At the beginning of the year, the big scare was the subprime mortgage meltdown. But many people downplayed that and said it was just a small piece of the market. But Countrywide just came out with their most recent numbers and the numbers are looking pretty bad. Delinquencies for prime home-equity loans shot up dramatically from 1.77% to 4.56%.
The reason isn't because of interest rate increases either. They attribute it to people losing their jobs. This seems strange since the stock market is making new highs. If business is really as good as the stock market might indicate, I would think that they would be hiring, not firing.
I pasted the main parts below that I thought were the most interesting. I haven't seen these problems in my small part of the world yet. I hope this is just a small blip and nothing that continues to get worse.
Countrywide said 4.56 percent of its prime home-equity loanswere delinquent at the end of the quarter, up from 1.77 percent in the year-ago period. Some 23.71 percent of its subprime loans were delinquent, up from 15.33 percent.
The company said the delinquencies were not due to borrowers struggling with mortgage interest rate resets, as many had expected.
Instead, the delinquencies have been largely due to people losing their jobs or similar factors, the company said. Those homeowners have been unable to refinance because the value on their home has fallen and the credit crunch has cut off other borrowing options.
"We are experiencing home price depreciation almost like never before, with the exception of the Great Depression."
Tim... this is interesting. I think part of the reason to higher numbers is because more people are buying homes. I am sure that this has attributed to some of this.
But in regards to your concerns about jobs, that the market is good, but Countrywide has said that many of the delinquencies are due to job loss. I haven't seen or heard much of this, but I know some people have lost their 2nd jobs... or, taxes have gone up in some areas, so I can see this being a burden. Especially if pay raises don't offset this.
Lastly... have you seen Countrywide advertise their no cost loan. I sometimes see it 3 times a day. In my opinion, when we see more advertising from mortgage companies, it means business is down a little.
I don't like hearing about delinquencies, especially when it comes to people losing their jobs, but countrwide has quoted deals to people who have come to me and they were being charged up to 6% up front, not to mention the rates they were given 10% + I really like your post it's very informative,as for countrwide they are still digging themselves a hole...
Tom
I thought I heard a few hedge funds underwriten by Bear Stearns have actually gone under.
it'll probably get worse before it gets better.
Wow, I knew it was going to get bad, but I really didn't think it was going to get this bad this fast. The scary thing is that I don't think the market has hit bottom yet.
Tim,
Countrywide's numbers are of course worrisome. But what bothers me, like you, is that they blame people's job losses for the delinquencies. The economy is rather solid, not setting records, but steady. The feeling is that the real reason is something else, job loss is just to cover it up. Like very lenient underwriting standards. Hopefully the real story comes out soon.
For example, California is ground zero for many of the country's biggest subprime lenders, including Countrywide Financial and Wells Fargo; and with 22 percent of its total mortgages considered "risky," it leads the nation in terms of lending to borrowers with flawed credit.
Even so, California's foreclosure rate for the first quarter of 2007 came in at just 0.43; while Midwestern states like Indiana, Michigan and Ohio all crossed the 1-percent threshold.
Economists attribute California's resilience to a robust economy that continues to create jobs--which in turn allows residents to remain in their homes, supports housing prices and lets homeowners use equity to refinance out of adjustable loan terms and into fixed loans.
Michigan, Illinois, Indiana, Ohio and other Midwestern states, meanwhile, have been battered by the one-two punch of declining residential values and the loss of tens of thousands of manufacturing jobs following cutbacks at auto companies.
According to Mortgage Bankers Association Vice President of Public Relations Laura Armstrong;
The, MBA issued a press release and stated the following:
In addition, the MBA goes on to address a Congressional Joint Economic Committee (JEC) report looking at the current environment surrounding rising foreclosures among subprime loans:
Food for thought!
Great comments.
Tony, that's a very interesting chart. It really tells the story well.
Is it possible that maybe there isn't a loss of jobs, but rather a low income potential for people trying to keep their homes? In my market, most people do not have incomes anywhere near what is needed to make their payments after the inital year when the taxes and insurance rise. Income levels have not progressed upward in the way that expenses have. This is a robust economy? More than 50% live day to day on their credit cards and cannot afford healthcare. I think not.
As for the data, it is possibly flawed, especially if using Realty trac since they do not update as frequently as they could. However, there is no mistaking the huge amount of foreclosures going on in the local areas, just by reading the local papers. I think there are a multitude of reasons, including loans given to unqualified people. It was just a matter of time for Countrywide to feel the aftereffects. Thanks for this post. Interesting.