May 30, 2009

The "record" 12% of mortgages delinquent is NOT really a record

The media has been reporting lately that 12% of homes with mortgages are behind on payments or in foreclosure. If you skim the article you'll quickly find this : "A record 12 percent of homeowners with a mortgage were behind on their payments in the first quarter, the Mortgage Bankers Association said Thursday." Wow. If its a "record" then that means its the worst ever right?

Does this mean that we're worse off now than in the Great Depression?

No. The current delinquency rates are not nearly as bad as the Great Depression.

A while back I wrote about home foreclosure rates past and present. I had found an article from the Federal Reserve that discussed the foreclosure and loan delinquency rates during the Great Depression. ON page 138 of the article it says this :

"A broader measure of home mortgage distress
is the rate of mortgages with past due payments.
Comprehensive data on mortgage delinquency
rates do not exist for the 1930s. However, a study
of 22 cities by the Department of Commerce
found that, as of January 1, 1934, 43.8 percent of
urban, owner-occupied homes on which there
was a first mortgage were in default. The study
also found that among delinquent loans, the average
time that they had been delinquent was 15
months. Among homes with a second or third
mortgage, 54.4 percent were in default and the
average time of delinquency was 18 months.
Thus, at the beginning of 1934, approximately
one-half of urban houses with an outstanding
mortgage were in default"

So while they say that there isn't comprehensive data from the 1930's the data they do have shows that default rates on mortgages were north of 40-50% level. This is just one reference though and it is hard to find much information on mortgage default rates during the Depression. I came up with this WSJ article that said: " the mortgage default rate of over 40% in the depths of the Great Depression."

The current "record" 12% rate is nowhere near as bad as the 50%+ default rates seen during the Depression.

Why then does the press call the 12% rate a "record" if its not really the highest? Well we can figure that out by reading that they didn't have comprehensive data from the 1930's. When did they actually start tracking it?

The references in the press to the 12% default/foreclosure rate is from the Mortgage Bankers Association. Those are the folks that did the study. If you hit Goggle with their name you can easily find the initial study from them that the press are reporting to us. Here is the original Mortgage Bankers Association press release.

They published the initial findings that 12% of homes are in foreclosure or delinquent: "The combined percentage of loans in foreclosure and at least one payment past due, meaning the percentage of mortgage holders not current on their mortgages, was 12.07 percent on a non-seasonally adjusted basis, the highest ever recorded in the MBA delinquency survey. "

But before that bit they have a very important sentence in their press release that the media seems to have overlooked or not considered worth reporting to us all: "The seasonally adjusted rate is the highest in the MBA’s records going back to 1972 and the unadjusted rate is the highest recorded in the first quarter of any year back to 1972."

Bottom line: 12% is not really a record. Its a the highest they've seen since they started measuring it in 1972.

Thats not a record at all. The media shouldn't be calling it a record if its just the highest since 1972.

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