And now its credit-worthy home owners with prime mortgages that are jumping ship.
Foreclosure rates for loans that conform to the guidelines of now government owned Fannie Mae and Freddie Mac have jumped 425% since January 2008. And the monthly rate of foreclosures has accelerated in the last two months, according to Lender Processing Services.
Unlike the subprime mortgages that set off the global financial crisis, conforming agency prime mortgages are held by borrowers regarded as the best credit risks.
There’s bad news and good news in these numbers.
The bad news should be pretty obvious: The last thing that Freddie Mac and Fannie Mae need is more bad mortgages. The two entities—I don’t know quite what else to call them at the moment—own or guarantee almost half of the $10 trillion in outstanding U.S. mortgages. At the end of the first quarter they reported $330 billion in non-performing loans. Since the only thing that’s keeping Fannie and Freddie alive is an unlimited credit line from U.S. taxpayers, more mortgages going bad means more taxpayer money down this black hole. (That unlimited credit line from taxpayers is also just about the only thing keeping the mortgage market alive at the moment as well.) So far taxpayers are on the hook for $145 billion.
The good news is harder to see but it’s there. A jump in prime mortgage foreclosures is a sign that the mortgage crisis is entering its final stages. The big lump of foreclosures in sub-prime and alt mortgages have been working their way through the pipeline for months. During that period foreclosures of prime mortgages lagged. If you’re credit rating was good enough for a prime mortgage, you probably had enough money in the bank to keep paying your mortgage for quite a while after you got laid off. But now with unemployment still near 10% and the prospect for a job looking grim, prime borrowers too are throwing in the towel. (Yes, people with good credit scores get laid off in a recession.)
How long this final stage lasts depends on the economy. The longer that people don’t have jobs, the more people will default. And until more people have jobs the default rate won’t go down and the housing sector won’t pick up.
Robert, jobs may not come back in a traditional sense. But that will create that many more opportunities for self-employment and entrepreneurialism- isn’t that what made the great USA great to begin with?
18 months ago Jim was a journalist- had been for nearly 30 years. Out of lemons he re-made himself into a money manager. He may not have chosen this route 2 years ago but I’ll bet he’s excited and happy for the change, scary though it may be. Pissing and moaning and looking for a “job” in a dying industry sure wasn’t going to educate his kids
God speed to all of those needing to reinvent themselves. Have faith in yourself and don’t let the naysayers and the doubters bring you down.
skoenig,
Progressives “transforming” it.
OY VEY !!!! What has happened to our great USA ???
Jim,
Did you see this article in the NYT?
http://www.nytimes.com/2010/07/23/business/23banks.html?_r=1&ref=economy
Seems like quite a pickle for the FED. Add on the strategic walkaway’s to the jobless ‘forced’ defaults and it seems like there is a lot more deflationary pressure than many are forecasting.
The jobs are not coming back ! It is the unemployment rate that is holding down interest rates, which allows unlimited spending for war by the federal government !
Ten years ago, I listened to a lecture by the VP of microsoft, he said, “in ten years a college graduate will have to move to China to get a job.”
On the TV news this morn, they said new college grads are looking overseas for employment, cause they jobs aint here anymore.
Jobs aint going to come back folks…
The “masters of the universe” caused this mess out of pure greed. Then they still got their bonus, because they couldn’t afford to lose such good people.
I posted this link yesterday, but is on-topic with this post: http://www.calculatedriskblog.com/2010/07/home-builders-to-start-building-more.html
I had also recently read an article talking about how banks were not starting formal foreclosure on houses >$300k so that they would not show up as losses yet.
I’m not quite sure how we can screw up the housing market more than we have, but I’m sure we will give it a shot.
As I read this post, the ‘final stage’ is a pretty open-ended deal. That is, it can’t be good from any angle because there is no guarantee that the prime mortgage people willl get that job — right? Only maybe more motivation for them to start looking.
Thanks for both…
I liked the one-paragraph version better: it said it all. Quick. Thx JJ
SRS is focused primarily on Commercial Real Estate. As well (take my $300k loss to heed) it’s a TERRIBLE place for any kind of long term play. But it’s a (still) free country, so do your own DD.
Jim, if I can respectfully disagree, the shadow inventory being “cured” will signal the turn around in Residential Real Estate. We got a looooong way to go brother. Oh yeah, FHA loans will be the next bust. We’re still a few years away from that, but you heard it here first. For whatever that’s worth!
Yep, left out most of the post. Fixed now.
i believe we are missing the whole thing
@cwt
SRS is the ultrashort real estate ETF. But it’s not like this news is any surprise or anything.
This appears to be the shortest Jubak Post ever, and it ends in a comma. Are we missing the rest of the article?
What is the best way to short housing?