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No Silver Lining in Latest Delinquency Numbers
By Ted Cornwell
The number of loans entering foreclosure and the percentage of loans in the foreclosure process stand at record highs, according to the Mortgage Bankers Association's quarterly delinquency survey. Subprime loans now have a foreclosure rate that has increased 140% over the past year, according to data compiled by SourceMedia's Database Products Group.
To top it off, many economists have backed off earlier predictions that the nation's housing slump will be short-lived and relatively benign. It's been quite a few months since I've heard anyone talk about the "soft landing" that was so widely predicted when housing markets first started to soften. Instead, the MBA now predicts that not only will housing values fall in 2007, they will decline again in 2008. Some economists predict that home values nationally could drop by at least 20% from their peak.
There is nothing soft about that landing for big mortgage investors and servicers like Countrywide Financial Corp. and Washington Mutual. On Monday, WaMu slashed its dividend to $0.15 per share from $0.56 per share and said it will eliminate another 3,000 or so jobs in response to larger than expected losses. If there is any silver lining for loan servicing professionals, it is probably safe to say that those job cuts aren't being made from the loss mitigation department. WaMu's management abruptly raised the estimated loss provision that the company will face next year to a range of $7.2 billion to $8 billion. Even at the low end, that would be more than double the company's 2007 loss provision. That will more than wipe out WaMu's 2008 earnings, according to an analysis by Friedman Billings Ramsey. FBR notes that WaMu's balance sheet includes exposure to more than $58 billion of pay-option ARMs, $62 billion of HELOCS and $20 billion of subprime mortgages.
And investors in MBS face equally daunting challenges. A separate FBR report finds that the default rate on securitized subprime loans is also at a record high of 17.7%. With nearly one if five subprime loans pooled into MBS in default, it's little wonder that lenders such as WaMu and UBS are still surprising the market with new loss estimates. The real question is when will the bleeding stop?
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