Foreclosure Woes
Research for Online Investors

by John Dalt

8/17/10

The Associated Press reported yesterday that home mortgage payments that were 60-days late stood at 6.67% in the second quarter.  This was up from 5.8% a year ago and well above the historical norm of 1.55 to 2.0%.  Record delinquencies were reached in the fourth quarter of 2009 at 6.89%.

TransUnion, the credit reporting agency, uses the 60-day delinquency rate as a warning sign of foreclosure.  FJ Guarrera, TransUnion Vice President Financial Services termed the latest numbers as “signs of recovering in term of delinquency.”

RealtyTrac reported foreclosures were up 6% from last year.  Nevada still leads the nation in foreclosures at 15.86%, up from 13.8% a year ago.  The usual suspects; California, Florida and Arizona also have foreclosure rates above 10%, with North Dakota bringing up the rear at 1.61%.

TransUnion predicts the national delinquency rate will be in the 6.4% range by the end of 2010, which they interpret as a slow recovery.  Georgia has joined the ranks of high foreclosure states with signs of more trouble ahead.

The data shows a stronger correlation between delinquency and falling property values than between delinquency and unemployment.  Guarrera of TransUnion believes   "There is certainly a statistically relevant correlation when we look at unemployment…but home values are a greater driver."

It seems the likelihood of a home going into foreclosure depends on the owner’s perceived equity or ‘skin in the game’ as opposed to ability to pay.  These homeowners may get a surprise if banks come back on them for a “deficiency judgment claim.”

I talked with Gulch subscriber G.L.  He is a retired banker from one of the nation’s largest banks.  He told me to check the facts, but thought deficiency judgments were controlled by state law.  Well G.L., you are right.  30 states allow mortgage holders to sue for recovery of any difference between mortgage balance and the sale of the foreclosed home.  Lenders are also allowed to collect ‘reasonable’ fees.

Most of the big banks probably don’t want the bad publicity of lawsuits against former homeowners, so they will sell these accounts to collection agencies.  Former homeowners with good jobs will be fresh meat for these collectors.

Our best investment advice today, pay your debts.  Don’t sign it if you don’t understand it.  Don’t buy it, if you can’t afford it.

Late news out of China:  They reduced their holdings of U.S. debt by $24 billion in June.

To the mailbag:
I finished reading and digesting MarketToday on TLT.  You gave great points for people to think about. ---paid up subscriber T.M.

John’s reply:  Thanks, I struggle sometimes to bring pertinent information for our subscriber’s benefit.

The market reminds me of the behavior within a dysfunctional family. Every member of the family except the dysfunctional parent or parents, searching for some direction, guidance and calm amid the chaos and anxiety.—paid up subscriber D.F.

John’s reply:  We are seeing the dysfunction today as the market is higher and bond yield is down.  For a funny explanation of investment banks, analysts and the subprime crisis, we have a link in Investor Resources from a couple of years ago.  Scroll down the page and click on Bird and Fortune.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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