Prime Foreclosures Now Greater Than Subprime

"Prime looks terrible." Those were the words of Jamie Dimon, CEO of JPMorgan Chase (JPM) when he had his earnings call for Q2. And, indeed, prime is terrible.

New data out from Hope Now shows that there are now more prime mortgage delinquencies in the United States than there are subprime delinquencies. This is almost certain to mean some major losses on mortgage-related securities like CDOs and RMBSs.

If you enlarge the image above, you will clearly see that prime mortgage delinquencies of 60 days or more have been trending up so quickly that they now represent more than subprime with 1,009,000 prime delinquencies versus 901,000 subprime delinquencies.

Housing Wire also uses the Hope Now data to show that there are now more prime foreclosures than subprime foreclosures as well.

HOPE NOW’s monthly data shows that during July, foreclosures were initiated on 105,000 prime borrowers and 92,000 subprime borrowers. Prime foreclosure starts in July were well more than double the 51,000 recorded one year earlier, and up almost 10 percent from June; in comparison, subprime foreclosure starts in July were up 22 percent from one ago, and up 10 percent month-over-month as well.

This is yet more evidence that we are far from done with banking industry losses and writedowns in the United States. Get ready for Q3.

Sources

• July 2008 Industry Extrapolations, Hope Now
• Prime Foreclosure Starts Surge Past Subprime in July, Housing Wire

Disclosure: I have no equity, debt or derivative positions in JPM.

Comments

[fatcat:]

Thank you Mr.Harrison,everyone wants to refer to subprime...just wait until commercial come to the front!

2008 Aug 31 06:11 AM

[WindMillMarvin:]

As the Democratic Convention wraps up and the hoopla of the Republican Convention heats up Americans are still left with a sense of a lot of hot air of any concrete plans to end the energy crisis in America. Northerners dread the upcoming onset of fall and colder weather wondering how they will be able to afford how to keep their homes and families warm. Southerners have been sweating the high cost of energy raising the thermostat to save on their electric bills. Families everywhere are wondering where else they can cut back to cover the cost of fueling up the family vehicle to get back and forth to work and take care of the necessities of life. There is no money left for relaxation and family fun. The stress level continues to rise. The average electric bill has risen 16% to cover the power companies additional production costs. A gallon of milk is almost as precious as a gallon of gas. The cost of every consumer product has risen sharply. American's are stretched to the limit. Jobs are being lost, foreclosures are increasing at an alarming rate. Seems even the family pets are suffering the high cost of fuel as almost daily a new story is on TV about shelters being forced to euthanize record number of surrendered pets from those forced out of their homes or no longer able to care for them. The energy crisis in our country is far reaching and needs immediate attention. I am hoping whoever gets elected will get their act together and make this their #1 priority.


themanhattanprojectof2...

howmuchenergydoesmycar...

2008 Aug 31 08:06 AM

[NEH:]

Is part of this so-called "rise" in prime delinquencies really due to the expanded resources made available to sub-prime borrowers? Putting the question another way, are "prime" borrowers eligible for the same protections and work-outs that have been created specifically for the sub-prime sector? Has the sub-prime rise softened at the expense of the prime sector?

2008 Aug 31 08:43 AM

[Pj568:]

The label between prime and subprime is so greatly blurred that it really doesn't mean much. Both contain option arm, stated income and other exotic creations. What would be revealing, although we'll never see it, is the default rate rate for 30 year fixed versus the other categories.

2008 Aug 31 09:02 AM

[rm:]

[Putting the question another way, are "prime" borrowers eligible for the same protections and work-outs that have been created specifically for the sub-prime sector?]

Aside from the FHA Secure program, which was specifically designed to get people out of their ARM's, most of the changes in the industry have been product-neutral.

It doesn't matter what type of loan you have.

2008 Aug 31 09:48 AM

[Tim Plaehn:]

Since the pool of prime mortgages is much larger than the subprime the "number" does not mean much. Take a look at the chart above:
2.1% of prime loans 60+ days behind up less than 1% from July 2007 while 13.8% of subprime loans are delinquent compared to 10% one year ago. Does not look like a "crisis" in prime loans to me.

2008 Aug 31 11:52 AM

[ggbbppl:]

let do the numbers what happento the 300,000,000,000 that the government said it will help the homeowner.

2008 Aug 31 12:17 PM

[DownOnMyLuck:]

It's not the type of loan the makes it prime of sub-prime, it's the charactristics of the borrower. It should be called prime borrowers or sub-prime borrowers.

2008 Aug 31 12:22 PM

[LoadedBanker:]

It's not that complicated. Subprime was the first to work through the system, and is the first to flatten out. Home equity and Alt A were next, and the curve is flattening at many banks as well. Prime will run a bit longer, then flatten as well. The only question is whether or not any particular bank has reserved enough to pay the bill, and/or has the earnings power to do so going forward. Fannie and Freddie? Well, they're SOL, but that's another topic.

2008 Aug 31 12:59 PM

[RickB:]

misleading article - look at the %, not the total #

2008 Aug 31 01:28 PM

[Muzie:]

Rick B: I think you're missing the point. Higher absolute numbers create higher absolute losses. The rate of change on the primes is also much, much larger on the primes thn the subprimes.

2008 Aug 31 03:25 PM

[Chucko:]

Rick B - you got it exactly right: "misleading article - look at the %, not the total #"

Short and sweet, too.

2008 Aug 31 03:51 PM

[AvlGuy:]

If the issue is stated as, “Is the impact of distressed mortgages on credit and banking rising, declining or dawdling along the bottom?”, then Harrison's blog and Muzie's and others' comments above are on mark.
But many questioners are uninformed on the absolute numbers and dollars involved in prime and alt-mortgages, as well as the trend in prime. This is the case w/general news media journalists and their non-finance-savvy readership. Thus even today, they still mistakenly phrase the question exclusively around sub-prime. That ignorance allows for this response that is true yet deceptive: “No, the sub-prime problem is not expanding as fast as before and may be trending down”.

Let's tweak the original question beyond stress to just banking and the credit industry, and ask what most local elected officials and homeowners (voters) are now asking: “What's happening to my community? How is the overall financial stress trending with regards to delinquencies, foreclosures, REOs and likely vacant properties?”
To honestly answer their question, the response has to be expanded to include the direction and absolute numbers and dollars in distressed prime and alt-mortgages, as well as sub-prime. Deceitful replies, as well as misguided replies from folks lacking the spine to face the truth on current trends, could again focus only on subprime trends.
If we choose to keep tailoring the wording of questions to purposely yield falsely comforting answers, we can even ask: “Are a large % of prime loans distressed?” And we will get the falsely comforting yet ‘accurate’ answer of “No, the majority of prime loans are not distressed” with deceitful omission of what the trend is in prime delinquency and foreclosures.
A worthless Q and A, but a factually correct one as trumpeted by some reader comments above.
We are not a nation of children, we don’t need to exercise ‘Lies of Omissions’ in the lame name of ‘not scaring the adults and talking ourselves into a recession.’
We need an online, print and TV news culture that possesses cojones and backbone, and less of a need to Go Along to Get Along.
That said, I wish the blogger, Harrison, had indeed used 90-day delinquency data rather than 60-days which may be over-stating the problem in each of the snapshots provided in the table.

2008 Aug 31 08:10 PM

[Tom Lindmark:]

This is a great example of what happens when you rely on someone else's work and don't do your own analysis.
First, if you go to Hope Now's web site you will see that the subprime foreclosures are still higher than prime foreclosures. Here is the link www.hopenow.com/upload.... I don't know if Housing Wire is using some other table but this is the link that they cited on their website.
Second, by using absolute numbers instead of percentages, the author created a misleading impression of the trends in 60+day delinquencies. In percentage terms, prime mortgage delinquencies are up 93 basis points over the past year. Subprime delinquencies are up 338 basis points. A little different story. Given the relatively much larger pool of prime loans versus subprime loans, the use of absolute numbers is meaningless.
Third, the definition of prime loans is missing. Since the tables do not contain any definition, I am tempted to assume that they include Option ARMs and Alt-A loans. If that is the case then the numbers really don't tell you much at all.
Here is a link to an article I wrote with a further link to a good analysis of the latest Moody's numbers. It's more to the point. blog.metro-real-estate...

2008 Aug 31 08:19 PM

[pepe:]

We can look at the percentages and/or the total numbers; neither one brightens the actual picture. The large majority of lenders will survive and a large majority of default borrowers will not. You can put lipstick, earrings, and a low cut blouse on this pig, and it's still a pig.

2008 Aug 31 08:35 PM

[Ishortyou:]

like anything else its correcting itself it will take time.

2008 Sep 01 11:08 AM

[Ishortyou:]

the other problem is that a lot of prime backed securities were rated triple A by Moody's, so everyone jump on them thinking that they were low risk, but now they realized that these triple As are JUNK, so dont be surprise when you see a lot of these securities go into stress.

2008 Sep 01 11:10 AM

[AvlGuy:]

Lindmark's perspective is another example of tweaking the questions/issues and inter-changing words so as to allow for Omissions of Data labeled as 'discomforting'. The blog did NOT say that prime FORECLOSURES are now higher than sub-prime's, he expressly wrote that prime 60-DAY DELINQUENCIES are now higher than subprime's.
Many Wall Street Pig "lip stickers" know that casual readers mistakenly inter-change the 3 words, foreclosure, defaults, and delinquencies. The pig men play the word-game switcheroo in blogdom frequently to make sectors look better.


Beyond that, the absolute numbers definitely matter when assessing both the impact of delinquencies on families and foreclosures on communities, as well as the direction of the trend. An increase in absolute numbers in a big pool or a small pool is still an upward trend.
I downloaded the HopeNow July Press Release and Data Table (a pdf) b4 posting my previous reader comment. Here's the direct link.
www.hopenow.com/upload...

Go to page 4 of the pdf; top table titled "Borrower Loan Workout Plans"; the 5th column titled, ".2008 July", and it states that there were 57,822 Prime Repayment plans executed v. 54,171 SubPrime Repayment plans.

It also shows that in addition to repayment plans, there are modifications, where more work has been done by their staff on sub-prime than prime loans. There are also their definition of terms and plans.

2008 Sep 01 01:37 PM

[Tom Lindmark:]

AvlGuy,
Read the article. He says specifically "more prime foreclosures than subprime foreclosures as well." It's in the first sentence of the third paragraph.

2008 Sep 01 03:06 PM

[sumosama:]

methinks a refresher in statistics be in order...lies, damn lies, and statistics.

2008 Sep 02 03:08 PM

[jabowery:]

The best fit of quarterly US foreclosure starts since 2007 3rd quarter extrapolated to the 3rd quarter of 2012 shows that the cumulative prime mortgages, not “sub-prime” and not “underwater”, not “delinquent” but foreclosed is nearly 25 million. It is a very good fit (R-squared adjusted: 0.998).

Warren’s findings are definitely part of the theory needed to predict the model but there is something else going on here. I was predicting the centralization of wealth would result in what we are seeing unfold now, but I was doing it in 1992 and didn’t expect there to be 2 bubbles putting off the implosion. What we’re seeing is, I think, a combination of that centralization of wealth (which is a “normal” part of unenlightened statecraft—unlenlighte... exacerbated by social pseudoscience in the 20th century holding economics back as a science—especially in political economics) playing out in some kind of endgame with very pure, noise-free system dynamics exhibited in the prime foreclosure curve. The precise system dynamics of that particular curve are what I find interesting, not the underlying long-term causes which, I believe, are well understood to anyone who hasn’t had their eyes plucked out and frontal lobes scrambled by 20th century social psceudoscience. It is cleaner than I would have anticipated which means there is an undiscovered, simple and elegant theory for the immediate phenomenon.

Figure out what that theory is and you may be able to make a lot of other predictions for the near future.

majorityrights.com/ind.../

Sep 04 04:36 PM