Saturday, March 1, 2008

Foreclosures rising at an alarming rate

The chart above comes from Mish's site which I highly recommend. Link below.

This is a picture of a screen from Washington Mutual showing the performance of a section of their loan portfolio. Keep in mind this is not representative of all of WAMU's loans.

That being said these numbers are frightening. Everyone wants to know how bad the foreclosure crisis is. Well I think these numbers say it all. What is frightening about this is the fact that these loans were done with tighter lending standards. The credit scores were all over 700 which is considered to be excellent credit. These are not your average subprime buyers folks.

Take a look at the increase in foreclosure rates over the past 7 months. The foreclosures have gone from under 1% in July '07 to over 13% in Jan. '08. These type of numbers are flat out frightening!!! The scariest thing about this is the high credit scores of the buyers!!!

If these types of foreclosure rates continue then you are bound to see an all out depression in the housing market. This is why I ask all of you to be be patient and don't listen to the realtors telling you "prices have dropped and now is the best time to buy!!!".

My take is now is the worst time to buy!!! Its just a matter of time until prices are affected by these alarming increases in foreclosures. Think about it for a second. If you live in a neighborhood where everyone bought for 500k and then there are 3 people that lose their house in the neighborhood to foreclosure. What does the bank do with these foreclosures??? They want to dump that house as fast as they can. The fastest way to do this is to drop the price dramaticaly sometimes by 30-50% and find a quick buyer either through an auction or a realtor. Banks do this because they have no desire to keep these houses on their books. The result of this is the comps in these neighborhoods will then be 40% lower.

The most frightening part of this chart to me is not the foreclosure rate. Its the drop off of the percentage of people that are 60 days late versus the percentage that are 90 days late. 3.24% were 60 days late on their mortgage payments in JAn. '08 while only 1% were 90 days late. What this tells you is people are walking away from their house when they are 90 days late. With the loose lending standards at the time where people had no downpayments the smartest thing to do is just walk away and mail the keys back to the lender.

Charts like these are what keep me up at night. If I was an honest realtor I would advise my clients "please do not buy!!!". I would be a broke realtor with this approach but at least I could sleep at night knowing that I gave my clients good advice.


Anonymous said...

Your blog is great! Makes me think twice about buying or selling at this time. Thanks

A potential homebuyer(Jeff) said...


Glad I could help. I will keep the posts coming.


Anonymous said...

That screen appears to show delinquency trends on just $490 million in loans--most likely just a single pool of WAMU mortgages--making it hard to extrapolate trends without knowing more about the pool's composition.

WAMU had $230 billion in mortgage loans outstanding at 12/31/07.

Jeff said...

anon 7:44

I agree. If you notice in my first paragraph I tried to explain this was only a section or pool of their portfolio and did not represent all of WAMU loans.

I thought this pool of mortgages wasinteresting because the credit scores were so high and the loan performance was so poor.