Residential Mortgage Delinquency

Residential Mortgage Delinquency of 90 Days or More Plus Foreclosures Forecast To Rise to 12% in 2010

Total Mortgage Delinquency-30 Days or More
Residential mortgages 30 days or more past due plus repossessions define mortgage delinquency. Recent peak levels of 6.9% in 1985, 6.1% in 1991, and 6.7% in 2001 were dramatically exceeded by the 11.2% level in December 2008. Historically, a rise to a peak in continuing claims for unemployment, as occurred in 1982, 1990 or 2001, preceded the peak in mortgage delinquency and foreclosures.

IDC forecasts continuing claims for unemployment to increase to 6 million in 2009, indicating a 16% mortgage 30 days or more delinquency rate plus foreclosures.

Mortgage Delinquency-90 Days or More
The level of 90 day or more delinquency plus foreclosures in non-agency mortgage loans securitized exceeds the total loan 90 days or more delinquency and foreclosures at year-end by a factor of almost 3 times. While subprime 90 day or more delinquency, including REO and foreclosures, is somewhat greater, prime and Alt-A loan delinquency is much larger in non-agency securitized loans.

Delinquency of securitized mortgage loans continues to increase in January 2009. Given 20 % of all mortgage loans are under-water with the home value less than the mortgage and unemployment continuing to rise toward 10%, loan delinquency, including REO and foreclosures, is expected to reach 24% for securitized loans and 12% for total mortgage delinquency including foreclosures.

Commercial and savings bank’s plus S & L’s 90 days or more loan delinquency, including foreclosure and restructured debt, as a percent of total mortgage loans, increases from 4.4% at year-end 2008 to a peak of 8.0%.

The Home Builders Market-Index, which measure home builder’s sentiment and home buyer traffic, also forecasts the residential mortgage delinquency rate. Historically, a low and recovery in the Home Builder Market Index, as occurred in 1991, 1995, and 2001, forecasted a peak and decline in the mortgage delinquency rate. The Home Builders Market-Index is at the lows of 2008.

Given the high level of residential house inventory to current sales, the rise in unemployment and severe credit problems in the US economy, the Home Builders Market Index is expected to remain near its low into 2009. Recovery in home builders sentiment remains limited in 2010.

Without a significant recovery in the Home Builders Index, as occurred in 1992, the 30 day or more mortgage delinquency and foreclosure rate continues to rise to 16% in 2010.

An increase in total mortgage delinquency rate to 16% of mortgage loans (1 to 4 family mortgages), forecasts mortgage delinquency of 90 days or more on the books of US banks and thrifts to increase to 8% of total mortgage loans. Without sizeable increases in capital ratios in financial institutions, the rise in mortgage loan delinquency forecasts a significant increase in bank and thrift failures.