Tuesday, November 26, 2013

Mortgage Delinquencies: Where Do We Go From Here?



With the housing market improving, mortgage delinquencies are continuing to plummet for Q3 2013. TransUnion, which researches based on credit data, has reported that the mortgage delinquency rate is at 4.09 percent for Q3 2013, a 23.3 percent drop year over year, and the seventh straight quarter of decline. According to TransUnion, this will continue into Q4 2013.

The data is strong, but it could be masking the real problem. Mortgage delinquencies may be decreasing steadily, but the rate is still higher than it should be — about one to two percent higher than the historical range. The Q3 2013 rate is the lowest the delinquency rate has been since Q3 2008, and there were already problems stirring in the housing market at that time. In addition, there are fewer mortgages than there were. Despite 2.34 million new account originations in Q3 2013, up from 2.09 million from the previous year. TransUnion only recorded 52.31 million mortgages as opposed to 54.23 million from Q3 2012. In Q3 2008, there were 63.14 million, which was the high prior to the housing crisis.

Although there is also an additional decrease expected for Q4 2013, with a new year comes new challenges and adjustments in lending law. 2014 brings changes with the Dodd-Frank Act. The law is known more for Wall Street reform, but it takes a direct hit on mortgage lenders. This means changing regulations on lending practices, which will leave about 48 percent of potential home buyers who are able to obtain a loan in 2013 unable to do so in the coming year. Lenders will have to abide by stricter “ability to pay” regulations and servicers are prohibited from making the “first notice or filing” during the first 120 days of delinquency.

The effect that this will have on the mortgage delinquency rate, whether positive or negative, is still unknown. However, it’s important as the economy is improving to remain cautiously optimistic. After all, as we learned before, you never know when the rug is going to be stolen out from under you.
 

Thursday, August 8, 2013

Making the Most of the Making Home Affordable Act


There's some good news and some tough news for homeowners.

Since the beginning of the year, around 2.4 million homeowners have finally been able to begin rebuilding equity thanks to increasing home prices and decreasing foreclosures. According to the latest Corelogic Report (June 2013), almost all of the statistics measured have indicated an improvement in the state of the foreclosure market since June 2012. The balance of severely delinquent first mortgages has decreased 27% from the same time last year. There were 55,000 foreclosures in June 2013, down from 68,000 in June 2012, a year-over-year decrease of 20%. Foreclosure inventory has decreased from 1.4 million to 1.0 million, a change of 28%. These are good signs of a housing recovery, albeit a fragile one.

While we did experience the first month-over-month increase in delinquency rates in five months, a 9.91% increase between May and June, it can be mostly attributed to expected seasonal patterns.

Nevertheless, we are still at a relative high point in delinquency rates. We are still far from pre-crisis levels of foreclosures, which averaged 21,000 a month between 2000 and 2006. There is no ignoring the more than 7 million mortgages that are still underwater. Some cities, such as Richmond CA, are facing such a crisis that they are considering using the power of eminent domain to seize homes and gain control over the process of making them more affordable for residents. Shadow inventory is creating a backlog for banks that slows processing and blurs inventory numbers. 

The main issue lies with the fact that many do not qualify for loan re-modifications in today’s market where credit is still relatively tight. Homeowners are left with no other option but to go through the costly process of foreclosure. 

That was the motivation behind the Making Home Affordable (MHA) act by the Obama Administration. Originally only available for loans backed by Fannie Mae and Freddie, the MHA uses the Home Affordable Modification Program (HAMP) to help eligible homeowners modify or rewrite their loans terms to avoid foreclosure. Usually, this means lowering monthly payments (subject to rate floor of 2%) and/or extending the term of the loan to a maximum of 40 years. Recently, changes have been made to make the MHA benefits better and more accessible. The two biggest changes were:

  1. The program was extended to the end of 2015
  2. Loans modified under HAMP have been made available for loans serviced by other qualified mortgage servicers, who are provided with the opportunity to enter into contracts with the Federal Government (the U.S. Treasury) to modify homeowners' mortgage loans in a particular and uniform fashion.
Peak Loan Servicing, our mortgage servicing entity, just earned this important certification this summer and can begin helping homeowners. HAMP certification allows Peak to reach out to those seeking to modify distressed loans and avoid foreclosure. According to Scott Sawyer, an industry specialist at Peak, having more qualified servicers is going to be a boon to these homeowners, the mortgage market and the housing market in general.

Although the housing market is markedly improving, we cannot ignore the millions of homeowners still facing foreclosure and volatile market conditions. Eli Tene, managing Directors and Principal of The Peak entities makes it clear that its new HAMP certification represents “strengthened endorsement [of Peak] on the part of Treasury, HUD and the Obama Administration’s Making Home Affordable program but also… another major step in fulfilling the Peak Corporate Network’s brand promise as a comprehensive real estate services provider for both consumers, investors, and other real estate professionals.”

Thursday, March 14, 2013

The Foreclosure Crisis: Not What It Appears to Be

Regardless of industry trends showing a decline in foreclosure starts, each month thousands of Americans are still facing a scenario that could mean the loss of their home. The foreclosure crisis is not fully behind us yet.

While an improving economy combined with government intervention and lender workouts has significantly reduced the number of homeowners in mortgage default since the height of the recession in 2008, the problem persists. Thousands of Notices of Default are still being issued each month in spite of the current optimism of a complete housing recovery touted in the press.

Two factors contribute to the discrepancy between prevailing sentiment and the actual facts regarding foreclosures. First, industry data consistently aggregates information on foreclosures, providing a broad averaging of foreclosure activity, whereas review of the actual data on a state-by state basis shows a different picture. According to RealtyTrac, Foreclosure activity in 2012 decreased from 2011 in 12 out of the nation’s 20 largest metro areas, led by Phoenix (down 37 %), San Francisco (down 30 %), Detroit (down 26 %), Los Angeles (down 24 %), and San Diego (down 24 %). But 2012 foreclosure activity increased in eight of the 20 largest metros, led by Tampa (80 % %), Miami (36 t %), Baltimore (34 %), Chicago (30 %), and New York (28 %).

Newly enacted foreclosure laws at the state level over the past two years have caused a contributing factor in the drop of default filings. California, Florida and Nevada arguably had the highest foreclosures rates in the nation. Yet recent statistics show a relationship between various state legislative actions and a slowdown in foreclosures, including Nevada requiring lenders to prove their rights to foreclose in 2011 and California’s Homeowner’s Bill of Rights enacted in 2013. So while these laws inevitably contributed to a dramatic decrease in completed foreclosures which is reflected in lower default-filing statistics, in reality, there are still eight to ten million units that comprise a substantial ‘shadow inventory’ of housing supply still subject to foreclosure. California and Nevada follow non-judicial procedures for filings. Judicial states, are still coping with pending cases simply caught in the court system. Foreclosure inventory in judicial states is still three times higher than that of non-judicial states, according to Lender Processing Services (LPS).

Second, industry data on distressed assets reports historically, typically analyzing activity 60 – 90 days prior to the actual reporting date. While real-time foreclosure data would be difficult to obtain and verify, default servicing specialists are as active as ever these days processing foreclosures. This trend is confirmed by two Peak Corporate Network executives. Kelli Espinoza is Executive Vice President overseeing operations at Peak Foreclosure Services, Inc., which serves as the primary Peak entity specializing in a wide range of default servicing solutions catering to banks, credit unions, and small investors nationwide. She characterizes current activity as “brisk.” Peak’s foreclosure unit is currently processing a steady flow of files generated by private equity and investment firms in the distressed asset sector. While prevailing housing analysis reporting on past distressed performance have indicated a decline in defaults, there are still a significant number of foreclosures making their way through the pipeline. Espinoza states that“While we’ve been able to facilitate many workouts on the borrower’s behalf to avoid a default situation, I’m pretty confident in saying that we’ll be processing foreclosures for clients for some time to come.”

Raffi Tal, Executive Vice President of I Short Sale, Inc., one of the Peak entities working exclusively with distressed homeowners, affirms that there’s still a “clear and present danger of Americans losing their homes. We are still heavily involved in negotiating workout solutions on behalf of homeowners that have no other alternative.”

It is important to note that regardless of industry trends showing a decline in foreclosure starts, each month thousands of Americans are still losing their homes at a rapid pace. The real estate industry cannot and should not become complacent in aggressively pursuing ways to help homeowners retain their most valuable asset. While the battle to stem the tide of foreclosures seems to be tipping in the favor of distressed homeowners, it would be a grave mistake to assume the crisis is over.

 

Monday, January 7, 2013

Tax Forgiveness for Short Sales and Insurance to Continue in 2013


The California real estate market can finally breathe a sigh of relief over news of new tax concessions that will avert going over the fiscal cliff. As a result of the fiscal cliff deal, California homeowners and investors can look forward to the continuation of several popular real estate deductions. Many economists lobbied for the extension of certain deductions and tax holidays as a method of averting the fiscal cliff, which was purported to have the potential to push the country into another recession.The prominent immediate concern for California’s housing market was the effect of downward pressure that going over the cliff might have on housing prices. According to Kenneth Harney, “Any significant reductions in long-established tax benefits would inevitably trigger declines in home values.”

Economist Lawrence Yun of the National Association of Realtors warned that prices were certain to fall as much as 15% simply due to buyers discounting their purchase offers to counterbalance losses in write-offs for things like mortgage insurance and local property taxes. California homeowners are no doubt familiar with the mortgage interest deduction, which was created solely to encourage homeownership. The fiscal cliff forced California’s housing economists to consider what the market would be like if such incentives were removed. The loss of such incentives was widely predicted to precipitate severe damage to the recovery of the California Housing market in terms of prices first and foremost.

One of the more important factors in the deal was the American Taxpayer Relief Act of 2012, which originally extended tax breaks scheduled to end in 2011. It now extends certain tax breaks for California property owners through 2013. This act - which is one among several that were negotiated to avoid the fiscal cliff – will allow California homeowners who make less than $100,000 to write off 100% of their mortgage insurance premiums. California homeowners who make more than $100,000 will also receive a write-off, but on a sliding scale. California property owners will also be delighted to know that the Relief Act applies to both private and FHA insurance.

California homeowners who have received debt forgiveness in 2012 in some form were no doubt riveted to fiscal cliff developments regarding the Mortgage Forgiveness Debt Relief Act of 2007, originally set to expire at year-end 2012. Due to Congress’ New Year’s Day fiscal cliff concessions, California homeowners who have gotten a principal reduction or short sale will move into 2013 with one less worry. The Mortgage Forgiveness Act will extend the exemption for California homeowners from paying taxes on the debt they have been forgiven through a principal reduction or short sale. According to Compass Research, in order to qualify for forgiveness up to two million dollars, California homeowners only have to show that the debt in question was “created to buy, build or substantially improve their primary residence.”

With these concessions in place, the recovery of California housing stands to receive a push in momentum. There are winners on both sides, whether that’s lenders and mortgage insurers or buyers and investors. The fiscal cliff deal is starting the year off with a brighter outlook for many California homeowners, and somewhat less uncertainty for the future of California’s housing market.