Foreclosure rates are declining across the Southwest. Lenders are slowing foreclosures because they want house prices to bottom and start going up due to a lack of distressed supply on the MLS. This would be a natural occurrence once shadow inventory is eliminated, but right now, this slowing of foreclosures is a contrived policy of a cartel desperately hoping they can force prices to move higher. If foreclosures were declining because lenders were out of delinquent mortgages to foreclose on, we would all be celebrating the housing market recovery. However, lenders are not out of delinquent mortgage squatters to boot out of the houses they are not paying for. In fact, lenders have slowed their foreclosure rates so much, they are no longer keeping up with current new delinquencies. As a result, shadow inventory is growing again.
It is difficult to imagine how house prices can put in a durable bottom with millions of delinquent mortgages yet to be processed. The federal reserve and government regulators have done everything possible to create conditions favorable to lenders. Zero percent interest rates lower the cost of capital to banks to near zero enabling them to sustain billions in non-performing loans on their books without bankruptcy. Suspension of mark-to-market accounting rules allows lenders to pretend their bad loans are still worth face value to give the appearance of solvency. Both of these measures have one thing in common; they buy time. Ultimately, neither measure will cause house prices to go up. Low interest rates make housing much more affordable which induces buying, but only improved credit conditions, low
er unemployment, and higher wages will make house prices go up.
The market-has-bottomed meme currently touted by every major media outlet is a concerted effort to improve buyer sentiment and induce people to enter into a transaction that may not be in their best interest. Affordability is currently quite good in nearly every housing market due to the low interest rates — and that is a good reason to buy — but sheeple are so accustomed to buying for appreciation that the market-has-bottomed meme must be pounded into the public’s heads to knock people off the fence. A secondary benefit of a widespread belief in future appreciation is a reduction in strategic default.
Rising prices through artificially reduced foreclosure rates has a price. Lenders hope rising prices will curb strategic default, but they must face the reality that reducing foreclosure rates increases strategic default because borrowers know they get a free ride. In the latest Mortgage Bankers Association survey, the increase in delinquency rates is being blamed on a weak economy. I don’t think that’s the reason. The economy is not strong, but unemployment is still declining. The increase in delinquencies is not due to people losing their jobs. It’s much more likely the increase in delinquencies is caused by strategic default.
Mortgage Delinquencies Increase in Latest MBA Survey
MBA — 8/9/2012
WASHINGTON, D.C. (August 9, 2012) — The delinquency rate for mortgage loans on one-to-four-unit residential properties increased to a seasonally adjusted rate of 7.58 percent of all loans outstanding as of the end of the second quarter of 2012, an increase of 18 basis points from the first quarter, but a decrease of 86 basis points from one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey. The non-seasonally adjusted delinquency rate increased 41 basis points to 7.35 percent this quarter from 6.94 percent last quarter. Delinquency rates typically increase between the first and second quarters of the year.
The long-term trend is still down. For the last five years, underwriting has been much tighter as the government started backing all new loans. I don’t foresee delinquencies rising to new highs, but the longer lenders slow their foreclosures, the longer it will take to get back to normal.
The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure.
I didn’t realize they excluded loans in the foreclosure process. That makes this a good measure of shadow inventory because the visible inventory is removed from the calculation.
The percentage of loans on which foreclosure actions were started during the second quarter was 0.96 percent, unchanged from last quarter and from one year ago.
The number of foreclosures is unchanged nationally because as lenders slowed foreclosure processing in the Southwest, they greatly increased it in the Northeast.
The percentage of loans in the foreclosure process at the end of the second quarter was 4.27 percent, down 12 basis points from the first quarter and 16 basis points lower than one year ago. The serious delinquency rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 7.31 percent, a decrease of 13 basis points from last quarter and a decrease of 54 basis points from one year ago.
Seriously delinquent loans don’t cure. Those are the committed squatters waiting until foreclosure.
The combined percentage of loans in foreclosure or at least one payment past due was 11.62 percent on a non-seasonally adjusted basis, a 29 basis point increase from last quarter, but a 92 basis points decrease from the same quarter one year ago.
That’s a big number! Nearly 12% of all outstanding mortgages are non-performing.
Jay Brinkmann, MBA’s Chief Economist said, “Mortgage delinquencies were up only slightly over the last quarter. Perhaps more important than the small size of the increase, however, is the fact that it reversed the trend of fairly steady drops in delinquencies we have seen over the last year. This is consistent with the slowdown in the economy during the first half of the year and our stubbornly high unemployment rate. Whether this is just a temporary blip or a sign of a true change in direction for mortgage performance will fundamentally depend on the direction of employment over the remainder of the year.”
Actually it depends more on whether or not lenders start foreclosing on shadow inventory in the Southwest or not. The link to unemployment sounds plausible, but it simply isn’t the case.
Brinkmann continued, “While the rate of new foreclosure filings was unchanged, that rate would have fallen were it not for the considerable jump in foreclosure starts on FHA loans. This quarter’s rate set an all-time record for FHA loans, but it was only slightly higher than the previous high set in 2010. The jump was due to one or more large servicers of FHA loans restarting foreclosure actions on delinquent FHA loans after the completion of the Department of Justice review and the mortgage servicing settlement.
FHA mortgage delinquency rates are rising fast. If the FHA doesn’t do something fast, they will be overwhelmed by their own shadow inventory of unprocessed foreclosures. I suggested that to prevent an FHA bailout, regulators should lower the conforming limit on GSE loans. It will take some time for this idea to gestate, but I think it will ultimately happen.
It does not, however, represent a significant decline in FHA performance. These loans had been considered seriously delinquent for some time and have now been moved from the 90-plus day delinquency bucket to the in foreclosure bucket, with little net change. …
This particular increase in FHA foreclosure processing doesn’t represent a significant decline in FHA performance, but coincidentally there is one.
On a seasonally adjusted basis, the overall delinquency rate increased for all loan types except FHA loans….
- 4.24 percent for prime fixed loans …
- 9.19 percent for prime ARM loans. …
- For subprime loans, the delinquency rate … 19.85 percent… subprime fixed loans …
- 22.60 percent for subprime ARM loans. …
- VA loans … 6.65 percent,
- FHA loans … 11.89 percent.
The percent of loans in foreclosure, also known as the foreclosure inventory rate, decreased from last quarter to 4.27 percent. …
- prime fixed loans … 2.42 percent
- prime ARM loans decreased … 8.31 percent.
- subprime ARM loans … 21.12 percent…
- subprime fixed loans … 10.15 percent.
- FHA loans … 4.23 percent
- VA loans … 2.28 percent.
Once is enough
The Ponzis I profile daily made a habit of raiding the housing piggy bank to supplement their spending. Most of those borrowers went back to the bank for more money every time they ran out. Today’s featured property was owned by a family who was a little different. They bought this property on 6/14/2002 for $549,000, and they put $174,000 down using only a $375,000 first mortgage. On 4/19/2005 they refinanced for a whopping $667,500 with an Option ARM from the now defunct Downey Savings and Loan. That one refinancing was all it took. They extracted $287,500 in booty.
Now that they lost their house, I wonder if they regret it?
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Proprietary OC Housing News home purchase analysis
285 North DEEP SPRING Rd Orange, CA 92869
$714,900 …….. Asking Price
$549,000 ………. Purchase Price
6/14/2002 ………. Purchase Date
$165,900 ………. Gross Gain (Loss)
($43,920) ………… Commissions and Costs at 8%
============================================
$121,980 ………. Net Gain (Loss)
============================================
30.2% ………. Gross Percent Change
22.2% ………. Net Percent Change
2.6% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$714,900 …….. Asking Price
$142,980 ………… 20% Down Conventional
3.64% …………. Mortgage Interest Rate
30 ……………… Number of Years
$571,920 …….. Mortgage
$132,054 ………. Income Requirement
$2,613 ………… Monthly Mortgage Payment
$620 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$179 ………… Homeowners Insurance at 0.3%
$0 ………… Private Mortgage Insurance
$0 ………… Homeowners Association Fees
============================================
$3,411 ………. Monthly Cash Outlays
($412) ………. Tax Savings
($878) ………. Equity Hidden in Payment
$170 ………….. Lost Income to Down Payment
$199 ………….. Maintenance and Replacement Reserves
============================================
$2,490 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$8,649 ………… Furnishing and Move In at 1% + $1,500
$8,649 ………… Closing Costs at 1% + $1,500
$5,719 ………… Interest Points
$142,980 ………… Down Payment
============================================
$165,997 ………. Total Cash Costs
$38,100 ………. Emergency Cash Reserves
============================================
$204,097 ………. Total Savings Needed
The property above is available for sale on the MLS.
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21 Responses to “Mortgage delinquencies rising as lenders slow foreclosure processing”
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Low inventories are going to cause home sales to continue to fall. We may see record low home sales soon if circumstances don’t change.
NAR: Home Price Increase Has Downsides as Inventory Dwindles
Limited inventory may be boosting home prices, but buyer choices are stifled in an increasing number of markets, the National Association of Realtors (NAR) reported Thursday.
The association’s latest quarterly report showed that the median existing single-family home price increased during Q2 in 110 out of 147 metropolitan statistical areas (MSAs) compared to the same period in 2011. Of the remaining 37 MSAs, 34 posted price declines, and three remained unchanged.
The national median existing single-family home price was $181,500 in Q2, up 7.3 percent from the same time in 2011. This is the strongest year-over-year increase since the first quarter of 2006.
The second quarter’s results illustrated a marked improvement over the first quarter, which showed year-over-year price gains in only 74 MSAs.
Lawrence Yun, chief economist for NAR, said the organization expects prices to continue to rise in the future.
“It’s most encouraging to see a growing number of metro areas with rising median prices, which is improving the equity position of existing homeowners,” Yun said. “Inventory has been trending down, and home builders are still under-producing in relation to growing demand.”
Yun pointed out that price increases can also be attributed partially to a decreasing share of sales in low price ranges, where inventory tightened.
Distressed homes accounted for 26 percent of Q2 sales, down from 33 percent in Q2 2011. Drastic discounts from distressed sales usually work to bring the median home price down.
Since the summer of 2007, inventories have been trending downward steadily. The end of the second quarter saw 2.39 existing homes available for sale, a 24.4 percent drop from the same time in 2011.
NAR president Moe Veissi said that mortgage rates and historically low prices have increased buying power dramatically. The inventory in the lower price ranges needs to keep up with demand, he said.
“What we need now is additional inventory in the lower price ranges, so we hope banks will be releasing more foreclosure inventory into the market. With gains apparent in all of the price measures, banks also should have more confidence in expanding mortgage credit to home buyers using safe but sensible standards,” Veissi said.
The national median family income in the second quarter was $61,000. To purchase a home at the national median price, a buyer making a 5 percent down payment would only need an income of $39,000.
“Because the income required to buy to a typical home is very manageable by historical standards, any further decline in mortgage interest rates will have little effect. Changes in underwriting guidelines would have a far greater impact,” Yun said.
Existing-home sales varied from region to region, rising 1.3 percent in the Midwest and South but slipping 0.6 percent in the Northeast. In the West, tight inventory brought existing-home sales down 5.3 percent as the median home price jumped up 13.4 percent.
“Inventory is pretty tight in all price ranges in most of the West except for the upper end, which accounts for the sharp price gain,” Yun said.
Here we go, the melodramatics, the truth stretching,…ok the lies.
“They bought this property on 6/14/2002 for $549,000, and they put $174,000 down using only a $375,000 first mortgage. On 4/19/2005 they refinanced for a whopping $667,500 with an Option ARM from the now defunct Downey Savings and Loan. That one refinancing was all it took. They extracted $287,500 in booty.”
667500 – 549000 = 118500 in “booty”. However, minues all the FINANCE charges, it would be less. perhaps 100,000. In your longing to portray defaulters in a bad light, you make it sound like they ripped off all that money, including their VERY OWN.
To give you a good feeling in your stomache, I defaulted for the second time….after 5 months got ANOTHER modification, but this time it has principal reduction. Very very nice. Moral hazard my a$$.
I gather you are upset that you didn’t HELOC your own down payment out of your property when you had the chance. I probably would be too. Your prudence did not pay off.
You do recognize that extracting their down payment plus the extra money is why they lost their house, right?
Can you explain why these “lies” offend you so much?
Uh, yes it is a moral hazard. Somebody has to pay for that principal reduction. That somebody is likely a prudent saver forced by the heavy hand of government to pay for your mistakes.
Could you repeat that Matt?
Are you saying that when a borrower intentionally does not pay back what they borrowed, someone else has to pay for the borrowers lack of integrity?
I used to feel sorry for Swiller, I don’t think I do anymore. If I recall correctly he put 20% down when he bought at the peak and then stopped paying because he was underwater and it wasn’t in his best interest.
After quit paying he lived free for months or years (don’t know the details) and now he gets a principal reduction on top of that and probably a super low interest rate loan and enjoys living in his “own” house. Doesn’t sound like the end of the world to me. Who payed for the principal reduction…you can send me a thank you card later!
After getting the principal reduction, I am surprised he is still so pissed. He should be celebrating.
Guilt often times leads to anger, especially when you feel like your life is out of control.
As long as real incomes continue to fall and with the future cost of owning/operating a home going sky-high (due to inflation everybody knows is coming
), rising delinquencies are assured.
Apparently, Transunion and the Mortgage Bankers Association look at very different data.
Arizona and California Delinquency Rates Improve Most in Q2: Report
Along with second quarter decreases for the national mortgage delinquency rate came significant improvements for hard-hit states California and Arizona, according to a TransUnion report.
The national mortgage delinquency rate – the rate of borrowers 60 or more days past due – slipped for second straight quarter, falling to 5.49 percent in the second quarter of this year from 5.78 percent in the previous quarter.
Arizona and California saw the greatest year-over-year declines, each falling around 21 percent from the second quarter of 2011.
For California, the delinquency rate is now at 7.83 percent and Arizona has a rate of 7.78 percent. Both states came down from double-digit delinquency rates they had two years ago.
“While it is a positive sign to see mortgage delinquency rates decrease, meaning more and more homeowners were able to make their mortgage payments, the rate of the decline is still not at a pace that will push levels significantly closer to pre-recession norms,” said Tim Martin, group VP of U.S. Housing in TransUnion’s financial services business unit.
Martin said more improvement is expected in the third quarter with the help of a few months of relatively good news on home prices, the resurgence in refinance activity related to HARP 2.0, and record low mortgage interest rates.
Florida and Nevada held top spots for the highest delinquency rates, 13.48 percent and 10.85 percent, respectively. North Dakota (1.32 percent) and South Dakota (1.94 percent) stayed in the low single digit territory and had the lowest rates.
For metropolitan areas, 76 percent saw improvements in their delinquency rates in the second quarter, up from 73 percent in the first quarter and 36 percent in the fourth quarter of 2011.
With Rates Low, Banks Increase Mortgage Profit
Interest rates on mortgages and refinancing are at record lows, giving borrowers plenty to celebrate. But the bigger winners are the banks making the loans.
Banks are making unusually large gains on mortgages because they are taking profits far higher than the historical norm, analysts say. That 3.55 percent rate for a 30-year mortgage could be closer to 3.05 percent if banks were satisfied with the profit margins of just a few years ago. The lower rate would save a borrower about $30,000 in interest payments over the life of a $300,000 mortgage.
“The banks may say, ‘We are offering you record low interest rates, so you should be as happy as a clam,’ ” said Guy D. Cecala, publisher of Inside Mortgage Finance, a home loan publication. “But borrowers could be getting them cheaper.”
Mortgage bankers acknowledge that they are realizing big gains right now from home loans. But they say they cannot afford to cut rates even more because of the higher expenses resulting from stiffer regulations.
“There is a much higher cost to originating mortgages relative to a few years ago,” said Jay Brinkmann, chief economist at the Mortgage Bankers Association, a group that represents the interests of mortgage lenders.
The jump in revenue for the banks is not coming from charging consumers higher fees. Instead, it comes from the their role as middlemen. Banks make their money from taking the mortgages and bundling them into bonds that they then sell to investors, like pensions and mutual funds. The higher the mortgage rate paid by homeowners and the lower the interest paid on the bonds, the bigger the profit for the bank.
The bigger the profit for the bank???
current stock quotes:
JPM: 37.46 LOL
BAC: 7.85 LMAO
WFC: 34.12 LOL
C: 29.02 LOL
At least its not as bad as the social media stocks:
1. FB
2. GRPN
3. ZNGA
Retail gets hosed again and again.
The Facebook selloff has been pretty ugly.
FB sell off will be really ugly when the workers and exec. are allowed to sell off their shares.
IIn my crystal ball, the FHA and GSE don’t have a long-term goal of limiting loss and any decrease in the conforming limits will only be short-term to acheive that illusionary short-term goal. Limited the losses is only a short-term goal to allow more loans and justification to raise the conforming limits. They will increase the conforming limits to allow more loans to be written and more liabilites transferred to the GSE/taxpayers from the banks.
The 20% plus underemployed will continue to be a drag on the real economy, but 8% unemployed will allow the sheeple to sleep at night and enjoy all the assusement possible.
I think the lockup period for 271 million shares of FB ends August 16th. Look out below.
Uh…oh, something is going-on just below the surface…
10yr yld July 14: 1.4555
10yr yld Aug 14: 1.7258
+ trouble across the board in MBS land …. sell-off now accelerating.
http://www.mortgagenewsdaily.com/mbs/?Product=FNMA30
Mortgage interest rates will have to rise with this selloff. I wonder if we have seen the bottom in mortgage interest rates or if this selloff is a buying opportunity for bonds?
I just don’t understand people anymore, if most people can objectively see what they have or not. I can say without hesitation that I wouldn’t want any of those houses listed, even if they were at 250K each. They all look to me like typical ugly track development properties, and the nerve IMHO now for all of them to be asking give or take 750K?!
Does anyone honestly realise what nearly a million dollars is anymore? It is still a significant amount of money. And today that money better be value for the dollar in my view. People in my opinion appear to just toss figures around freely like they are living in a cartoon.