January Fannie Mae Delinquency Rate Climbs To New Record At 5.52%, 14 bps Higher Than December, Double From Year Ago

Tyler Durden's picture

Fannie Mae reported its January total serious delinquency rate for single-family houses: the rate hit a new record of 5.54%, a jump from the December's 5.38%, and double the 2.77% in January 2009. All in all a perfect time for the Fed to be moving away from the mortgage market, pardon, to no longer being the mortgage market. The one saving grace for the Fed, was that new issuance keeps declining: $43.9 billion in MBS was issued in February, 7% less than the $47.6 billion in January. Yet $44 billion is not zero, and we anticipate ongoing new issuance which will need to find private buyers now that taxpayers are out of the picture. And even as Fannie's total book of business grew at a 1% annualized pace to $3,229,645 MM, the actual guaranteed MBS and mortgage loans declined at 0.9% to $2,882,552.

Incidentally, it's worth nothing here that the Chief Fixed Income Strategist of MS Smith Barney Kevin Flanagan told Market News earlier that investors should reduce exposure to MBS, which he said are expensive even without considering that the Fed is no longer buying MBS. Flanagan said that "for those investors looking to buy agency MBS anyway, they are
better off avoiding the political uncertainty surrounding the future of Fannie Mae and Freddie Mac by sticking to the front end of the curve -- under the two-year area." Well, judging by the weak 4 week and 56 Day CMB auctions, this is certainly not happening at the ultra-short end of the curve.

While Flanagan recommends staying within the 2- to 5-year sector for Treasuries and even high yield, not only would he overweight investment grade corporates but he'd also go out the curve. Not too much, however, as Flanagan says he would not go beyond the 8-year sector.

Overall, he said, the biggest risk in fixed income markets right now is interest rate risk, closely followed by sovereign risk.

Flanagan noted that "U.S. fundamentals are not too supportive, given the unsustainable fiscal deficits, higher debt burdens, record coupon supply this year and the economic recovery."

Going back to MBS:

"By any metric that you use when looking at MBS valuation they're expensive," Flanagan said.

And that's also without considering the Federal Reserve no longer buying agency MBS or questions about asset sales down the road.

"When you throw that into the mix," he said, "you could see how it could be a challenging environment for mortgage-backed over the next couple of quarters."

Flanagan does not expect the so-called "cliff effect" when the Fed stops buying agency MBS, as some "natural buyers" such as banks might re-emerge.

That said, not only is he concerned about their valuation, but also about the impact of the rising Treasury yields on the MBS market, as he expects the 10-year Treasury yield to rise to at least 4.50% this year.

Fannie February Report


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Deep's picture

whoooooooooooooo, thats great news, we are gonna rally off this



Racer's picture

It's the bottom....More green shoots of Hopium, buy buy buy

Cognitive Dissonance's picture

If they're reporting 5.52%, it's gotta be at least 10%, considering how many owner/squatters are "officially" not counted as overdue on a mortgage payment for the last 18 months.

Mr Lennon Hendrix's picture

One of the most amazing things I have learned about people, is that they almost always fail to recognize a flea infestation.

RobotTrader's picture

Mortgage insurers are up big today.


And then there is this....



buzzsaw99's picture

That's Barney Frank's baby you're talkin' about. Crappy loans are usa gubmint policy bitchez!

john_connor's picture

I've said it before; there is really no reason to pay your mortgage.  Banks are just holding shadow inventory and not foreclosing so they can continue to extend and pretend.

Cognitive Dissonance's picture


I understand your comment and this is just my little rant.

I'm willing to admit that I'm forever a patsy because I honor something as silly as my name and my word. My grandmother, my mother and now me have told our children that we have two things we must always honor and cherish, that being our name and our word, which is our bond.

I will not become that which I resist. I will not become indistinguishable from the scum that are destroying my nation and my neighborhood. Does that make me vulnerable to manipulation and exploitation? Yes, absolutely. But I sleep well at night and just because a few sociopaths can as well doesn't justify my walking over that sacred line.

WaterWings's picture

Even if the terms of the contract are deceptive? I know, I know, I imagine you were not swept up in the refi and flipping craze of the past decade - but if our rulers no longer respect the Constitution I feel it's OPEN SEASON.

Only "malum in se" offenses are verboten: initiating 1) force against another and 2) fraud.


Continuing to pay a mortgage is to provide the rope for your own lynching.

sweet ebony diamond's picture

great work, banksters.

give yourself another bonus.

MarketTruth's picture

And how much of this paper promises junk is owned (illegally) by the Federal Reserve? Who will take the financial hit when the Fed tries to cash out?

Bam_Man's picture

The Fed has no intention of EVER "cashing out". They will hold to maturity and collect the nice 5% coupons in the meantime. Ben Shalom himself has said so.

That is why I have already bought a boat load of GSE bonds. Some have step coupons as high as 6%.

Hubbs's picture

Can someone tell me if one is more likely to be foreclosed if he is delinquent in an area where there is relatively little foreclosure activity, i.e., like a baby wildebeast that having been separated from the herd getting nailed by the lions, as opposed to areas like Florida, Las Vegas, Arizona where there are too many to foreclose on or to do so would be too destabilizing of home prices?

Bam_Man's picture

Well, this explains the recently reported increase in consumer spending despite a concurrent drop in incomes.

"Squat and spend, beetchez!"

1fortheroad's picture

I could be wrong but my brain is thinking the Fed now owns 1.25 trillion of real estate

that they paid penny's for using ink and paper. The unemployed still have to pay rent

somewhere and who better than the US Gov to guarantee rent payments on time

every month. The fed is possibly sitting on a gold mine they bought for pennys.

QE part 2

Sorry, just ranting. 



deadhead's picture

that they paid penny's for 

i'll take the other side and say that they probably paid par or close thereto.....

1fortheroad's picture

Of course they paid par or close to, but using dollars they paid penny's for.

Edmon Plume's picture

Step 1: Destroy RE by giving houses away to millions who can't pay, and then seize the defaults with monopoly money.

Step 2:  Destroy residential rental market by renting houses out and competing with private homeowners.  Pwned.  GovMotors vs. Toyota, round 2.

We always knew they were rent seekers.

Amish Hacker's picture

re: "the recently reported increase in consumer spending"

A lot of this money is coming from income tax refunds to people who lost their jobs this year. Not exactly a harbinger of robust consumer spending going forward.

mtguy's picture

I agree with Amish Hacker here. Not to go out on this tangent too far, but I think (IMHO) that one of the keys to the length of any possible recover will be determined by whether people change their decades-long spending habits. Can they? Or, are they addicted to shopping? Smart guys, like Gary Schilling say they will change and continue the savings binge that started at the beginning of this recession. As much as I like his work, I'm not sure about his conclusions in this area. Savings have already dropped from '08-early '09 levels. Any opinions?

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