Looking At Mortgage Delinquencies
Earlier today, we noted that the seasonality effects of Housing were re-asserting themselves.
This is a very different phenomena than the ongoing crisis: That was caused by the credit bubble, which in turn led to wildly overvalued Housing, which was purchased by people who often could not afford them, which in turn led them to subsequently become delinquent, then default, and finally slide into foreclosure.
Along those lines, the following pair of charts (via Realpoint) should get your brains racing: It appears that despite the various voluntary foreclosure abatements, the problem has not yet been solved. Banks continue to rack up serious unpaid mortgages, which over time is very likely to lead to increased foreclosures . . .
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Future Workouts – Delinquency Categories
click for larger charts
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Unpaid Balance for 2005, 2006 and 2007 Vintage Transactions
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Source:
Monthly Delinquency Report – Commentary
Realpoint,August 2009
http://bit.ly/IOdxz
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October 20th, 2009 at 11:47 am
Growing mortgage delinquencies are not a problem. In fact, bank losses of any kind or quantity are no longer a problem. This is an uber-fiat system — all losses and gains are purely imaginary. If you can make-believe it into existence, you can pretend it away.
Magic.
October 20th, 2009 at 11:48 am
@Marcus: LOL. It’s “magic” until the taxpayer truly sees what the Fed is holding and will be passing on to We the Sheeple when there is no market to sell this crap back into. Or maybe nobody will care then either?
October 20th, 2009 at 12:08 pm
Mannwich:
Hell, if the taxpayer doesn’t see it now (even with mega-unemployment, asset devaluation, and the rape of the Great American 401K), I don’t know if they ever will. I’m not even sure the taxpayer is part of the equation anymore.
Ultimately, the joke might be on the banks — there’s no telling if the taxpayer will have either the will or the means to make good on the “debt” the Fed has taken on in our name. I can’t imagine Congress ever again passing a tax hike on the rank-and-file. When the middle (consumer) class is bled dry, those who have created this mess will begin feeding on each other.
October 20th, 2009 at 12:09 pm
@MA: They’re riveted by all the doings of “balloon boy” and his fabulous idyllic family.
October 20th, 2009 at 12:09 pm
“Or maybe nobody will care then either?”
Look no further than the news coverage of Balloon Boy, the Teabaggers, and Glenn Beck. These would be the same taxpayers who thought having a -2% savings rate was the path to financial bliss.
October 20th, 2009 at 12:10 pm
@MA: My own county is raising our property taxes by 11% alone this year. Soon we’ll be trying to fund everything with property taxes and the tax will be more than my mortgage payment. Makes a lot of sense.
October 20th, 2009 at 12:34 pm
While the odds are still against it there’s some sounds emanating from the administration that renewal of the 8K home buyers’ tax credit is NOT a sure thing. Should the same not be renewed sales will fall off even more, leading to declining prices, more underwater sheeple and all that good stuff. Then you’ll shurly shee sheeple sheeting all over the place. I Shay.
October 20th, 2009 at 12:36 pm
@rmasand: Which is why this credit will not only be extended, but possibly even expanded. The feds cannot take one toe out of this market and keep things afloat.
October 20th, 2009 at 12:47 pm
What is the deal with the chart numbers?
I thought the total value of residential real estate was roughly $20 trillion, with about $11.5 trillion in outstanding mortgages.
The first chart adds to about $25 billion in delinquencies/foreclosures/reo. Seems like a relatively modest percentage of the $11.5 trillion in mortgages outstanding (0.2%).
Does anyone else have more accurate numbers?
October 20th, 2009 at 12:47 pm
I was listening to Dave Ramsey on the way to the salt mine…if I have a late start, sometimes I listen to his advice to people who have managed to sink themselves with various kinds of debt. Anyway, gal called up who had a first and a second mortgage on a house that was underwater, and her business was doing poorly. Ole Dave listened to all of this and for the first time (again I am a casual listener) advised someone to quite paying the mortgages and live in the house for free until foreclosed. And this advice, common in the blogosphere for months, comes out of the fiscally conservative financial advice guru.
…Thought it was a sign of the times…
B in T
October 20th, 2009 at 1:05 pm
Just curious, but haven’t the banks through the stimulus bulked up their reserves to the point that we won’t see a big effect from any further rising foreclosures? Wasn’t that the point of the stimulus to create bank reserves (which has happened) to fight off the foreclosure losses.
October 20th, 2009 at 1:07 pm
@HW: I think that was part of the point, but we’re about to find out if it’s going to be enough. Not sure anyone knows for sure since we don’t really know what’s on their books. They don’t have to tell us.
October 20th, 2009 at 1:12 pm
I thought the point of backstopping the banks was so that they would “continue to extend credit.” Remember that lie from Paulson and Bernanke? This has not happened. They have hoarded their reserves, properly so, in order to pay off all the bad debts coming. The banks have used the reserves in the interim to speculate on stocks and bonds–now they get the big bonuses for their “efforts.” The TBTF banks have survived and will survive. It just everyone else that has a problem…
October 20th, 2009 at 1:13 pm
Mannwich: I agree, we don’t know yet but the longer we go the less likely further foreclosures problems will have an ill effect on banks.
October 20th, 2009 at 1:14 pm
@BnT
The New Normal is here.
October 20th, 2009 at 1:18 pm
Obama announced some more housing perks today I believe…
HarryWanger: Hey, Congratulations. Your market calls and stock pick (AAPL) have been among the best on TBP. And, you admitted your error on RIMM and got out. Are u perchance a money manager?
October 20th, 2009 at 1:23 pm
@AT: I think that was the STATED purpose (to extend credit) but any thinking person knows better (I think).
October 20th, 2009 at 1:25 pm
@Wanger: That’s where you and I happen to disagree. Foreclosures are INCREASING among prime loans, not decreasing.
October 20th, 2009 at 1:34 pm
@Wanger: Read the whole thing before drawing your conclusions.
http://www.calculatedriskblog.com/2009/10/dataquick-california-mortgage-defaults.html
October 20th, 2009 at 1:36 pm
lol, sure, there aren’t any housing problems to worry about Harry. I’m sure this 20 year old will be just fine, she probably has a lot saved up to cover these payments after all her years working by age 20 in case she loses her job, but then, why would we worry about her losing her job, I mean, that’s not happening. Clearly when 50% of your income goes toward your P&I payment you don’t have a care in the world, well, other than borrowing more to “fix the place up”:
http://www.ritholtz.com/blog/2009/10/david-einhorn-value-investing-congress-october-19-2009/
October 20th, 2009 at 1:38 pm
Manny – What jumps out at me from the article is this:
“”It may well be that lenders have intentionally slowed down the pace of formal foreclosure proceedings”
Absolutely – Many banks are waiting six months before they even send a default notice.
October 20th, 2009 at 1:40 pm
@Thor: Extend AND Pretend. That’s the name of this game. Let’s say it all together now……”EXTEND AND PREEEETEND”.
October 20th, 2009 at 1:40 pm
And the good news is those who are living rent-free have more money to spend on I-thingys and such. Life is good when one’s biggest bill doesn’t have to be paid at all. Taxpayers will just pick it up down the road.
October 20th, 2009 at 1:45 pm
Re the Calc Risk post:
“The number of mortgage default notices filed against California homeowners fell last quarter compared with the prior three-month period, the result of lenders’ evolving foreclosure policies, an uncertain legislative environment and an uptick in the number of mortgages being renegotiated, a real estate information service reported.”
Denninger in his blog TMT noted something unusual about Wells Fargo notices to mortgagees which suggested that WFC was engaged possibly in a paper shuffle amongst subsidiaries. To wit:
http://market-ticker.org/archives/1443-Games-Banks-Play-WFC.html
Which leads me to the following conclusion: short treas bonds. Am I crazy? Harvey says no.
October 20th, 2009 at 1:49 pm
Great find, MRegan. What games will they think of next? We’re about to find out, I think. It’s all a shell-game. At some point, enough people will get fleeced enough times that all commerce might just come to a screeching halt, but of course, that’s assuming the American Sheeple have learned their lesson. That assumes a lot.
October 20th, 2009 at 1:49 pm
Of course foreclosures are going to continue to rise because many people have finally figured out that real estate is a crappy investment. It’s time to JustWalkAway.
“Some countries—such as Spain and Italy—have higher rates of home ownership than the U.S., but there, homes are often purchased with the support of extended families and are places to settle for the long term, not to flip to eager buyers or trade up for a McMansion. In France, Germany, and Switzerland, renting is more common than purchasing. There, most people invest their earnings in the stock market or squirrel it away in savings accounts. In those countries, whether you are a renter or an owner, houses have use value, not exchange value.”
http://online.wsj.com/article/SB10001424052970204409904574350432677038184.html
October 20th, 2009 at 1:52 pm
@MRegan,
Nice link.
though, shorting govies now? I think for years you can move in and out of that trade and make money but right now aren’t you betting against the Primary Dealers and Bill gross with that bet? I suppose if you think you can beat them….not for me, at least not now. Good luck.
October 20th, 2009 at 1:57 pm
Thanks Mannwich, but now I have to go out and get more aluminum foil for my hat-you’re making my head swell.
Here’s something on Brazil which has a few nuggets worth mining:*
http://www.zerohedge.com/article/obrigado-brazil
In particular:
“Given that the crisis was rooted in the US and many issues haven’t been seriously dealt with other than putting a little bit of lipstick on the occasional pig, a lot of money has been going abroad with the USD weakening, and emerging or commodity currencies screaming higher.”
Reversal coming?
October 20th, 2009 at 1:58 pm
@MRegan: I thought you were going to buy the Napoleon-style tin-foil hat, like I suggested? I’m asking my wife to get me one for Christmas. I figure it might be within our budget this year.
October 20th, 2009 at 2:07 pm
MRegan: love the Harvey/Jimmy Stewart reference.
October 20th, 2009 at 2:09 pm
ben22-
good point but ever since Gross ditched his pet caterpillar he hasn’t seemed so scary- sometimes he sounds like Diane Reims wimpy sister.
I ask myself the following questions:
What is the primary tactic of the PDs and Gross? [more dollars-geniuses, aren't they?]
Will the USD be afforded the same place in world trade per present status quo in the coming years?
Will a structural decrease in global demand for the USD produce a severe deflation in the aggregate notional value of derivatives? What will that do?
Finally, how does the US Govt foment appetite for debt in a currency no one seems to like?
October 20th, 2009 at 2:11 pm
Mannwich-
It’s not easily to go out shopping for new hats when the black helicopters are out and about- did you know that they have modified them so the chopper blades sound like cars driving up and down my street? Diabolical.
October 20th, 2009 at 2:15 pm
Barry, you should note that those charts refer to CMBS *not* RMBS.
October 20th, 2009 at 2:21 pm
Mregan,
ha re: gross, …funny.
All very good questions, I suppose we could spend the next several months/quarters talking about the answers but it will have played out by then.
Each day I become a bigger dollar bull fwiw, however, holding banknotes or t-bills would be the preferred course for someone wanting to be safe. A strategy that has beat stocks for a decade now, you know, that’s good for, “long term investors”.
October 20th, 2009 at 2:52 pm
MacroMan has a post on the Strong Dollar idea:
http://macro-man.blogspot.com/2009/10/myth-of-strong-dollar-policy.html
(I first saw it on Inca Kola News-a great blog on LatAm junior miners etc)
Personally, I am hesitant to open any long positions in equities. Maybe a warehouse full of rice in bags labelled “bigas”.
October 20th, 2009 at 3:09 pm
>>@MA: My own county is raising our property taxes by 11% alone this year. Soon we’ll be trying to fund everything with property taxes and the tax will be more than my mortgage payment. Makes a lot of sense.
welcome to CA, NJ or any of the other tax the s*it out of you friendly business climate states. i live in an 80 year old house that hasn’t been updated in 20 years on a 50′x150′ plot providing me a whopping .17 acres. what property taxes do i pay? $11k a year. that’s almost $1k a month and our great governor corzine just capped the property tax rebate on this year’s state return so its even more out of pocket. he also said in next year’s budget to cut funding to schools meaning my property taxes will go up even more. i don’t know who the bigger idiot is these buffoons that run our state or me for living here and taking it in the shins.
October 20th, 2009 at 3:41 pm
Andy is right, the only reason to backstop the banks was to prevent a complete credit freeze and the total devastation that occur if a country run on credit experience an almost complete halt in credit. The way that was executed was unfortunately not very good so it ended up handing huge sums of money to people who should have been thrown in jail instead. As suggested by Barry and others at the time the Swedish solution is what we should have done, but the CNBC and Fox screming machines would have exploded if that had been done. If “we the peoiple” had gotten the full ownership rights that we earned for saving their sorry dumb a$$es, there would have been no hoarding cash or fat bonuses to them.
Great link MReagan; the Wells Fargo selling loans to Wells Fargo is clearly a desperate move. Anybody taking bets that WF will be the first TBTF to actually fall?
October 20th, 2009 at 3:46 pm
@DeDude: I actually think it will be C, followed by BAC, followed by WFC. GS, JPM, and MS will be waiting with open arms to scoop up the carcases.
October 20th, 2009 at 3:46 pm
@Thor
If they can’t produce the note, they can’t foreclose.
October 20th, 2009 at 3:46 pm
abelinsky is correct, these are charts of CMBS, not RMBS. Furthermore, the data is currently available through August whereas what is shown here is through July.
October 20th, 2009 at 3:47 pm
The policy makers have pursued precisely the opposite of the sensible solution: get the pain out of the way as QUICKLY as possible. It doesn’t matter if you use your finger to plug the dike temporarily if the ocean level is rising quickly. Better to find higher ground. Yes, there will be pain and damage inflicted (and unfortunately much of it on the relatively innocent), but it’s better than dying a slow death…
HCF
October 20th, 2009 at 3:55 pm
Mannwich: @Wanger: That’s where you and I happen to disagree. Foreclosures are INCREASING among prime loans, not decreasing.
I understand they increasing, my point is the reserves have built quite rapidly with the banks. It’s the trick of the stimulus and will allow them to “write” off the foreclosures with minimal affect.
October 20th, 2009 at 4:00 pm
Mr. Ritholtz as well as many others have really done a commendable job of providing a lot of thoughtful content and information. Denninger, while somewhat given to very strong rhetoric, has done excellent work in developing his blog and presenting very important items in context. Quite good really.
Here’s a link he provided the other day from boston.com:
http://www.boston.com/business/articles/2009/10/15/ibanezruling/
In fact, if one takes the time to reflect, this period of time despite the economic difficulties, challenges and damage, has been siignally marked by an extraordinary offering of extremely sophisticated financial and economic analysis as well as reams of data. In many respects, all this profusion of information has an aspect of bounty to it, of abundance. A resource one should be loathe to misuse. I for one am grateful.
October 20th, 2009 at 4:16 pm
@Harry:
>reserves have built quite rapidly with the banks. It’s the trick of the stimulus and will allow them to “write” off the foreclosures with minimal affect.
So, like subprime a few years back, the effect of rising foreclosures “is contained”?
HCF
October 20th, 2009 at 4:18 pm
HCF: I would say they are somewhat contained – way much more so than they were 8 months ago before the banks had the chance to increase their reserves.
October 20th, 2009 at 4:40 pm
>>HCF: I would say they are somewhat contained – way much more so than they were 8 months ago before the banks had the chance to increase their reserves.
it’s really hard to say when we don’t know what’s not on the books and its quality. it seems TPTB are playing hide the sausage cart for now while working on plans to sell some of it off to private investment, the Fed, etc. and letting some of it inflate away over time. i have to imagine THEY know the magnitude of the problem and are continuing to support policies that keep it secret. that tells me its too big to not cause a major shock to the system if not its outright collapse. that should cause anyone to shudder.
October 20th, 2009 at 5:09 pm
Harry, did you say somewhat contained? Are you Bernanke in disguise? LB bets that you and your penetrating analysis are going to be long gone from this blog before the market hits bottom again.
“TPTB are playing hide the sausage cart”
LB isn’t familiar with this game. Is it like Hide the Sausage?
October 20th, 2009 at 5:44 pm
Harry said:
“I would say they are somewhat contained – way much more so than they were 8 months ago before the banks had the chance to increase their reserves.”
How in the hell could you possibly know? Honestly. The people that run these banks don’t know. Don’t tell me it’s b/c you do research, you post all day long here anymore, and at night too and in between you are hanging out at bars in Minny and Detroit. I highly doubt you’ve gone through all the banks books in detail to determine what they have and what they do not. Judging by your bullish arguments all you ever do is read headlines. That’s probably a good way to make money in the market, …er not.
October 20th, 2009 at 6:05 pm
B in T, I hope Ramsey was recommending strategic default to someone in a non-recourse state, not that many people who lose their primary residence are likely to have a lot of assets for the banks to pursue.
October 21st, 2009 at 12:01 am
@MR: Surprised no one picked up on the black helicopters. Not even MEH yet.
True and should be indicative.
In the BananAmerica the elites are totally confident they have the crowd control technology to thwart any attempts at true democracy.
What was the movie? Blue Thunder? Roy Scheider.