Mortgage Default Rate Rising in Northern Virginia

Real Estate Agent with RE/MAX Preferred Properties

VIENNA, VA - Nov. 19, 2009   The REO & Distressed Asset Management Division of RE/MAX Preferred Properties today reported that, the nationwide default rate on home loans has risen to, over one in seven (1 in 7) borrowers, according to a Mortgage Bankers Association (MBA) survey released this morning.   The MBA survey indicates that the foreclosure rate will likely continue to increase through early to mid 2010 as national unemployment rates are expected to continue to rise.

Unemployment remains "the principal problem," according to the Mortgage Bankers Association, survey.  Homeowners in delinquent status now include a larger portion of borrowers previously considered credit-worthy and even includes borrowers with home loans insured by the Federal Housing Administration.

This market syndrome is and has been, for several years, "collateral damage" said Clay Kime, General Manager of the REO and Distressed Asset Management Division of RE/MAX Preferred Properties of Vienna, VA.  The "sub-prime" borrowers were washed out a long time ago.  We are now dealing with the market consequences of credit-worthy homeowners who, faced with job loss, divorce, illness, relocation, etc. cannot financially extricate themselves from their homes and loans . . . when "forced to sell,"  said Kime.   Everyone . . . homeowners as well as banks, is having a "severe solvency/balance-sheet" problem, Kime went on to say.

Nearly 9.6 percent of borrowers were delinquent on their home loans during the Q-3 09, according to the MBA survey, and another 4.5 percent more were actually some formal stage of the foreclosure process.   The MBA survey report shows that, about 14 percent of home loans or 7.4 million households were either in a delinquent status or in the formal foreclosure process during the quarter.  This is approximately one-half of the 12-15-million foreclosures predicted by many economic experts over the next 3-5 years.

MBA's Chief Economist, Jay Brinkman, stated "The outlook is that delinquency rates and foreclosure rates will continue to worsen before they improve." 

The reported delinquencies are at the highest level recorded ever by the survey, which has been conducted since 1972.  This rate of delinquencies is up nearly ten percent (10%) during the same period last year.  Year-over-year increases in this index are of great concern to the administration.

MBA's Brinkman said that if, as expected, unemployment rates peak by the middle of 2010, foreclosures could not reach their highest levels toward the end of 2010.  He went further to say that even after peaking, foreclosure rates are likely to remain elevated as homeowners that have seen steep market price declines now owe more than their home is worth.  There is no margin for error, or adverse financial change for most homeowners.

The late 2008 Credit Suisse study paints a darker potential, as the ALT-A and Option-ARM loans go through the already pre-defined re-set period, which does not climax until early 2011.  Kime said that as long as interest rates remain low, the default rates are expected to remain low.  But as interest rates rise, the interest rate indices to which these loans are tied will increase to the point that more than fifty percent (50%) of the borrowers for these loans will statistically default.

MBA's survey revealed that the southern states, including California Nevada, Arizona and Florida, accounted for about 43.4 percent of the foreclosures commenced during the third quarter of 2009.   Unfortunately both delinquency rates and foreclosure rates also grew in the Washington, DC metropolitan area..

The number of homeowners delinquent or in foreclosure in the District of Columbia rose to 10.3 percent during the third quarter, compared with 7.4 percent during the same period in 2008.   In Northern Virginia, 9.9 percent of borrowers were delinquent with their mortgage payments compared with 7.0 percent last year.  Suburban Maryland has the highest percentage of borrowers in delinquency or foreclosure, rising to 13.9 percent, up from 9.2 percent in 2008.

Comments (1)

Annuk Sahnam

Thank you for the information.  we have been wondering about which way the market is headed.

Nov 27, 2009 01:47 PM