Thursday, Aug 20, 2009
Is this in store for the UK?
Reuters: U.S. mortgage late payments hit record high in Q2
"Late payments on U.S. mortgages increased to a record high in the second quarter, with almost one in eight homeowners delinquent or in the process of foreclosure"
Posted by alan @ 07:20 PM (648 views) Add Comment
5 Comments
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1. drewster said...
But with interest rates at 0.25% why are they defaulting on their loans??!! Surely this could never happen in the UK! House prices will never fall here!
(yes, it's sarcasm)
2. quiet guy said...
"The rise in prime fixed-rate foreclosures can largely be attributed to unemployment," Jay Brinkmann, MBA's chief economist, said in an interview."
Undoubtedly, that is a big part of the problem but there may be another significant problem. Recently, I've been reading Soros, who observed that the American housing market will develop a positive feedback loop: as US property prices drop, it becomes more attractive for underwater households to walk away (due to non-recourse mortgages) which tends to depress prices more which creates even more underwater borrowers who might walk away ... Also, the sheer volume of foreclosures is driving up the time required to recover the property so the underwater borrower might get (say) a year's free use of the house before being evicted and the word of that is spreading around.
Remember that Europe bought a lot of these defaulting mortgages throughs CDOs and the like. I wonder how much my pension will suffer thanks to 'jingle mail' property owners walking away? We appear to be eating substantial investment losses without the benefit of lower property prices for the prudent.
3. James said...
What is going to be the Catalyst to knock the growing confidence in the market?
I cannot see base rate rising anytime soon. Certainly mortgage rates have risen again in the last couple of months, but it is unlikely they will continue to rise beyond this point with large spreads between saver and borrower. Coupled to the fact reposession proceedings in the UK mean people will do anything to hold on to their home.
From bein a firm believer in the house price crash I am beginning to doubt my own views, and wondering "was that it?", will be itnerested to hear others views on why and how further falls would be likely.
4. drewster said...
qg,
Most pension schemes adopt a "lifestyle" investment model. When you are young they invest in risky (but potentially rewarding) stocks, then as you approach retirement date they gradually shift the funds into safer places like bonds.
If you're young, most of your pension is probably invested in stocks - so it's only down 25% or so. However those workers nearing retirement should be worried, since they are the most likely to have been invested in subprime CDOs.
If you've already retired then you've cashed in your pension pot and bought an "annuity". This doesn't mean you're safe though. The money which you handed over to the annuity company is re-invested in the bond markets (from a financial point of view, an annuity is part insurance, part index-linked bond). If those bonds relate to property or mortgages (residential or commercial) then your pension income is in trouble.
Given how many banks have collapsed into government safety nets, both in the US and the UK, it seems likely that a large pensions and/or annuity provider will soon be facing trouble. Perhaps it has already happened to some smaller companies in the US - though I can't find anything online. I'm also surprised that this hasn't been mentioned in the media.
[Disclaimer: I'm not a financial adviser. I don't know anything.]
5. stillthinking said...
The amazing thing about the US is that you can just give the keys back. We all take it for granted now but I remember thinking sheesh. There is a big difference between give the keys back no hard feelings and twelve years working it off.