November 9, 2011

More Fannie and Freddie Trouble as Loan Delinquencies Show Surprising Rise

House Financial Services Committee to vote on docking pay of GSE execs

Loan delinquencies are on the rise again for the first time since the end of 2009, an ominous sign for a housing market that has yet to gain its footing in a battered economy. News of the 5.88% increase in delinquencies at the end of the third quarter came as a surprise to TransUnion, which compiles the data. The downturn spells more trouble for Fannie Mae and Freddie Mac.

The Chicago-based credit information provider said the housing market reversal came after six consecutive quarters in which the number of consumers making timely mortgage payments increased–a trend TransUnion executive Tim Martin expected to continue.

Martin blames economic shocks for the change in trend; in a TransUnion release issued Tuesday he cited “the U.S. credit rating downgrade, stock price declines, European debt concerns, stubbornly high unemployment, more downward pressure on home values and low consumer confidence. All of this affects a borrower's net worth and desire, or ability, to continue making house payments–especially if they are facing negative equity in their homes due to price depreciation."

It is estimated that more than one-quarter of all households hold mortgages worth more than their houses. The TransUnion third quarter report shows that mortgage delinquencies rose in 40 states and in 64% of U.S. metropolitan areas. Just 21% of U.S. metropolitan regions saw an increase in delinquencies in the second quarter, a difference TransUnion called “significant.”

Florida, Nevada and New Jersey have the highest rate of delinquency, at 14.08%, 12.39% and 7.6%, respectively. Vermont and New Jersey had the highest year-over-year changes in delinquency rates, up 15.58% and 7.5%, respectively. North Dakota has the lowest mortgage delinquency rate in the nation, at 1.47%.

The TransUnion data adds a layer of gloomy confirmation to housing market woes that were heightened earlier this week when mortgage finance company Fannie Mae, which is in U.S. government conservatorship, requested an additional $7.8 billion in government support. The company posted a $5.1 billion loss in the third quarter compared with a $1.3 billion loss the previous year.

While the lending giant continues to take losses on the sale of tens of thousands of foreclosed properties throughout the country–it has lost money in 16 of the last 17 quarters–the upswing in mortgage delinquencies may signal that the government-sponsored enterprises (GSEs) are in for a rough ride in at least the next few quarters as well.

Fannie Mae and its sister company Freddie Mac have received more than $170 billion in bailout funds since their financial collapse in 2008.

Meanwhile, Rep. Spencer Bachus, R-Ala., has announced that the House Financial Services Committee he chairs he will vote next Tuesday on a bill to suspend the compensation packages of top executives at Fannie Mae and Freddie Mac.

In a statement issued Wednesday, Bachus said “The taxpayer-funded bailout of Fannie Mae and Freddie Mac is the biggest bailout in history. The fact that the top executives of these failed companies are receiving multi-million dollar pay packages, plus millions more in bonuses, is an added insult to the taxpayers who are forced to foot the bill.”

The statement cites an FHFA inspector-general report finding that six executives at Fannie and Freddie received more than $35 million in pay since the bailout and 10 top executives received $12.79 million in bonuses.

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