is the uptick in treasury yields. Higher rates are not a blessing in disguise –despite what you may have read by Charles "Whoopee-higher-rates-are-here-again" Biderman.
Foreclosures Pick Up With Midwest Hardest Hit
By DANIELLE REED
April 14, 2006; Page A8
Mortgage-Bond Market Stays Strong
WSJ, April 14, 2006; Page B5
As Markets Bet on Rate Increases, Fed Officials Seem Less Committed
April 14, 2006; Page A1
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