It would be tempting to entitle this post the Permanent Foreclosure Crisis. The newly released National Delinquency Survey (2nd quarter 2010) from the Mortgage Bankers Association is not encouraging. Even MBAA’s usual positive spin had to be tempered: “. . . the downward trend we saw through most of 2010 has stopped. Mortgage delinquencies are no longer improving and are now showing some signs of worsening.”
Foreclosure starts are still at triple pre-crisis levels, albeit down from a peak of quadruple their normal levels reached in 2009. The total foreclosure inventory remains stuck at around 4.5%, a level also first reached in late 2009, a level that is about five times pre-crisis levels. Total past-due mortgages have eased a bit from the crisis high in the first quarter of 2010, from 14.7% back to 12.9%, but are still at one out of every eight homeowners with a mortgage (compared with one in twenty in normal times.)
Meanwhile total mortgage modifications in June were down by half from their peak level in March 2010, meaning that the efforts to restructure home debt are losing steam, while the machinery to foreclose and sell more homes at 60% losses into a oversaturated market grinds on. Total outstanding mortgage debt remains at unsustainable levels in excess of $10 trillion, inching down at about 1% per quarter, while home values continue to erode much more rapidly. Present policy is clear: the housing debt bubble will be deflated via an agonizingly slow process of foreclosures and a vain hope for a rebound in home prices. The consequences of present policy are also clear – stagnation in the housing market, and hence the general economy, for the foreseeable future.