Mortgage Meltdown Continues

While the equity market continues its ascent into the heavens, our housing market continues its descent into hell.

How long can these two indicators continue their contradictory movements? It is extremely hard to believe that the price actions and underlying dynamics in these indices can continue for an extended period. While Uncle Sam’s liquidity has been phenomenal in generating support for the equity markets, it has been decidedly less supportive to the housing market.

The Wall Street Journal addresses the ongoing meltdown in the housing and mortgage markets in writing, Mortgage Markets Continued to Falter in 3rd Quarter:

The U.S. housing market continued to deteriorate in the third quarter as even the most credit-worthy borrowers increasingly fell behind on their mortgages, highlighting the problems policy makers have faced in trying to address the problem.

A new report from the Office of Thrift Supervision and Office of the Comptroller of the Currency found that the percentage of current and performing mortgages dropped for the sixth consecutive quarter, as foreclosures in process topped 1 million mortgages at the end of September. The report covers roughly 34 million loans totaling $6 trillion in principal balances, or approximately 65% of the U.S. mortgage market.

The regulators said that serious delinquencies, loans that are at least 60 days past due, increased across all loan categories and climbed to 6.2% of the loans in the portfolio during the third quarter. The report said that just 67.7% of option adjustable-rate mortgages were considered current at the end of the third quarter, while 27.9% were either seriously delinquent or in the process of foreclosure.

The most troubling finding was that even borrowers considered “prime,” or the least risky, increasingly can’t pay their loans. The report said that 3.6% of prime mortgages were more than two months behind on payments, more than double from a year ago.

The regulators noted that banks and thrifts have increased their efforts to help some borrowers, implementing more than 680,000 loan modifications, trial period plans or payment plans during the third quarter. That includes roughly 274,000 plans initiated through the Obama administration’s Home Affordable Modification Program, which provides borrowers with a three-month trial period to successfully pay for their modified loans. Borrowers who meet the requirements then have their loans permanently modified.

But even attempts to modify loans are yielding a low rate of success, a problem that policy makers have been unable to deal with successfully over the last several years as they seek to right the housing market. The report said that more than half of all modified loans were more than 60 days past due or in foreclosure within six months of modification, and less than 1% of loans modified under the administration’s plan had been permanently modified through the end of September.

Additionally, banks and thrifts remain unable to keep the pace of modifications anywhere close to the number of struggling borrowers who need help. The report said that only one in six borrowers who were seriously delinquent or facing foreclosure at the end of the third quarter received a load modification or trial payment plan. There were more than 369,000 new foreclosure actions during the third quarter.

While analysts have promoted the concept of a jobless recovery, is it reasonable to think that we can have both a jobless and a ‘housing’-less recovery?

I’ll call challenge on that.

About Larry Doyle 522 Articles

Larry Doyle embarked on his Wall Street career in 1983 as a mortgage-backed securities trader for The First Boston Corporation. He was involved in the growth and development of the secondary mortgage market from its near infancy.

After close to 7 years at First Boston, Larry joined Bear Stearns in early 1990 as a mortgage trader. In 1993, Larry was named a Senior Managing Director at the firm. He left Bear to join Union Bank of Switzerland in late 1996 as Head of Mortgage Trading.

In 1998, after 15 years of trading and precipitated by Swiss Bank’s takeover of UBS, Larry moved from trading to sales as a senior salesperson at Bank of America. His move into sales led him to the role as National Sales Manager for Securitized Products at JP Morgan Chase in 2000. He was integrally involved in developing the department, hiring 40 salespeople, and generating $300 million in sales revenue. He left JP Morgan in 2006.

Throughout his career, Larry eagerly engaged clients and colleagues. He has mentored dozens of junior colleagues, recruited at a number of colleges and universities, and interviewed hundreds. He has also had extensive public speaking experience. Additionally, Larry served as Chair of the Mortgage Trading Committee for the Public Securities Association (PSA) in the mid-90s.

Larry graduated Cum Laude, Phi Beta Kappa in 1983 from the College of the Holy Cross.

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