It's uplifting to find a wisp of good news here and there in the otherwise cluttered collection of bad news that you keep reading in the national media about the mortgage and real estate industries. Positive stories have lately had a really hard time finding headline space for themselves.
According to First American LoanPerformance, a California research shop, more homeowners are making their payments on time in the last year or so. The data base the firm maintains includes about 80% of the overall mortgage market in the U.S. and they assess loans that are four months old or less.
In the third quarter of last year, 7.6% of subprime loan payments were already 60 days or more late in such a short time frame. That is kind of high. You might ask that how on earth is it possible? In four months? It can easily happen. When a loan falls behind this quickly, it often is taken by borrowers who had no plans to make the payments in the first place. Also, as home prices started heading south, people just decided to abandon their debt obligations and mailed in the keys.
That was then. The index had dropped to 7.2% for the first quarter of 2007 and went even lower in the second quarter to 6.6%. There is a clear improvement in the trend, as you can tell. Lenders, of course, have been tightening their underwriting guidelines and are also asking for more down payment, which have helped engineer the turnaround.
As to the prime mortgage sector in the same time capsule, new loans suffering from the bad flu decreased from 0.8% in the first quarter of 2007 to 0.6% in the second quarter. Just to give you something to compare with.
In the overall stats, however, we are still in the weeds. Loans issued between 2003 and 2006 are continuing to reset and as a result foreclosures are expected to climb which will likely hike inventories and further weaken prices.