Saturday, December 06, 2008

Delinquencies: Not Bad, Overall

While that far-right-end spike looks bad, here's the rest of the story:
...even though the Q3 2008 delinquency rate of 6.99% is a record level for the MBA series, it is important to realize that 4% to 5% of mortgages are considered delinquent even during the good times. This is why the MBA also reports on seriously delinquent mortgages.
And "seriously delinquent" is, indeed, serious:
In 2005, 1.82% of loans were seriously delinquent; now, prime loans alone are at 2.87%, and subprime loans at 19.56%.
But it ain't nothin' compared to the Depression.
Comprehensive data on mortgage delinquency rates do not exist for the 1930s. However, a study of 22 cities by the Department of Commerce found that, as of January 1, 1934, 43.8 percent of urban, owner-occupied homes on which there was a first mortgage were in default. The study also found that among delinquent loans, the averagetime that they had been delinquent was 15 months. Among homes with a second or third mortgage, 54.4 percent were in default and the average time of delinquency was 18 months. Thus, at the beginning of 1934, approximately one-half of urban houses with an outstanding mortgage were in default
For those of you under the age of (say) 40, some illumination on those times:
There WAS no Fannie, nor Freddie. A "savings-and-loan" made mortgage loans, and held them on its own books. When enough mortgages were delinquent (as in 1934), then the "savings and loan" had little cash available with which to pay out depositors, who had put their savings (no checking, sorry) into the S&L. (If the mortgages were not paid regularly, there was no incoming cash to the S&L). S&L's failed; depositors (who were the shareholders in those institutions) 'lost' their money until the mortgages could be brought up to date, either by foreclosure sale or by the mortgagee. The terms were different, too: is important to note that mortgages were very different in the Depression era. It was typical for a buyer to put 50% down, and obtain a short duration loan (like 5 years) with a balloon payment
If you lost your home, you lost a LOT of money.
S&L's did not write commercial loans, nor personal loans, nor car-loans; those loans were made by banks. There was no such thing as a "mortgage broker" who sold mortgages to large-scale underwriters--because there were no large-scale underwriters. The S&L's lived (and died) on mortgage payments only. (Banks did write some mortgages, but not many.)
And there were no "monthly payments" (see above). People paid in lumps, paying interest on the outstanding balance and some of the principal, usually once or twice a year. Taxes were not accrued--they were paid separately, once a year, all at once (which is one reason that taxes were relatively low.)
In some cases, the S&L was organized and run by real-estate developers. The developer would organize a S&L, collect deposits, purchase raw land, build homes, and sell the houses and lots to people who would borrow the mortgage-money from the developer's own S&L. When things got bad, the developer would lose, too--generally, all the remaining raw land and the un-sold houses (if any.) I know of one developer who lost it all; he owned the land between (roughly) Burleigh and Keefe, from 51st to 60th, and had begun selling parcels when the Depression hit.
He wound up selling candy door-to-door from a pushcart.
So, until you see residential-real-estate developers selling candy and apples from a push-cart, we don't have a Depression.

1 comment:

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