Mortgages, Foreclosures & the Fed

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.

Yield_curveThe 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.

Sources:
Foreclosures Pick Up With Midwest Hardest Hit

By DANIELLE REED
April 14, 2006; Page A8
http://online.wsj.com/article/SB114497212609125668.html

See also

Mortgage-Bond Market Stays Strong
DANIELLE REED
WSJ, April 14, 2006; Page B5
http://online.wsj.com/article/SB114382261113913610.html

As Markets Bet on Rate Increases, Fed Officials Seem Less Committed
GREG IP
April 14, 2006; Page A1
http://online.wsj.com/article/SB114494788008025280.html

Category: Federal Reserve, Fixed Income/Interest Rates, Inflation, Real Estate

Do We Have Inflation?

Category: Data Analysis, Federal Reserve, Inflation

Are future retirees overly optimistic?

Yes.

That’s the conclusion of a study by the  Employee Benefit Research Institute. EBRI determined that more than half of workers saving for retirement have less than $50,000 put away; Other employees are counting on employer-provided benefits in retirement that are increasingly unavailable.

Here’s the WSJ’s overview:

"Despite recent moves by large companies to freeze pensions and
chip away at retiree-health benefits, Americans remain confident — if
dangerously naïve — about their retirement prospects, according to new
research.

Many workers are counting on traditional pension plans to pay
their bills in retirement, even though such plans are fast disappearing. Only
40% of working couples currently are covered by pension plans, but nearly
two-thirds of surveyed workers — 61% — expect to get income from such a plan
in retirement, according to the Retirement Confidence Survey, scheduled for
release today by the Employee Benefit Research Institute, a Washington
nonprofit, and others.

The responses in the survey, conducted annually for the past 16
years, reflect few worries about the spreading curtailment of pension plans.
Twenty-four percent of the survey’s participants said that they are very
confident that they will have enough money to live comfortably in retirement –
virtually the same number as last year — and 44% of those surveyed said they
are somewhat confident about their financial prospects in later life, an
increase of four percentage points from last year."

See table below for more details . . .

Source:
Workers’ Views On Retirement May Be Too Rosy
KELLY GREENE
WSJ, April 4, 2006; Page D2
http://online.wsj.com/article/SB114411194874516024.html

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