Mortgage Delinquencies Expected to Double in 2009
According to Chicago-based TransUnion — one of the three major credit bureaus — the percentage of consumers at least 60 days behind on their mortgage payments will hit 7.17 percent by the end of next year. That would be the highest level of mortgage delinquency since 1992, when the firm first began tabulating the statistics.
ARMs
Much of the blame they say revolves around adjustable-rate mortgages (ARMs). Many lenders used the low interest 'teaser' rates to lure homebuyers into these types of loans. These rates will be resetting to higher payments over the next two years — some as high as 13 percent — which could push more homeowners into financial trouble. 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 will be sizable.
Ezra Becker, principal consultant in TransUnion's financial service group, told the Wall Street Journal that, "There are a lot more loans that will be resetting throughout 2009 through 2011." He says rising unemployment and depreciating home values are other contributing factors that will impact the housing market. "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," says Becker.
In light of the likely increase in home loan delinquency and the skyrocketing rate of home foreclosures, Bernanke suggests the Fed take aggressive action to stem the rising foreclosure tide. Bernanke has proposed 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," said Bernanke at a Federal Reserve housing conference.
Bernanke 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 percent of all mortgages across the U.S. may be under water, where the home is worth less than the current mortgage balance owed.
To stem the rising tide of both mortgage delinquencies and home foreclosures, the Feds have already lowered the benchmark short-term interest rate to 1 percent. Economists expect the Fed's policymaking Open Market Committee to cut its short-term interest rate to a record low of at least 0.5 percent, or further. The federal funds rate, which banks charge each other for overnight loans, is a benchmark for business and consumer loans.
During the waning days of the Bush administration, further aggressive action to help homeowners in distress and help restart the sluggish U.S. Housing Market is likely.
Read more articles about reset interest rates from Brian Blackstone and Jane Kim at the Wall Street Journal.
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