The millions of troubled U.S. mortgage loans are overshadowing a reduction in delinquency rates, according to Amherst Securities Group analyst Laurie Goodman.
The number of delinquencies, when borrowers miss two mortgage payments for the first time, has decreased each month since March, according to Fannie Mae and Freddie Mac, the mortgage-finance companies under federal conservatorship that own or guarantee more than half of the $11 trillion U.S. home mortgage market. This development provides trading opportunities in mortgage-backed securities, according to the July 30 Amherst Mortgage Insight note.
Still, about one in seven homeowners is missing mortgage payments, and about 7 million loans will default, Goodman said today in a radio interview with Tom Keene on “Bloomberg Surveillance.”
“The housing market is by no means healthy,” Goodman said. “The big problem is you have so many underwater mortgages, and you have so many mortgages that are already delinquent that haven’t been liquidated, which just causes this huge overhang.”
The rate of delinquent mortgages has decreased as lenders modify loans to help borrowers make payments, Goodman said. The number of delinquent loans reported by Fannie Mae stood at 5.15 percent in May and has been declining since a peak of 5.59 percent in February.
In the long run, she said, most of these modifications ultimately fail.
“In order to have a successful modification program, at the end of the day you’re going to have to write down principle,” Goodman said.
U.S. housing prices will remain flat and could fall 5 to 7 percent, depending on how quickly the housing overhang hits the market if the delinquent mortgages default, Goodman said.
Returning to a more stable housing market is going to take “years and years and years,” Goodman said.