Looking for more good economic news? I see USA Today is ready to declare that the worst of the foreclosure crisis is behind us. But somehow, while some recent data may be pointing that way, this story seems to be getting a bit ahead of itself.
It’s worth taking a close look because, these days, news outlets may be feeling pressure to be the first to call the end of the bad housing news. Our advice: don’t bother. Better to look broadly, at a lot of data, not just a single stat, and go with that.
Here’s the USA Today lede, emphasis mine:
The share of homeowners behind on their mortgages fell in the first quarter, the first drop in four years and a possible sign that the foreclosure crisis has peaked.
But most of the supporting details in Wednesday’s story are about delinquencies, not foreclosures. I get that they’re connected, and common sense says that fewer delinquencies now means we’re going to see fewer foreclosures later. But they’re not the same thing, and the distinction remains blurry throughout the USA Today piece.
The portion of mortgages that were delinquent 30 days or more fell to 6.57% in the first quarter from 6.60% in the last three months of 2009, according to Equifax and Moody’s Economy.com.
That seems like a teeny tiny change. But Mark Zandi knows his stuff, and he sees it as significant. But he also seems to be telling USA Today that the delinquency stat doesn’t quite prove that the foreclosure crisis has peaked… At best, it signals that it might soon:
“It will take years to work through all the troubled mortgage loans in the foreclosure pipeline, but this is the first indication that the number of loans entering the pipeline is declining,” says Mark Zandi, chief economist for Moody’s Economy.com. “It portends a peaking of the foreclosure crisis.”
Ahh. “Portends a peaking…” That’s more like it.
But the story doesn’t seem to be listening to its own expert source. Instead, it goes on to list some “reasons for the improvement in the foreclosure rate.” Trouble is, there really hasn’t been an improvement yet.
Indeed, in a plot twist sure to confuse most readers, the same piece then goes on to contradict itself, warning that we should expect lots more foreclosures.
In the past two years, more than 5 million homes have received foreclosure notices, and more than 3 million are expected to get them this year, according to RealtyTrac.
There’s not much math to check there, but 5 million notices over two years vs. 3 million this year? That sounds like it’s getting worse
Indeed, that’s what RealtyTrac reported Thursday, that the foreclosure rate had surged, with its biggest jump in five years. Here’s the AP take:
A record number of U.S. homes were lost to foreclosure in the first three months of this year, a sign banks are starting to wade through the backlog of troubled home loans at a faster pace, according to a new report.
RealtyTrac Inc. said Thursday that the number of U.S. homes taken over by banks jumped 35 percent in the first quarter from a year ago. In addition, households facing foreclosure grew 16 percent in the same period and 7 percent from the last three months of 2009.
I guess that’s what Zandi was telling USA Today.
“There is still a foreclosure problem that is going to cause people to lose their homes, but in terms of new delinquencies starting, those are probably at their peak,” Zandi says. “This summer will be the peak of foreclosures started.”
Right. So what about the peak up in that first graf? Somehow, in an effort to call some kind of bottom (or top?), USA Today doesn’t do near enough to give readers a full—or clear—picture of the situation.
(For another media miss on the mortgage beat, check out Ryan’s post, about Bank of America’s new support for cramdown.)
As the AP shows, there are a lot of moving parts to this one.
Foreclosures began to ease last year as banks came under pressure from the Obama administration to modify home loans for troubled borrowers. In addition, some states enacted foreclosure moratoriums in hopes of giving homeowners behind in payments time to catch up. And in many cases, banks have had trouble coping with how to handle the glut of problem loans.
These factors have helped slow the pace of foreclosures, but now that trend appears to be reversing.
Thanks for the context.
The New York Times also looked at the mortgage story, and saw a glass that is half empty, at best.
Check out this gloomy lede:
The number of homeowners who defaulted on their mortgages even after securing cheaper terms through the government’s modification program nearly doubled in March, continuing a trend that could undermine the entire program.
Those details come from data released by the Treasury Department and the Department of Housing and Urban Development. And the numbers are small: “2,879 modified loans had been ended since the program’s inception in the fall, up from 1,499 in February and 1,005 in January,” the Times said.
The Treasury Department said it could not explain the growing number of what it called cancellations, almost all of which were apparently prompted by the borrower’s being unable to make the new payment. A scant number — 37 — were because the loan had been paid off, presumably because the borrower sold the house.
The Times spoke with Shaun Donovan, the HUD secretary, who downplayed the defaults—“One percent of these loans defaulting is a tiny fraction”—and pointed instead to a quickening pace of modifications: “The number of active permanent modifications in March was 227,922, an increase of 35 percent from those in February. An additional 108,212 permanent modifications are awaiting borrower approval.”
But Times readers were also pointed to a report from the Congressional Oversight Panel, which complained that, despite the modification program’s goal of helping as many as 4 million households, “only some of these offers will result in temporary modifications, and only some of those modifications will convert to final, five-year status.”
There’s more worry from Julia R. Gordon at the Center for Responsible Lending, who expects “the number of post-modification defaults to continue to rise.”
“It’s definitely alarming to look at those statistics,” she said. “The current model for modifications doesn’t necessarily produce sustainable results.”
Calculated Risk provides some more good context to the situation, including data that show those with permanent mods had a median “back-end debt-to-income ratio” of 77.5% before their modifications. That’s the ratio of their total monthly debt payments (mortgage principal and interest, taxes, insurance, plus car payments, alimony, and other stuff) to monthly gross income, and it goes down to 61.3% after the mods. “Just imagine the characteristics of the borrowers who can’t be converted!”
The site also highlights HAMP data that show the pace of new trial modifications slowing sharply, from more than 150,000 in September to around 57,000 last month. “This is slowest pace since May 2009 and is probably because of two factors: 1) servicers are now pre-qualifying borrowers, and 2) servicers are running out of eligible borrowers.”
That doesn’t sound good. As Calculated Risk puts it,
In summary: 1) the program is slowing, 2) the borrowers DTI characteristics are poor - and getting worse, and 3) the re-default rate is rising. Oh, and 4) there are a large number of borrowers in modification limbo.
Not good either. And not good for readers of USA Today just to focus on that sliver of delinquency news.