This week’s new mortgage delinquency numbers were grim. About10 percent of Americans are now late in paying their mortgage.
The Mortgage Bankers Association said that the number, which is annualized, is a half percentage jump from the last quarter of 2009, when 9.5 percent of all homeowners were paying their mortgage late.
More than 4.6 percent of all homes are now in foreclosure, a number that is up slightly from the end of the year.
And, while President Obama’s Making Home Affordable (HAMP) program succeeded in transferring another 67,000 loan modifications from temporary to permanent status, the effort isn’t keeping pace with the new numbers of delinquent borrowers.
This may partly explain why more borrowers are starting to consider strategic default.
Strategic default is when homeowners decide to stop paying their mortgage even though they could afford to make the payments. The biggest reason for strategic default is that the homeowner is underwater with his loan, usually by more than 15 percent.
Lenders are taking months, if not years, to catch up with these delinquent borrowers, who often wind up living in the home rent free, socking away the mortgage cash to use to rent another property.
While it’s not a completely free ride (your credit will be trashed), it’s the next best thing.
The increasing number of strategic defaults points to couple of structural problems lingering in the wake of the housing crisis:
• It still doesn’t feel like a recovery on Main Street. This week, Pfizer announced 6,000 job cuts. The number of new unemployment filings is still well above where it should be just to keep pace with natural population growth. And, with federal and state tax receipts coming in far below even the most tempered of expectations, those families who are employed are still worried about losing their jobs – and rightly so.
• The loan modification programs still aren’t working as advertised. Lenders aren’t often cutting principal loan balances, which translates into permanent loan modifications that are more expensive in many cases than what the homeowner was paying.
• Homeowners with 30-year fixed rate loans are going delinquent faster than any other sort of loan. Someone isn’t making the kind of money Wall Street seems to think they are.
• Short sales are taking too long. Buyers are walking away because the process is taking 4 to 6 months, or longer. Second lenders need to recognize the losses on their books and bow out.
• Not every homeowner can be saved from foreclosure. If you don’t have income, or you don’t have enough income, you won’t be able to save your home. Some folks don’t earn enough to pay a mortgage even if the lender writes off the loan balance to the current market value.
The best thing that could happen now is that 5 million jobs are created by next year. Since that’s unlikely to happen, and millions more Americans will fall behind in their mortgage payments and move into the foreclosure pipeline, the lending industry should focus on helping homeowners recover, so they can move on with their lives.
It’s in the banks and other lenders’ best interest to help educate homeowners on how to rebuild their credit after a foreclosure, deed-in-lieu of foreclosure or a short sale, and nurture their return to good fiscal health.