For investors looking for a bottom in the troubled housing market, one nascent but significant sign emerged last month: Subprime-mortgage delinquencies dropped for the first time in almost four years.
The share of subprime loans that were at least 60 days past due or in foreclosure fell to 46.3% in March from 46.9% a month earlier, according to Fitch Ratings, which studied the value of loans packaged into securities.
The decline is effectively a rounding error and pales in comparison to the steady increase in delinquencies from their low of 6.2% in 2006. But subprime borrowers were the first to buckle under the weight of their debt—triggering what quickly became a global financial crisis—and an improvement in the sector could be seen as a notable marker in the recovery.
The decline comes amid other signs credit conditions are improving. On Tuesday, J.P. Morgan Chase & Co. reported net income jumped as delinquencies declined and the provision for credit losses fell.
Across the economy, the portion of consumer loans that were at least 60 days past due fell to 3.59% on a seasonally adjusted basis at the end of March, from 3.73% at the end of December, according to Equifax Inc. and Moody's Economy.com. It was the second consecutive decline in delinquencies for mortgages, home-equity loans, credit cards and other types of consumer debt. "Credit quality is improving pretty dramatically across the board," says Mark Zandi, chief economist of Moody's Economy.com.
Some analysts say it is too early to call a turn in the subprime market, noting the portion of troubled loans tends to fall in March and April as borrowers receive tax refunds. "We may be nearing the top, but it's difficult to say whether the seasonal factor is artificially" reducing delinquencies, says Vincent Barberio, a managing director at Fitch. Even if troubled loans are leveling off, the news is hardly heartwarming. In the worst-performing subprime securities, more than 70% of the loans are delinquent, Fitch said.
"The default rates would still have to drop by fifty-plus percent to just get back to an acceptable performance range," says Ted Jadlos, president of LPS Applied Analytics, which tracks loan performance.
There is still plenty of new pain in the mortgage sector. Some 1.14 million loans that started the year current were at least 30 days past due in February, according to LPS, as delinquency rates continued to climb for mortgages made to borrowers with good credit. "You still have seven million loans in some form of delinquency, many of which are not subprime," said Walt Schmidt, mortgage strategist at FTN Financial. More than 3.6 million homes will be lost from 2010 to 2012 because borrowers can't make their loan payments, according to Moody's Economy.com.
While troubled subprime loans played a key role in the credit crisis, the sector's importance to the $10.8 trillion U.S. mortgage market has been waning.
Just $422 billion of the $1.3 trillion in subprime loans packaged into securities from 2004 to 2007 were still outstanding as of March, according to mortgage-bond trader Amherst Securities Group LP. Refinancings reduced the amount outstanding by $670 billion, according to Amherst, while $250 billion in mortgages were liquidated. The issuance of bonds backed by new subprime loans ground to a halt in 2007.
Write to Ruth Simon at ruth.simon@wsj.com
No comments:
Post a Comment