So, maybe this doesn’t add anything to what you already know, but it does clarify things, a bit.
Here’s an excerpt from a speech that Treasury Secretary Paulson gave to the US Chamber of Commerce, the other day. I’ve highlighted the parts that I think are important.
Home foreclosures are also a significant issue today. Foreclosures are painful and costly to homeowners and, neighborhoods. They also prolong the housing correction by adding to the inventory of unsold homes. Before quickly reviewing our initiatives to prevent avoidable foreclosures, let me observe that some current headlines make it difficult to put foreclosure rates in perspective. So let me try to do so.
First, 92 percent of all homeowners with mortgages pay that mortgage every month right on time.
Roughly 2 percent of mortgages are in foreclosure.
Even from 2001 to 2005, a time of solid U.S. economic growth and high home price appreciation, foreclosure starts averaged more than 650,000 per year.
Last year there were about 1.5 million foreclosures started and estimates are that foreclosure starts might be as high as 2 million in 2008.
These foreclosures are highly concentrated – subprime mortgages account for 50 percent of foreclosure starts, even though they are only 13 percent of all mortgages outstanding.
Adjustable rate subprime mortgages account for only 6 percent of all mortgages but 40 percent of the foreclosures.
So we are right to focus many of our policies on subprime borrowers.
There are approximately 7 million outstanding subprime mortgage loans.
Available data suggests that 10 percent of subprime borrowers were investors or speculators.
This figure is likely higher, as some investors misrepresented themselves to take advantage of a cheaper rate, and others speculated on a primary residence, expecting prices to continue going up.
Separately, the Office of Thrift Supervision (OTS) reported that 0.65% of “prime” loans were in foreclosure, 3.92% of “Alt-A” loans outstanding were in foreclosure, and 8.99% of “subprime” loans were in foreclosure. The prime loan rate is about what it was in 2001-2002, during the last (ahem, Bush) recession. The Alt-A rate is up from 0.5% during that time, but mostly because these loans weren’t offered, at that time, and/or weren’t popular with borrowers. Suprime loans have increased 300% since 2001-2002.
The only problem with all this good data is that it is incomplete. In order to understand the size of the problem is to know how many loans were originated in each year. What I mean is, in 2001-2002, the number of mortgage loans outstanding was much less than it is today, so 9% of subprime loans being in foreclosure, while obviously a much larger number than before, is smaller, because the entire “pie” has increased by so much.
I read earlier this week that there are 80 million homeowners in the United States. Of those, 55 million have mortgages.
So, if we extrapolate, of those 55 million, 7 million have subprime loans. Of these, 8.99%, or 629,300 are in foreclosure (not sure what they mean by “foreclosure” – thirty, sixty, ninety days behind?). Of these, at least 62,930 are “investors or speculators”, according to Sec’y Paulson. So, 566,370 borrowers with subprime loans are real-life homeowners are in some stage of foreclosure.
I don’t know the breakdown of prime loans to Alt-A loans, so I can’t tell you the actual number of borrowers facing foreclosure, in either of those cases.
** UPDATE: The percentage of all loans outstanding that are considered “Alt-A” loans (which are not as bad as subprime but not as good as “prime” is somewhere between 8-12% of total mortgage loans outstanding. However, it’s not a simple mathematical equation, since the percentage of Alt-A loans going into foreclosure increased each year, 2004, 2005, 2006 … those who got their loans later (less credit-worthy) have had higher rates of default. Still, if we take the 12% number as accurate, then of the 48 million prime and Alt-A loans outstanding, then there are 5,760,000 Alt-A loans, of which 3.92% are in foreclosure, or 225,792 loans. Of the 48 million non-subprime loans, there are 41,760,000 prime loans, of which 0.65% are in foreclosure, or 271,440 loans. So, add those all together, and you get 629,230 plus 225,792 plus 271,440 or 1,126,462 loans, which equals 2.04% of all loans outstanding.
Source: The Wall Street Journal, by way of Matrix quoting the Office of Thrift Supervision