December 6, 2007, 3:21 pm
The number of mortgage loans at least 30 days past due reached its highest point since 1986 during the third quarter as foreclosure starts increased across all loan types, according to a Mortgage Bankers Association survey released Thursday. Here are economists’ reactions.
Source: MBA via Lehman Brothers
Foreclosures are likely to continue to surge, particularly for subprime ARMs. According to our mortgage strategists, about 2.8 million subprime mortgages are scheduled to reset in 2008 and 2009 to a mortgage rate about 30% higher. This will ultimately lead to a jump in foreclosures as many of these borrowers cannot afford the higher payment and will have a difficult time refinancing or selling their home. Rising foreclosures add to already-bloated inventory and crowd out regular sales. Since foreclosures typically sell at about a 25-30% discount from market clearing prices, this will put downward pressure on home prices. We look for national home prices to fall at least 15% from peak to trough as the housing recession continues to weigh on the economy. – Michelle Meyers, Lehman Brothers
Not surprisingly, delinquency and foreclosures rates posted their largest rise of the current downturn in 3Q. Subprime loans are naturally much more problematic than prime loans, but prime adjustable-rate loans are showing increasing problems. Meanwhile, started foreclosures have soared, and the foreclosure rate for all mortgages is now considerably greater than at any time in the twenty-eight year history of the series. … Fixed-rate prime and subprime mortgages are performing no worse than they were in the 2001 recession, but adjustable-rate mortgages are considerably worse. – Abiel Reinhart, J.P. Morgan Chase
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