Alan Greenspan tells us today that he sees signs of the housing market bottoming.
The Financial Times tells us that delinquencies are increasing in prime mortgages, which are even harder to modify than subprime.
I am beginning to get tired of the new mortgage lingo, or rather, the slippage of old mortgage lingo. In the bad old days, when banks actually owned mortgages (what a thought!), a mod was often a principal writedown. If a bank is only going to recover 60% in a foreclosure after all the cost, and the borrower can make the payments at a reduction to 80%, both come out ahead.
But in the Brave New World of finance, securitization structures impede mods. Most of what are called mods are often payment catch up plans of various sorts rather than true changes to mortgage terms. Even the new Federal programs to encourage mods offered subsidies to servicers, but even then did not pave the way for principal reductions. Wilbur Ross, who owns the country’s biggest third party servicer, has a had a much better success rate with deep principal mods than other loan modification programs. His six month recidivism rate is below 20%, versus the 40% to 60% norm for the industry. Note also that redefault rates are rising.
So things were already not so hot in the world of largely subprime mods. Now as prime mortgage delinquency rates are rising, it appears it is even harder to rework them.
From the Financial Times:
The White House has thus thrown billions of dollars at the crisis, with programmes to modify troubled mortgages and others to help homeowners refinance into new loans even if their homes are worth less than they owe.
But as the economy has deteriorated and job losses have pushed new types of borrower into trouble, analysts warn that the current government programmes, dubbed Making Home Affordable, could still leave many struggling homeowners out in the cold.
“In general, loan-modification programmes have been designed to modify subprime adjustable-rate mortgages or tackle interest rate resets for other exotic home loans,” said Jay Brinkmann, chief economist at the Mortgage Bankers Association.
But the growth in problem loans is now migrating to prime borrowers and ordinary loans with 30-year terms and fixed interest rates. The rate of late payment on prime loans jumped 72 basis points to 5.06 per cent in the fourth quarter of last year, according to the MBA, while prime loans in foreclosure rose 30bps to 1.88 per cent.
“These are much more difficult situations to modify, because the problem is not the structure of the mortgage. The borrower is falling behind because of a job loss, a divorce, health problems or a broader debt burden,” said Mr Brinkmann.