For Immediate Release

Chicago, IL – November 20, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Bank of America (BAC), MGIC (MTG), Fannie Mae (FNM), Freddie Mac (FRE) and The Gymboree Corp. (GYMB).

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Here are highlights from Thursday’s Analyst Blog:

Mortgage Delinquencies: Record High

The delinquency rate is going up much faster than foreclosures are being started. With unemployment high and rising, it is hard to see a lot of those delinquencies getting cured. Either the lenders will have to let people live indefinitely in their houses without paying (unlikely that the banks would be so generous) or we will see another huge wave of foreclosures coming.

The absolute number of houses that are either in foreclosure or 90 days or more past due now exceeds the number of existing homes available for sale. That is a huge overhang of shadow inventory (although some of it is out of the shadows and currently listed for sale) that should continue to put pressure on housing prices, even with all the extraordinary government support trying to prop up housing prices.

While unemployment is one serious driver of mortgage foreclosures because it affects the ability to pay, falling home prices are another driver. An underwater home is a home that is at high risk of going into foreclosure. It is simply economically irrational to continue to make payments on a $500,000 mortgage that is secured by a property that is only worth $400,000. This, then, continues the vicious cycle, where falling prices lead to foreclosures, which leads to more distressed supply, which leads to further pressure on home prices that in turn leads to yet more foreclosures.

The entire mortgage complex is not yet out of the woods. That complex includes the big banks like Bank of America (BAC), the mortgage insurers like MGIC (MTG) as well as Fannie Mae (FNM) and Freddie Mac (FRE). My inclination is to avoid all of them.

Gymboree Beats, but Outlook Down

The Gymboree Corp. (GYMB) reported its fiscal third quarter results after the closing bell on Wednesday. The company posted earnings of $34.8 million, a growth of 12.6% from $30.9 million recorded in the year-ago period. Earnings per share came in at $1.15, which topped the Zacks Consensus Estimate of $1.13.

Gymboree is a specialty retailer offering apparel and accessories for children under the Gymboree, Gymboree Outlet, Janie and Jack and Crazy 8 Brands, as well as play programs under the Gymboree Play & Music brand. At the end of October 2009, the company operated a total of 951 stores across the U.S., Canada and in Puerto Rico.

The company reported a nearly 2% increase in total sales to $269.1 million during the quarter, compared to $264.1 million in the year-ago quarter. The expansion was primarily driven by the addition of 78 new stores in the last one year period, partially offset by a 4% decline in same-store sales. During the quarter, the company opened a total of 25 new stores including six Gymboree stores, four Gymboree Outlets and 15 Crazy 8 stores.

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Zacks Investment Research

The Mortgage Bankers Association (MBA) reported today that mortgage delinquencies hit a record high in the third quarter: “The delinquency rate for mortgage loans on one-to-four-unit residential properties rose to a seasonally adjusted rate of 9.64 percent of all loans outstanding as of the end of the third quarter of 2009, up ...

The Mortgage Bankers Association (MBA) reported today that mortgage delinquencies hit a record high in the third quarter: “The delinquency rate for mortgage loans on one-to-four-unit residential properties rose to a seasonally adjusted rate of 9.64 percent of all loans outstanding as of the end of the third quarter of 2009, up 40 basis points from [...]

($BAC) Mortgage Bankers Association Reports Mortgage Delinquencies at Record High

The Mortgage Bankers Association (MBA) reported today that mortgage delinquencies hit a record high in the third quarter:

"The delinquency rate for mortgage loans on one-to-four-unit residential properties rose to a seasonally adjusted rate of 9.64 percent of all loans outstanding as of the end of the third quarter of 2009, up 40 basis points from the second quarter of 2009, and up 265 basis points from one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey. The non-seasonally adjusted delinquency rate increased 108 basis points from 8.86 percent in the second quarter of 2009 to 9.94 percent this quarter." (For more, click here.)

Unlike the TransUnion report that came out yesterday, the definition of being delinquent is a bit more expansive in this report, covering all mortgages that are at least one payment behind, while the TransUnion report was for mortgages that were at least 60 days overdue (see "Mortgage Delinquencies Still Rising") but point in the same direction.

The MBA data does not include mortgages that have entered the foreclosure process, and those are rising as well. In the third quarter 4.47% of all mortgages were in some stage of the foreclosure process, up from 4.30% in the second quarter and 2.97% a year ago. The graph below (from http://www.calculatedriskblog.com/) shows the percentage of all prime loans that are in trouble (both fixed and ARMs).



Mortgage delinquencies and foreclosures are no longer just about subprime loans made by shady operators to people living on the wrong side of the tracks. As the late, great Tanta of Calculated Risk put it: "We are all subprime now."

When people are out of work and without a paycheck, it is very tough to pay your mortgage. The big driver of higher foreclosures now are what was supposed to be the safe stuff -- prime fixed-rate mortgages. They represented fully one third of all foreclosures started in the third quarter and 44% of the increase in foreclosures.

Looking a bit further down the troubled mortgage spectrum, they were 54% of the mortgages that were more than 3 months past due, but the banks had not yet started the foreclosure process on them. If one throws in adjustable-rate prime loans (which includes some of the crap like Option ARMs), things look even worse, as their performance is now even worse than that of subprime loans. There was actually a decrease in the rate that subprime loans were going into foreclosure.

The pig is making its way through the python. The FHA has taken over the role that the subprime mortgage brokers used to have, and it is getting much the same results. Eventually, the FHA is going to need a big bailout. While the rate of troubled mortgages is still much higher for subprime than for prime mortgages, there are far more prime mortgages outstanding than there are subprime mortgages.  The second graph (also from http://www.calculatedriskblog.com/) shows the sorry state of subprime mortgages.



While the foreclosure problem has moved from the wrong side of the tracks to the gated communities, it is still concentrated in the same former bubble states as before -- places like Florida and California. Just four states (also Arizona and Nevada) had 43% of all foreclosures started in the third quarter, roughly the same proportion as in the second quarter and a year ago. In Florida, one out of four mortgages is now either in foreclosure or at least one payment late.

The delinquency rate is going up much faster than foreclosures are being started. With unemployment high and rising, it is hard to see a lot of those delinquencies getting cured. Either the lenders will have to let people live indefinitely in their houses without paying (unlikely that the banks would be so generous) or we will see another huge wave of foreclosures coming.

The absolute number of houses that are either in foreclosure or 90 days or more past due now exceeds the number of existing homes available for sale. That is a huge overhang of shadow inventory (although some of it is out of the shadows and currently listed for sale) that should continue to put pressure on housing prices, even with all the extraordinary government support trying to prop up housing prices.

While unemployment is one serious driver of mortgage foreclosures because it affects the ability to pay, falling home prices are another driver. An underwater home is a home that is at high risk of going into foreclosure. It is simply economically irrational to continue to make payments on a $500,000 mortgage that is secured by a property that is only worth $400,000. This, then, continues the vicious cycle, where falling prices lead to foreclosures, which leads to more distressed supply, which leads to further pressure on home prices that in turn leads to yet more foreclosures.

The entire mortgage complex is not yet out of the woods. That complex includes the big banks like Bank of America (BAC), the mortgage insurers like MGIC (MTG) as well as Fannie Mae (FNM) and Freddie Mac (FRE). My inclination is to avoid all of them.
Read the full analyst report on "BAC"
Read the full analyst report on "MGIC"
Read the full analyst report on "FNM"
Read the full analyst report on "FRE"
Zacks Investment Research

MGIC Investment Corp.’s (MTG) third-quarter loss of $4.44 per share was wider than the Zacks Consensus Estimate of a loss of $1.64 per share. Last year, the company had reported a loss of $1.06 per share. Increasing delinquent inventory and consequently higher incurred losses drained the results. The company’s loss stood at $971 million from $788.3 [...]

(MTG) MGIC Investment Corporation Reports Ugly Loss