Mortgage Delinquencies - The Coming Storm

Real Estate Agent with Coldwell Banker Residential Brokerage

This is one of those posts where I wish I didn't have to write it, but felt it was so important to my readers that I would be remiss not to at least talk about it.

Everyone out there probably knows somebody who is behind on their mortgage payments, looking for alternatives and likely also just finding out that their home's value has dipped below what their loan amount is.  I know some within my own personal circles.  It's a tough situation for me to advise them as a professional because it's such a personal challenge to their pride and self-worth, not to mention their plans and dreams for the family. The question we're asking is "when is this going to stop and where are we heading?"

I'm going to put up a few graphs that show the trends nationally with regards to mortgage delinquincies:

Lancaster PA foreclosures, Lancaster County Mortgage, Delinquencies

This chart is by quarter - Single-family mortgages set a new record delinquency rate in the second quarter of 2009, according to a quarterly survey by the Mortgage Bankers Association. Those of us in the real estate business see the foreclosure process (just visit the local Sheriff Sale docket to see the current numbers) but the looming delinqency-to-foreclosure issue is far, far larger.

The Wall Street Journal on 8/3/09 reported the following quote: “While subprime mortgages sparked the first round of housing problems two years ago, now "troubles are lurking further up the food chain," says Joshua Shapiro, chief U.S. economist at MFR Inc. White-collar job losses have accelerated while more adjustable-rate loans to prime borrowers are resetting to higher payments.  ‘You put all that together, it leads me to believe that the next leg down on home prices is going to come from the top,’ he says.”

The first objection someone may have would be to say "yes, but historically those who are delinqent usually get their act together and come current on the mortgage after a while".  That WAS true, but not anymore!  We call that the "Cure Rate", that is the rate of delinquencies that go back to current.  The Wall Street Journal reported on 8/24/09 about a Fitch analysis that found that the Cure Rate from 2000-2006 was 45% (which means about half of people fix their delinquency).  However, as of July 2009 the rate had dropped to just 6.6%!  That means that over 90% of delinquent customers are going to foreclosure.  Take a look again at the above chart...

The next thing someone will say is "well, that's the 'sand states' and not my area".  Here's the chart for all 50 states showing the same breakdown of delinquencies and foreclosures.  Guess what - most states have a significant problem, especially compared to historical figures.

Lancaster PA foreclosures, Lancaster County Mortgage, Delinquencies

Now the next thing someone may say is "aren't those loans going to get 'fixed' by a loan modification?"  I know several people right now who are applying for a Lancaster County loan modification but are waiting and waiting.  I hope it works out for them...

In reality, loan modifications are hardly making a dent.  To me, that's a burning question.  Why arent banks being more aggressive in giving customers the option to extend their loan and/or reset to a lower rate?  Why are they being SO difficult? The people I know don't want to be foreclosed.  They CAN make payments.  They just need the terms redrawn to allow them to catch & keep up.  Loan modifications are not helping us get this crisis under control.

Lancaster PA foreclosures, Lancaster County Mortgage, Delinquencies

What are the causes of all these delinquencies?  Here's a chart that is enlightening:

We hear a lot about adjustable rate mortgages being the culprit, but the reality is that it's the loss of jobs and the tanking real estate market that's the perfect storm.  See my previous post on unemployment in the nation, the state and Lancaster County.

Keep in mind, this post is not intended to give us "good news".  You may be experiencing good things in your market and that's great.  My intent is to get us thinking about the challenges that aren't going away and how we're going to address them as homeowners, agents and professionals.  I'd love to hear your ideas!



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Comments (230)

Celeste Borges
Hawaii Real Estate Online LLC - Honolulu, HI
Your Favorite Real Estate Agent

Thx for the post Jeff, we all need to keep abreast of the conditions, esp. in our own markets.  What are the stats going to look like when more parents will have to call in 'sick' to stay home to watch their children  (and potentially put their jobs at risk, or have additional child care expenditures)  since we now have the public school furlough days in place??



Oct 02, 2009 09:31 AM
Valerie Spivey

Great post Jeff, I especially liked the graphs since I am a visual person. As a previous commentor said A picture DOES say a thousand words.

Oct 02, 2009 10:24 AM
Susan Anderson (Parker Properties, Decatur, TX)

Hi Jeff.

I love a truthful blog! Your kind but cut to the chase presentation is refreshing and the graphs really put things into proper perspective for us visual people. Scary to see this happening, but great to get such solid data. Bravo.  Will bookmark your blog.

Oct 02, 2009 10:26 AM
Cindy Keil
Cindy Keil Coaching - Omaha, NE
CEO Cindy Keil Coaching

 Thanks for sharing the "Real Raw Data"! We are only in the beginning stages of the challenging times ahead.... Struggling folks need us more than ever! Are you really ready?

Oct 02, 2009 10:40 AM
Mark Velasco
Sharpstone Commercial - Whittier, CA
Top Producing COMMERCIAL Team 30+ years experience

Wow Jeff. I hate to admit. However, there are more tough times ahead.

Oct 02, 2009 12:46 PM
Gail Robinson
William Raveis Real Estate - Southport, CT
CRS, GRI, e-PRO Fairfield County, CT

Jeff - I can verify this from my own experience..

Another upcoming blog post I want to write is about the "shadow inventory" gripping the markets - that is, potential sellers who are frozen into inaction by this climate and who would list immediately upon "good news", thus flooding the supply numbers right when we don't want it.

You are so on top of it all.  You deserve the feature for this post and a feature on your next post, just for raising the topic.


Oct 02, 2009 03:47 PM
Leslie Helm
Tennessee Recreational Properties - Jamestown, TN
Real Estate For Trail Riders

Hi, Jeff. I live in an equestrian community near Big South Fork, Tennessee, where most of the listings are horse properties. Most are for vacation use and there are almost no foreclosures here and no short sales. The way this affects me is that people in other areas who may want to retire here are having problems with the housing market in other states. I like to keep up with what's going on in the world so I really appreciate posts like this, with real information. Those graphs tell the tale!

This post deserved to be featured; you obviously put alot of work into it and it sure is a "hot topic."

Oct 03, 2009 01:10 AM
Karen Hurst
Rhode Island Waterfront!

Jeff, excellent post! You have articulated my very thoughts for the past couple of years. Rhode Island is right up there. I beleive we are second highest in the nation for unemployment.

It takes money to buy a home. It takes a job to get money. Very simple.

You were nice enough to leave the reblog button up there and I am going to use it.

Oct 03, 2009 09:35 AM
Jeff R. Geoghan
Coldwell Banker Residential Brokerage - Lancaster, PA
REALTOR, Marketing Manager

I wanted to thank everyone who left a comment and encourage you all to keep trying to tell the truth out there! 


Oct 05, 2009 06:57 AM
Susan Neal
RE/MAX Gold, Fair Oaks - Fair Oaks, CA
Fair Oaks CA & Sacramento Area Real Estate Broker

HiI Jeff - I have been told over and over for months that "in a few weeks", Bank of America is going to file foreclosures on the thousands of loans they currently have that are many months in arrears.  Each month, the time passes and they still haven't done it.  Some people haven't made payments in over a year, and they are still living in their homes!  I don't understand the bank's thinking - they are losing a ton of money.

Oct 10, 2009 03:39 PM
Roland Woodworth
eXp Realty - Clarksville, TN
eXp Realty

Jeff.. this is great information here. I do know that that BOA and Freddie Mac are indeed trying to help homeowners with a lone modification. Actually just today I was able to help a homeowner get a 3 month trial payment and reducing their payment from 7% down to 2%

Oct 10, 2009 05:26 PM
Debe Maxwell, CRS | The Maxwell House Group | RE/MAX Executive | (704) 491-3310 - Charlotte, NC
The right Charlotte REALTOR!

Hi Jeff!  I'm ALWAYS late to the party!  I found this by way of a re-blog and just had to come by and say what an awesome job you did with this post!  Thank you for putting this together--this is GOOD information to keep us on our toes.

Have a great week...

Oct 12, 2009 01:57 AM
Jeff R. Geoghan
Coldwell Banker Residential Brokerage - Lancaster, PA
REALTOR, Marketing Manager

Steve Harney Had this insightful update:

“It is so large a problem in housing today. We certainly hope there’s nothing like this ever again. We have always had a work-out department, an REO department. It is just that prime delinquency is ten times what you would have expected, ten times more than you would expect in almost any environment…It will never be like this again, probably never be this big again, in our lifetime.”
- JP Morgan CEO Jamie Dimon on the current delinquency rates, Oct 14, 2009

We are currently at a very different place in real estate than we have been in my 25 years in the business. It is a time of crisis which also means a time of tremendous opportunity. There is much confusion and people are looking for someone to help them through these difficult times. A strong, ethical agent who keeps himself/herself current on what really matters today is invaluable. Be that agent!! Help as many as you can.

Oct 15, 2009 02:56 AM
Janice Roosevelt
Keller Williams Brandywine Valley - West Chester, PA
OICP ABR, ePRO,Ecobroker

So inmportant to live in the solution and as someone already mentioned, that will not come from the media. We need to be the change. And, it is thoughtful posts such as yours which help point the way.

Oct 15, 2009 05:37 AM
Janice Roosevelt
Keller Williams Brandywine Valley - West Chester, PA
OICP ABR, ePRO,Ecobroker

So inmportant to live in the solution and as someone already mentioned, that will not come from the media. We need to be the change. And, it is thoughtful posts such as yours which help point the way.

Oct 15, 2009 05:37 AM
Janice Roosevelt
Keller Williams Brandywine Valley - West Chester, PA
OICP ABR, ePRO,Ecobroker

So inmportant to live in the solution and as someone already mentioned, that will not come from the media. We need to be the change. And, it is thoughtful posts such as yours which help point the way.

Oct 15, 2009 05:37 AM
Jackie Cross
Real Living All Florida Realty - Port St Lucie, FL

Great post.  I'm not too happy that Florida seems to be #1, but it does seem relistic for our area.

Oct 27, 2009 05:51 AM
Myra Spano
Berkshire Hathaway HomeServices Towne Realty - Virginia Beach, VA
Real Estate Broker

Excellent visual post... Thanks for this update and I am subscribing to your blog...

Oct 30, 2009 01:50 AM
Lorraine Bennett
Future Home Realty - Saint Petersburg, FL
YOUR Tampa Bay Realtor

Thank you.

Oct 30, 2009 04:15 AM
John Juarez
The Medford Real Estate Team - Fremont, CA

FHA loans are next in line...

Lower credit...small down payment...very little equity to cushion against a further drop in real estate values...a recipe for disaster.

Nov 18, 2009 04:12 PM