Mortgage Delinquencies: 2007 Even Worse Than 2006

Going_badTo all those recent bottom callers in Housing or Financials, here is yet another data point that reveals these two sectors are actually getting worse, not improving.  (Why does it seem that so many posts begin that way?)

Here’s an excerpt from an article in tomorrow’s WSJ, titled "Mortgage Delinquencies Accelerated During 2007":

"Mortgages issued in the first half of 2007 are going bad at a pace that far outstrips the 2006 vintage, suggesting that the blow to the financial system from U.S. housing woes will be deeper than many people earlier estimated.

An analysis prepared for The Wall Street Journal by the Federal Deposit Insurance Corp. shows that 0.91% of prime mortgages from 2007 were seriously delinquent after 12 months, meaning they were in foreclosure or at least 90 days past due. The equivalent figure after 12 months was just 0.33% for 2006 prime mortgages.

Evidence that lax lending standards were leading to higher mortgage delinquencies first emerged in late 2006. The first major casualty of the subprime credit crisis, New Century Financial Corp., imploded in early 2007. Yet the data from the FDIC and others suggest that lenders didn’t substantially tighten standards until at least July or August 2007, when credit jitters hit Wall Street and financial stocks began to swoon.

The FDIC’s analysis was based on mortgage data provided by LoanPerformance, a unit of FirstAmerican CoreLogic Inc. LoanPerformance says it tracks more than 95% of mortgages that were bundled into securities by financial institutions, not including those securitized by government-sponsored mortgage giants Fannie Mae and Freddie Mac.

Data on other classes of mortgages suggest the same trend. Freddie Mac reported Wednesday that 1.38% of the 2007-vintage loans it purchased were seriously delinquent after 18 months compared with 0.38% of 2006 loans at the same point in their life. Freddie Mac generally purchases loans made to creditworthy borrowers….

Economists and industry officials say several factors may account for the dismal performance of the class of 2007. Home prices were falling sharply in much of the country by 2007, meaning many borrowers in that year who took out loans for nearly the full price of the home now owe more than the homes are worth. That makes it difficult for them to sell their home or refinance if they lose their job or experience another setback."

When this entire mess is over, there are going to be a long list of people — former bankers, fund managers, mortgage originators, and FNM/FRE execs — who are going to need to learn, for professional reasons, the phrase, "Would you like fries with that, Sir?"

And, we are really just getting rolling with this — closer to the beginning than the end.


Mortgage Delinquencies Accelerated During 2007
Financial System Taking Harder Hit Than Seen Earlier
WSJ, August 7, 2008

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Tobias Merath, a commodity analyst at Credit Suisse Group, talks with Bloomberg’s Bernard Lo and Haslinda Amin in Singapore about the impact of declining demand, falling prices and the global economic slowdown on commodity markets.

click for video


00:00 Demand decline, global slowdown; speculation
03:13 Soft commodities, "correction not collapse"
Running time 05:52

Merath Says Commodities Drop `Correction not Collapse’: Video
Bloomberg, Aug. 6 2008

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