Huge Plunge In Mortgage Cure Rates Portends Foreclosure Disaster

IMG Auteur
Published : August 25th, 2009
470 words - Reading time : 1 - 1 minutes
( 0 vote, 0/5 )
Print article
  Article Comments Comment this article Rating All Articles  
0
Send
0
comment
Our Newsletter...
Category : Editorials

 

 

 

 

Mortgage cure rates have fallen off a cliff. For those unfamiliar with the term, a "cure rate" pertains to those who go delinquent on loans then catch up and become current. Late payments that don't "cure" have a tendency to get later and later over time, before they eventually default.

Fitch ratings notes
Cure Rates Plunge Among Prime RMBS.

According to Fitch, cure rate on prime mortgages plunged to 6.6% from an average 45% during 2000-2006. Alt-A cure rates plunged to 4.3% from an average 30.2% and subprime cure rates fell to 5.% from an average 19.4%.

A couple of charts can help put this in context. Here is a chart from
Hidden Backlog of Foreclosures.

Pent Up Foreclosures By State




click on chart for sharper image

In regards to the above chart I said.

 

The area in pink represents potential foreclosure demand. Not all of that area will be foreclosed, but some of it sure will. The "Hidden Backlog" mentioned above (and highlighted in red) is within that pink area.

One thing missing from the chart is pent-up demand from those who are not delinquent yet have a huge incentive to walk because of massive negative equity.

For a look at "negative equity", moratoriums, and other foreclosure issues please see
Brace for a Wave of Foreclosures, the Dam is About to Break.

 

With the new data from Fitch let's take a second look using another chart from Calculated Risk's post MBA Forecasts Foreclosures to Peak at End of 2010.

Prime Delinquencies and Foreclosures




click on chart for sharper image

In 2006 less than 3% of prime loans were delinquent and nearly half of them cured. Currently close to 6.5% of prime mortgages are delinquent (another 3% are in foreclosure). Worse yet, the cure rate is miserable. Even reworked loans quickly sink back into delinquency.

A key reason for the falling cure rates pertains to underwater mortgages. In 2006, someone might easily have had positive equity in their home and sold it (curing the loan). Most in trouble now do not have positive equity and cannot sell.

Of the 6.5% delinquent, the current cure rate is a mere 6.6%. On this basis, prime foreclosures could spike to 9%. If that sounds preposterous, note that prime delinquencies were close to 3% in 2007 and by second quarter 2009 the foreclosure rate hit that same 3% rate. Foreclosures follow delinquencies over time and a sinking cure rate makes that prognosis even more likely.

What happens now depends on jobs and home prices, neither of which looks very promising. Even 5-6% prime foreclosures would be a disaster and that looks increasingly likely.

 

Mish

GlobalEconomicAnalysis.blogspot.com

 

 

 Mish's Global Economic Trend Analysis

 

 

 

 

 

 

 

<< Previous article
Rate : Average note :0 (0 vote)
>> Next article
IMG Auteur
Mish 13 abonnés
Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. He writes a global economics blog which has commentary 5-7 times a week. He also writes for the Daily Reckoning, Whiskey & Gunpowder, and has over 80 magazine and book cover credits. Visit http://www.sitkapacific.com
WebsiteSubscribe to his services
Comments closed
Latest comment posted for this article
Be the first to comment
Add your comment
Top articles
Latest Comments
Top Ten Reasons I Buy Gold Silver [#7] - These Assets Come With a ...
21 Sepvictoriashores1
HI Jeff I have read your articles with a lot of interest in your feelings with the future of Gold and Silver. I'm 75 years of age and have ...
What Is the Correct Amount of Money?
20 Sepgfs543
If money is the heart of the economy, then the economies of the world are running with diseased hearts. Keynesians and other monetary intervention...
Pushback
20 SepGypsy
James, you're getting more difficult to read. As a Deplorable, I realize my under-education leaves me at a disadvantage when faced against the Mer...
Pushback
18 Sepdennyc3
If a university professor has been on the job for more than five years without venturing out into the world there's usually nothing to learn here. ...
Rude Awakening for the US in January? No, Just More Alarmist BS Fro...
18 SepDRGEORGE
The world & the US $ have been on the brink for 10 years (or more). In 2008 it nearly happened but giving the 1% a stack of money saved the day. It...
'No evidence' of gold market manipulation, CPM Group's Christian in...
15 Sepneville
Despite being a so-called GOLD website ,I have read more anti GOLD articles on kitco than on any other site. Yes chris you are absolutely corre...
Rude Awakening for the US in January? No, Just More Alarmist BS Fro...
15 SepSilverthumb2
I used to enjoy listening to Rickards. He sold out when he signed on with Agora Financial. Now he's just another ranting alarmist trying to get ri...
What's Killing the Jobs Market?
13 SepJ.0
It is hard to know where to begin to respond to your comment Recusant. You do not seem to understand how markets work. So, I'll throw out some po...
Most commented articlesFavoritesMore...
World PM Newsflow
ALL
GOLD
SILVER
PGM & DIAMONDS
OIL & GAS
OTHER METALS