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[jk]

http://www.minyanville.com/articles/index.php?a=12004



1. A Tale of Two Delinquency Rates?
Yesterday we ran into two starkly different views of homeowner mortgage payment stress.

• According to data from Equifax/Moody's published in the Wall Street Journal this morning, the mortgage delinquencies rate in the U.S. rose 0.5% year-over-year to 2.51% in 2006, the highest level in five years.
• That's about in-line with the rather pessimistic view of housing churning just below the surface of the National Association of Realtors spin (See: Existing home sales rose for the second consecutive months - implying that the worst in the
  housing market is likely to have ended.)
• But, what do we make of a separate release yesterday by mortgage purchasing giant Freddie Mac showing single-family delinquency rates have declined year-over-year?
• According to Freddie Mac's December 2006 Monthly Volume Summary, delinquency rates for all single-family loans declined from 0.69% in Dec. 2005 to 0.52% in November.
• So why are we hearing a tale of two mortgage delinquency rates?
• The face-value implication is that perhaps homeowner payment stress is overstated... that is, at least until we get to the footnotes... and until we remember we are, after all, dealing with Freddie Mac.
• Footnote 12: "Excludes mortgage loans whose original contractual terms have been modified under an agreement with the borrower as long as the borrower complies with the modified contractual terms."
• In plain English, that means that if a homeowner is delinquent, or potentially delinquent, on his or her mortgage payment, but the contract is modified at all to avoid delinquency, then it doesn't make the Freddie Mac cut for appearing in the delinquency rate.
• That may not sound like such a big deal until we consider the lengths mortgage companies are going to these days to help bail out borrowers.
• According to the Wall Street Journal, Bank of America is allowing some borrowers with Adjustable Rate Mortgages to refinance into a different loan at no cost.
• As well, other kinds of loan modifications also are becoming more common, such as allowing a troubled borrower to refinance into a less costly loan or even lowering the interest rate on the mortgage for several years to make the payments more affordable.
• Some lenders are even allowing a house to be sold at a loss and then forgiving the remaining debt.
• Banks reaching out earlier to curb foreclosures is a good thing, but that is beside the point.
• The larger point is that housing data is probably not as benign as it may appear, and stress on homeowners may be more widespread than believed.

2. Speaking of Real Estate
MBA Mortgage Applications fell 8.4% for the week of January 19.

• The MBA's seasonally adjusted purchase index fell 8.4% to 402.7 and is sharply below the year-ago level of 473.7.
• As mortgage applications took back some of the 16.6% jump posted for the first week of the new year, borrowing costs on 30-year fixed-rate mortgages averaged 6.22 percent, edging up 0.03 percentage points from the previous week.
• Interest rates remain above year-ago levels of 6.04 percent.
• Year-on-year, purchases remained negative, falling 7%, which continues to point toward weakness in sales in the months ahead.
• Also noteworthy, refinancing applications decreased 9.6 percent, the first decline in four weeks.
• Refis are worth monitoring closely since they have been a primary driver of consumer liquidity.

3. And Speaking of Declining Mortgage Apps...
This morning homebuilder Centex (CTX) said it expects to layoff still more employees.

• Centex (CTX) Chief Executive Tim Eller this morning, during the company's quarterly earnings call, said the homebuilder expects to lay off more employees in the fiscal fourth quarter to rein in costs.
• CTX has already reduced its headcount by 17% since the beginning of its fiscal year, Eller said.
• "We're taking the necessary steps to get our balance sheet and our organization to their fighting weight," he said.
• Are we really sure the worst in housing is behind us?