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The Good and Bad News on the Pace of Mortgage Delinquencies

(9/7/10)

There's some good news on the mortgage delinquency front. For the first time in three years, late stage mortgage delinquencies, comprised of borrowers who are 90 plus days late in making their mortgage payments, have declined on a quarter over quarter basis from the period ending on March 30th to the period ending on June 30th. The success of the loan modification process is being credited with making this turnaround in the rate of delinquent mortgages possible. Nationally, the delinquency rate fell by 2% at the end of the second quarter, ending on June 30th, to 9.85%. However there are approximately $963 billion in residential mortgages which are in some stage of the delinquency process, either in foreclosure or between 30 to 90 days late in payment. That mortgages in the 90 day plus late payment category have fallen off, reflects that these severely at risk loans have been successfully modified after reaching the brink of foreclosure. While loan modifications are being credited with saving the day for these loans, paradoxically the success rate of the modifications themselves remains open to debate as nearly 40% to 60% of the modified loans reportedly returned to a state of default. As of June 30th homeowners were indebted to the tune of $9.85 trillion in mortgage loans secured against their homes and of that number nearly 23% (affecting up to 11 million properties) are upside down, meaning that their mortgage balance exceeds the current value of the home. Some dark clouds looming on the horizon remain persistent: the high rate of unemployment, the shadow inventory of foreclosures waiting to hit the market, the adjustable mortgage rate re-sets along with the extremely tight credit conditions for those trying to get a mortgage, all conspire to keep housing from fully recovering any time soon.

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