“Lowest rates of delinquency ever measured”

From Lou Barnes at Inman News.

Too many defaults means that underwriting was too easy… Too few defaults is the signature of too tough… But as you tighten toward no defaults, you reach a diminishing return, turning down acceptable credits in mania for perfection.

Specifics. In normal times 1945-2000, Fannie-style underwriting produced delinquency rates just above 4 percent and foreclosure rates near 0.7 percent. Today the overall U.S. delinquency rate is still 6.25 percent, some 4.5 million loans.

However, new loans made since 2010 have had the lowest rates of delinquency ever measured. One of the best metrics is early default: Performance in the first six months of a new loan reveals underwriting “misses” — those who had dreamed of owning a home but were not ready and quickly were late on a payment.

From a 2007 peak at 0.6 percent of Fannie loans late-paying at six months, now 0.05 percent. Even FHAs, are down to 0.09 percent, from more than 1 percent.

Arizona foreclosures will be BELOW normal sometime this year

I knew the default rate would be super low for mortgages made in 2010, 2011 and 2012 because the lending standards were so incredibly tight and I knew home prices would eventually increase. Those lenders took very little risk in my opinion.

Since 2010, if you bought a home and the next year you lost your job or whatever and you couldn’t make the mortgage payments, you wouldn’t go into foreclosure – that would be crazy – you would just sell the dang house and make money. But, if you remember back then, all the talk was about the mythical “shadow inventory” that was supposed to crush Arizona home prices.

Selling costs are ballpark 7%. Appreciation in metro Phoenix was over 30% in 2012 and over 20% in 2013. So after just one year of home ownership you already had a lot of equity.

Can’t make the payments? No problem. Just sell the house, pay off the loan and the selling costs, then pocket the rest.