Posts Tagged ‘European sovereign debt’

Mortgage Delinquencies on the Decline

Tuesday, July 3rd, 2012

The percentage of borrowers who are behind on making mortgage payments fell to a four-year low in the first three months of 2012, according to the Mortgage Bankers Association (MBA).  The percentage of loans that were delinquent or in the foreclosure process during the 1st quarter was 11.33 percent, the lowest level since 2008.  That was a decrease of 1.2 percentage points from a quarter earlier and 0.98 percentage point below the rate reported one year ago.

A flare up of the sovereign debt troubles in Europe once again led investors to flee to the safety of U.S. Treasury securities last week.  As a result, mortgage rates have reached new lows in our survey, and refinancing application volumes picked up substantially as a result,” Fratantoni said.  ”Survey participants indicated that this was not due primarily to HARP (Home Affordable Refinance Program) volume – the HARP share of refinances fell to 28 percent of refinance applications, down relative to last week and last month, when the share was just above 30 percent in April.”

These new delinquencies represent 3.1 percent of loans outstanding, said Jay Brinkmann, the MBA’s chief economist.  That corresponds to the historical average dating back to the 1990s, he said.  “Basically, we’re back to normal on that count,” he said.  “The short-term delinquencies are back to normal, longer-term delinquencies still continue to go down.  The remaining problem is this backlog of foreclosures in certain states,” Brinkmann said.

One cause that has slowed the recovery is the ongoing difficulty lenders face completing the foreclosure process, particularly in states that involve the courts in the foreclosure process.  In the judicial states, 6.9 percent of loans are in foreclosure inventory, loans that the banks have started the legal process of foreclosing on but have not yet taken control of the property through a foreclosure sale.  In states where foreclosures are handled by trustees such as title companies, only 2.9 percent of loans are in foreclosure inventory.

The delinquency rate peaked at 10.1 percent in the 1st quarter of 2010 and was last lower in the 3rd quarter of 2008, when it was 6.99 percent.  The majority of troubled loans were originated between 2005 and 2007.  Tighter lending standards and deflated prices for borrowers who got mortgages after the housing market collapsed are the reason for better performance of loans issued since 2008.  Loans that are more than 90 days overdue — the point at which lenders usually begin the process of seizing a property – fell to 3.06 percent from 3.11 percent in the 1st quarter and 3.62 percent one year ago.  The share of homes that had received a foreclosure notice and hadn’t been seized by banks increased to 4.39 percent, an increase of one basis point, or 0.01 percentage point, from the previous quarter.

The bad news is that the percentage of loans in the foreclosure process rose slightly to 4.39 percent in the 1st quarter from 4.38 percent in the 4th quarter, reflecting slow judicial-foreclosure systems in states such as Florida, according to the MBA.  The rate was at 4.52 percent a year ago.

According to the MBA, foreclosure starts fell in 41 states.  The MBA survey covers 42.8 million loans on one- to four-unit residential properties, or approximately 88 percent of all first-lien residential mortgages in the country.

The average rate on 30-year fixed-rate mortgages with conforming loan balances declined to 3.96 percent from 4.01 percent, while rates on similar mortgages with jumbo loan balances fell to 4.2 percent from 4.29 percent.  The typical rate on FHA-backed 30-year fixed-rate mortgages slipped to 3.75 percent from 3.81 percent.

Despite the good national news, the MBA survey found that Illinois still has a high foreclosure rate.  Nearly 7.5 percent of all one-to-four-unit mortgage loans in Illinois were in foreclosure in the 1st quarter, compared with a national average of 4.39 percent.  “Illinois and New Jersey trail only Florida as being the worst in the country, and they’re getting worse,” Brinkmann said.  “The rate in Illinois is more than twice that of California.  In the judicial states the problem continues to get worse in terms of the backlog of loans in the foreclosure process.”

Beware: Double Dip Ahead?

Thursday, May 31st, 2012

The 17-nation Eurozone is at risk of falling into a “severe recession,” the Organization for Economic Cooperation and Development (OECD) warned, as it called on governments and the European Central Bank to act quickly to keep the slowdown from becoming a drag on the global economy.  OECD Chief Economist Pier Carlo Padoan warned the euro-zone economy has the potential to shrink as much as two percent in 2012, a figure that the think tank had described as its worst-case scenario last November.  The OECD -which comprises the world’s most developed economies — said its average forecast was that the Euro-zone economy will shrink 0.1 percent in 2012 and grow a mere 0.9 percent next year.  “Today we see the situation in the Euro area close to the possible downside scenario” in the OECD’s November report, “which if materializing could lead to a severe recession in the Euro area and with spillovers in the rest of the world,” Padoan said.

The report believes that Europe will lag behind other countries, especially the United States, where the economy is expected to grow 2.4 percent this year and 2.6 percent in 2013.  “There is now a diverging trend between the euro area and the U.S., where the U.S. is picking up more strongly while the euro area is lagging behind,” Padoan said.  Europe is split between a wealthier north that is growing and the southern nations that are falling into recession, according to OECD statistics.

The global economic outlook is still cloudy,” said Angel Gurria, OECD Secretary General. “At first sight the prospects for the global economy are somewhat brighter than six months ago.  At closer inspection, the global economic recovery is weak, considerable downside risks remain and sizable imbalances remain to be addressed.”

Germany, Europe’s largest economy, will grow two percent next year after expanding 1.2 percent in 2012.  France, the Eurozone’s second-biggest economy, will grow 1.2 percent next year after expanding 0.6 percent this year, the OECD said.  By contrast, Italy’s economy is expected to shrink 1.7 percent this year and 0.4 percent in 2013.  Spain will remain mired in recession, with contraction of 1.6 percent this year and 0.8 percent in 2013.  Padoan has asked Eurozone leaders to enter into a “growth compact” to promote expansion while cutting deficits.  French President Francois Hollande has made achieving this type of pact the focus of his European diplomacy.

The OECD is chiefly concerned that problems with European sovereign debt are a significant threat to growth around the world. “The crisis in the Eurozone remains the single biggest downside risk facing the global outlook,” Padoan said.  “This is a global crisis which is largely a debt crisis.  It is a result of excessive debt accumulation in both the private and public sectors.  One can not safely say we’re out of the crisis until debt comes down to more manageable levels.”

To protect its economic recovery, the OECD urged the American government to move very gradually to tighten its budget.  A wave of U.S. spending cuts and tax hikes – known as the “fiscal cliff” — are set to take effect in January unless politicians agree to delay at least some of them.  Bush-era tax cuts and benefits for the long-term jobless are both expected to expire.  Another $1.2 trillion in spending cuts on federal programs would take effect as a result of Congress’ failure last year to find a comprehensive deal to cut the budget deficit.  The OECD said these actions would be the wrong fiscal policy given the still-fragile condition of world’s largest economy.  “The programmed expiration of tax cuts and emergency unemployment benefits, together with automatic federal spending cuts, would result in a sharp fiscal retrenchment in 2013 that might derail the recovery,” according to the OECD.

Wall Street economists say that fiscal policy could tighten by about $600 billion in 2013, or about four percent of GDP, if lawmakers cannot agree on what programs to cut.  Goldman Sachs estimates the “fiscal cliff” could trim approximately four percent from GDP in the first half of 2013.  The majority of economists, however, expect lawmakers to act before that particular hammer has an opportunity to fall.