Prime foreclosures surge

Friday, August 29, 2008, 7:21 AM

Prime Foreclosure Starts Surge Past Subprime in July (August 28 - Housingwire)

There can be no remaining doubt that the
nation’s mortgage crisis has become a problem for prime credit
borrowers: data released by the HOPE NOW coalition on Wednesday finds
that prime foreclosure starts have finally moved ahead of subprime
foreclosure starts, for the first time since the industry coalition
began collecting data in July of last year — and likely for the first
time in a much longer timeframe, as well, sources suggested to
HousingWire Thursday afternoon.

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. “It’s easy for lawmakers to paint a picture
of poor borrowers taken advantage of by big, bad lenders,” said one
source, a bank executive that asked not to be named. “But that story
falls apart when you start to see even those higher up the credit
ladder struggle.”

Wow, with three
exclamation points. The fact that PRIME foreclosures have now moved
past SUBPRIME foreclosures is a big deal. In case you don’t know, the
Hope Now program is a government-sponsored affair that was initiated
very early on in the housing/credit bust. Its intent was to help
borrowers avoid foreclosure by renegotiating the terms of their

Like any good government program, its name is a
curious acronym that seems cruelly destined to attract the exact
opposite outcome. The read-between-the-lines story here rests with
Fannie and Freddie. While they are not specifically participating in
this charade, it bears noting that both Fannie and Freddie remain
steadfast in claiming that their prime mortgage portfolios are
exhibiting normal amounts of foreclosure stress.

Oddly, we
are now inundated with news that prime mortgages are experiencing
unprecedented rates of distress everywhere, except at Fannie and
Freddie, apparently.

While this could be true, it seems odd
that a pair of GSEs, both of which recently claimed there was no
possible way to foresee this particular housing downturn, managed to
also accumulate portfolios that are weathering this storm in much
better style than everybody else.

My guess? The same approach
to reporting that gave us the 3.3% economic growth is being used by the
GSEs. In short, caveat emptor.

Hmmmmm, I just looked it up, and “caveat” is not Latin for “taxpayer,” so I retract that last sentence.

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