Late House Payments Aren't Widespread --- Yet
Mortgage rates are rising, home prices are stalling in parts of the country, lots of people are taking out alternative home loans that barely existed five years ago and inflation seems to be picking up.
Guess which of the following scenarios is happening to homeowners:
A. They are falling behind in their mortgage payments. The delinquency rate -- in other words, the proportion of homeowners who are at least 30 days past due on their house payments -- is skyrocketing. Foreclosures are going up, too, but not as rapidly.
B. Homeowners actually are making fewer late payments than they were at the end of 2005. They're making more late payments than a year ago, but only because of Hurricane Katrina.
The correct answer is B, according to the Mortgage Bankers Association. The proportion of homeowners making late payments fell in the first three months of this year, compared to the last three months of 2005. The foreclosure rate dropped a teensy bit.
Welcome to Housing Market, U.S.A.
To visualize what's happening, imagine a town that represents the U.S. housing market. The town has exactly 10,000 owner-occupied homes with mortgages. In the first three months of this year, 441 of those homeowners were at least 30 days past due on their house payments, compared to 470 homeowners in the last three months of 2005. In other words, the delinquency rate fell to 4.41 percent from 4.7 percent.
In the same town, 98 homes were somewhere in the foreclosure process in the first three months of 2006, compared to 99 homes in similar straits in the final quarter of 2005. The foreclosure inventory fell to 0.98 percent from 0.99 percent.
In the unlikely event that you had been pondering delinquencies and foreclosures, you probably didn't think they were declining in number. A lot of news coverage has speculated that the combination of rising interest rates, alternative loans and falling home prices could force homeowners into foreclosure. But spikes in delinquencies and foreclosures haven't happened. Don't congratulate yourselves too much, America -- this isn't a sign that you've suddenly become more responsible.
Factors behind the drop in late payments include:
• Job growth.
• The recent vintage of many mortgages.
• The run-up in home prices over the last five years.
Jobs combat delinquency
"The most important thing in the performance of the housing market is employment," says Doug Duncan, chief economist for the Mortgage Bankers Association. The economy has been creating jobs in the last couple of years at a rate that "counteracts things that tend to drive delinquencies up." What are these things that tend to drive delinquencies up? Unemployment is the biggie, but the unemployment rate has been falling. It was 4.6 percent in May, down from 5.1 percent in May 2005.
"If you can work, then you can pay your mortgage," says Bob Moulton, president of Americana Mortgage in New York. "When those jobs numbers start to weaken, then I think you're going to have issues pertaining to delinquencies and foreclosures."
He doesn't expect that to happen anytime soon.
For new loans, adjustment day coming
Another source of late payments is a rise in rates on adjustable-rate mortgages.
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We've certainly seen increased rates, but it's too early for them to affect the delinquency rate, because so many of the adjustables are of recent vintage
As inflation ticked up this year, the average rate on 30-year, fixed-rate mortgage has gone up about half a percentage point. The same has happened with the 5/1 adjustable-rate mortgage, which keeps its low initial rate for the first five years, then is adjusted annually. The 5/1 ARM is the most popular of the many types of adjustable-rate mortgages, becoming fashionable during the refinancing boom of 2003 and 2004.
Rising interest rates haven't affected the mortgages of people with 5/1 ARMs, because most of them are locked into their introductory rate until 2008 at the earliest. When the rate-adjustment day arrives, their monthly payments will jump, and delinquencies and foreclosures are likely to rise.
Moulton says some borrowers refinance their 5/1 ARMs into fixed-rate mortgages "as an insurance measure" -- paying a higher rate now in exchange for not having to pay stratospheric rates later, when the rate-adjustment period begins. People who don't refinance their ARMs will find "their rates are going from 5 percent up to 7 and then to 9," he says. "They are putting themselves at risk."
About one-third of borrowers are getting ARMs, and 37 percent of those took out interest-only mortgages in 2005, according to Harvard's Joint Center for Housing Studies. Interest-only loans were about 20 percent of the dollar volume of mortgages last year, and about half of those were pay-option ARMs that allow monthly payments that don't even cover the interest accrued that month -- meaning that the borrower can end up owing more on the loan, even after making a payment. People making minimum payments on pay-option ARMs are deemed to be especially at risk of foreclosure when their rates eventually rise.
The MBA's Duncan says the passage of time adds another risk factor. People are most likely to default on their mortgages three to five years after getting the loan. It's now about three-and-a-half years after the beginning of the refi boom, and Duncan expects delinquencies and foreclosures to rise modestly over the next few years.
Appreciation holds problems at bay
Why only a modest rise? Because in many parts of the country, home prices have risen dramatically. In the last five years, average home values have more than doubled in six states, according to the Office of Federal Housing Enterprise Oversight, and the national average shows a 57 percent gain over that time. Price appreciation gives strapped homeowners the financial room to fix up their homes, sell them, retire their mortgages, pay real estate commissions and move.
On the other hand, when house prices are static, some people can't afford to sell their homes, because the proceeds from the sale aren't enough to pay off the mortgage and cover commissions and moving expenses. The states with the most homes in foreclosure are cursed with slow price appreciation, as well as the loss of higher-paying manufacturing jobs. That list includes Michigan, Ohio and Indiana, the three states with the slowest price appreciation (under 4.25 percent) in the last year, according to the OFHEO.
Finally, any report about mortgage delinquencies and foreclosures has to take Hurricane Katrina into account. Picture again that town with 10,000 houses, but this time imagine it sits on the Gulf of Mexico. Nine or 10 of the homeowners are behind on their payments because of Katrina. Some await insurance settlements; some are jobless. By Duncan's reckoning, those people would be current on their mortgages now if Katrina hadn't hit, and the national delinquency rate would have been 4.31 percent in the first quarter of this year -- exactly the same rate as the first quarter of 2005.
And if Katrina hadn't happened, the foreclosure rate would be higher -- 0.99 percent instead of 0.98 percent -- because forbearance programs protect homeowners who were hammered by the hurricane. Eventually, some of those people will lose what's left of their homes to foreclosure.
The hurricane's effect on homeowners can be seen when you compare delinquency rates in Louisiana and Mississippi with their northern neighbors. In the first quarter of 2006, the delinquency rate in Louisiana was 13.73 percent, and in Arkansas it was 4.37 percent. In Mississippi, the delinquency rate was 12.86 percent, compared to 5.67 percent in Tennessee.
source from : bankrate.com
Guess which of the following scenarios is happening to homeowners:
A. They are falling behind in their mortgage payments. The delinquency rate -- in other words, the proportion of homeowners who are at least 30 days past due on their house payments -- is skyrocketing. Foreclosures are going up, too, but not as rapidly.
B. Homeowners actually are making fewer late payments than they were at the end of 2005. They're making more late payments than a year ago, but only because of Hurricane Katrina.
The correct answer is B, according to the Mortgage Bankers Association. The proportion of homeowners making late payments fell in the first three months of this year, compared to the last three months of 2005. The foreclosure rate dropped a teensy bit.
Welcome to Housing Market, U.S.A.
To visualize what's happening, imagine a town that represents the U.S. housing market. The town has exactly 10,000 owner-occupied homes with mortgages. In the first three months of this year, 441 of those homeowners were at least 30 days past due on their house payments, compared to 470 homeowners in the last three months of 2005. In other words, the delinquency rate fell to 4.41 percent from 4.7 percent.
In the same town, 98 homes were somewhere in the foreclosure process in the first three months of 2006, compared to 99 homes in similar straits in the final quarter of 2005. The foreclosure inventory fell to 0.98 percent from 0.99 percent.
In the unlikely event that you had been pondering delinquencies and foreclosures, you probably didn't think they were declining in number. A lot of news coverage has speculated that the combination of rising interest rates, alternative loans and falling home prices could force homeowners into foreclosure. But spikes in delinquencies and foreclosures haven't happened. Don't congratulate yourselves too much, America -- this isn't a sign that you've suddenly become more responsible.
Factors behind the drop in late payments include:
• Job growth.
• The recent vintage of many mortgages.
• The run-up in home prices over the last five years.
Jobs combat delinquency
"The most important thing in the performance of the housing market is employment," says Doug Duncan, chief economist for the Mortgage Bankers Association. The economy has been creating jobs in the last couple of years at a rate that "counteracts things that tend to drive delinquencies up." What are these things that tend to drive delinquencies up? Unemployment is the biggie, but the unemployment rate has been falling. It was 4.6 percent in May, down from 5.1 percent in May 2005.
"If you can work, then you can pay your mortgage," says Bob Moulton, president of Americana Mortgage in New York. "When those jobs numbers start to weaken, then I think you're going to have issues pertaining to delinquencies and foreclosures."
He doesn't expect that to happen anytime soon.
For new loans, adjustment day coming
Another source of late payments is a rise in rates on adjustable-rate mortgages.
- advertisement -
We've certainly seen increased rates, but it's too early for them to affect the delinquency rate, because so many of the adjustables are of recent vintage
As inflation ticked up this year, the average rate on 30-year, fixed-rate mortgage has gone up about half a percentage point. The same has happened with the 5/1 adjustable-rate mortgage, which keeps its low initial rate for the first five years, then is adjusted annually. The 5/1 ARM is the most popular of the many types of adjustable-rate mortgages, becoming fashionable during the refinancing boom of 2003 and 2004.
Rising interest rates haven't affected the mortgages of people with 5/1 ARMs, because most of them are locked into their introductory rate until 2008 at the earliest. When the rate-adjustment day arrives, their monthly payments will jump, and delinquencies and foreclosures are likely to rise.
Moulton says some borrowers refinance their 5/1 ARMs into fixed-rate mortgages "as an insurance measure" -- paying a higher rate now in exchange for not having to pay stratospheric rates later, when the rate-adjustment period begins. People who don't refinance their ARMs will find "their rates are going from 5 percent up to 7 and then to 9," he says. "They are putting themselves at risk."
About one-third of borrowers are getting ARMs, and 37 percent of those took out interest-only mortgages in 2005, according to Harvard's Joint Center for Housing Studies. Interest-only loans were about 20 percent of the dollar volume of mortgages last year, and about half of those were pay-option ARMs that allow monthly payments that don't even cover the interest accrued that month -- meaning that the borrower can end up owing more on the loan, even after making a payment. People making minimum payments on pay-option ARMs are deemed to be especially at risk of foreclosure when their rates eventually rise.
The MBA's Duncan says the passage of time adds another risk factor. People are most likely to default on their mortgages three to five years after getting the loan. It's now about three-and-a-half years after the beginning of the refi boom, and Duncan expects delinquencies and foreclosures to rise modestly over the next few years.
Appreciation holds problems at bay
Why only a modest rise? Because in many parts of the country, home prices have risen dramatically. In the last five years, average home values have more than doubled in six states, according to the Office of Federal Housing Enterprise Oversight, and the national average shows a 57 percent gain over that time. Price appreciation gives strapped homeowners the financial room to fix up their homes, sell them, retire their mortgages, pay real estate commissions and move.
On the other hand, when house prices are static, some people can't afford to sell their homes, because the proceeds from the sale aren't enough to pay off the mortgage and cover commissions and moving expenses. The states with the most homes in foreclosure are cursed with slow price appreciation, as well as the loss of higher-paying manufacturing jobs. That list includes Michigan, Ohio and Indiana, the three states with the slowest price appreciation (under 4.25 percent) in the last year, according to the OFHEO.
Finally, any report about mortgage delinquencies and foreclosures has to take Hurricane Katrina into account. Picture again that town with 10,000 houses, but this time imagine it sits on the Gulf of Mexico. Nine or 10 of the homeowners are behind on their payments because of Katrina. Some await insurance settlements; some are jobless. By Duncan's reckoning, those people would be current on their mortgages now if Katrina hadn't hit, and the national delinquency rate would have been 4.31 percent in the first quarter of this year -- exactly the same rate as the first quarter of 2005.
And if Katrina hadn't happened, the foreclosure rate would be higher -- 0.99 percent instead of 0.98 percent -- because forbearance programs protect homeowners who were hammered by the hurricane. Eventually, some of those people will lose what's left of their homes to foreclosure.
The hurricane's effect on homeowners can be seen when you compare delinquency rates in Louisiana and Mississippi with their northern neighbors. In the first quarter of 2006, the delinquency rate in Louisiana was 13.73 percent, and in Arkansas it was 4.37 percent. In Mississippi, the delinquency rate was 12.86 percent, compared to 5.67 percent in Tennessee.
source from : bankrate.com
posted by !GOD BLESS YOU! at 01:20
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