Mortgage News Better Than It May Seem
It was an ugly headline, even by the standards of the mortgage crisis:
Looking a little closer though, it turns out the numbers aren’t nearly as bad as that Associated Press headline would suggest. Another example of the media piling on with a negative spin was a story suggesting that loan modification programs were simply extending mortgage pain.
Meanwhile, there were two positive signs for the mortgage market:
- Mortgage application activity rose for the second consecutive week
- Mortgage rates eased a bit in early July, after rising significantly in June
In large part, the conclusion drawn from the above depends on whether one is taking a forward-looking or backward-looking view of the market.
Mortgage foreclosures: up or down?
The news that mortgage foreclosures shot up 53% in June would come as a shock to anyone who thought the foreclosure numbers had already gotten just about as bad as they could be. It turns out, however, that the 53% increase is a year-over-year figure; i.e., a comparison between June, 2008 and June, 2007. It therefore reflects the cumulative increase which occurred over the course of that year.
To be sure, a 53% increase in foreclosures in the space of a year is a stunning rate of increase. However, it is misleading to characterize this as an increase that just occurred in June of this year. In fact, foreclosure activity declined in June, compared with figures from the prior month.
So, are foreclosures actually growing or shrinking? It depends how far back a person wants to look. Foreclosures actually declined in June, but have grown over the past year. Notably, the first surge in foreclosure activity occurred in August of 2007. Once August of 2008 figures start to be released, expect a sharp fall-off in the reported foreclosure increases, as year-over-year comparisions become easier, unless there truly is a new leg further down in the housing crisis.
Loan modification programs
A report on mortgage modification programs suggested that they will only prolong the mortgage agony because they don’t necessarily stave off foreclosure. Still, only 29% of modified loans end up in foreclosure — meaning that the effort is successful more than two thirds of the time.
If loan modification isn’t 100% successful, it also bears noting that foreclosures don’t always result in the borrower losing the home. Indeed, that happens in only 40% of the cases. In a bear market — and this is certainly a bear market for housing — negative news is seen as making good copy, but that can overly distort the view of the market being presented.
On the bright side
For potential home buyers, it pays to look forward rather than backward. With home prices more reasonable in many parts of the country and mortgage rates at moderate levels, some people are taking the forward-looking view and acting to seize the opportunity. Mortgage application figures reflected this, rising for the second consecutive week. This could be the beginning of a grass roots movement in which more and more people are simply deciding that this is a good time to shop for a mortgage and buy a home.
Tags: 2008, borrowers, foreclosure, housing crisis, housing market, mortgage news, mortgage rates
