Jul 09
Option ARM & Alt-A Defaults to Pick Up Considerable Speed
Posted by Kristjan Velbri | Posted in General | Posted on 09-07-2009
The percentage of home loans in the United States has never been higher than it is today. James Quinn writes:
The Mortgage Bankers Association just reported a delinquency rate of 9.12% on all mortgage loans, the highest since the MBA started keeping records in 1972. Also, the delinquency rate only includes late loans (30-days or more), but not loans in foreclosure.
Mortgage Delinquencies as Percentage of Loans
As Quinn points out, the delinquencies don’t count homes in foreclosure, which adds another 3.85% to the mix of mortgages gone sour. Thus, the combined rate of homes in foreclosure and homes at least one payment due is 12.07% (sic!). But Quinn doesn’t stop there:
Delinquencies on subprime mortgage loans rose to 24.95% from 21.88% in the fourth quarter of 2008. Prime loan delinquencies rose to 6.06% from 5.06% one quarter ago, a significant and disturbing increase from a group of borrowers that aren’t expected to default.
Waiting in line to be foreclosed are the Alt-A and Option ARM mortgages, which will hit the market so hard that they will send the ‘all-is-fine-and-we’re-gonna-have-a-real-estate-recovery-soon’ guys down the drain with their already tarnished reputations. Of course, the politicians have yet again tried to outsmart the housing market with a new law, the California Foreclosure Prevention Act. The new law, which is already in effect, puts a 90-day moratorium on all new foreclosures. This is insanity! But it’s also one of the things that’s keeping the housing market from further descent, as there are already 4 million homes on the market, with another million waiting on the sidelines. Make no mistake, there is nothing good about it – the moratorium might put a floor under the housing market for some time, but it will be a failure in the long term (since it’s an artificial floor), as those houses will eventually find their way on the market, further suppressing prices. For a more in depth look at the new law, see Dr. Housing Bubble. As of right now, the option ARM reset schedule looks like this:
