- The Washington Times - Friday, June 13, 2008

There’s so much news to report that affects mortgages and the housing market that I’m finding it difficult to keep up.

Here’s the latest: The Mortgage Banker’s Association recently reported that almost 1 percent of all loans outstanding fell into foreclosure during the first three months of 2008.

This surpasses the previous high of .83 percent during the last three months of 2007. It is also the highest foreclosure rate since the start of the record keeping in 1979.

Other data, however, isn’t as alarming. In fact, it’s not surprising.

Let’s take a look at mortgage loans that are currently delinquent 90 days or more.

A little more than 1 percent of conventional “prime” fixed-rate mortgages fall into this category. For folks who had good credit and a reasonable down payment, 1 out of 100 is 90 days late. This statistic doesn’t sound alarming to me.

Now let’s look at mortgage holders who took out subprime adjustable-rate mortgages. The MBA reports that nearly 25 percent of these loans are 90 days or more delinquent.

Now that’s an alarming number. My question is this: Alarming as it may be, why do some folks read this number and let out a gasp of surprise? This goes back to why I, as a career mortgage banker, never engaged in subprime lending.

Those who took out subprime ARMs all share one or more of the same traits:

* A spotty credit history

* Little or no down payment

* A desire for a low initial interest rate to borrow more than they could intrinsically afford.

Add hefty prepayment penalties and high interest rate resets to the recipe, and it should surprise no one that 25 percent of these mortgage holders are going belly up.

The good news is that the subprime mortgage segment makes up only 10 to 13 percent of all loans. This number will decline now that subprime mortgages are now virtually nonexistent.

Meanwhile, the Labor Department recently reported that unemployment jumped by .5 percent, to 5.50 percent, surprising most analysts and underscoring the notion that the economy is headed for a recession, if it’s not already there.

While this news doesn’t bode well, it should ease pressure on interest rates. A slowing economy usually means that inflation is in check. When inflation is controlled, interest rates tend to stay low.

This brings me back to a column I wrote a couple of weeks ago about the new conforming loan limits offered by mortgage giants Fannie Mae and the Federal Home Loan Mortgage Corp. (Freddie Mac). I received a ton of e-mails from homeowners with jumbo mortgages with low initial interest rates due to adjust.

My advice stands. There is too much uncertainty to speculate on the movement of interest rates. If you plan on being in your home for a long time, give up that teaser rate and take one of these so-called “agency jumbo” fixed-rate mortgages while they’re still available. Congress closes the window Dec. 31.

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