interestrateripoff Posted August 25, 2009 Share Posted August 25, 2009 http://globaleconomicanalysis.blogspot.com...cure-rates.html Mortgage cure rates have fallen off a cliff. For those unfamiliar with the term, a "cure rate" pertains to those who go delinquent on loans then catch up and become current. Late payments that don't "cure" have a tendency to get later and later over time, before they eventually default.Fitch ratings notes Cure Rates Plunge Among Prime RMBS. According to Fitch, cure rate on prime mortgages plunged to 6.6% from an average 45% during 2000-2006. Alt-A cure rates plunged to 4.3% from an average 30.2% and subprime cure rates fell to 5.% from an average 19.4%. A couple of charts can help put this in context. Here is a chart from Hidden Backlog of Foreclosures. Pent Up Foreclosures By State In regards to the above chart I said. The area in pink represents potential foreclosure demand. Not all of that area will be foreclosed, but some of it sure will. The "Hidden Backlog" mentioned above (and highlighted in red) is within that pink area. One thing missing from the chart is pent-up demand from those who are not delinquent yet have a huge incentive to walk because of massive negative equity. For a look at "negative equity", moratoriums, and other foreclosure issues please see Brace for a Wave of Foreclosures, the Dam is About to Break. With the new data from Fitch let's take a second look using another chart from Calculated Risk's post MBA Forecasts Foreclosures to Peak at End of 2010. Prime Delinquencies and Foreclosures In 2006 less than 3% of prime loans were delinquent and nearly half of them cured. Currently close to 6.5% of prime mortgages are delinquent (another 3% are in foreclosure). Worse yet, the cure rate is miserable. Even reworked loans quickly sink back into delinquency. A key reason for the falling cure rates pertains to underwater mortgages. In 2006, someone might easily have had positive equity in their home and sold it (curing the loan). Most in trouble now do not have positive equity and cannot sell. Of the 6.5% delinquent, the current cure rate is a mere 6.6%. On this basis, prime foreclosures could spike to 9%. If that sounds preposterous, note that prime delinquencies were close to 3% in 2007 and by second quarter 2009 the foreclosure rate hit that same 3% rate. Foreclosures follow delinquencies over time and a sinking cure rate makes that prognosis even more likely. What happens now depends on jobs and home prices, neither of which looks very promising. Even 5-6% prime foreclosures would be a disaster and that looks increasingly likely. Remember the US needs growth of 2.5% just to stop job losses. Thank god for the recovery. It's all stabilising. Quote Link to comment Share on other sites More sharing options...
RufflesTheGuineaPig Posted August 25, 2009 Share Posted August 25, 2009 I like this bit: A key reason for the falling cure rates pertains to underwater mortgages. In 2006, someone might easily have had positive equity in their home and sold it (curing the loan). Most in trouble now do not have positive equity and cannot sell. Basically it says things were fine before, because if you go behind with your mortgage you could increase the mortgage and use the money you got from increasing the mortgage to make the repayments. Quote Link to comment Share on other sites More sharing options...
scottbeard Posted August 25, 2009 Share Posted August 25, 2009 Basically it says things were fine before, because if you go behind with your mortgage you could increase the mortgage and use the money you got from increasing the mortgage to make the repayments. I think in fact it is saying that in 2006 someone could STR and pay off the mortgage. Now they can't, as they are in negative equity. Quote Link to comment Share on other sites More sharing options...
Bloo Loo Posted August 25, 2009 Share Posted August 25, 2009 thnk back to October 2007. Bush pledged to do all he could to keep Americans in their homes. he has failed and now the money has run out, they can do nothing more except lie about asset values to keep the banks afloat. The Uk is no different, when the taxes start to rise and there is no more, we will face the music. Quote Link to comment Share on other sites More sharing options...
eric pebble Posted August 25, 2009 Share Posted August 25, 2009 The Uk is no different, when the taxes start to rise and there is no more, we will face the music. Yup -- They're doing EVERYTHING they can to bury our heads in the sand... Quote Link to comment Share on other sites More sharing options...
interestrateripoff Posted August 25, 2009 Author Share Posted August 25, 2009 thnk back to October 2007.Bush pledged to do all he could to keep Americans in their homes. he has failed and now the money has run out, they can do nothing more except lie about asset values to keep the banks afloat. The Uk is no different, when the taxes start to rise and there is no more, we will face the music. I think you'll find all what Bush pledged to do was keep Americans in their homes whilst he was President and leave the mess for some dumb schmuck to short out. I would say Bush achieved his aim. Quote Link to comment Share on other sites More sharing options...
mdman Posted August 25, 2009 Share Posted August 25, 2009 This is about as insightful as saying "The sky is blue" Quote Link to comment Share on other sites More sharing options...
Rare Bear Posted August 25, 2009 Share Posted August 25, 2009 I think you'll find all what Bush pledged to do was keep Americans in their homes whilst he was President and leave the mess for some dumb schmuck to short out. I would say Bush achieved his aim. Pretty much what Gordo hopes to do.... Quote Link to comment Share on other sites More sharing options...
the primitive Posted August 25, 2009 Share Posted August 25, 2009 This is about as insightful as saying "The sky is blue" Only if you are too thick to understand it I guess. Quote Link to comment Share on other sites More sharing options...
redwing Posted August 25, 2009 Share Posted August 25, 2009 News from the US market keeps giving me hope that the UK is heading in the same direction. But lagging behind. All those 2 year mortgage deals taken out in 2007/2008 will be reverting to SVR soon with folk unable to get a new deal because they're under water. Add in the unemployment shock and public sector cuts following the election in 2010 and we'll be heading the same way. Quote Link to comment Share on other sites More sharing options...
lowrentyieldmakessense(honest!) Posted August 25, 2009 Share Posted August 25, 2009 I like this bit:Basically it says things were fine before, because if you go behind with your mortgage you could increase the mortgage and use the money you got from increasing the mortgage to make the repayments. oh yes the amount of people doing this was amazing ponzi economics Quote Link to comment Share on other sites More sharing options...
mdman Posted August 25, 2009 Share Posted August 25, 2009 Only if you are too thick to understand it I guess. It would take an Einstein to work out why the sky is blue But this mortgage cure rate plummet is simply a consequence of falling market. Obviously anyone losing their job in a rising market can sell up, preventing a loss for the lender. And the reverse occurs in a falling market. It's not news, nor is it a surprise. I like Mish and follow his stuff daily, but this is a nothingburger relatively speaking. The more interesting story is the inflated valuations, accounting frauds and shadow housing inventory management to prevent losses being crystallised, that is propping up the market at the moment. Quote Link to comment Share on other sites More sharing options...
eric pebble Posted August 27, 2009 Share Posted August 27, 2009 News from the US market keeps giving me hope that the UK is heading in the same direction. But lagging behind.All those 2 year mortgage deals taken out in 2007/2008 will be reverting to SVR soon with folk unable to get a new deal because they're under water. Add in the unemployment shock and public sector cuts following the election in 2010 and we'll be heading the same way. Yup........ Quote Link to comment Share on other sites More sharing options...
eric pebble Posted August 27, 2009 Share Posted August 27, 2009 Yup........ Quote Link to comment Share on other sites More sharing options...
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