As the number of seriously delinquent borrowers hits an all-time high, Fitch Ratings reports that while measures aimed at stemming foreclosures have helped in the short-term, increasing joblessness rates will inevitably cause housing prices to fall even further. In addition, the negative equity that currently plagues many homeowners, serves as a disincentive to mortgage repayment, and these numbers are only expected to grow. For more on this, see the following article from HousingWire.
The majority — 60% — of remaining performing borrowers within ‘06- and ‘07-vintage residential mortgage-backed securities (RMBS) bear negative home equity, meaning they are underwater on their mortgages and owe more than their houses are worth.
This overwhelming presence of negative equity is hampering sustained improvement in RMBS performance, according to Fitch Ratings.
“[N]egative equity reduces a borrower’s inventive to pay their mortgage and limits their options when faced with financial difficulties,” said senior director Grant Bailey in a statement.
The rate of previously performing borrowers rolling into delinquency status showed “notable improvement” in the first half of 2009 and stabilized during the summer at an elevated level. The percentage of previously performing borrowers rolling into delinquency “increased modestly” in September, Fitch said.
The rating agency expects US unemployment to peak at 10.3% in the middle of next year, further pressuring current borrowers. House prices will ultimately decline another 10% over the next year.
“Home price figures in recent months were temporarily helped by the reduced share of distressed property liquidations due to foreclosure moratoriums and servicers’ increased efforts to qualify borrowers for modifications,” Fitch said. “However, the number of distressed borrowers has continued to grow.”
The rating agency noted the number of non-agency borrowers 90 plus days delinquent reached 1.66m in September — the highest level on record.
“While increased modification efforts and an extension of the first time home buyer tax credit may help home prices, the ultimate increase in liquidations from the growing distressed inventory will likely cause a further price decline,” Bailey said.
Industry sources discuss government intervention programs in the foreclosure issue facing the US and house price declines going into 2010 in the November issue of HousingWire.
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