Delinquencies, notices of default and foreclosures. It's not what you think

The Mortgage Bankers Association and the Federal Reserve gave us some information lately that belies the impending doom projected in the media. Here is some information contained in the reports:

1. The delinquency rate on sub-prime loans was running at 13.77%, which is up 13.44% from the previous year. In the last quarter, the delinquency rate dropped to 12.4%!

2. The delinquency rate on Alt-A loans is only 2.69%, while prime loans are at 2.57%

3. Combining the three rates with the loan volume gives you a delinquency rate for all loans in the US of only 4.84%! All of the US!

4. On jumbo mortgages, (anything over $417,000,) the delinquency rate is 0/37%

5. California delinquency rate is only 3.25%!

6. Only 3.23% of all sub-prime loans have entered the foreclosure process with most of the defaults occurring on loans from January, 2005 to June, 2006

7. Only 1.28% of all prime loans have entered the foreclosure process

8. For prime loans, the foreclosure rate is 0.86%. Last year, the US saw a combined foreclosure rate of only 1.09% while California's rate was 1.17%.

9. California now ranks #4 in the nation in foreclosures, which is down from #1!

The media will still report about massive delinquencies and huge foreclosures in the sub-prime market, but those reports will not be accurate because they don't explain the difference between a delinquent payment, a notice of default or a foreclosure. The tell us "foreclosures are at a record high!" but that's not accurate.

The media will try to scare you with number like $1 trillion in loans needs to be recast this year and that foreclosures could cost lenders as much as 2.3 billion dollars! They never mention that there is 10.4 trillion of mortgages with $56 trillion dollars of equity in American households. Add to that the wealth of the US at $70 trillion, with the value of stocks between $15 and $20 trillion, while the bond market is even larger. So these losses (should they occur) should not have any great effect on home prices.

Another note about foreclosures: The #1 reason they occurred was due to fraud. The #2 reason was unethical lending, followed by #3 - loss of job, and finally #4 was medical reasons. By the way, the mortgage insurers are in a good position to cover losses at these (high) levels.

Don't be fooled.