Filed under: Bad news, Economic data, Housing
U.S. home foreclosures reached another record high in Q4 2007, the Mortgage Bankers Association announced.
A record 0.83% of mortgages were entering the foreclosure process in the last three months of 2007, compared to 0.54% for the same period in 2006, the MBA announced.
In addition, the delinquency rate reached 5.82% in Q4 2007 — the highest level since 1985 — up from 4.95% in Q4 2006.
Further, although the foreclosure rate is at a record high, numerous economic fundamentals recommend the foreclosure rate will move higher still in 2008. An oversupply of homes — known as home inventories — is making it harder for sellers to find buyers. Banks’ more-rigorous lending requirements and generally-tighter credit conditions at the retail level has made it harder for many borrowers to escape high-interest-rate mortgages that reset when consumer credit market conditions tightened in the second half of 2007.
In addition, the rise in unemployment has removed mortgage-supporting jobs for certain borrowers. Finally, the U.S. Federal Reserve’s interest rate cuts, while they’ve increased yield spreads and eased wholesale credit conditions, have not substantially lowered interest rates for fixed, 30-year mortgages. In fact, rates for conventional mortgages have risen during the past year: to 6.03% in March 2008 from 5.69% in March 2007. The rate for 15-year mortgages has remained flat: at 5.42% in March 2008 versus 5.43% in March 2007.
Economic Analysis: Scant good news regarding the MBA’s Q4 2007 foreclosure data. The foreclosure line continues to trend in the wrong direction for homeowners, the housing sector, and the U.S. economy. Further, economists’ projections differ, but the current consensus argues that foreclosure rates will continue to rise through at least the end of Q2 2008, as the second wave of mortgage-resets begins to take effect.
One bright spot: Starting today, the Federal Housing Administration can temporarily insure single-family loans up to 125 percent of each area’s median price, with a minimum of $271,050 and a maximum of $729,750, The San Francisco Chronicle reported Thursday. The change, part of the Economic Stimulus Act of 2008 approved by Congress earlier this year, is expected to be become an attractive new option for low-down-payment / sub-par credit borrowers in high-cost states, such as California. The old FHA limits were $200,160-362,790 depending on location.
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