The chart illustrates delinquency rates (percentage of delinquent loans out of loans outstanding) by loan type: subprime, prime, and total loans = subprime+prime+FHA+VA. Delinquency rates are making records across all loan types, with prime delinquencies hitting 5.1% in Q4 2008. The delinquency data include loans that are at least one payment overdue and not yet in the foreclosure process; clearly some of these loans will enter the foreclosure process soon.
Foreclosures in 2008 were up 225% since 2006, and according to the delinquency rates, that number is set to worsen in 2009.
The chart to the left illustrates the annual change in delinquency rates across all loan types for each quarter of 2008. Every loan type saw a significant increase in the pace of delinquencies in Q4 2008.
For prime lending, which accounts for 77% of total loan issuance (source: MBA), the annual surge in Q4 2008 was the greatest on record. And since the labor market has only worsened since Q4, 2.1 million jobs lost Jan-March 2009 versus 1.7 million jobs lost Oct-Dec 2008, the Q1 2009 prime delinquency rate has likely risen.
In response to the sharp increase in delinquencies and foreclosures, the government put in place several (seriously, I have lost count) programs to backstop mortgage defaults. However, a recent study at the Office of Thrift Supervision indicates that government mortgage relief programs have so far failed to halt mortgage defaults. From the LA Times:
In the last three months of 2008, most troubled borrowers were being offered not true modifications but breathers on payments followed by a resumption of the original mortgage terms, or even higher payments.We will see if the Obama Making Home Affordable Plan indeed provides aid to 7M-9M homeowners and prevents at least most of them from entering the foreclosure process. There are reasons to think that it will work, and reasons to think that it will not.
Moreover, many of the mortgages that were modified were falling back into default, according to the report, which also found that serious delinquencies continued to spiral to record levels in the fourth quarter.