Although a great deal of the problems facing the mortgage market is focused on subprime, it is noteworthy to see that even prime mortgages are showing the strain. In 1985, primes facing foreclosures stood at 1.97%. Now, we are seeing 3.07% of prime mortgages that are either in foreclosure or are at least 60 days late nationwide. This rate has jumped since end of second quarter.
California is especially hard hit. Unemployment there stands at 8% and rising, and home values have dropped by at least 40%. And in California, the figure for homes facing foreclosure stands at 4.215% seriously delinquent. Experts blame this situation on the loss of jobs and the tight financial market, where it is next to impossible to get a line of credit to help with delinquent mortgages. Besides, with mortgages being under water, the equity line of credit has disappeared.
It appears that the prime mortgages are tumbling even faster than the subprimes did. In August, more than 43% of subprime loans nationally were in foreclosure or at least 60 days late. This was almost double of what it was in August of 2007, according to First American CoreLogic’s Loan Performance, which tracks about 82% of home mortgages. One thing that is troubling is the fact that 7.5% of these prime loans are the so-called jumbo loans - loans to big for Freddie Mac or Fannie Mae to handle. This figure is three times what it was at this time last year, according to CoreLogic.
With the news tonight that the Fed is bailing out CitiGroup, it will be interesting to see what is done regarding these loans that are in trouble. Restructuring is the only sensible action, but so far that plan has not seemed to work well. Stephen C. Levy, director of the Center for the Continuing Study of the California Economy, had this to say: “The only practical help in sight is to get as many of these potential foreclosures modified as possible, so they come off the market. We should be really worried.”
by Kevin Wait
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