The Mortgage Insider

Contrary to what some in the press have been hinting at, the subprime crisis is far from hitting bottom. According to a report released on Thursday, Fitch Ratings said that the subprime crunch isn’t over — and is actually gaining speed. Glenn Costello, co-head of the U.S. RMBS group at Fitch, and Grant Bailey, director in RMBS surveillance, both said that home price declines are continuing to create significant problems in the mortgage market.

"Loan modifications have not significantly reduced foreclosure efforts to date,” Costello said.

Housing Wire reported on Thursday:

“Roll rates for 2007 subprime first liens are significantly higher than in previous periods. Roll rates capture the number of loans moving from current to delinquent each month — and the figures show that 2007 loans are rolling into default at a greater than 4 percent rate. Per month. Every month. Consistently. And that only includes originations through the third quarter of last year, to boot. That’s huge, for anyone outside of the industry that hasn’t seen this sort of data before, especially given how new these loans are."

What’s worse is that we’re not just looking at a subprime problem. The annualized default rates for Alt-A mortgages (those mortgages for A credit borrowers that didn’t quite make it into the Fannie Mae portfolio of products) is also accelerating. The book of business from Q3 of 2007 is already above a 10 percent annualized monthly default rate by the end of December, which is truly an astounding figure. The cause is an acceleration in housing price declines that put many borrowers upside down — and, given the incidence of fraud that is starting to come to light,  a whole bunch of borrowers suddenly found themselves unable to refinance their way into another loan as lenders started to tighten their underwriting standards.

If you’ve heard the term jingle mail (as in sending the keys back to the lender in the mail), you’ll begin to understand where it’s coming from. Unfortunately, until we see a bottoming of prices and a return to normal levels of housing inventory, which is still north of 9 months on a national basis, we’ll continue to see this type of pattern.

What has surprised me the most is not that we’re seeing this type of pattern, but that it’s happening so quickly and severely. Don’t be surprised if you see this specific pattern of rising delinquencies persist for another 9 to 12 months. Of course, it will take a lot longer to clear out the supply of foreclosures and finally achieve a bottom. It looks like we’re in for one heck of a bumpy ride.