Non Paying Mortgages.

We have seen a striking turn in the housing market over the last year. Sales have increased, prices have mostly stabalized, and pundits everywhere are calling the bottom in the housing market. In tandem, we have seen a remarkable 70% increase int he DOW, and job losses have stopped. So Is this the end? Should you rush out and buy a home now, before the recovery takes off?

I’m going to analyze piece by piece some of the data that isn’t making into the news, and give you my analysis of where we are. If you find this information valuable, remember me when it is time to contact a real estate sales agent!


For the housing crisis to be over, we need to see a drop in foreclosures. Before a home goes into foreclosure, an owner quits paying the mortgage. Here in Arizona, an owner has to be 90 days late on his/her mortgage before a lender can file an NTR (notice of trustee sale), and this must precede the actual sale by another 90 days. However, in actual practice many lenders seem to be taking longer to actually foreclose MUCH longer! I have several acquaintances  who have not made a single payment on their mortgages for over a year, and are still happily living in their homes. One is now past 18  months, and hasn’t even had an NTR filed. He isn’t even counted in any of the graphs above, another has had various NTR’s filed, canceled and refiled again. Last week, the AZ republic ran a story on an owner being sued by his HOA on a home he had abandoned two years ago before filing bankruptcy. Seems that with two years of no payments, and no communication, Bank of America hadn’t bothered to start a foreclosure yet! So, we have some evidence that the usual 6 months time lag between the first missed payment and the foreclosure is no longer a certain thing. In fact, nationally, banks are now taking an average of two years to even file a foreclosure, and another year to finish one!

Meanwhile, the percent of loans in a non paying status is going straight up. It seems reasonable that the foreclosure peak should follow the delinquency peak by some six months to a year or more later. Examine the three graphs at the top of this post:

1. Seriously delinquent and in foreclosure mortgages have grown by more than 50% from 1/1/2009 to 1/1/2010. Yet, we have not seen a noticeable increase in actual foreclosures.  This is mostly due to loans in attempted modifications, and the lengthening amount of time it takes banks to foreclose. However, a foreclosure delayed is still a distressed home coming to the market eventually.

2. The same states that have been having so much trouble, the “sand states” (Arizona, California, Nevada, and Florida) are showing the most extreme loan delinquencies. at 15% of all loan! These are the very states where many are claiming “the bottom is in.” It is very hard to believe this crisis is over when literally 1 out of every 7 homes has an owner not paying its mortgage.

3. In the last graph, notice which types of loans are seeing the fastest increases: Prime loans. Though the rate is lower than sub-prime loan delinquency rates there are roughly 10 times as many prime loans in existence. Better locations, with less sub prime owners are just starting to join the foreclosure party.

Sustainable demand: My next post will examine the nature of our current buying, to see if this is sustainable organic demand which can buoy the housing market through the continuing foreclosure crisis or not.


About robertoaribas

Math professor, Realtor. 12 years of buying, selling, investing and managing rental properties. rock-climbing and salsa dancing.
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2 Responses to Non Paying Mortgages.

  1. Paul Bhola says:

    I think you are right. Fundamentals of Economics. Price driven by supply and demand. Supply and demand of affordability. People need jobs that make $ or the plan will fail….in the next few years at least. Last time I checked people weren’t paying me to take a good deal. But the govt is. So anyhow. Read your blog and notes on I been an agent for 10 + years and am out of the market till there’s a reality check.

  2. Nancy Laney says:

    First let me say I am following you from zillow. I have been watching the housing and stock market for the past few years now. I just can’t understand the fundumbmentals of either one…….Thank-you for your insight. I look forward to reading your blog, and will be forwarding it to friends…Still happy renter….

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