Number of troubled mortgages on rise again

NEW YORK (CNNMoney) -- In another hit to the beleaguered housing market, a report out Monday found that the number of delinquent mortgage borrowers -- those who have missed at least one payment -- rose during the second quarter. The delinquency rate grew only slightly, up 0.12 percentage points to 8.44%but that reverses the steady improvement of the past two years.

The increase, as reported by the Mortgage Bankers Association (MBA), may not sound like much, but it could mean that the recovery in the housing market will take even longer than thought.
The MBA breaks down delinquencies by degree of severity, ranging from one payment past due to 60 days late, 90 days late and loans that are in the process of foreclosure proceedings, the final step before bank repossession.

One bright spot: The number of loans more than 90 days late declined. Those are the mortgages that are most likely to proceed all the way to repossession. Still, the number of initial filings ticked higher , Borrowers earlier in default are more likely to begin repayment again. Often the problems besetting them were temporary, such as an unexpected medical bill or a brief layoff from work. "Delinquencies are mirroring what's taking place in the employment market," said Jay Brinkmann, the MBA's chief economist.

Foreclosure Talks Snag on Bank Liability

Observers say federal and state officials continue to work on a settlement with the nation's biggest banks with regard to their foreclosure practices, but the process has been delayed as banks seek broad legal immunity for mortgage-related claims.

The banks reportedly are seeking legal protection with regard to loan origination, securitization, and servicing and fair-lending practices, as well as for claims tied to their use of the Mortgage Electronic Registration Systems (MERS), but federal and state officials countered with an offer to cover only robo-signing and other servicer-related practices.

Federal officials hope to forge a settlement by Labor Day, and observers say banks may agree to a settlement approved by 80 percent of states.

Source: “Foreclosure Talks Snag on Bank Liability,” The Wall Street Journal, Ruth Simon, Vanessa O’Connell, and Nick Timiraos (Aug. 22, 2011)

Economic Woes Prompt Buyers to Back Out of Deals

Recent falls in the stock market and growing concerns over the cloud hanging over the U.S. economy has prompted more home buyers to cancel real estate deals or continue to sit on the sidelines, analysts say.

The National Association of REALTORS® said in a recent report that home buyer cancellations in the last two months increased about 10 percent from a year earlier. Lawrence Yun, NAR’s chief economist, says the increase is due to low appraisals that do not match the mortgage amount, “overly stringent” lending standards, as well as waning buyer confidence. 

“The typical home buyer gets rattled when confronted with economic turmoil,” says Stan Humphries, Zillow.com’s chief economist. “The type of fear we’re seeing could substantially worsen the housing market.”

Stock market declines are denting many buyers’ pocketbooks. “A lot of people have seen their down payments for a home disappear in the stock market,” Keith Gumbinger, vice president of HSH Associates, told Bloomberg News. “It served as a reinforcement to the hunker-down mentality that a lot of home buyers already had.”

Some home buyers who still have the means to buy are waiting for prices to fall even further too, says Jim Hamilton, with Lyon Real Estate.

“People are watching the stock market as a major indicator of what’s going on in the economy,” Hamilton told Bloomberg News. “Buyers are beginning to think that if they wait, they’re going to get a better deal in a few months.”

Even Low Interest Rates Can’t Get Buyers Moving

Despite borrowing costs at record low levels, applications for mortgages to purchase homes continues to fall. In fact, for the week ending Aug. 12, mortgage applications to buy dropped to a 13-month low, according to the Mortgage Bankers Association.

Federal Reserve Chairman Ben Bernanke was hoping to revive demand for housing by lowering interest rates and vowing to not raise key rates until 2013. Rates have been below 5 percent for more than two weeks but have failed to spark more buying.

“Low mortgage rates are only helpful to home buyers who aren’t paralyzed with fear after watching their 401(k) disappear,” says Mark Goldman, a lecturer at the Corky McMillin Center for Real Estate at San Diego State University. “For now, people see the stock market as a casino table.”

Source: “Housing’s Drag on Economy May Worsen,” Bloomberg News (Aug. 21, 2011)