Despite Florida Home Loan Hikes, Late Mortgage Payments a Non-Issue … So Far

We previously reported that late Florida home loan payments are on the rise. This is valid in many parts of the state. In other areas, however, owners are actually making meeting mortgage deadlines more frequently than they were at the end of 2005, reports Bankrate.com and the Mortgage Bankers Association.

The proportion of homeowners making late payments fell in the first three months of this year, compared to the last three months of 2005. This takes place despite rising Florida home loan rates and prices increases across the housing market. What gives?

Analyzing Housing Market, U.S.A.

A lot of news coverage has speculated that the delinquencies and foreclosures were on the rise, due to the combination of rising interest rates and alternative Florida home loans. But spikes in delinquencies and foreclosures haven’t happened. Don’t congratulate yourselves too much, though - this isn’t a sign that you’ve suddenly become more responsible.

Overall, the following factors contribute to a the drop in late payments:

• Job growth
• The recent vintage of many mortgages
• The run-up in home prices over the last five years

Let’s go into each of them …

Jobs combat delinquency

“The most important thing in the performance of the housing market is employment,” says Doug Duncan, chief economist for the Mortgage Bankers Association. The economy has been creating jobs in the last couple of years at a rate that “counteracts things that tend to drive delinquencies up.”

Unemployment is a driving factor behind foreclosures - but the unemployment rate has been falling. It was 4.6 percent in May, down from 5.1 percent a year earlier.

“If you can work, then you can pay your mortgage,” says Bob Moulton, president of Americana Mortgage in New York. “When those jobs numbers start to weaken, then I think you’re going to have issues pertaining to delinquencies and foreclosures.”

New Florida home loans: adjustment day coming

Another source of late payments is a rise in rates on adjustable-rate Florida home loans. We’ve certainly seen increased rates, but it’s too early for them to affect the delinquency rate, because so many of the adjustables are of recent vintage.

As inflation ticked up this year, the average rate on 30-year, fixed-rate mortgage has gone up about half a percentage point. The same has happened with the 5/1 adjustable-rate mortgage, which keeps its low initial rate for the first five years, then is adjusted annually.

Rising interest rates haven’t affected the mortgages of people with 5/1 ARMs because most of them are locked into their introductory rate until 2008 at the earliest. When the rate-adjustment day arrives, their monthly payments will jump, and delinquencies and foreclosures are likely to rise.

Moulton says some borrowers look to refinance Florida homes loans of the 5/1 variety into fixed-rate mortgages “as an insurance measure” - paying a higher rate now in exchange for not having to pay stratospheric rates later. People who don’t refinance their ARMs will find “their rates are going from 5 percent up to 7 and then to 9,” he says. “They are putting themselves at risk.”

Appreciation holds slows down delinquent Florida home loans

In many parts of the country, home prices have risen dramatically. In the last five years, average home values have more than doubled in six states, according to the Office of Federal Housing Enterprise Oversight. Price appreciation gives strapped homeowners the financial room to fix up their homes, sell them, retire their mortgages, pay real estate commissions and move.

On the other hand, when house prices are static, some people can’t afford to sell their homes because the proceeds from the sale aren’t enough to pay off the Florida home loan and cover commissions and moving expenses. The states with the most homes in foreclosure are cursed with slow price appreciation, as well as the loss of higher-paying manufacturing jobs.

Even with the Florida housing market cooling off, prices remain fairly stable. Owners and potential Florida mortgage loan applicants should be in good shape.