Aug302013
700,000 borrowers quit paying their mortgages in June
The conventional wisdom is that mortgage delinquencies are falling because the economy is improving, borrowers are going back to work, and they are resuming payments on their mortgages. Unfortunately, reality bears little resemblance to this spin. In truth, almost no borrowers resumed making payments according to the original terms of their mortgage. Delinquencies are falling because lenders are offering greatly reduced payments to squeeze a few more dollars out of debtors while everyone waits for prices to rise back to the peak. And despite lenders best efforts to make their loan modification deals too-good-to-be-true, nearly half of those given these loan modifications end up defaulting again.
Mortgage delinquencies take a sharp turn up
By: Diana Olick | CNBC Real Estate Reporter — Published: Thursday, 25 Jul 2013 | 12:43 PM ET
After five straight months of improvement, mortgage delinquencies rose dramatically in June. The national delinquency rate is 6.7 percent, up nearly 10 percent from May and the highest level since February, according to a report from Lender Processing Services.
This data follow another read on the mortgage market showing that nearly half of the loans modified in 2009 under the Obama administration’s housing rescue program defaulted again.
The Home Affordable Modification Program has helped 865,100 homeowners avoid foreclosure, but more than 306,000 could not keep up with even the modified monthly payments, according to the Special Inspector General for the Troubled Asset Relief Program. The program does not force banks to write down mortgage principal.
Overall mortgage delinquencies are still down 6.5 percent from a year ago, according to Lender Processing Services. Some of the spike may be attributed to “a seasonal phenomenon,” according to LPS analysts, but this particular spike is larger than usual. Delinquencies ticked up just 3.4 percent in June 2012. The rise also spanned products and regions.
To make matters worse for lenders, delinquencies rose and cure rates fell. So those people who stopped paying their mortgage didn’t make much effort to fix the problem.
In the grand scheme to reflate the housing bubble, this will be of little consequence. Lenders will keep kicking the can. The number of delinquencies doesn’t really matter. None of these will become forced sales or REO until prices rise enough to cover the balance of the loan. That’s the nature of cloud inventory and the strategy lenders have for dealing with their bad loans.
I do expect to see foreclosures pick up as prices near the peak because lenders will finally be able to recover their lost capital. But until then, delinquencies will likely trend downward through loan modification can-kicking, and foreclosures will trend downward until prices rise high enough for lenders to take action. Until then, everything will look like it’s improving, and the mainstream media will be surprised at the future rise in foreclosure rates as lenders finally clean up their books.
The legacy way
It’s fitting that today’s featured property is on a street called Legacy Way. The bad loans the banks refuse to deal with are called “legacy loans” by lenders. This is a great euphemism as it makes the worst behaving borrowers and the stupidest loans lenders every made sound regal and respectable. These bad loans given to Ponzis like the former owners of this house are the lasting legacy of the Great Housing Bubble.
- This property was purchased on 8/10/2000 for $495,000. The owners borrowed $464,062 and put $30,938 down.
- On 6/25/1004 they opened a $100,000 HELOC.
- On 10/15/2004 they refinanced with a $500,000 first mortgage.
- On 7/31/2006 they refinanced with a $787,500 first mortgage.
- On 10/3/2006 they opened a $150,000 HELOC.
After extracting nearly half a million dollars in mortgage equity withdrawal, they quit paying the mortgage. They defaulted early on and the bank took back the property on 7/21/2009, then the bank sat on it for four years. At the current asking price, they will be made whole on their bad loans. Expect this pattern to be repeated.
[raw_html_snippet id=”newsletter”]
[idx-listing mlsnumber=”PW13173695″ showpricehistory=”true”]
85 LEGACY Way Irvine, CA 92602
$929,250 …….. Asking Price
$495,000 ………. Purchase Price
8/10/2000 ………. Purchase Date
$434,250 ………. Gross Gain (Loss)
($74,340) ………… Commissions and Costs at 8%
============================================
$359,910 ………. Net Gain (Loss)
============================================
87.7% ………. Gross Percent Change
72.7% ………. Net Percent Change
4.8% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$929,250 …….. Asking Price
$185,850 ………… 20% Down Conventional
5.11% …………. Mortgage Interest Rate
30 ……………… Number of Years
$743,400 …….. Mortgage
$203,296 ………. Income Requirement
$4,041 ………… Monthly Mortgage Payment
$805 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$194 ………… Homeowners Insurance at 0.25%
$0 ………… Private Mortgage Insurance
$212 ………… Homeowners Association Fees
============================================
$5,252 ………. Monthly Cash Outlays
($1,137) ………. Tax Savings
($875) ………. Principal Amortization
$373 ………….. Opportunity Cost of Down Payment
$136 ………….. Maintenance and Replacement Reserves
============================================
$3,748 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$10,793 ………… Furnishing and Move-In Costs at 1% + $1,500
$10,793 ………… Closing Costs at 1% + $1,500
$7,434 ………… Interest Points at 1%
$185,850 ………… Down Payment
============================================
$214,869 ………. Total Cash Costs
$57,400 ………. Emergency Cash Reserves
============================================
$272,269 ………. Total Savings Needed
[raw_html_snippet id=”property”]
[…] five years – Telegraph Home equity via jumbo loans financiing some fun – MarketWatch 700,000 borrowers quit paying their mortgages in June – O.C. Housing News Hank Paulson: Why Fannie and Freddie remain a big threat – Fortune […]
Could delinquencies be going up because the banks are processing more foreclosures??
I mean, the banks thought that sales were going to stay strong, so they decided to increase inventory, right? So they needed to kick more people out of their homes. It could be that these people were NOT paying their mortgages to begin with, right?
Or am I off base?
“It could be that these people were NOT paying their mortgages to begin with, right?”
I do believe this. There’s a couple of loanowners on my street that were in default for many months in 2009-2011, then suddenly they came of default. I know each owed more than $40,000 in past payments and fees. Then suddenly they both were no longer in default. Maybe they attempted loan mods.
What’s really strange is they both suddenly went back into default in the last 3 weeks.
These are fun families to watch. I’d bet the cars in their garages our nicer than yours, right? Families living on the edge live-it-up!
“What’s really strange is they both suddenly went back into default in the last 3 weeks.”
Strategic default abruptly stopped when prices bottomed. Perhaps the sudden rise in rates took away hope from loanowners and many decided to strategically default.
Or the lenders do not accurately report defaults?
That’s what they accused Fannie and Freddie this week. It’s that shady accounting.
I suppose part of this may have to do with the automatic “streamline” modifications. Once people found out it was good to be late, they decided to go for the modification. My client just got a 4% 40 year fixed modification and did not have to do anything to qualify for it. Part of his balance was put on “hold” for 40 years with 0% interest and payments. Why not go late to get terms like these if you are barely making it?
And you have to be 90 days late to get your streamline. What a crazy system.
Everyone who is 30 days and struggling may just decide to go 90… This deal is on investment property as well. If someone has a 4% 40 year fixed, why would they ever sell the investment property(unless it is in an area like Detroit)?
Unfortunately, it’s the principle (NOT the cost of the loan) that’s the problem.
In other news…
Tick Tock… Tick Tock… Tick Tock…
The Fed Owns 31.89% Of The Bond Market: Up 0.3% In One Week
We have beaten this topic to death so we won’t say much more, suffice to say the chart below shows what is the key issue: too much monetization and it’s game over for the reserve currency; too little and it’s an uncontrolled market sell off, and with every passing week the margin for error gets less and less.
Last week the Fed owned $1.663 trillion in ten year equivalents, or 31.59% of total
This week the Fed owned $1.678 trillion in ten year equivalents, or 31.89% of total
In one week, the Fed’s holdings of the Treasury market, expressed though the correct 10 Year equivalent basis not the completely wrong total notional, rose by a whopping 0.3%!
http://www.zerohedge.com/news/2013-08-30/fed-owns-3189-bond-market-03-one-week
Why the Fed can not decrease POMO or taper or decrease it’s buying.
Indeed, but the buying will decrease/they will taper simply because the laws of math dictate that politics cannot trump math in perpetuity. (see world history)
If the FED does not get out of the debt markets, this country is toast. There’s 1 answer … ONLY 1 Answer. The country needs new strong equity owners, and that cannot be achieved if the Fed continues to push a string, expecting different results.
Just wait for HARP 3.0. There do more can kicking.
Too Early. There will be more can kicking.
New QRM Proposal Streamlines Compliance for Mortgage Market
This decision to align the QRM definition with the QM definition achieves the “appropriate balance of limited credit risk to protect investors while mitigating potential adverse effects on borrowers, originators and the mortgage markets,” according to regulators.
The regulators also claim the alignment will streamline compliance and reduce regulatory costs.
Non-QRM loans that exceed the 43% debt-to-income ratio or fail to meet other requirements of the QM ability to repay rule will be subject to risk retention when securitized.
The Federal Deposit Insurance Corp. board of directors approved the QRM proposal at a Wednesday morning and agreed to issue it for public comment. The comment period ends October 30.
As a FDIC board member, Consumer Financial Protection Bureau director Richard Cordray voted to issue the QRM proposal.
“It recognizes that the QM rule embodies substantial new protections for consumers in the mortgage market but also tries to strike a sensible balance of countervailing concerns about access to credit in today’s tight credit,” Cordray said.
The CFPB director noted, however, that the CFPB designed the QM rule to protect consumers—not mortgage investors.
The QRM is mandated by the Dodd-Frank Act to ensure MBS issuers retain some of the credit risk as a way to protect MBS investors.
But the new proposal eliminates a tough requirement that would have required MBS issuers to maintain more “skin in the game.”
As expected, the new QRM proposal eliminates the premium capture reserve account that was proposed nearly two years ago and was widely opposed by securities and mortgage groups.
There is probably more when I include transaction costs.
Zillow: 12.2M Homeowners Underwater in Q2
The national negative equity rate continued to drop in the second quarter as home values marched upward, according to figures released by Zillow.
Zillow’s most recent Negative Equity Report shows approximately 12.2 million homeowners owed more on their mortgage than their home is worth last quarter, down from 13 million in the first quarter and 15.3 million the same time last year.
Those 12.2 million underwater homeowners represent approximately 23.8 percent of all homeowners with a mortgage, Zillow said. The negative equity rate among all homeowners—including those without a mortgage—was 16.7 percent at the end of the quarter. (Roughly one-third of homes are owned without a mortgage.)
For the second quarter of 2014, Zillow predicts the negative equity rate will fall to 20.9 percent, lifting an additional 1.9 million homeowners into positive equity.
“Widespread rising home values during the past year have helped chip away at negative equity nationwide, helping many homeowners who were only modestly underwater to come up for air,” said Zillow chief economist Dr. Stan Humphries. “For those homeowners who are deeply underwater, though, there is still a long row to hoe.”
Get ready for a ‘massive interest rate shock’ soon
Wall Street and Washington love to spread fables that facilitate feelings of bliss among the investing public.
For example, recall in 2005 when they inculcated to consumers the notion that home prices have never, and will never, fall on a national basis.
We all know how that story turned out.
Along with their belief that real estate prices couldn’t fall, one of their favorite conciliatory mantras that still exists today. Namely, that foreign investors have no choice but to perpetually support the U.S. debt market at any price and at any yield.
But, unlike what their mantra claims, the latest data show weakening demand in overseas purchases of Treasury’s.
According to the U.S. Treasury Department, there was a record $40.8 billion of net foreign selling of Treasurys in June. That was the fifth straight month of outflows in long-term U.S. securities. China and Japan accounted for $40 billion of those net Treasury sales.
Those two nations are important because China is our largest foreign creditor ($1.27 trillion), and Japan is close with $1.08 trillion in holdings.
This shouldn’t be a surprise to those who are able to accurately assess the ramifications from the Federal Reserve removing its massive bid for U.S. debt. …
If the free market were allowed to set interest rates and not held down by the promise of endless Fed manipulation, borrowing costs would be close to 7 percent on the 10-year note. Let’s face it, the only reason why anyone would loan money to the U.S. government at these levels is because of a belief that our central bank would be there to consistently push prices up and yields down after their purchases were made.
Our central bank has now adopted an entirely new paradigm.
Fed intervention used to be about small changes in the overnight interbank lending rate, which has averaged well above 5 percent for decades. However, not only has the Fed funds rate been near zero percent for the last five years, but also long term rates have been pushed lower by four iterations of quantitative easing.
The latest version is record setting, open-ended and massive in nature.
Since QE is mostly about lowering long-term rates, it shouldn’t be hard to understand that its tapering would send rates soaring on the long end. …
When the Fed stops buying Treasurys, foreign and domestic investors will do so as well. This means for a period of time there won’t be anyone left to buy Treasurys unless prices first plunge.
The effects of rising rates will be profound on currencies, equity prices, real estate values and economies across the globe.
It would be wise to prepare your portfolio for a massive interest rate shock in the near future.
I was talking to my loan broker and he was saying a lot people already can’t get loans. In his opinion another 1% and sellers will need to drop. It’s really just a cash and low leverage market right now.
In my complex the cost of owning is $1,000 above renting. Assume 20% down loan includes, taxes, insurance, and HOA.
It’s coming, and if it comes without inflation, asset prices are going to get crushed.
Lee in Irvine:
I hope you are right.
I have been waiting for a [buying opportunity] event like this for years.
I wonder out loud how many of current “all cash” buyers have already drained their piggy banks?
Could be that a good chunk those investors could panic and sell before they suffer unrealized losses.
If nothing else, market rate interest could really flush the markets out for the long term good of everyone.
Inflation is a hard one to call. One thing I am 100% sure of: Professional salaries are *not* inflating. In fact, (at least for me working at a Fortune 100 company), we have effectively *lost* wages due to a very steady and sometimes stealthy cut in benefits.
I think you are on the wrong track. Real estate is the new gold for people with lots of cash. Who wants to hold cash if the Fed loses control of the system.
If Fed loses control of the system like in Weimar Germany in the 1920’s.
From Dr Housing Bubble
Food is the most valuable commodity in hyperinflation.
At the beginning of today’s post, I wrote about how the MSM spins what’s really happening to make things look better than they are. Here’s an example:
Distressed Inventory Fading Fast as Housing Market Strengthens
As the housing market heals, foreclosure inventory is depleting quickly, CoreLogic reported Thursday.
In July, about 949,000 homes were in some stage of foreclosure, down 32 percent from 1.4 million a year ago. Foreclosure inventory also showed a 4.4 percent decline from June. Year-to-date, foreclosure inventory is down by 20 percent.
Currently, about 2.4 percent of homes with a mortgage are in foreclosure inventory, the lowest level since March 2009.
In addition to shrinking foreclosure inventory, CoreLogic also reported steep declines in completed foreclosures and serious delinquencies.
According to the data provider’s estimate, about 49,000 properties were lost to foreclosure in July, down 25 percent from 65,000 in July 2012.
From June to July, completed foreclosures fell by 8.6 percent from 53,000 in the prior month.
At 5.4 percent, the serious delinquency rate decreased to the lowest level since December 2008, according to CoreLogic. The rate represents fewer than 2.2 million mortgages.
“Continued strength in the housing market will contribute to our outlook for ongoing improvement in the stock of distressed assets through the end of this year,” said Mark Fleming, chief economist for CoreLogic.
“Namely, that foreign investors have no choice but to perpetually support the U.S. debt market at any price and at any yield.”
This one always cracked me up. The reality is quite different; we can’t piss off China. China can destroy our economy and put us in financial ruins in about 24 hours anytime China wants.
Yeah, but who is going to purchase their cheaply made crap.
There is a whole world purchasing Chinese made goods, including 2 billion Chinese. The idea that the Chinese need the US to buy operate their economy is US egocentric fantasy.
JMO
America is the leader of the western world. China is an economic bubble. Without America, China is kaput!
If America is leader of the western world, who is leader of the western world? A bubble is partially defined by the type of money that has been used. It seems to me that the USA is the borrower and has used borrowed money to blow bubbles and China is the lender. Which country is more of an economic bubble? China is kaput without America? China still holds over $700 billion is US debt, and China is selling, not buying. What happens to America if China decides to put $700 billion of US Treasury debt into the market? If you think they need our debt, future or present, why isn’t China buying more? Why exactly does China need the US?
Sorry, I meant, ‘who is the leader of the eastern world’?
It boils down to the currency peg. China’s is artificially suppressed and the dollar artificially inflated.
The stronger the currency, the less a country must export.
“A fisherman is able to eat his own catch”
“What happens to America if China decides to put $700 billion of US Treasury debt into the market?”
There aren’t any buyers for $700 billion of UST debt. So, if they put that much onto the market at a time, they likely would lose the value in 90% of it before the sold. They can’t move quickly without destroying the value of their holdings.
Russ – Yeah? So?
It wasn’t too long ago that folks were saying they could not stop buying our debt because we buy their goods and it would wreck their economy. I laughed. And guess what? Not only is China not buying our debt, but they are sellers. BIG sellers. And do you know what China is buying and importing?
I got news for ya’all; China can and will do whatever China wants.
That may not be something Americans are used to hearing, but they better get used to the fact that the dollar is fast losing it’s world reserve currency status, and without that the dollar is …, well, you figure it out.
There’s an old saying: “A weak dollar is good business.” Whenever the dollar falls, US exports rise. Part of the reason that China is growing so rapidly is that they export much more that they import. As their currency appreciates, they lose much of the advantage built into their artificially low currency exchange rates. My company has increased its international sales many times since the recession started. Foreign companies have a hard time competing with our bids when we have the advantage of a weak dollar relative to the Euro. So if the Chinese want to reverse the import/export advantage they have, I look forward to China expansion so that I can sell them more goods. A devalued renminbi has worked well for Chinese wealth creation, why not us?
Don’t fear others prosperity. Wealth is not a zero sum game. I want to have wealthy people to sell stuff to. That is good business. What we need is strong international laws that protect US interests. Patent and copyright come to mind.
What is that seasonal spike in cure rate (also visible as a decrease in delinquency) that happens every third quarter? Are these distressed properties that get “cured” by selling off during the summer season?
Gov’t Gone Wild! Third of Mortgage-Seizure Targets In Richmond California NOT Underwater
Aug. 30 (Bloomberg) — Data shows 31% of the 624 Richmond, CA mortgages being targeted for eminent-domain seizures by Mortgage Resolution Partners aren’t even underwater, according to a declaration filed in court yesterday by Phillip R. Burnaman II, a managing director at GreensLedge Group.
• 63% were cash-out refinancings or “equity extraction” loans, with borrowers tapping $53 million above original home purchase prices: Burnaman
• Homeowners’ current LTVs would be <60% without
• 53% of borrowers have received loan modifications: Burnaman
• Richmond is seeking to buy loans at average 41% discounts to current property values: Burnaman
• Losses from Richmond seizures to non-agency RMBS trusts in which Fannie Mae has invested would total $17M, Chief Economist Douglas G. Duncan says in separate declaration.
• Total would rise to $7.5b if extended to all of California, $24b for entire U.S.
• At least 301 Richmond loans previously modified, and now have average monthly payments of $1499 and average rates of 3.05%: Duncan
• Refis into FHA loans at current rates would increase payments 19% to $1,784, making defaults more likely: Duncan
And so it goes. Everytime you hear people in Congress testifying about MORE government intervention to fix the housing market, you can bet on dramatic moral hazard problems arising … like bailouts for the “greater good” morphing into the “greater bad” when the real agenda is something wholly different. Like in Richmond.
Will the defaulting loan owners end up with a FC and a tax bill for the forgiven amount due on a non-recourse loan? I know one fellow that the house price dropped by 60%+ and he defaulted. Only to be forced with a tax bill for the amount forgiven. He lost his large down and had to show all his assets to reduce the tax bill.
What’s this blog experience of loan owners needing to pay taxes on the short fall? Is no tax due only if they are in-solvent?
Jeez, like the loanowners are better.
As renters move in, some homeowners fret
Beneath the spreading shade tree in Laura Holcomb’s front yard, there are some 70 varieties of hosta, stands of elephant ear and a Japanese maple. For the 17 years she has owned the brick house on Rose Trail Drive in Memphis’ Hillshire subdivision, Ms. Holcomb has devoted herself to her home and garden.
Across the street, Carl Osborne and his family have been tenants for two years, moving in after the previous owner lost the house in a foreclosure. They are happy to have a decent place to call home but, like many renters, they have not done much to improve the appearance or join the community.
They are not alone: the family behind Ms. Holcomb, the one two doors down, and several in the cul-de-sac across the way are among the renters who have been supplanting homeowners in this blue-collar, suburban neighborhood as investors buy single-family homes and convert them to rentals.
“Used to, we knew our neighbors,” Ms. Holcomb said. Then she gestured toward the few remaining owner-occupied houses nearby. “Except for the two that have been here, I don’t know any of my neighbors.”
Across the country, a growing number of single-family rentals provide an option for many who lost their homes in the housing crash through foreclosure and for those who cannot obtain a mortgage under today’s tougher credit conditions. But the decline in homeownership is also changing many neighborhoods in profound ways, including reduced home values, lower voter turnout and political influence, less social stability and higher crime.
“When there are fewer homeowners, there is less ‘self-help,’ like park and neighborhood cleanup, neighborhood watch,” said William M. Rohe, a professor at the University of North Carolina at Chapel Hill who has just completed a review of current research on homeownership’s effects.
Even conscientious landlords and tenants invest less in their property than owner-occupants, he said. “Who’s going to paint the outside of a rental house? You’d almost have to be crazy.”
Despite signs of a recovery in the housing market, the country’s homeownership rate is still on the decline. In Memphis, it has fallen from roughly 65 percent of families in 2005 to about 55 percent now, according to the Census Bureau.
In hundreds of neighborhoods that once attracted first-time home buyers, investors have stepped in, buying up tens of thousands of homes for the rental market.
That has helped put paying tenants in a number of homes that were vacant or becoming eyesores. And many of the new tenants say they are eager to buy a home at the first opportunity and share the same concerns as homeowners about maintaining a safe and healthy neighborhood for their families and children.
Here is the way to look at investments. If the Fed stops printing, we get a giant recession to near depression. If the Fed keeps printing, we get inflation. The dream of stable growth and well controlled inflation is not in the cards. My bet is the Fed as well as other central banks will select inflation over deep recession. That is driving certain segments of the real estate market.
[…] borrowers quit paying their mortgages in June Source "The conventional wisdom is that mortgage delinquencies are falling because the economy is […]
That was lone of the huge victory exchange for the Delighted killing Osama Bin Laden. The high-grade terrorist who made the fantastic red-hot in fear.
Giuseppe Zanotti Heelless http://www.zanottiscarpe.com/Giuseppe-Zanotti-Heelless-c-6.html