For those of us who have presumed that the current foreclosure crisis is limited mostly to borrowers with subprime loans, this New York Times article does a good job to dispel that myth.
According to the Mortgage Bankers Association, in the first quarter of 2008, mortgage loans that are delinquent or in foreclosure are at their highest rates nationwide since 1979, the first year the Association first collected such data. This is the latest record increase in a string of increases dating back to late 2006. While subprime loans default at higher rates than more traditional loans, it looks like "regular" borrowers are having trouble keeping up with their mortgage payments because of the current state of the economy.
Closer to home, the California foreclosure rate for Q1 2008 is over three percent, and the combined rate of foreclosures and "seriously delinquent loans" (over 90 days past due - foreclosure imminent) is near five percent.
To put this in historical perspective, California's real estate loan default rate (number of open Notices of Default on record, compared to all open loans) has usually ranged from 0.5% to 1.5% of all loans. What's more, it used to be that about half of all loans in default would be cured prior to the lender scheduling a Trustee's Sale.
I cannot find current data on the current cure rate, but I doubt that as many loans are being cured in the current market, because the most common methods to cure a loan default are to sell or refinance the property and pay off the old lender. Even if we assume that the cure rate is the same as it has been historically, that still equates to twice as many properties going to auction when compared to the historical high end of the foreclosure range.
Jason,
I would have to assume the cure rate (especially for the A paper loans) is pretty high... once some one gets the letter and slapped in the face that the situation is real I bet pride starts to go away and the call to mom and dad is made, along with a fire sale, (assuming there is enough equity for a fire sale)..
I wrote a blog back on April 17th on the foreclosure issue... you should take a look at it.. there is actually a lot of good in the numbers if you run figures for yourself.... The problem is we only see the bad news and have to create our own good news. CA, NV, AZ, FL are hit the hardest, so the national numbers may actually look good to someone int these states...
I took the time to rip apart one of the negative articles put out by bloomberg, you will be surprised to see the positive news when it is looked at with a glass half full mentality.
@Robert Rauf: Thanks for the comment. While I commend your optimism, my research uncovered more unwelcome news. For California, the cure rate is actually down right now: less than one-third (32%) of defaults got cured before sale in Q1 2008, down from over half (52%) in Q1 2007. You can see the detailed data via the links in my post about California's default and cure rates.
Speaking from my own experience, both as a trustee's agent and a lawyer, far too many people ignore their defaults and just hope that something will happen to make their problems go away. Unfortunately, that mindset generally results in people losing their homes.
The biggest issue now is the price drops and 100% financing. unfortunatley it is Hard to cure when you are top heavy.
but to put the glass half full spin on things: if 1/3 of defaults in CA are being cured that must mean the rest of the country is even better off.
The national number in March was about 224,000 homes in default, but it was preached as if they went to foreclosure, (NOT THE CASE) if we use CA's cure rate that makes a huge dent in that number. the 224k number was 1/538 or .001859 or .18587% leaving the other 99.8% of homes performing in March (nationally at least)... and the cure number makes it look even better.
(sorry, cant take the optimist from me!!!)