Wednesday, July 7, 2010

Delinquncies Soar as the Housing Tax Credit Expires

We finally got that well overdue bounce today.  I was happy to see it.  The Financial Apocalypse that we will all be experiencing in the near future is not going to be enjoyable so an "escape from reality" bounce is fine by me.

I see this as nothing more than just another bear market rally.  I wouldn't be surprised to see a ride up to 1100 or so over the next several days.  If we manage to get there it will create a fantastic opportunity to get short.

LPS came out with their latest delinquency data today and it's not pretty:

"LPS' May Mortgage Monitor Report: Increase in Rate of New Delinquencies; Decline in Number of Delinquent Loans Becoming Current

JACKSONVILLE, Fla., July 6 /PRNewswire-FirstCall/ -- The May Mortgage Monitor report released today by Lender Processing Services, Inc. (NYSE: LPS), a leading provider of mortgage performance data and analytics, shows a 2.3 percent month-over-month increase in the nation's home loan delinquency rate to 9.2 percent in May 2010, and that early-stage delinquencies are increasing as normal seasonal improvements taper off. This report includes data as of May 31, 2010.

According to the Mortgage Monitor report, the percentage of mortgage loans in default beyond 90 days increased slightly, while both delinquency and foreclosure rates continue to remain relatively stable at historically high levels. There are currently more than 7.3 million loans currently in some stage of delinquency or REO.

The report also shows that the average number of days for a loan to move from 30-days delinquent to foreclosure sale continues to increase, and is now at an all-time high of 449 days, resulting in an increase in "shadow" foreclosure inventory.

After a two-month decline, deterioration ratios increased, with 2.5 loans rolling to a "worse" status for every one that has improved. The number of delinquent loans that "cured" to a current status declined for every stage of delinquency, except in the "greater than six months delinquent" category. This improvement was likely the result of trial modifications made through the Home Affordable Modification Program (HAMP) that transitioned into permanent status.

Other key results from LPS' latest Mortgage Monitor report include:

Total U.S. loan delinquency rate:

9.20 percent

Total U.S. foreclosure inventory rate:


States with most non-current* loans:
Florida, Nevada, Mississippi, Georgia, Arizona, California, Illinois, New Jersey, Ohio and Indiana

States with the fewest non-current* loans:

North Dakota, South Dakota, Wyoming, Alaska, Montana, Nebraska, Vermont, Colorado, Iowa and Minnesota"

Quick Take:

The data above is very ugly.  We now have close to a 10% delinquency rate on home loans.   Unbelievable isn't it?

Banks on average are holding homes for 449 days(and rising) before foreclosing on them.  God only knows how large the shadow inventories are now.  The banks are holding onto the houses in order to try and prop up prices and avoid taking the loss on the foreclosure.

All this is going to do is delay the pain.  Housing prices are a still way overvalued because only a fraction of what's really available for sale are actually on the market.  The rest sit in the wasteland we like to call "shadow inventories".

As a result,  real price discovery has not been established.

The only price discovery we are seeing is nothing but a mirage because it's being done by the naive buyers that get suckered into overpaying for a propped up asset using cheap money which will not be available in the very near future.

The smart buyers understand this and are sitting patiently on the sidelines or are offering ridiculously low bids. 

Now this doesn't mean that there aren't some markets that are priced properly.  Many rural areas of the country never got overheated in the first place and are therefore reasonably priced as a result.

Another key data point from this report is the large increase in "new" delinquencies.  This sudden rise in new foreclosures is likely being triggered by the end of the tax credit in April. 

Sellers continued to pay their bloated mortgages through April hoping that they could dump the house onto a buyer using the tax credit.

Once the tax credit disappeared they pretty much gave up and walked away.

That's it for tonight.  Avoid the housing market at all costs because there is plenty more pain to come.  Ren rent rent folks because prices are going to continue to fall especially without the tax credit.

Disclosure:  No new positions at the time of publication


Dokemion said...

If you have debts, it is natural that the creditor would try to collect. In order to collect, the creditor would use all means necessary including filing a case against you. You will be given 30 days to dispute the claim made against you. If you really owe the money, you should immediately try to contact your creditor in order to make a new payment arrangement that would be amicable to both of you. You will pay off your debts as longs as they agree not to press charges. You should do this in order to avoid a judgment record on your credit

Jeff said...


Great advice.

Had a friend that negotiated himself out of a home loan in Vegas with very little damage.

Some banks are willing to work with you. they are as desparate to clean up this mess as the buyer is.

getyourselfconnected said...

All of this is really getting on the edges of possibility now. Can this extend and pretend keep going on? What about the next QE program, how big will that be? Time to test the limits I guess.

Jeff said...


YEah I agree.

Ben will take it as far as they let him.