By Paul Jackson on the Housing Wire:
Think of those highway pileups, where one car stops and 50 more cars behind it run into each other — that’s pretty much what appears to be taking place in the nation’s mortgage market, thanks to a growing trend towards foreclosure moratoria that have slowed foreclosure roll rates. New data released Friday morning by Clayton Holdings, Inc. highlights just how much of a pileup is really taking place across both Alt-A and subprime loan products.
The company’s monthly InFront report provides an early look at loan-level surveillance on pools monitored by the firm, well ahead of monthly remittance reports provided by most servicers; the current report looks at November data. In a nutshell, what the data shows is this: increasing 60+ day delinquencies, slowing prepayments, increasing rolls except for foreclosures, and decreasing cure rates (see below for a definition of "rolls"). And that’s essentially across all vintages. For subprime, and for Alt-A.
Among subprime first liens, the 2006 and 2007 vintages clearly remain the most problematic: 60+ day delinquencies rose 4.16 percent and 6.41 percent from month-ago totals, respectively, Clayton reported. More than 43 percent of the 2006 subprime vintage is now severely delinquent. Cure rates fell a whopping 17.54 percent and 11.40 percent, respectively, for the two vintages as well — throwing at least some cold water on the idea that putting a halt to foreclosures would bring about greater resolutions for troubled borrowers.
It’s pretty much the same story in recent Alt-A vintages, as well: 29.71 percent and 27.21 percent of the 2006 and 2007 vintages are 60+ days delinquent, well above October’s totals. Likewise cure rates tanked, falling 13.74 percent and 12.29 percent respectively.
Despite growing delinquencies, foreclosure roll rates dropped sharply — subprime foreclosure rolls fell to their lowest level this year in November, reaching just 5.40 percent. That’s the lowest foreclosure roll since June 2007. Despite this, aggregate rolls across all statuses reached 8.45 percent, Clayton reported — the highest total roll rate at least as far back as Dec. 2006. Likewise, Alt-A loans saw rolls hit a two-year high in November, while foreclosure rolls hit their lowest level since May of 2007.
Add in the slowing prepayments — meaning fewer borrowers are able to refinance their way out of an existing mortgage — and dropping cure rates, and what do you have? In our opinion, you’re looking at the definition of a foreclosure surge to start Q1 of next year. And, given a looming set of Alt-A recasts and resets in the middle to back half of next year, you have to wonder just how many economists are factoring this into their forecasts of the length and severity of the current recession.
To learn more about InFront, visit http://www.clayton.com.
About roll rates:“Rolls,” BTW, refer to roll rates, which assess the percentage of loans that worsened in delinquency status; rolls can be calculated in the aggregate or for any group of loans moving from one status to the next. Because vintage pools are static and tend to prepay over time, decreasing the number of loans in the pool, it’s usually the case that delinquencies will go up as a vintage seasons, regardless of the relative performance of the vintage itself — borrowers who can revintage usually do, while those who cannot don’t, leaving the riskier loans behind in any given vintage. Roll rate analysis is one way to get around this artifact in most data.