New Overdue Home Loans Swamp Effort to Fix Defaults

Regardless of what the shills are saying, now is NOT the best time to buy a home. Sit tight and watch as home prices continue to plummet -- and eventually fall through 2000 price levels.

Why? Mortgage resets and the credit crisis -- less credit for new borrowers causing foreclosures to rise, inventories to build and prices to fall.

New Overdue Home Loans Swamp Effort to Fix Defaults (Update3)

May 30 (Bloomberg) -- Newly delinquent mortgage borrowers outnumbered people who caught up on their overdue payments by two to one last month, a sign that nationwide efforts to help homeowners avoid default may be failing.

In April, 73,880 homeowners with privately insured mortgages fell more than 60 days late on payments, compared with 39,584 who got back on track, a report today from the Washington-based Mortgage Insurance Companies of America said. Mortgage insurers pay lenders when homeowners default and foreclosures fail to cover costs.

Foreclosure filings surged 65 percent and bank seizures more than doubled in April compared with a year earlier as rates on adjustable mortgages increased, according to RealtyTrac Inc. Lawmakers and Federal Reserve officials are trying to ease the worst U.S. housing slump since the Great Depression through tax rebates, expanded federal mortgage insurance and other programs.

``It's going to take a while before you see the impact of the government's plans, if you can even see a discernable one,'' Steve Stelmach, an insurance analyst at Friedman, Billings, Ramsey Group Inc. in Arlington, Virginia, said in an interview.

In April, a record 183,000 homeowners were able to work out new borrowing terms with lenders and avoid foreclosure filings, according to the Hope Now Alliance, a mortgage industry coalition formed last year at the urging of U.S. Treasury Secretary Henry Paulson.

`Getting Worse'

The same month, foreclosure filings were reported on more than 243,000 properties, a 65 percent increase compared with April 2007, said Irvine, California-based data provider RealtyTrac. One in every 519 U.S. households is in some stage of the foreclosure process, RealtyTrac said.

The Hope Now program has so far proven insufficient, Sandra Braunstein, the head of consumer and community affairs at the Fed, told the Conference of State Bank Supervisors at a meeting in Florida last week.

The mortgage crisis ``is bad and it's getting worse,'' Braunstein said, repeating the central bank's plea for lenders to consider forgiving portions of mortgages.

Last month's 54 percent ``cure ratio'' among defaulted mortgages compares with 80 percent a year earlier and 87 percent in March. Comparisons with previous months may not be valid because one lender changed the way it calculated defaults and cures reported to the insurers.

Mortgage insurers say they've raised prices and stopped selling policies to the riskiest borrowers or covering loans in areas such as California and Florida with the highest default rates.

The value of new mortgages privately insured by borrowers rose 12 percent from April 2007 to $19.4 billion last month, according to the mortgage insurance group, even as the number of policies issued fell 27 percent to 108,322. The top three mortgage insurers have lost more than four-fifths of their market value in the past year as the housing recession deepened.

The Senate Banking Committee last week approved legislation to create a program at the Federal Housing Administration to insure as much as $300 billion in mortgages for struggling borrowers after lenders agree to reduce the loan amounts.

Modifications

``Modifications are not occurring nearly at the numbers necessary to stem the foreclosure crisis,'' Allen Fishbein, housing director for the Consumer Federation of America in Washington, said in a May 19 interview. ``People are still going into foreclosure when, with a writedown on existing principal, they could still stay in their homes.''

Part of the problem is that so many of the loans were securitized, making it difficult to determine who has the legal authority to modify them, or even who owns them, Fishbein said.

About 90 percent of subprime loans have been bundled into securities, according to Inside Mortgage Finance, a Bethesda, Maryland-based industry newsletter. Borrowers with subprime mortgages, which were available to those with poor credit histories, are behind in their payments at more than five times the rate of prime mortgage borrowers, according to the Washington-based Mortgage Bankers Association.

Falling Prices

The median home price fell 8 percent compared with April 2007, a report last week from the National Association of Realtors said. Falling prices increase the odds of homeowners walking away from their property while decreasing lenders' chances of recouping their costs by seizing the property, ultimately leading to higher mortgage insurance claims.

The three largest mortgage insurers, Milwaukee-based MGIC Investment Corp., Walnut Creek, California-based PMI Group Inc. and Philadelphia-based Radian Group Inc. lost money in some or all of the past three quarters as they paid more claims and boosted reserves for future losses.

Standard & Poor's last month cut the claims-paying ratings on PMI's mortgage insurance units in the U.S. and Europe to A+ from AA. S&P also downgraded MGIC and Radian, citing the prospect of underwriting losses for all three until 2010.