March 10th, 2011

Mortgage delinquencies numbers: Not quite the whole story

by Peter Miller


Foreclosure Exit SignWith all the complaining about Fannie Mae and Freddie Mac, it turns out that they’re doing about as well as banks and thrifts when it comes to delinquent mortgages.

The Mortgage Bankers Association (MBA) looked at delinquency rates based on the unpaid principal balance (UPB) of loans at the end of the fourth quarter of 2010 and found that some loan holders seem to be doing better than others:

-Commercial mortgage backed securities: 8.95 percent (30+ days delinquent or in REO);

-Life [insurance] company portfolios: 0.19 percent (60+ days delinquent);

-Fannie Mae: 0.71 percent (60 or more days delinquent);

-Freddie Mac: 0.31 percent (60 or more days delinquent);

-Banks and thrifts: 4.19 percent (90 or more days delinquent or in non-accrual).

The MBA numbers are important because Fannie Mae and Freddie Mac are the largest owners of local mortgages. They buy loans from local lenders, package them in bundles to create mortgage-backed securities and then sell the securities to investors on an electronic platform called the secondary market.

Borrowers want Fannie Mae and Freddie Mac to be successful because when they buy local mortgages they are providing new capital so those very same local lenders can make more loans. The end result is that you can always get a local mortgage because lenders never run out of money. No less important, the secondary market makes it possible to hold down current mortgage rates.

Apples & Oranges

The MBA figures show that banks and thrifts have almost six times as many delinquencies as Fannie Mae and 13 times more delinquencies than Freddie Mac.

These comparisons, however, do not reflect a level playing field because different periods of time are being shown.

You can see the distinctions by looking at government figures for Fannie Mae and Freddie Mac. They show for the fourth quarter of 2010 that 30-day lates represented 2.22 percent of outstanding loans, 60-day delinquencies were at 0.83 percent and 90-day lates reached 5.01 percent.

Why Numbers Differ

The MBA numbers raise two questions: First, why are the late percentages for banks, thrifts and the two big loan buyers so different — 4.19 percent versus 5.01 percent for 90-day lates? Secondly, why are 90-day late percentages higher than 30-day lates?

The answer to the first question is that the market impacts all lenders more or less equally. Fannie Mae and Freddie Mac buy loans nationwide and are a fairly-good reflection of trends across the country. It may be that Fannie Mae and Freddie Mac have more delinquencies because they own loans in high-foreclosure areas where many banks and thrifts do not operate.

As to why 90-day lates are more numerous than 30-days, the answer is that there should be fewer 90-day lates because large percentages of delinquencies are cured. The FHA, for example, had a 73 percent cure rate. Notice that there are fewer 60-day lates (.83 percent) than 30-day lates (2.22 percent). These figures suggest a lot of cures. However, the 90-day late category includes large numbers of homes which normally would have been foreclosed. That’s the case now because of the robo-signing scandal and state efforts to delay foreclosures. So, instead of being foreclosed and thus not in the “delinquent” category, such properties are now 90 days “late,” and more.

So the next time some bright TV commentator or industry spokesman talks about mortgage delinquencies, look past the numbers. We have fewer delinquencies in a traditional sense than the numbers show, more distressed homes that will soon be foreclosed on, and mortgage rates that remain low in part because mortgage delinquencies are often cured.

Peter G. Miller is syndicated to more than 100 newspapers and operates the real estate news site, OurBroker.com.

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