As if this was a shock, foreclosures spiked to an all-time high in Q3 of 0.78%, surpassing the previous high of 0.65%, as the Q3 delinquency rate climbed to 5.59% from 5.12% — its highest showing since 1986.
And it’s only expected to worsen over the next year. No surprise there either. There’s a trillion dollars of ARMs that are resetting.
While President Bush’s mortgage rate freeze may help offset some woes, it may not make a big enough dent. The offer to freeze introductory rates would apply to people that have not missed any payments. Unfortunately, says Bloomberg, “More than 30 percent of borrowers with subprime adjustable- rate mortgages are behind on their payments before their loans reset at a higher rate, according to estimates from analysts at Credit Suisse Group. The bank projects 775,000 homes with $143 billion of mortgage debt will go into foreclosure in the next two years”
Comforting, isn’t it?
Is it better to bail out homeowners who qualify, or allow them to just default? Default rates on modified mortgages sits at 30% to 40%. You’re destroying mortgage backed securities, and increasing rates longer-term to prevent the inevitable foreclosure.
I can hear the sucking sounds now.
