Job Losses Push Mortgage Delinquencies and Foreclosures to New Records

By Mike Caggeso
Associate Editor
Money Morning

Mounting job losses have pushed mortgage delinquencies and foreclosures to new records in the first quarter.

According to the Mortgage Bankers Association (MBA), the U.S. delinquency rate increased to a seasonally adjusted 9.12%. Meanwhile, the share of loans entering foreclosure rose to 1.37%. Both are the highest figures on record going back to 1972, Bloomberg reported.

The numbers are especially grim when taking account the U.S. Federal Reserve's gradual and extraordinary measures to prop up the housing market. Since September 2007, Fed policymakers have cut the benchmark Fed Funds target rate 10 times – taking it from its starting point at 5.25% to the current rate range of 0.00% to 0.25%, hoping to encourage bank-to-bank lending, as well as bank-to-consumer lending.

But low interest rates won't help as long as job losses mount and consumers stay out of the housing market. According to government figures, the unemployment rate rose to 8.1% in the first quarter, the highest level in 26 years.

"If people don't have a paycheck they can't support a mortgage," Jay Brinkmann, the MBA's chief economist, told Bloomberg. "The longer the recession lasts, the more people run through their savings reserves, leading to higher delinquencies and higher foreclosures."

Also alarming, the biggest share of new foreclosures came from fixed-rate mortgages, which are given to the most credit-worthy borrowers. Fixed-rate mortgages accounted for 29% of new foreclosures, as opposed to adjustable-rate mortgages, given to people of poorer credit, which accounted for 24% of new foreclosures.

A National Association for Business Economics (NABE) survey released Wednesday)  showed the recession will likely end in the third quarter, but the rebound associated with the turnaround will be a tempered one. The report also downgraded growth forecast for the next few quarters – with the second quarter contracting 1.8%, followed by a meager 1.2% growth in the second half. The end result will be an overall 1.2% contraction for 2009.

April Home Sales

One glimmer of hope for the housing and mortgage market lay in April home sales figures.

New home sales rose 0.3% and prices rose 3.7% in April. The modest gains are far outweighed by the 34% sales decline from last year, but have been cautiously cheered by economists nonetheless.

"The one good piece of news is that the average sales pace for the past five months is just about where the April number came in.  That tells me that demand, while still bouncing around, has pretty much hit bottom," Joel Naroff, president of Naroff Economic Advisors, wrote in a note to clients.

But the housing market will rebound from the bottom up, with first-time homebuyers scooping discounted homes from those looking for new or bigger houses. That means April's new home sales, while positive, won't bulldoze forward until demand for them picks up significantly.

"With confidence rising, mortgage rates low and affordability high, I expect to see that happening over the next few months.  Even so, don't expect any major jump in construction soon," Naroff said. "Of course, given how much the residential sector has subtracted from (gross domestic product) over the past year, I will take stability."

News and Related Story Links:

• Bloomberg:
  Mortgage Delinquencies, Foreclosures, 30-Year Rates Increase

• Money Morning:
  Business Economists Predict Recession Will End in Third Quarter