The Second Wave of Mortgage Pain Begins

This was not a good week for the U.S. economy. Reports came piling in that both existing and new home sales dropped by double-digits in July. The GDP grew by a meager 1.6 percent in the second quarter, roughly half the growth expected by many economists. Federal Reserve chief Ben Bernanke is now saying that the Fed will start buying up more debt if needed to stabilize the investor confidence climate. And now the Mortgage Bankers Association is reporting that mortgage delinquencies of those 30 days late rose during the second quarter of this year, marking a new upward trend for 2010. ( provides a great chart showing the direction of short-term delinquencies since 2005.)

The MBA says that 3.51 percent of all mortgage borrowers in the second quarter were 30 days behind on their payments, an increase from 3.31 percent during the last quarter of 2009.

Why the trend reversal? The rate of short-term delinquencies fell steadily in 2009. The answer – persistently high unemployment rates. All the subprime and other risky loan borrowers that kicked off the mortgage meltdown have mostly worked themselves out of the system by now. New defaults these days are largely by prime borrowers – those traditionally reliable with credit – who are losing their jobs.

“You can’t expect a recovery in the housing market in the absence of a recovery in the jobs market,” said Jay Brinkmann, MBA chief economist. “It takes a paycheck to make a mortgage payment.”

The really bad news is that this swelling growth of short-term delinquencies will likely turn into the next wave of foreclosures, if these homeowners are not able to find new jobs quickly. And with some predicting that over 100,000 jobs will be lost this month along, a speedy employment market is highly improbable.

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on August 27th 2010 in Mortgage News

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