Housing: Loan Troubles Ahead

Housing loan delinquencies are near their all time highs, an economist told the Wall Street Journal. According to the paper: '"the total mortgage delinquency rate is the highest that it's been since the depths of the [2001] recession," says Mark Zandi, chief economist at Moody's Economy.com. He attributes the increase in part to the weaker housing market and the widespread use of adjustable-rate mortgages, many of which now are resetting at higher rates.'Although the big picture is now all about Iraq and its effect on the upcoming presidential election, the U.S. stock market still has to deal with economic data and the potential effect of the numbers on the Federal Reserve's actions at the end of the month.The thought of a rate cut has almost been erased. Yet, there is always the potential for the central bank to raise rates, although that has diminished over the last few weeks.One of the major reasons for a slowing economy, oil prices, has eased, although that could change, as oil seems to have made some kind of bottom in the last few days.That leaves Wall Street to fret about housing, at least for today, when December existing home sales will be released around 10:00 Eastern time.Expectations are for a decrease in sales of some 0.5%, according to the Wall Street Journal, and there might be a surprise to the down side, if the number of defaulted or in trouble mortgages rises far enough.According to the Journal, the number of delinquent or in trouble mortgages is on the rise, prompting banks to move faster to avoid foreclosures. The problem, as we have noted here several times, is the fact that adjustable rate mortgages are running out and new loans have higher interest rates. That means that monthly payments are on the rise, and homeowners who bought beyond their means are not able to make payments.The Journal added: "The increase in bad loans is broad based, with delinquencies rising in the past year in roughly 80% of the 250 local areas analyzed by Moody's Economy.com. Some of the biggest increases have come in California, where high prices have made it hard to afford a home, and in other once-hot markets such as Las Vegas and Port St. Lucie, Fla. Among the handful of major metropolitan areas where delinquencies have fallen: Salt Lake City, San Antonio and Albuquerque, N.M."Moody's Zandi, told the Journal that things could get worse: "What is more, as demand for loans softened, mortgage lenders loosened their standards and made riskier loans, Mr. Zandi says. He expects that nationwide delinquency rates could rise by as much as a full percentage point from current levels in the next year, but he doesn't expect the trend will have a significant impact on the overall economy."