Delinquent Behaviour

19/11/2010 at 11:52 am

Despite the coverage they have received this week, this post is not about the most recent travails of the more heavily indebted sovereign borrowers (to which readers of this blog were alerted some time ago). In the spirit of the royal engagement, we would rather focus on some good news – the latest figures on mortgage delinquencies and home foreclosures out of the US.

A high profile news item in the States, this data tends to be less well followed over here. By way of background, both delinquencies – defined as mortgages falling more than 30 days behind payment – and foreclosures rose recently to record highs. Having sent a thunderbolt through the world financial system by way of the subprime crisis, the mortgage market has remained a millstone round the neck of the American economy ever since.

But last quarter – for the second quarter in a row – the percentage of US home loans counted as delinquent, and the percentage of mortgages that have become the subject of foreclosure proceedings, fell.

One, or even two quarters of positive news do not a summer make, of course. But as this excellent Wall Street Journal piece observes:

“The decline reflects an improving economy and is the latest sign that the worst of the mortgage crisis may be easing …¬†Separately, data released by the Treasury Department on Thursday showed that the number of homeowners receiving help under the Obama administration’s Home Affordable Modification Program declined for the first time since the program began.

The article sounds plenty of cautionary notes, which is fair enough considering the extent of the problem (over 9% of all American mortgage borrowers have fallen behind on payments; for subprime borrowers, the figure is over 26%). And the need to improve sloppy procedures at US banks has likely delayed some foreclosures into subsequent quarters.

However, taken together with the US bank results we noted a month ago – which showed an across-the-board improvement in provisions for credit losses, despite a wide variety of bottom-line outcomes – yesterday’s mortgage data gives us further encouragement that Uncle Sam’s convalescence is well underway.

The world still has its trouble spots. But a properly entrenched recovery in what remains its largest economy by some distance, accounting for about 25% of global GDP, would shift the balance of risks to growth decisively to the upside.

One might ask in such circumstances how long a prudent central bank should keep taking chances with inflation before returning monetary policy to more normal levels, but that is a question for another day.

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