Delinquency mortgage rates have actually dropped for the last five quarters. While that might sound promising, many would argue that it really isn’t. Currently, there are more loans within the foreclosure process than at any other time since the mortgage crisis began.
According to an article on the Wall Street Journal website US banks are facing high mortgage delinquency rates and in fact according to a new report by the office of the Comptroller of Currency their delinquency rates are higher than those of the two loan giants Fannie and Freddie.
The report said 19.7% of mortgages in banks’ portfolios were delinquent at the end of March. By contrast, nearly 6.8% of mortgages backed by Fannie and Freddie were nonperforming, as were 11.4% of all mortgages.
While Fannie and Freddie might have a lower delinquency rate that does not mean that the two loan giants aren’t hurting. They are actually swimming in deeper water than the banks. While banks have other avenues of income to help offset mortgage loan losses, Fannie and Freddie do not have that luxury. They only have mortgages to rely on and currently have guaranteed approximately five trillion in home loans. This figure is nearly double the amount of mortgages currently backed by all the nation’s banks combined.
While Fannie and Freddie have been under scrutiny for loan defaults, the banks have been under fire as well. Faulty mortgage practices and unethical foreclosure proceedings have been under investigation since last year. Banks have been facing allegations and scrambling to defend themselves. According to the WSJ article, overall banks have riskier loans on their balance sheets when compared to Fannie and Freddie:
Loans on bank balance sheets “in and of themselves are reflective of lesser-quality loans” than those backed by Fannie, Freddie or federal agencies, said Bruce Krueger, a senior OCC mortgage examiner.
Bank home loans also tend to take more time to get through the foreclosure process which leaves more foreclosures on the books at all times:
Mr. Krueger said the high nonperforming-loan rate on bank-held mortgages also reflects differences in how foreclosures are being processed. Fannie, Freddie and federal agencies require mortgage servicers to adhere to strict timelines that govern the modification and foreclosure processes, but banks don’t face similar requirements for the loans on held their books.