MBA: Rate of Deterioration Increases

A: In mathematics, a derivative is the rate of change of a quantity. A derivative is an instantaneous rate of change: it is calculated at a specific instant rather than as an average over time. In the real world of analyzing foreclosures and delinquencies, the second derivative will tell us whether the rate of change is increasing or decreasing. As confirmed by the Bankers Group, the rate of deterioration of foreclosures & defaults is increasing! What does this mean? Things are getting worse, faster!

MBA: Delinquencies Increase in Latest MBA National Delinquency Survey

DELINQUENCY RATE CHANGE FROM LAST QUARTER

Prime Loans ---> Increased 15 basis points (0.15%) from 2.58% to 2.73%
Subprime Loans ---> Increased 105 basis points (1.05%) from 13.77% to 14.82%
FHA Loans ---> Increased 43 basis points (0.43%) from 12.15% to 12.58%
VA Loans ---> Decreased 34 basis points (0.34%) from 6.49% to 6.15%

Facts people, if you don't like it than I am very sorry. I try to be unbiased here and as many of you know I have no qualms about telling it how it is, even if the news is not good. And yes, I derive 75% of my annual income from real estate transaction commissions in an industry where sales skills is the name of the game. Obviously, I'm not a good salesman so I will never be a mega-performer in this game; something I have no problems with.

Back to the news. According to Bloomberg's article, "U.S. Mortgage Foreclosures, Delinquencies at Record, MBA Says":

The number of Americans who fell behind on their mortgage payments rose to a 20-year high in the third quarter as borrowers were unable to refinance or sell their homes. The share of all home loans with payments more than 30 days late, including prime and fixed-rate loans, rose to a seasonally adjusted 5.59 percent, the highest since 1986, the Mortgage Bankers Association said in a report today. New foreclosures hit an all-time high for a second consecutive quarter.

"These are the first numbers we've seen that combine the meltdown of the credit markets with the drop in home prices," said Jay Brinkmann, vice president of research and economics for the Washington-based bankers trade group. In the quarter, 3.12 percent of prime borrowers made their mortgage payments at least 30 days late, up from 2.73 percent in the second quarter, the report said. The subprime share of late payments rose to 16.31 percent from 14.82 percent.

The Bloomberg article didn't touch on the actual RATE of increase I was looking to point out here. The CNN Money article, "Record Rate of New Foreclosures" does:

The rate of home owners going into foreclosure hit a record high in the third quarter, while those late with their payments were at the highest level since 1986 - the latest signs of the meltdown in the mortgage and real estate markets shaking the U.S. economy. Mortgage delinquencies and foreclosures became a serious problem during the quarter, as investor demand dried up for securities backed by mortgages, particularly subprime loans made to borrowers without top credit scores.

That meltdown in the mortgage market made many major lenders pull back from making subprime mortgage loans, which in turn helped send home sales, prices and new construction sharply lower, raising the risk of a recession.

The troubling item of this report is that the rate of delinquency is rising & that it is starting to infect alt-a and prime loans. Overall, most loan categories experienced rising rates of defaults. All part of the downturn cycle. Expect news to get worse before it gets better.

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