Thursday, 23 October 2008

Looking back

I was researching for a post I still hope to write. I found this eye-opening article from Feb 7, 2007 (pay attention to the dates). It deserves a post all to itself.

Now comes a distressing new report from the Mortgage Bankers Association, which reported yesterday that delinquencies on mortgages rose sharply in the third quarter of 2006.
U.S. homeowners had a harder time keeping up with their mortgage payments in the third quarter, the Mortgage Bankers Association said Wednesday, with the delinquency rate rising to 4.67% from 4.39% in the second quarter. A year ago, 4.44% of mortgage holders were 90 days or more past due on their loans.

The foreclosure rate inched higher in the third quarter, with 1.05% of mortgages in the foreclosure process, versus 0.99% in the second quarter, the MBA said. While delinquency rates on all types of loans rose in the third quarter, it was the subprime category - loans made to less creditworthy borrowers, that shot up the most, to 12.56%, from 10.76% a year ago.
While doing some research on delinquencies, I just happened to stumble across a recent release from Freddie Mac on delinquencies.

Following is a chart from the above link, and it shows that delinquencies at Freddie Mac are falling dramatically:

That is pretty stunning. Freddie Mac says delinquencies are dropping, but everything else I can find shows delinquencies are rising dramatically. OK, Mish, what gives?
Essentially, Footnote No. 12 says that if Freddie Mac renegotiates the terms of the loan with someone who is delinquent, then, voila, that person is no longer delinquent. It seems to me that since about June of 2006, Freddie Mac is struggling to keep this Ponzi scheme afloat.

Fannie Mae has its own guidance on delinquencies:

“First and foremost, Fannie Mae tries to avoid foreclosure. There are no winners when a home mortgage is foreclosed. It is the least desirable way to resolve a problem loan, and a terrible ordeal for the homeowner. It also is costly for Fannie Mae, as the investor, and for the loan servicer.

“Homeowners who are having difficulties making their mortgage payments should immediately contact their mortgage loan servicer (the company to which they send their monthly payments) to discuss options.

“Fannie Mae has instructed its lenders and servicers to avoid foreclosure whenever possible by offering borrowers who get behind in their mortgage payments various alternatives, including temporary forbearance, loan modification, and preforeclosure sales.”
For some borrowers, efforts to work out bad loans can be complicated by the fact that many mortgages no longer are held by the banks that made the loans. Instead, roughly two-thirds of mortgages are packaged into mortgage-backed securities and sold to investors.”

There are numerous Ponzi finance schemes ready to implode. It will be spectacular to watch once it starts unfolding. The longer this progresses, the worse it will get.

Forecast made, Feb 7, 2007. Forecast came true March 14, 2008 with the collapse of Bear Stearns. Obviously, many of the signs were already present in 2006 (and maybe earlier?). Yet once again it took a complete collapse before governments reacted to stem the damage.

That's the problem with forecasting disaster. Until it comes true, no one believes you, and no one acts to avert it.

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