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Contrary to media spin, mortgage delinquencies are trending higher

The mainstream media is obsessed with making people believe the housing market has bottomed. Even if it requires spinning negative news, they write as if they have a duty to bolster consumer confidence. I think market reporters have a duty to the truth, whatever that truth might be. To do less than that, to spin the news like a two-bit realtor, is a disservice to those who may rely on the news for important decisions about purchasing a house. I think much of the mainstream media’s coverage of the housing market is wrong, and when they resort to intentionally spinning bad news, it’s downright shameful.

Let’s take a look at some recent headlines regarding delinquencies:

National Mortgage Delinquency Rate Down 14% In 2012

Home Loan Delinquencies Plunge

Late-Payment Rate on US Mortgages Hits Four-Year Low

Mortgage Delinquencies Fell in 2012

To read those headlines, one would assume all is well in housing, perhaps the market is on the road to recovery, right? Let’s look at a recent press release and see what spin we can find.

LPS’ December Mortgage Monitor: 2012 Continued Trend of Delinquency Improvement

JACKSONVILLE, Fla., Jan. 31, 2013 /PRNewswire via COMTEX/ — The December Mortgage Monitor report released by Lender Processing Services (NYSE:LPS) and covering performance data for the full 2012 calendar year, found that while mortgage delinquency rates remained at elevated levels, they have shown steady improvement, ending the year 32 percent lower than the January 2010 peak. Additionally, following a year of regional improvement in foreclosure inventories (marked by stark contrasts between judicial and non-judicial foreclosure states), the national foreclosure inventory rate began to decline toward the end of 2012 from historic highs experienced during the crisis.

This statement is from Lender Processing Services. It accompanied their most recent mortgage monitoring report. One would think the data in the report would show that delinquencies have shown steady improvement in 2012, but did it?

Perhaps they can argue that the long term trend is still down, but ever since the mortgage settlement agreement was signed, mortgage delinquencies have been on the rise — and this comes in spite of aggressive attempts to kick the can with loan modifications. Lenders stopped foreclosing, approved more short sales, and initiated millions of loan modifications in a so-far successful attempt at drying up the MLS inventory and forcing prices to bottom.

Unfortunately, due to continuing high redefault rates on loan modifications and an overly slow foreclosure rate, delinquencies have been steadily rising since March of 2012 right after the mortgage settlement was signed.

The LPS report has a two-month reporting lag, so until May of 2013, financial reporters can continue to ignore the obvious recent uptrend and tout the year-over-year declines as a sign that mortgage delinquencies are falling. But what will they do when the year-over-year data shows an increase as it likely will when the March 2013 numbers are reported? My guess is they will continue to make excuses for the market and if they’re lucky, they’ll have a monthly decline they can put their blind faith in.

Perhaps it’s too much to ask, but for once, I would like to see some real analysis and reporting without any attempt to spin the news out of some misguided desire to positively influence consumer sentiment. We are a culture addicted to bullshit, and sometimes it can be very financially painful.

Five years squatting in a $1,000,000+ property

I’ve lived in Irvine for ten years now. I’ve always been a renter, and I’ve always paid my rent. I currently live in Woodbury, and my immediate next-door neighbor hasn’t paid her mortgage on a nearly identical property in three years. On my path to the outside world, I drive by today’s featured property — a property in which the former owner lived for five years without making a payment. These people obtained these financial rewards for doing something foolish; they took on debts they couldn’t afford. Rather than facing the dire consequence of a speedy foreclosure, they have been allowed to squat and stimulate the economy with the money that should have been going to a payment.

Foreclosure Record
Recording Date: 03/30/2012
Document Type: Notice of Default
 
Foreclosure Record
Recording Date: 08/21/2008
Document Type: Notice of Rescission
 
Foreclosure Record
Recording Date: 07/01/2008
Document Type: Notice of Default
 

Back in 2004, I chose not to buy a house I couldn’t afford using a toxic loan product. I feared the prospect of losing the home to foreclosure and whatever money I put into it. If I had known in advance I would be offered dozens of opportunities for bailouts and several years squatting, I might have made a different decision. I know I’m not alone in this reevaluation. It’s why moral hazard is the central issue in the housing bust.

[idx-listing mlsnumber="PW13019662" showpricehistory="true"]


Proprietary OC Housing News home purchase analysis

67 SANCTUARY Irvine, CA 92620

$1,180,000    ……..    Asking Price
$1,398,000    ……….    Purchase Price
4/18/2006    ……….    Purchase Date

($218,000)    ……….    Gross Gain (Loss)
($94,400)    …………    Commissions and Costs at 8%
============================================
($312,400)    ……….    Net Gain (Loss)
============================================
-15.6%    ……….    Gross Percent Change
-22.3%    ……….    Net Percent Change
-2.4%    …………    Annual Appreciation

Cost of Home Ownership
——————————————————————————
$1,180,000    ……..    Asking Price
$236,000    …………    20% Down Conventional
4.17%    ………….    Mortgage Interest Rate
30    ………………    Number of Years
$944,000    ……..    Mortgage
$250,418    ……….    Income Requirement

$4,600    …………    Monthly Mortgage Payment
$1,023    …………    Property Tax at 1.04%
$442    …………    Mello Roos & Special Taxes
$295    …………    Homeowners Insurance at 0.3%
$0    …………    Private Mortgage Insurance
$110    …………    Homeowners Association Fees
============================================
$6,469    ……….    Monthly Cash Outlays

($1,205)    ……….    Tax Savings
($1,319)    ……….    Equity Hidden in Payment
$350    …………..    Lost Income to Down Payment
$168    …………..    Maintenance and Replacement Reserves
============================================
$4,462    ……….    Monthly Cost of Ownership

Cash Acquisition Demands
——————————————————————————
$13,300    …………    Furnishing and Move In at 1% + $1,500
$13,300    …………    Closing Costs at 1% + $1,500
$9,440    …………    Interest Points
$236,000    …………    Down Payment
============================================
$272,040    ……….    Total Cash Costs
$68,400    ……….    Emergency Cash Reserves
============================================
$340,440    ……….    Total Savings Needed

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