Mortgage Defaults Expected to Soar
Forecasting firm revises Delaware outlook drastically upward
After a month of turmoil in the financial markets, economists at a West Chester, Pa.-based forecasting company have revised their outlook for mortgage defaults and delinquencies in Delaware, and now say the state could break records in 2008.
Moody’s Economy.com Inc. had forecast that Delaware’s mortgage default rate would not go higher than its recession peak during the third quarter of 2002, when 1,601 mortgages worth $101.74 million failed. That figure represented 0.71 percent of the total value of mortgages.
Moody’s now estimates the mortgage default rate in Delaware could peak at 0.80 percent in the last quarter of 2008 and first quarter of 2009, up from an earlier forecast of 0.52 percent. The agency could not say what the numbers mean in terms of total dollar value.
“The forecasts have been revised since July due to the market turmoil in August, which will have a significant negative impact on the housing and mortgage markets and the broader economy,” said chief economist Mark Zandi. “The forecasts also include second quarter data that was not available with the July study.”
Worries about rising foreclosure rates have roiled the markets this summer and have raised fears that the country is heading toward a recession. Falling home prices now threaten to exacerbate problems in the subprime mortgage market, where thousands of adjustable-rate loans given to borrowers with shaky credit are expected to fail after low “teaser” rates expire.
Economy.com’s revised figures are “now in line with my expectations of what I think we’re going to see in Delaware,” said Deputy Bank Commissioner Gerry Kelly, who had questioned the earlier forecast because of the rising number of foreclosure filings in recent months. Filings in Delaware increased year over year in July by 34 percent in New Castle, 43 percent in Kent and 54 percent in Sussex, court records from each county show.
Those numbers are likely to keep increasing as more mortgage holders see rates go up, Kelly said. “It’s not going to be pretty.”
According to figures from the Mortgage Bankers Association, 7,379 out of 155,021 mortgage holders in Delaware held subprime, adjustable-rate loans at the end of March 2007. At that time, about 14 percent of those had fallen behind on their mortgage payments, and 5.46 percent were in some state of foreclosure.