Salient to Investors:

S&P/Case-Shiller said home prices in 20 large metropolitan areas gained 8.8 percent from February through August.

The share of all non-agency loans between 30 and 60 days past due rose 0.44 percentage point to 3.54 percent, the highest since February 2010.

JP Morgan said:

  • A record number of modified home loans within non-agency securities went delinquent in September, up 24 percent from August.
  • While aggressive modification has partly driven the sharp decrease in housing’s shadow inventory tied to bad loans, and while reworked mortgages are performing better, The increase in the people who have gotten aid is a threat to rising property prices.
  • The wave of re-defaults from the modifications over the last two years will last through 2013.

Credit Suisse, Amherst Securities and others said seasonal trends and fewer business days to pay at least partly explain the September surge in early delinquencies among non-agency loans.

Nomura Securities Intl said:

  • Modified loans are increasingly important to non-agency investors, but there is significant uncertainty about their future performance given the lack of historical precedent for the current situation.
  • 35 percent of outstanding securitized subprime loans have been modified and more than 25 percent of so-called option adjustable-rate mortgages.
  • Recidivism rates after 12 months for modified subprime mortgages have declined to 40 percent from almost 80 percent for loans reworked in Q3 2008, reflecting loan servicers offering larger payment reductions and more cuts to balances.

Jim Vogel at FTN Financial said Fannie Mae and Freddie Mac’s burgeoning holdings of modified mortgages, cast doubts on the true health of the housing recovery.

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