MORTGAGE DELINQUENCIES PROJECTED TO DOUBLE NEXT YEAR - Fed Chairman Proposes More Action!
FED CHAIRMAN BEN BERNANKE PROPOSES LOWER INTEREST RATES, MORE LOAN MODIFICATIONS COULD HELP!
According to TransUnion LLC, one of the three Major Credit Bureaus, based in Chicago, the percentage of consumers at least 60 days behind on their mortgage payments will hit 7.17% by the end of next year. That would be the highest level of mortgage delinquency since 1992, when the firm started tabulating statistics.
Much of the blame, they say, revolves around adjustable mortgages with low intro rates, originating a couple of years ago, but due for reset during the coming year. Many borrowers with borderline credit took out these loans under the comparatively-loose lending standards in the middle of the housing boom. Reset rates are likely to be far higher than the initial, discounted rates, and the increase in monthly payments as a result of these adjustments will be sizable.
Says Ezra Becker, Principal Consultant in the Financial Services Group of TransUnion, "There are a lot more loans that will be resetting throughout 2009 through 2011." He continues that rising unemployment and depreciating home values are other contributing factors. "There may be an ongoing flow of consumers who may now be able to pay their mortgage but may not be able to a year from now."
In light of the likely increase in home loan delinquency, and the skyrocketing rate of home foreclosures, U.S. Federal Reserve Board Chairman Ben Bernanke suggests the Fed take aggressive action to stem the rising foreclosure tide. Such steps, he proposes, will include a stepped-up schedule for buying risky mortgage loan portfolios from banks, and modifying volatile high-risk loans into more affordable rates for homeowners.
"Despite good-faith efforts by both the private and public sectors, the foreclosure rate remains too high, with adverse consequences for both those directly involved and for the broader economy," Bernanke said to a Federal Reserve Board Housing Conference.
The Fed Chairman estimates that lenders may file 2.25 Million foreclosure proceedings in 2008, more than double the 2006 number. He further estimates that as many as 20% of all mortgages across the U.S. may be under water, where the home is worth less than the current mortgage balance owed.
Bernanke continued that housing weakness has been a drag on the overall economy, while "a slowing economy has in turn reduced the demand for houses, implying a further weakening in the mortgage and housing markets."
To stem the rising tide of both mortgage delinquencies and home foreclosures, the Fed has already lowered it's benchmark Fed Funds Rate to only 1%. It is predicted they will lower it further, perhaps as low as 0.5%, when they meet again on December 15th and 16th. This will bring the rate to its lowest level since the late 1950's.
Over the next few weeks, in the waning days of the Bush Administration, further aggressive action to help homeowners in distress, and help re-start the sluggish U.S. Housing Market, are likely.
Two Wall Street Journal articles provide more detail. The first, by Brian Blackstone in today's edition, summarizes Bernanke's comments. Jane Kim's WSJ story from December 2nd reviews TransUnion's projections on mortgage delinquencies next year, and provides a chart of quarterly estimates through the end of 2009.
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