After the subprime mortgage market collapsed, we get fourth quarter data showing — surprise — delinquencies up. Prime mortgage delinquency rose, but just a tad: from 2.44% to 2.57% of mortgages. That includes mortgages less than 30 days past due, which are nearly 3/4 of the prime delinquencies. The big gain was in subprime, with delinquency rate rising (from 3rd quarter to 4th) from 12.56^ to 13.33%. In this group, the less-than-30 late is only 56% of the total. The real danger is the high portion in foreclosure.
What’s it mean? The good spin is that delinquency rates are LESS THAN they were in 2002, coming out of the last recession. However, we’re not in a recession now, so that’s perhaps an unfair comparison. Hurricane Katrina is part of the story. Louisiana and Mississippi are the two worst states for delinquencies. Surprisingly, the hottest markets have the coolest delinquency rates, so California, Florida and Nevada look OK. The industrial Midwest is in trouble, thanks to their weak economy. So it’s not just about bad underwriting; it’s also about regional recession. Calculated Risk has further details.
Business Strategy Implications: I don’t expect any systemic fallout. That is, don’t expect major banks or investment houses to collapse. But look for softer demand for single family homes, and higher demand for rentals, as more subprime borrowers give up their homes and move back into apartments.