Journey to Reality Begins: Second Quarter Mortgages, HELOCs, Delinquencies and Foreclosures

Tolerance and pandemic cash run out. But we all had a great time.

Written by Wolf Richter for WOLF STREET.

Mortgage balances surged 9% year-on-year in the second quarter as prices surged year-on-year. Meanwhile, people bought far fewer homes. Sales of existing homes fell 10% from the second quarter of last year, while sales of new single-family homes fell. He plummeted 19% over the same period.

Mortgage balances have surged steadily since the end of the housing recession in 2012. Over the last decade, mortgage balances have surged by $4.6 trillion, and over the past three years, mortgage balances have grown by $2.0 trillion, or 21%, to $11.4 trillion. Data from the New York Fed’s Household Debt and Credit Report.

HELOCs end a long decline.

Home equity lines of credit have fallen out of favor since 2009, with balances steadily declining, unwinding the massive surge of the years before the financial crisis. With the Federal Reserve’s rate controls and QE pushing down mortgage rates and home prices rising, people started refinancing their mortgages to generate cash instead of taking advantage of his HELOC.

But now the decline is over. HELOC’s balance rose from last quarter’s low to $319 billion in the second quarter. This came as mortgage rates surged and cash-out refinancing plummeted.

Mortgage Interest Rates Are Much Higher: Refinancing a 3% mortgage for a 5% mortgage to get $100,000 of cash out of your house is ridiculous. I recommend getting her a HELOC of $100,000 where he charges 5% if there is an outstanding balance while leaving the 3% mortgage. Therefore, we expect HELOC balances to grow further in the future as the cashout refi game has changed.

Mortgages represent the largest portion of ever-larger consumer debt.

nothing comes close. Second Quarter Consumer Debt Outstanding:

  1. Mortgages: $11.4 trillion
  2. Student loans: $1.6 trillion
  3. Auto loans: $1.5 trillion
  4. Credit cards: $890 billion
  5. “Other” (personal loans, etc.): $470 billion
  6. HELOC: $320 billion.

Mortgages are where the big systemic risk is Previously This is because the market size is large and the leverage is high.

However, US commercial banks currently only have about $2.4 trillion of mortgages, including HELOCs, on their balance sheets spread across 4,300 commercial banks. Thousands of credit unions and other lenders also have some mortgages on their balance sheets.

However, most mortgages are now securitized into mortgage-backed securities. MBS falls into two categories of his:

  • Most are government-sponsored MBS. Taxpayers are at stake here, not investors or lenders.
  • Some MBS are “private label” and not backed by any government agency. They are held by global bond funds, pension funds, insurance companies and others.

Delinquency begins the journey into reality. We all had a blast.

Under the pandemic-era moratorium program, homeowners who were late in making mortgage payments or stopped making mortgage payments altogether and then entered the moratorium program were reclassified as “current” instead of delinquent. rice field. They didn’t have to make mortgage payments and could use the cash saved from the mortgage arrears on other things. Ultimately, you will need to make a deal with your lender to end the payment deferral program.

The surge in home prices since spring 2020 has allowed homeowners to sell their homes, pay off their mortgages, and have some extra cash as they exit the mortgage forbearance program. . Or make deals with lenders, such as long-term, low-interest, low-payment modified mortgages. And we all had a lot of fun.

But with the end of the tolerance program, mortgage delinquency rates have started to rise from last year’s record lows.

Mortgage balance Mortgage balances 30 days or more past due increased from 1.7% in Q1 to 1.9% in Q2. This is his third consecutive quarter of increase from a record low in Q2 2021. However, it is below all pre-pandemic lows (red line).

HELOC Balances HELOC balances that were 30 days or more past due increased for the fourth consecutive quarter after a record low in Q2 2021, rising to 2.3% of total HELOC balances. These are now higher than before the housing bust (green). line).

HELOC delinquencies in the second quarter surpassed mortgage delinquencies for the first time. hmm.

Foreclosures have risen, but are still near record lows.

The number of consumers in foreclosures rose to 35,120 borrowers from 24,240 in the first quarter, up from a record low range of 8,100 to 9,600 last year.

Foreclosures are well below their pre-pandemic record lows. There were 148,780 foreclosures at the lowest point of the second quarter of 2005, the best-of-time just before the home collapses began. 4 times or more as much as now.

By comparison, over the three-year period from 2008 to 2011, the peak of the mortgage crisis, more than 400,000 consumers were seized each quarter, including a peak of 566,180 in Q2 2009.

About 150,000 consumers were seized in the best time before the house collapse. About 75,000 consumers were seized each quarter during the pre-pandemic boom. This 75,000 to 150,000 foreclosure range could represent something like the Good Times Normal (blue box) of old, but we’re not there yet.

Home prices and foreclosures.

Unless home prices plummet, foreclosures won’t spike. Two years ago he said that if a homeowner who bought a house for $400,000 got into trouble and the house price went up 25% to $500,000, they would sell the house, pay off the mortgage, You can pay your bills and walk away. with extra cash. And no foreclosure.

If the price of that house ends up dropping 25% to $375,000 and the borrower owes $390,000 on the mortgage, the exit becomes increasingly difficult.

If the price plunges 40% to $300,000, the easy exit will be closed. That’s when foreclosures started to occur in large numbers, especially when accompanied by a massive surge in unemployment, which is what happened during the mortgage crisis. Hmm.

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