Increasing Delinquency Rates Not All Bad, Chance of Another Recession Is a Coin Toss

U.S. households delinquent on their mortgages rose by 12 basis points in 2Q2011. The chance of another recession is about 50/50, according to Fannie. And the Chicago Fed reported a slight uptick in its economic indicators.

August 23, 2011
By Dees Stribling, Contributing Editor

The Mortgage Bankers Association reported on Monday that the percentage of U.S. households delinquent on their mortgages rose by a slight 12 basis points during the second quarter of 2011 to 8.44 percent compared with the first quarter. Year-over-year, however, the delinquency rate has dropped 141 basis points. The MBA’s definition of delinquency includes borrowers who have missed at least one payment, but whose property isn’t yet in foreclosure.

The MBA-calculated serious delinquency rate, which includes households more than 90 days late or actually in foreclosure proceedings, was 7.85 percent, a decrease of 25 basis points from the first quarter of 2011, and a decrease of 126 basis points from the second quarter of last year. The combined percentage of loans in foreclosure or at least one payment past due was 12.54 percent, which is a 23- basis point increase from last quarter, but 143 basis points lower than a year ago. The MBA attributes the short-term rise to the softening job market in the spring.

“While overall mortgage delinquencies increased only slightly between the first and second quarters of this year, it is clear that the downward trend we saw through most of 2010 has stopped,” noted Jay Brinkmann, the organization’s chief economist, in a statement. “Mortgage delinquencies are no longer improving and are now showing some signs of worsening. The good news is the continued decline in long-term delinquencies, those mortgages that are three payments or more past due. The bad news is that drop is offset by an increase in newly delinquent loans one payment past due.”

Another Recession: A Coin Toss

Fannie Mae’s Economics & Mortgage Market Analysis Group predicted on Monday that the U.S. economy would grow by only 1.4 percent in 2011 — practically treading water, in other words — compared to 3.1 percent in 2010. The GSE didn’t come out and predict a double-dip recession, but did say that the probability of another recession is “close to a coin toss.”

Among other things, the Fannie Mae pointed out that European financial market and “fiscal policy turmoil,” combined with the agonizing and fundamentally unhealthy debt-ceiling imbroglio in the United States, amounted to a sucker punch to consumer confidence this summer, which is “at recessionary levels.” The organization also cited its recent National Housing Survey, which found that Americans are deeply worried about the housing market, and thus not inclined toward buying houses nearly as much as they were before the Great Recession.

Moreover, according to the report, housing activity is expected to weaken along with the overall economy, with the sole exception of the rental housing market. The U.S. rental vacancy rate plunged from 9.7 percent to 9.2 percent in the second quarter of 2011, the lowest rate in nine years, Fannie Mae noted, a trend that’s consistent with the declining movement in the homeownership rate.

Chicago Fed Economic Activity Index Perks Up

The Chicago Federal Reserve reported on Monday that its index of 85 economic indicators actually improved in July, rising to a minus 0.06 from a minus 0.38 in June. The three-month moving average for the index inched upward as well, to minus 0.29 in July, compared with minus 0.54 in June.

The index’s indicators were nearly evenly split. Some 43 of the 85 indicators made a positive contribution in July, while 42 made a negative one. Since economic activity tends toward trend growth rate over time, a positive index reading corresponds to growth above trend and a negative index reading corresponds to growth below trend.

Wall Street took a pause from panic on Monday, though initial increases were gradually wiped out over the course of the trading day, and the markets ended only slightly positive. The Dow Jones Industrial Average was up 37 points, or 0.34 percent, while the S&P 500 gained a microscopic 0.03 percent and the Nasdaq advanced 0.15 percent.