Over two years after the housing market meltdown that eventually caused the recession of 2009, the mortgage market may have begun the healing process. The evidence for this may be small, but it is a sure sign of progress on the way to economic recovery. The percentage of borrowers who were late on making their mortgage loan payments decreased in the last quarter, signaling an almost .2% drop in the number of delinquent payments since last September. Though a seemingly small amount, this decrease marks the first step in healing the real estate market.
The figures were produced by the Mortgage Bankers Association’s National Delinquency Survey, which experts consider the number one source in the field. The survey showed that 9.47% of all homeowners with mortgage loans were delinquent in their payments, down from 9.64% at the end of the third quarter of 2009. This is significant because the number of delinquent mortgage payments has not shown a reduction since 2006, before the collapse of the housing bubble.
The housing market crisis, which first appeared through the delinquencies of subprime mortgages in early 2007, has been held largely responsible for the economic woes the country has faced during the last three years, the most obvious of which being a recession that left 85 million people jobless.
Jay Brinkmann, the chief economist for the Mortgage Bankers Association (MBA), says he is particularly optimistic about the new data because it shows a significant drop in the number of homeowners who have missed one mortgage payment. This rate fell between the third and fourth quarters of 2009 from 3.79% to 3.63%. This sizable decrease in the amount of loans delinquent by 30 days shows that the end of this mortgage crisis may be in sight, argues many economists. This is because since the increase in the number of delinquencies began steadily increasing in 2006, more and more homeowners that had not previously missed payments began to fall behind.
Another positive sign reported by the survey was that the percentage of lenders who had initiated foreclosure proceedings on homes behind in payments had decreased. This statistic’s significance is that foreclosure is what all homeowners in delinquency fear, and with fewer borrowers getting moved into the actual process of losing their homes, there is reason for optimism that the worst of the housing crisis is over.
Currently, half of all delinquencies accounted for by the MBA now consist of loans at least 90 days late. This may be an artificially high number, however, because loans are remaining in that category far longer than they used to because of the increased number of modifications the government and lenders are trying to grant.
Home prices nationwide, which were drastically falling until the end of 2009, may be another aspect contributing to this progress. At the end of November, the S&P/Case-Schiller home price index reported that home prices across 20 major cities dropped by only 5% in the past 12 months, far less than previous price drops. With prices stabilizing, homeowners will find that their property is worth more than in the worst of the housing crisis. Once this happens, fewer borrowers will have underwater mortgages, or owe more on their homes than what they are worth. With equity in their property, homeowners may have a financial asset which might help them pull out of the massive debt that has led many to foreclosure.
As should be expected, subprime adjustable rate mortgages – a major cause of the housing market crisis – proved to be the worst performing section of loans according to the National Delinquency Survey. Over 42% of such loans were at least 90 days late on payments or already in foreclosure, a stark reminder of the difficulty many homeowners experience as these loans mature.
