First American Title Insurance Company announced Tuesday the availability of Quick Start HARP – a title, signing, and settlement program that features proprietary technology to facilitate the processing of refinance closings under the newly revamped Home Affordable Refinance Program, more commonly known as HARP 2.0.
HARP 2.0 differs significantly from the previous version of HARP in that there is no limitation on loan-to-value (LTV) ratios, credit score requirements are lower, and mortgage lenders can be proactive in approaching borrowers, First American explained.The California-based company says these program changes are expected to help lenders reach a previously untapped population of American homeowners, allowing qualified borrowers to refinance into loans with lower interest rates and, in some cases, shorter terms. First American’s Quick Start HARP solution supports the revised program by helping mortgage lenders develop their own “push” or “pull” approach to soliciting homeowners. In a “push” version, the lender utilizes internal loan data and First American’s proprietary title automation to proactively solicit homeowners who might benefit from HARP 2.0. The “pull” version is used when homeowners contact the lender to inquire about HARP 2.0. In both cases, First American says its automated technology delivers a title commitment, rather than a non-binding title decision, to the lender within seconds.First American developed its original solution in early 2010 for use with the first version of HARP. In doing so, the company worked closely with mortgage lenders to design specialized workflows that improve pull-through and closing times. Quick Start HARP adds to these features with reduced title premium rates and settlement costs for qualified refinances. This allows lenders to further assist homeowners by offering “no closing cost” loans that roll fees into the mortgage principal or into the new mortgage rate, First American explained.“Successful ‘push’ programs have the dual advantages of cost and time reduction for lenders and borrowers,” said Patrick E. McLaughlin, president of First American Mortgage Services, a division of First American Title Insurance Company and the exclusive provider of Quick Start HARP. HARP 2.0 transactions are prioritized for special handling within First American’s settlement centers and follow streamlined curative guidelines. The company says this approach results in closings that can be completed in as few as 14 business days. In addition, the program can be customized to include mobile notary signings or the use of First American’s eSignSmart, a technology that allows homeowners to sign loan documents electronically on a mobile tablet or digital signing pad. “Through advanced, accurate title automation and prioritized processes, we were able to achieve above-average results in speed to loan closings for the first version of HARP,” said Robert Camerota, COO of the First American Mortgage Services division. “Our Quick Start HARP solution can be rapidly adapted to a lender’s current or proposed workflow and supports a variety of refinance strategies, including lower interest rates, shorter-term mortgages, earlier rate locks, and no closing cost loans,” Camerota added.
Wednesday, January 4, 2012
Fannie Mae Removes 'Ability to Repay' from HARP 2.0 Guidelines
Fannie Mae has updated its Selling Guide to reflect the recently announced changes to the Home Affordable Refinance Program (HARP).
Most of the revisions had been previously announced in November, but there’s one nuance that stands out, and until this week, had been absent the HARP 2.0 discussion. Fannie Mae has removed the “reasonable ability to repay” clause from the criteria for vetting borrowers for a new HARP 2.0 refinance.The D.C.-based GSE says the terminology was scratched because the underwriting requirements specific to its refinance channels – Refi Plus and DU Refi Plus – are already clearly outlined within the Selling Guide. Fannie states in its latest update, “For Refi Plus, the lender is no longer required to determine the borrower has a reasonable ability to repay the mortgage based on a review of the information provided on the new loan application.”The previous guidelines for HARP loans processed through the manual underwriting channel (Refi Plus) put the onus on lenders to determine that the borrower had a reasonable ability to repay the mortgage based on information provided by the borrower and payment history. It also required that lenders verify and ensure the borrower had a source of income.Barclays Capital explains that ability to pay has traditionally been measured using DTI (debt-to-incomeratio) but pursuant to HARP guidelines, no DTI calculation or evaluation is required if the borrower’s payment does not increase by more than 20 percent. A 45 DTI cap applies otherwise.Under the revised guidelines, the ‘borrower ability to pay’ clause is no longer an underwriting requirement. Barclays says it appears Fannie Mae has taken subsequent feedback from lenders into account since the November 15th announcement of the HARP 2.0 framework and incorporated this change into its guidelines.The analysts at Barclays say the removal of the ability to pay clause is a “significant and unanticipated change that could have ramifications for the HARP program.”The GSEs promised to relax representation and warranty requirements under the new HARP program and in doing so, have reduced or waived most of the underwriting requirements on traditional loans.The ability to pay guideline, however, has continued to burden lenders with a subjective underwriting evaluation process that contains rep and warranty risk, according to Barclays. “In our conversation with lenders, this has been often highlighted as one of the significant hurdles to HARP refinancing,” the investment banking firm said. “Lenders argue that lack of clarity on what ‘reasonable ability’ precisely means could expose lenders to indemnification liability in the event that the loan defaults.”Barclays went on to explain, “Though the GSEs have indicated that this clause exists to ensure prudent underwriting judgment and efficient choice between HARP and HAMP, lenders view this as a significant risk.”Removal of the clause alleviates many of the remaining concerns about rep and warranty indemnification with respect to HARP refis, according to Barclays.The firm says lenders can now underwrite HARP loans assessing borrower credit based on a straightforward metric – number of payments made – which reduces a significant layer of complexity with respect to rep and warranties liabilities for HARP loans.
Most of the revisions had been previously announced in November, but there’s one nuance that stands out, and until this week, had been absent the HARP 2.0 discussion. Fannie Mae has removed the “reasonable ability to repay” clause from the criteria for vetting borrowers for a new HARP 2.0 refinance.The D.C.-based GSE says the terminology was scratched because the underwriting requirements specific to its refinance channels – Refi Plus and DU Refi Plus – are already clearly outlined within the Selling Guide. Fannie states in its latest update, “For Refi Plus, the lender is no longer required to determine the borrower has a reasonable ability to repay the mortgage based on a review of the information provided on the new loan application.”The previous guidelines for HARP loans processed through the manual underwriting channel (Refi Plus) put the onus on lenders to determine that the borrower had a reasonable ability to repay the mortgage based on information provided by the borrower and payment history. It also required that lenders verify and ensure the borrower had a source of income.Barclays Capital explains that ability to pay has traditionally been measured using DTI (debt-to-incomeratio) but pursuant to HARP guidelines, no DTI calculation or evaluation is required if the borrower’s payment does not increase by more than 20 percent. A 45 DTI cap applies otherwise.Under the revised guidelines, the ‘borrower ability to pay’ clause is no longer an underwriting requirement. Barclays says it appears Fannie Mae has taken subsequent feedback from lenders into account since the November 15th announcement of the HARP 2.0 framework and incorporated this change into its guidelines.The analysts at Barclays say the removal of the ability to pay clause is a “significant and unanticipated change that could have ramifications for the HARP program.”The GSEs promised to relax representation and warranty requirements under the new HARP program and in doing so, have reduced or waived most of the underwriting requirements on traditional loans.The ability to pay guideline, however, has continued to burden lenders with a subjective underwriting evaluation process that contains rep and warranty risk, according to Barclays. “In our conversation with lenders, this has been often highlighted as one of the significant hurdles to HARP refinancing,” the investment banking firm said. “Lenders argue that lack of clarity on what ‘reasonable ability’ precisely means could expose lenders to indemnification liability in the event that the loan defaults.”Barclays went on to explain, “Though the GSEs have indicated that this clause exists to ensure prudent underwriting judgment and efficient choice between HARP and HAMP, lenders view this as a significant risk.”Removal of the clause alleviates many of the remaining concerns about rep and warranty indemnification with respect to HARP refis, according to Barclays.The firm says lenders can now underwrite HARP loans assessing borrower credit based on a straightforward metric – number of payments made – which reduces a significant layer of complexity with respect to rep and warranties liabilities for HARP loans.
Serious Delinquencies Decline, Foreclosure Rates Steady
Serious delinquencies are on the decline, while foreclosures have steadied at 5.5 percent, according to recent data from Foreclosure-Response.org, a joint venture of the Local Initiatives Support Corporation, the Urban Institute, and the Center for Housing Policy.
Among the 100 largest metropolitan areas, serious delinquencies – those 90 days or more past due or in foreclosure – declined from 10.4 percent to 9.3 percent from its December 2009 peak to June 2011. The decline in serious delinquencies can be attributed to a decline in delinquent loans, according to Foreclosure-Response.org, which states delinquencies fell from 5.5 percent at the end of 2009 to 3.7 percent in mid-2011. Areas experiencing higher rates of serious delinquencies include Florida, California and some areas of New Jersey, the Great Lakes region, and the South. Areas with lower rates of serious delinquencies include Texas, the Central and Mountain Time zone regions, and some areas of the Pacific Northwest. Seventeen of the top 25 metros ranked for serious delinquencies and four of the top five are located in Florida. While serious delinquencies decline, foreclosures have “flat-lined,” according to Foreclosure-Response.org. The foreclosure rate has stayed at about 5.5 percent over the three quarters ending in June. The two metros experiencing the greatest decline in foreclosures are in California – Riverside (1.9 percent) and Stockton (1.7 percent).In contrast, metros in Florida, New York, and Illinois are seeing rising foreclosure rates. Tampa saw a 2.8 percent increase from December 2009 to June 2011, while Chicago saw a 2.3 percent increase, and New York saw a 2.1 percent increase. Foreclosure-Response.org notes that these three states are judicial states, which “can create a significant backlog of foreclosures.”“The foreclosure inventory that is building up is going to take an incredibly long time for lenders to clear,” said Urban Institute research associate Leah Hendey. “At the current pace of foreclosure sales, we are looking at a process that could take decades to complete.”“It is critical that the status of these properties be resolved quickly if we want to stabilize communities and housing markets,” Hendey continued.
Among the 100 largest metropolitan areas, serious delinquencies – those 90 days or more past due or in foreclosure – declined from 10.4 percent to 9.3 percent from its December 2009 peak to June 2011. The decline in serious delinquencies can be attributed to a decline in delinquent loans, according to Foreclosure-Response.org, which states delinquencies fell from 5.5 percent at the end of 2009 to 3.7 percent in mid-2011. Areas experiencing higher rates of serious delinquencies include Florida, California and some areas of New Jersey, the Great Lakes region, and the South. Areas with lower rates of serious delinquencies include Texas, the Central and Mountain Time zone regions, and some areas of the Pacific Northwest. Seventeen of the top 25 metros ranked for serious delinquencies and four of the top five are located in Florida. While serious delinquencies decline, foreclosures have “flat-lined,” according to Foreclosure-Response.org. The foreclosure rate has stayed at about 5.5 percent over the three quarters ending in June. The two metros experiencing the greatest decline in foreclosures are in California – Riverside (1.9 percent) and Stockton (1.7 percent).In contrast, metros in Florida, New York, and Illinois are seeing rising foreclosure rates. Tampa saw a 2.8 percent increase from December 2009 to June 2011, while Chicago saw a 2.3 percent increase, and New York saw a 2.1 percent increase. Foreclosure-Response.org notes that these three states are judicial states, which “can create a significant backlog of foreclosures.”“The foreclosure inventory that is building up is going to take an incredibly long time for lenders to clear,” said Urban Institute research associate Leah Hendey. “At the current pace of foreclosure sales, we are looking at a process that could take decades to complete.”“It is critical that the status of these properties be resolved quickly if we want to stabilize communities and housing markets,” Hendey continued.
FHA Waives Anti-Flipping Rule Through Year-End to Speed REO Sales
The Federal Housing Administration (FHA) is extending the temporary waiver of its property anti-flipping rule through the end of 2012.
FHA rules typically prohibit insuring a mortgage on a home owned by the seller for less than 90 days. In 2010, however, the agency waived this regulation, and later extended the waiver through 2011. The new extension announced late last week will permit buyers to continue to use FHA-insured financing to purchase HUD-owned and bank-owned properties, no matter how long the homeowner has held the title, through December 31, 2012. FHA says the waiver will allow homes to resell as quickly as possible, helping to stabilize real estate prices and revitalize communities experiencing high foreclosure activity.“This extension is intended to accelerate the resale of foreclosed properties in neighborhoods struggling to overcome the possible effects of abandonment and blight,” said Carol Galante, FHA’s Acting Commissioner. “FHA remains a critical source of mortgage financing andstability and we must make every effort that to promote recovery in every responsible way we can.”According to FHA, the waiver contains strict conditions and guidelines to prevent the predatory practice of property flipping, in which properties are quickly resold at inflated prices to unsuspecting borrowers. Among these conditions, all transactions must be arms-length, with no link between the buying and selling parties. In addition, in cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the waiver will apply only if the lender meets specific conditions, and documents the justification for the increase in value. FHA’s property-flipping waiver is limited to forward mortgages, and does not apply to the agency’s Home Equity Conversion Mortgage (HECM) for purchase program.Since the original waiver went into effect on February 1, 2010, FHA has insured nearly 42,000 mortgages worth more than $7 billion on properties resold within 90 days of acquisition.The agency says its own research has found that in today’s market, acquiring, rehabilitating, and reselling foreclosed properties to prospective homeowners often takes less than 90 days. As a result, FHA says prohibiting the use of its mortgage insurance for a subsequent resale within 90 days would adversely impact the willingness of sellers to consider offers from potential FHA buyers, namely because they would be required to cover holding costs and the risk of vandalism that comes with allowing a property to sit vacant over a 90-day period of time.
FHA rules typically prohibit insuring a mortgage on a home owned by the seller for less than 90 days. In 2010, however, the agency waived this regulation, and later extended the waiver through 2011. The new extension announced late last week will permit buyers to continue to use FHA-insured financing to purchase HUD-owned and bank-owned properties, no matter how long the homeowner has held the title, through December 31, 2012. FHA says the waiver will allow homes to resell as quickly as possible, helping to stabilize real estate prices and revitalize communities experiencing high foreclosure activity.“This extension is intended to accelerate the resale of foreclosed properties in neighborhoods struggling to overcome the possible effects of abandonment and blight,” said Carol Galante, FHA’s Acting Commissioner. “FHA remains a critical source of mortgage financing andstability and we must make every effort that to promote recovery in every responsible way we can.”According to FHA, the waiver contains strict conditions and guidelines to prevent the predatory practice of property flipping, in which properties are quickly resold at inflated prices to unsuspecting borrowers. Among these conditions, all transactions must be arms-length, with no link between the buying and selling parties. In addition, in cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the waiver will apply only if the lender meets specific conditions, and documents the justification for the increase in value. FHA’s property-flipping waiver is limited to forward mortgages, and does not apply to the agency’s Home Equity Conversion Mortgage (HECM) for purchase program.Since the original waiver went into effect on February 1, 2010, FHA has insured nearly 42,000 mortgages worth more than $7 billion on properties resold within 90 days of acquisition.The agency says its own research has found that in today’s market, acquiring, rehabilitating, and reselling foreclosed properties to prospective homeowners often takes less than 90 days. As a result, FHA says prohibiting the use of its mortgage insurance for a subsequent resale within 90 days would adversely impact the willingness of sellers to consider offers from potential FHA buyers, namely because they would be required to cover holding costs and the risk of vandalism that comes with allowing a property to sit vacant over a 90-day period of time.
Housing Market Strengthening But Long Road to Recovery Lies Ahead
The year 2011 is ending on a high note as economists anticipate some signs of recovery ahead. Prices appear to be reaching their trough, visible supply is on the decline, and banks are beginning – just slightly – to loosen lending standards, according to a fourth-quarter report from Capital Economics.
However, Capital Economics warns these positive signs do not point to an immediate recovery. Taking into account the historic ratio between disposable income and housing prices, homes were undervalued by 23 percent in the third quarter. Homes have not been this undervalued since at least 1975. Since 2006, prices have declined 33 percent, countering the sharp increases of the boom years. Therefore, “[i]t is clear that prices don’t need to fall further,” Capital Economics says. Nondistressed home prices in particular seem to have bottomed out. While home prices declined 4 percent this year, prices of nondistressed homes fell only 0.5 percent. Having reached the bottom, however, prices will not jump far in the new year. Capital Economics predicts national home prices will remain unchanged over the next two years before seeing positive movement – a 2.5 percent increase – in 2014. This past year has seen some positive movement in housing inventory with a 20 percent decrease in the number of homes listed for sale over the year. However, supply will remain an obstacle moving forward as the current shadow inventory is estimated at 4 million. Demand will also continue to be an issue. However, the report notes the market has seen a slight increase in home sales, which it attributes to first-time buyers. Banks are contributing to rising demand and supply absorption by allowing loans with loan to value ratios of 80 percent or even slightly higher, something that has not occurred since mid-2008, according to Capital Economics. The overall economy will not help boost the housing market in the coming year as the U.S. will continue to be affected by the euro-zone crisis. The rental market will continue to be the best-performing segment of the market.
However, Capital Economics warns these positive signs do not point to an immediate recovery. Taking into account the historic ratio between disposable income and housing prices, homes were undervalued by 23 percent in the third quarter. Homes have not been this undervalued since at least 1975. Since 2006, prices have declined 33 percent, countering the sharp increases of the boom years. Therefore, “[i]t is clear that prices don’t need to fall further,” Capital Economics says. Nondistressed home prices in particular seem to have bottomed out. While home prices declined 4 percent this year, prices of nondistressed homes fell only 0.5 percent. Having reached the bottom, however, prices will not jump far in the new year. Capital Economics predicts national home prices will remain unchanged over the next two years before seeing positive movement – a 2.5 percent increase – in 2014. This past year has seen some positive movement in housing inventory with a 20 percent decrease in the number of homes listed for sale over the year. However, supply will remain an obstacle moving forward as the current shadow inventory is estimated at 4 million. Demand will also continue to be an issue. However, the report notes the market has seen a slight increase in home sales, which it attributes to first-time buyers. Banks are contributing to rising demand and supply absorption by allowing loans with loan to value ratios of 80 percent or even slightly higher, something that has not occurred since mid-2008, according to Capital Economics. The overall economy will not help boost the housing market in the coming year as the U.S. will continue to be affected by the euro-zone crisis. The rental market will continue to be the best-performing segment of the market.
Strategic Defaulters Influenced by Social Persuasion: Study
Unemployment and other economic difficulties have caused millions of homeowners to involuntarily default on their mortgages, but there are some borrowers who are induced to simply stop making their mortgage payments because their property value has fallen and they owe more than their home is worth
rding to a study commissioned by the Mortgage Bankers Association (MBA), oftentimes strategic defaulters are encouraged to walk away at the behest of so-called mavens, or prominent influencers within a borrower’s social network whose persuasive arguments convince the borrower that strategic default is the way to go. The study, conducted by Michael J. Seiler of Old Dominion University; Andrew J. Collins of the Virginia Modeling, Analysis and Simulation Center; and Nina H. Fefferman of Rutgers University, examines the role that influential members of society play in people’s decision to stop paying their mortgage and the impact of strategic default on the broader housing market. “Recently, the overwhelming media coverage of the current financial crisis has made homeowners aware – or at least alerted them to become aware – of their equity position in their home,” Seiler commented. “[T]he possibility to strategically default has certainly been brought to the attention of current homeowners like never before, with potentially negative consequences for housing markets.”Through simulation modeling, Seiler and his co-authors demonstrate that because defaults and foreclosures lead to lower home prices, an epidemic of strategic defaults initiated by advice from those who might be considered experts could potentially spell detriment for the already ailing housing market.“As social animals, humans knowingly or otherwise look to their peers before reaching financially life-altering choices,” the authors write in the report outlining their findings. Seiler stresses that ideas can easily be transmitted through the population. He notes that housing pundits share their expert opinion with a large audience on a frequent basis through the media. “These social networks create the potential for much faster spread [of strategic default] than in the past,” Seiler said, adding that those pundits with a far-reaching sounding board can greatly impact mortgage markets through behavioral advocacy. “In fragile markets, advice by those considered to be experts can result in a flood of strategic defaults, causing a contagious downward spiral of home prices and potentially a market collapse,” according to Seiler.The study notes that whether by choice or necessity, as foreclosures increase, they have an increasingly negative impact on the price of the healthy homes around them. “One default does little to negatively impact the price of surrounding homes,” Seiler said. “However, as more and more mortgages in the neighborhood go into default, the negative impact is felt at an increasing rate. Much the same way as a disease spreads throughout a population, so, too, do decisions to ‘strategically’ default.”Michael Fratantoni, MBA’s VP of research and economics, says research has clearly shown that a borrower’s inability to continue making mortgage payments is the most predictive of a mortgage default. However, it is much more difficult to predict or even detect a strategic default – a borrower who has the ability to pay, but simply stops in expectation of a financial gain, Fratantoni explained. He says the consequences of strategic defaults can be destabilizing, particularly in markets that are already on the edge. “From a policy standpoint, the research supports the contention that opinion and information (or disinformation) can move markets,” Fratantoni said. “More specifically, that policymakers and mavens have the ability to stabilize or de-stabilize markets.”The study, entitled, “Strategic Default in the Context of a Social Network: An Epidemiological Approach,” received the Governor’s Technology Award for 2011 in Virginia in the category of “Cross-Boundary Collaboration in Modeling & Simulation.”
rding to a study commissioned by the Mortgage Bankers Association (MBA), oftentimes strategic defaulters are encouraged to walk away at the behest of so-called mavens, or prominent influencers within a borrower’s social network whose persuasive arguments convince the borrower that strategic default is the way to go. The study, conducted by Michael J. Seiler of Old Dominion University; Andrew J. Collins of the Virginia Modeling, Analysis and Simulation Center; and Nina H. Fefferman of Rutgers University, examines the role that influential members of society play in people’s decision to stop paying their mortgage and the impact of strategic default on the broader housing market. “Recently, the overwhelming media coverage of the current financial crisis has made homeowners aware – or at least alerted them to become aware – of their equity position in their home,” Seiler commented. “[T]he possibility to strategically default has certainly been brought to the attention of current homeowners like never before, with potentially negative consequences for housing markets.”Through simulation modeling, Seiler and his co-authors demonstrate that because defaults and foreclosures lead to lower home prices, an epidemic of strategic defaults initiated by advice from those who might be considered experts could potentially spell detriment for the already ailing housing market.“As social animals, humans knowingly or otherwise look to their peers before reaching financially life-altering choices,” the authors write in the report outlining their findings. Seiler stresses that ideas can easily be transmitted through the population. He notes that housing pundits share their expert opinion with a large audience on a frequent basis through the media. “These social networks create the potential for much faster spread [of strategic default] than in the past,” Seiler said, adding that those pundits with a far-reaching sounding board can greatly impact mortgage markets through behavioral advocacy. “In fragile markets, advice by those considered to be experts can result in a flood of strategic defaults, causing a contagious downward spiral of home prices and potentially a market collapse,” according to Seiler.The study notes that whether by choice or necessity, as foreclosures increase, they have an increasingly negative impact on the price of the healthy homes around them. “One default does little to negatively impact the price of surrounding homes,” Seiler said. “However, as more and more mortgages in the neighborhood go into default, the negative impact is felt at an increasing rate. Much the same way as a disease spreads throughout a population, so, too, do decisions to ‘strategically’ default.”Michael Fratantoni, MBA’s VP of research and economics, says research has clearly shown that a borrower’s inability to continue making mortgage payments is the most predictive of a mortgage default. However, it is much more difficult to predict or even detect a strategic default – a borrower who has the ability to pay, but simply stops in expectation of a financial gain, Fratantoni explained. He says the consequences of strategic defaults can be destabilizing, particularly in markets that are already on the edge. “From a policy standpoint, the research supports the contention that opinion and information (or disinformation) can move markets,” Fratantoni said. “More specifically, that policymakers and mavens have the ability to stabilize or de-stabilize markets.”The study, entitled, “Strategic Default in the Context of a Social Network: An Epidemiological Approach,” received the Governor’s Technology Award for 2011 in Virginia in the category of “Cross-Boundary Collaboration in Modeling & Simulation.”
California Attorney General Sues Fannie and Freddie
California Attorney General Kamala Harris is asking the court to force Fannie Mae and Freddie Mac to turn over information about their servicing, foreclosure, property leasing, and mortgage securitization activities in the stateHarris issued subpoenas to each of the GSEs last month, which according to the Los Angeles Times, outlined 51 questions the attorney general wanted answered – just one facet of Harris’ investigation to ascertain the extent to which mortgage lenders and servicers contributed to the state’s foreclosure and housing crisis.According to multiple media reports, Harris’ lawsuits against the two GSEs, filed Tuesday in California Superior Court in San Francisco, claim Fannie and Freddie have refused to comply with the subpoenas.Bloomberg Businessweek says in the complaints, Harris maintains the GSEs are “frustrating the Attorney General’s efforts to investigate and combat crime, blight and other threats to the health and safety of Californians.”Fannie and Freddie’s regulator, the Federal Housing Finance Agency (FHFA), had reportedly instructed the two mortgage financiers not to respond to Harris’ initial subpoenas on the grounds that states do not have the authority to take such action against the federally controlled GSEs.Attorneys for FHFA described Harris’ request for information as “frequently vague and ambiguous” and one that would place a burden “nothing short of staggering” on the GSEs in order to gather the details she’s demanding, according to the Associated Press.Harris wants Fannie and Freddie to identify all the California homes on which they foreclosed, as well as whether or not any were used for drug dealing or prostitution and the impact such activity had on the property’s value. The attorney general’s office also plans to look into the history of tax payment on the properties, evictions involving military families, and the GSEs’ actions related to the purchasing, packaging, and re-selling of so-called toxic mortgages.Harris announced an official alliance with Nevada Attorney General Catherine Cortez Masto earlier this month for the purpose of coordinating efforts between their offices in order to speed up investigations of misconduct and fraud within the mortgage industry. Harris said at the time that she is making “mortgage-related law enforcement action a top priority.”The two AGs joined forces after both dropped out of the multi-state effort to negotiate a settlement with the nation’s top five mortgage servicers over the robo-signing abuses that were disclosed last fall.
OCC: 88% of First-lien Mortgages at Large Banks are Performing
First-lien mortgage performance among large national banks’ servicing portfolios is stabilizing, with 88 percent current after decreasing by 0.1 percent over the third quarter of this year, according to the Office of the Comptroller of the Currency (OCC).Delinquencies – both early stage and serious delinquencies – remained unchanged over the quarter. The percentage of loans 30 days to 59 days delinquent stood at 3 percent, while those 60 or more days delinquent stood at 4.9 percent for the quarter. However, new foreclosures rose 21.1 percent bringing the total number of loans in foreclosure to about 1.3 million – 4.1 percent of the total loans observed by the OCC. Performing loans made up 93.1 percent of the GSEs’ portfolio, unchanged from the previous quarter. The number of home retention actions – modifications, trial period plans, and payment plans – completed by the industry in the third quarter was 0.6 percent higher than the previous quarter but 2.4 percent lower than last year. On average, mortgage modifications included 24.4 percent reductions in monthly principal and interest payments, lowering monthly payments by about $383. HAMP modifications included greater reductions – 35.1 percent decreases, saving borrowers $567 per month. In total, 90 percent of all modifications completed during the third quarter included reduced monthly payments. The OCC reported 77.5 percent of all modifications came with reduced interest rates; 20.5 percent included principal deferrals; and 7.8 percent included principal reductions. Of modifications through HAMP, 86.8 percent included reduced interest rates; 34.9 percent included principal deferrals; and 10.2 percent included principal reductions. The OCC also evaluated modification performance. From the beginning of 2008 through the second quarter of 2011, servicers modified more than 2.2 million loans. About half – 50.8 – are current or have been paid off. Of the remainder, 17.8 percent are seriously delinquent, and 8.8 percent are 30-59 days delinquent. The OCC’s report included 32.4 million loans, making up 62 percent of all mortgages in the U.S.
For Every Two Homes for Sale, There's One in the Shadows
The number of distressed properties not currently listed for sale on multiple listing services (MLSs) stood at 1.6 million as of October 2011, according to CoreLogic.This shadow inventory is approximately half of the industry’s visible inventory of homes available for sale, CoreLogic says. Thus, for every two homes available for sale, there is one home in the “shadows.”CoreLogic’s latest shadow inventory assessment represents a supply of five months and is down from October 2010, when shadow inventory stood at 1.9 million units, or 7-months’ supply. CoreLogic estimates the current stock of properties in the shadow inventory, also known as pending supply, by calculating the number of distressed properties not currently listed on MLSs that are seriously delinquent (90 days or more), in foreclosure, and real estate owned (REO) by lenders.Of the 1.6 million properties currently in the shadow inventory, 770,000 units are seriously delinquent, 430,000 are in foreclosure, and 370,000 are REO, according to CoreLogic’s report.Despite 3 million distressed sales since January 2009, a period when home prices were declining at their fastest rate, the shadow inventory in October 2011 is at the same level as January 2009, CoreLogic notes. Growth in the shadow supply, though, has been reined in by the fact that the flow of new seriously delinquent loans into the shadow inventory has been offset by a roughly equal flow of distressed REO and short sale transactions, the company explained.Still, the shadow inventory is approximately four times higher than its low point (380,000 properties) at the peak of the housing bubble in mid-2006, CoreLogic says. The company contends that a healthy housing market should have less than one-month’s supply of shadow inventory, which would be an easily absorbed stock of distressed assets with little or no discernable impact on house prices, unless the inventory was geographically concentrated.Currently, Florida, California, and Illinois account for more than a third of the shadow inventory, CoreLogic reports. The top six states, which would also include New York, Texas, and New Jersey, are home to half of the shadow inventory.
REO Properties Are Moving Faster: Survey
Homebuyer demand appears to be intensifying, especially among lower-priced REO properties, according to the Campbell/Inside Mortgage Finance HousingPulse Tracking Survey released Tuesday.Time-on-market for move-in ready REO was just 10.1 weeks in November, the lowest in 15 months, according to the HousingPulse study. Time-on-market for damaged REO was even lower at 9.0 weeks, also the lowest in 15 months.Distressed properties accounted for a sizeable 46.1 percent of home purchase transactions last month, based on data compiled for the HousingPulse distressed property index which uses a three-month rolling average. November marked the 23rd month in a row that the study’s distress index has come in above 40 percent.Short sales were the largest segment of the distressed property market during the month of November, accounting for 17.6 percent of total home purchase transactions tracked in the HousingPulse survey. Move-in ready REO was the next largest group of distressed properties with a 15.2 percent share, followed by damaged REO which made up 13.3 percent of total transactions. Non-distressed properties accounted for the remaining 53.9 percent of home purchases in November, according to the survey results.Despite the uptick in demand, the glut of distressed properties continues to put downward pressure on home prices. According to HousingPulse, the average short sale sold for $209,200 in November, while the average move-in ready REO sold for $189,700. Damaged REO sold for far lower at $98,600. At the same time, non-distressed properties sold for an average of $258,900.The authors of the survey noted in their report that the appraisal system for mortgage originations uses comparative values from both distressed and non-distressed properties, and they say appraisers are often unaware of the interior condition of foreclosed homes or the special circumstances of short sales. Prices agreed-to in purchase and sales contracts are sometimes not being supported by appraisals for mortgage financing that use disparate comparables, according to the report. These properties then sell to cash buyers for less, causing declines in average home prices, the authors explained.Real estate agents responding to this month’s HousingPulse survey commented on the appraisal system and how the low prices for distressed properties impact overall home prices. “The foreclosure/short sale markets are making it difficult to get non-distressed homes to appraise. This is holding off a market comeback in my area,” reported an agent in Maryland.“We could sell the homes for more but the appraisals are an issue since they are using short sales and foreclosures as comps,” explained an agent in Florida. Another agent based out of Michigan added, “Given the multiple offers and the short time on the market, one would expect that prices would be on the increase; however, appraisal guidelines are holding it back.”The HousingPulse Tracking Survey from Campbell Surveys and Inside Mortgage Finance polls approximately 2,500 real estate agents nationwide each month to assess market trends surrounding homes sales and mortgage lending.
Delinquencies on the Rise as Loans Languish in Pipeline
Lender Processing Services (LPS) has released new data detailing mortgage performance at November month-end. The most troubling statistic shows a nearly 3 percent month-over-month increase in the number of loans 30 or more days past due but not yet in foreclosure.LPS says 8.15 percent of the nation’s mortgages fell into this category as of the end of November. That’s up from 7.93 percent at the end of October – a 2.7 percent increase – and is the first time in four months the company has reported a rise in the national delinquency rate. On an annual basis, the stats pan out better, with November’s delinquency rate down 9.6 percent from a year earlier.The monthly increase in the delinquency rate can be attributed to a buildup of seriously delinquent mortgages. LPS says as of November, there were 1,809,000 properties on which mortgage payments were 90 or more days past due but the case had not yet been referred to foreclosure. The number of properties in this bucket stood at 1,759,000 in October. In contrast, borrowers who were behind on their payments by 30-89 days declined to 2,279,000 in November, down from 2,329,000 in October.According to LPS’ analysis, 4.16 percent of the nation’s mortgages were part of the foreclosure pre-sale inventory in November. That ratio is down 3.0 percent from October but up 2.0 percent from November 2010, and equates to 2,116,000 homes. All in all, LPS says 6,260,000 borrowers were behind on their payments or in foreclosure as of the end of November, representing one in eight residential mortgages. States with highest percentage of non-current loans – which combines foreclosures and delinquencies – include: Florida, Mississippi, Nevada, New Jersey, and Illinois. Montana, South Dakota, Wyoming, Alaska, and North Dakota have the lowest percentage of non-current loans.
Valuations and Sales Discounts Eat Away at Foreclosure Proceeds
Low property valuations and steep sales discounts reduce the proceeds from liquidated loans by almost a third, according to Moody’s Investors ServiceAs home prices drop, equity erosion drives most of the losses incurred on defaulted mortgage loans, but the analysts at Moody’s say in today’s environment that’s not the whole story.They maintain that loss projections based solely on average home prices substantially underestimate a foreclosed property’s actual loss severity.“Our analysis shows that liquidated properties are subject to discounts on their valuation and price that, on average, lead to selling prices that are about 30 percent lower than average home values,” Moody’s said.The agency’s analysts examined 46,000 loans liquidated since 2007 in order to measure the effect of foreclosure on a property’s value. They found that on average, a foreclosed property will be valued about 18 percent lower than average home prices,and will be subject to an additional sales discount of about 15 percent.Liquidated properties drop in value more than home price depreciation would imply primarily because they are likely to be in worse condition than a similar property without a distressed loan, Moody’s explained. The extent of valuation and sales markdowns vary widely, however, and depend on loan characteristics such as the product type, loan purpose, property type, and balance size.In general, properties located in judicial states lose more value than those in non-judicial states. Moody’s attributes this finding to the fact that loans in judicial jurisdictions face longer foreclosure timelines that allow the property to deteriorate more severely.Loans for investment properties and second homes fared worse than loans for primary residences in terms of value reductions. Moody’s points out that owner-occupants are generally more involved in property upkeep than tenants.Lower-balance loans generally are subject to higher valuation discounts. Moody’s says fixed maintenance costs and the financial means of the owner may explain why the values of properties with smaller balance loans deteriorate more than those of higher balance loans.Alt-A and option adjustable-rate mortgages (ARMs) lose more value than subprime loans, and they all see significantly larger discounts than jumbo loans. According to Moody’s inflated appraisals at origination are likely the culprit of the more sizeable value reductions down the road, especially for Alt-A and subprime loans originated in 2006 and 2007.
Fannie Mae: Three Servicers Improve Foreclosure Prevention Efforts
Foreclosure activity slipped 3 percent in November when compared to the previous month, but filings at various stages of the process showed starkly different movements, according to RealtyTrac’s latest market report. Fannie Mae released the results of the Servicer Total Achievement Rewards (STAR) Program Thursday, announcing improvements by JPMorgan Chase, PHH Mortgage, and U.S. Bank. All three banks improved their foreclosure alternative practices. “The STAR program evaluates servicers’ capabilities and results and holds them accountable for preventing foreclosures and protecting the interests of American taxpayers,” said Tara Clayton, VP of servicer review and measurement at Fannie Mae.“STAR is making a difference when it comes to increasing servicers’ focus on areas of critical importance to homeowners, Fannie Mae, and the market,” Clayton stated. STAR breaks servicers into three categories based on the number of Fannie Mae loans they service. In the first peer group of 11 servicers, four are expected to receive a three STAR rating – meaning they are at or above median performance – in 2011. Those four include CitiMortgage, Everbank, GMAC Mortgage, and Wells Fargo. In Peer Group Two, six of nine servicers are expected to receive a three STAR rating at the end of the year, including Aurora Bank, FSB, Central Mortgage Company, Fifth Third Bank, The Huntington National Bank, and Regions Bank. In Peer Group Three, nine of 13 servicers are expected to be at or above median performance level. The nine banks include American Home Mortgage Servicing, Arvest Mortgage Company, Associated Bank, Capital One, Colonial Savings, Doral Bank, Manufacturers and Traders Trust, Nationwide Advantage Mortgage, and Navy Federal Credit Union.
Foreclosure Filings Down 3%, RealtyTrac Reports
Scheduled auctions hit a nine-month high following the default surge that began in August. At the same time, RealtyTrac says REO activity is at a 44-month low.Total foreclosure filings – reported on 224,394 U.S. properties in November – are down by double-digits from a year ago, but RealtyTrac doesn’t view the numbers as the making of a trend.James Saccacio, co-founder of RealtyTrac, says the 14 percent year-over-year decline in filings last month is the smallest annual decrease recorded over the past year, and he points out that some bellwether states such as California, Arizona, and Massachusetts actually posted increases in foreclosure activity from November 2010.“Despite a seasonal slowdown similar to what we’ve seen in each of the past four years, November’s numbers suggest a new set of incoming foreclosure waves, many of which may roll into the market as REOs or short sales sometime early next year,” Saccacio said. Default notices (NOD, LIS) were filed for the first time on a total of 71,730 U.S. properties in November. Foreclosure auctions (NTS, NFS) were scheduled on 96,540 properties during the month, and lenders repossessed (REO) a total of 56,124 homes.Nevada posted the nation’s highest foreclosure rate for the 59th straight month. Filings rebounded 3 percent in November from a 45-month low in October, when a new law was passed altering the foreclosure process in the state. One in every 175 Nevada housing units had a foreclosure filing last month, more than three times the national average.Scheduled trustee’s sales in California hit a 10-month high in November, helping the state maintain the nation’s second highest foreclosure rate. A total of 26,509 trustee’s sales were scheduled in California last month, up 14 percent from November 2010 – the first year-over-year increase in scheduled foreclosure auctions in the Golden State since March 2010. Arizona foreclosure activity increased on a year-over-year basis in November for the first time since October 2010. With filings up 4 percent from a year earlier, Arizona posted the nation’s third highest foreclosure rate for the fifth month in a row. Substantial monthly increases in foreclosure activity in Utah and Georgia lifted those states’ foreclosure rates into the nation’s top five in November. Utah’s foreclosure rate ranked No. 4 thanks to a 74 percent monthly increase in foreclosure activity. Georgia saw a 23 percent increase in filings, giving it the No. 5 spot.Other states with foreclosure rates ranking among the top 10 were Michigan, Florida, Illinois, Ohio, and South Carolina. South Carolina cracked the top 10 for the first time since RealtyTrac began issuing its report in 2005.
Fitch: Timing and Method of REO Disposition Matters
Citing data from Lender Processing Services estimating more than 2 million properties in some state of foreclosure, Fitch Ratings stated in a press release Tuesday that REO sales – both single-property and bulk sales – will be an integral component of the housing market over the next two yearsHowever, “[t]he timing and method of their disposition has significant implications for home prices,” according to Fitch, because distressed properties generally sell at a substantial discount, further exacerbated by the presence of excess inventory.While the government has been considering a range of disposition strategies to diminish some of the inventory on Fannie Mae, Freddie Mac, and the Federal Housing Authority’s books, Fitch offered its take in Tuesday’s press release. According to Fitch, allowing foreclosed homeowners to stay in their homes as rental tenants “would help reduce the inventory of distressed properties for sale and also allow the borrowers to avoid the disruption of moving.” This method would be most beneficial in areas with high concentrations of distressed properties, such as Florida, Michigan, and Ohio. Fitch estimates 10 percent of homes in these three states are in foreclosure or REO.
Congress Questions Impartiality of Independent Foreclosure Reviews
At a Senate subcommittee hearing held this week to examine the progress of the foreclosure review process ordered earlier this year by the Office of the Comptroller of the Currency (OCC) and the Federal Reserve, lawmakers questioned the impartiality of the “independent reviews.”The consent orders designed in April call for the independent review of about 4.5 million foreclosure actions by 10 servicers to determine instances in which borrowers were financially harmed and compensate those borrowers. Julie Williams, first senior deputy comptroller and chief counsel for the OCC, attempted to assure the senators posing questions that the reviews would be unbiased. Williams explained that the banks proposed the independent consultants, and the OCC and Federal Reserve reviewed the proposals and rejected those in which they found a conflict of interest. When asked if many of the approved consultants have worked with the servicers previously, Williams admitted that some had. “There are a number of situations where they have done previous work for the servicers in different areas, generally, but they have had previous business engagements with those servicers.” “This raises questions about the true independence of these organizations,” Sen. Jack Reed (D-Rhode Island) stated. In her testimony, Williams stated that the OCC is requiring the independent reviewers to “ensure its work under the foreclosure review would not be subject to direction, control, supervision, oversight, or influence by the servicer, its contractors, or agents.” In its written testimony, the Federal Reserve corroborated Williams’s claim. “In determining the acceptability of consultants, the Federal Reserve closely scrutinized their independence,” stated Scott G. Alvarez, general counsel for the Federal Reserve. “Everyone involved in this process – the residential mortgage loan servicers, consultants and the regulators – has the desire to get it right,” stated Paul Leonard, vice president of the Housing Policy Council/The Financial Services Roundtable. Another witness at the hearing expressed an entirely different set of concerns. “My concern is not with the selection of independent consultants, but with the time and costs involved in such a laborious review process relative to the expected economic assessment of harm,” stated Anthony B. Sanders, professor of real estate finance at George Mason University. Sanders suggests out of the 4.5 million loans, there may be 100 instances of “egregious errors.” “Once the review is completed and the remediation for financial harm is concluded, I urge everyone to put the foreclosure issue aside and allow the market to heal itself,” Sanders stated. Meanwhile, servicers will have sent more than 4 million letters by the end of this year and will begin an advertising campaign beginning early 2012 to inform borrowers that they can request an independent review of their foreclosure action. In addition to a sample set of foreclosure actions, independent reviewers will examine all foreclosure actions on military members covered by the Servicemembers Civil Relief Act, borrowers who previously filed a complaint regarding their foreclosure, and “high risk” cases involving bankruptcy.
Prices Decline Slightly But Show Signs of Stabilizing
While home values are continuing to decline, they are beginning to stabilize as the market nears the bottom, according to the Zillow Real Estate Market Report released Tuesday. Since their peak in May 2007, prices have fallen 23.7 percent, according to Zillow’s data. On a yearly basis, prices fell 5.1 percent in October, arriving at $147,000. However, on a monthly basis, prices fell just 0.3 percent, demonstrating a deceleration in decline. “As expected, home values continue to fall in the back half of this year due to an abundance of housing supply relative to demand,” said Dr. Stan Humphries, Zillow’s chief economist. “Potential buyers remain on the sidelines or doubled up in other households, despite record high housing affordability and historically low mortgage rates.”Zillow, based in Washington, measures 156 metropolitan statistical areas (MSAs) each month. In October, prices declined in 95 MSAs and rose in 39. Prices in the remaining 22 MSAs remained relatively unchanged over the month. Some of the harder hit areas are starting to see a reprieve from their sharp declines in home values. Miami’s prices remained essentially unchanged for the month, and hard-hit areas of Phoenix and Detroit saw slight gains – 0.2 percent in Phoenix and 1 percent in Detroit. On a yearly basis, 10 of the 156 MSAs experienced rising prices. In addition to stabilizing prices, Zillow reported another positive sign for the market in its most recent report. The foreclosure liquidation rate fell for in October to 8.1 out of every 10,000 homes. This contrasts the record high reached one year ago – 10.7 of every 10,000 homes. While Zillow reports some slight positive signs for the market, Humphries says the “crisis of consumer confidence along with high rates of negative equity, are the biggest factors hindering a housing recover.” “However, I’m encouraged by the positive, albeit slow, progress in working down the unemployment rate, which should help to improve consumers’ appetites for buying homes,” he continues.
Foreclosure Sales Slow on West Coast
With the holiday season approaching, the research and tracking firm ForeclosureRadar is seeing declines in the number of completed foreclosures in four of the five states it monitors along the country’s West Coast. ForeclosureRadar’s coverage area includes Arizona, California, Nevada, Oregon, and Washington. Only Arizona saw foreclosure sales rise in November, up 25 percent from October. The company notes, however, that Arizona’s increase last month simply offset the 20 percent drop seen in October and is still well below the state’s average monthly sales for the year.“It’s great to see the banks slow down foreclosures and evictions for the holidays,” said Sean O’Toole, CEO and founder of ForeclosureRadar. “We expect that the numbers will drop even further in December.”ForeclosureRadar says it’s not unusual to see foreclosures slow for the holidays. Come January though, O’Toole says it will be back to business as usual with at least a small surge as banks play catch up after the delays.Foreclosure starts were up slightly in Nevada (+6.4 percent) and Washington (+5.0 percent), but ForeclosureRadar described the increases as “insignificant” given the recent declines in those states due to legislative changes and legal challenges. Notice of trustee sale filings rose 34.7 percent from October to November in California. ForeclosureRadar’s data show the increase came primarily from filings by Bank of America, up 52 percent, and Wells Fargo, up 23 percent. The company points out that it is not unusual to see an increase in foreclosure sales each January. These rise in trustee sale filings would be necessary in preparation for that, ForeclosureRadar explained. Sales to third parties, typically investors, have increased significantly year-over-year across most of ForeclosureRadar’s coverage area. The largest increases in third-party foreclosure sales were seen in Arizona and Nevada at 101.6 percent and 79.9 percent, respectively. Other states saw higher numbers as well – California, up 29.4 percent, and Washington, with a 6.7 percent annual increase.
Attorneys General Expect to Reach Settlement Before Christmas
The state attorneys general and the nation’s five largest mortgage servicers have been supposedly close to a settlement for quite some time. The latest estimate, according to the Des Moines Register is that they are likely to reach a settlement before Christmas. The Des Moines Register attributes this information to Iowa Attorney General Tom Miller, head of the committee negotiating a settlement with the banks, who said thesettlement would release the banks from legal claims on past servicing and foreclosure practices but would not provide any release on claims regarding securitizations. Miller reportedly said the deal would be complete by Christmas regardless of whether or not California participates. California Attorney General Kamala Harris withdrew from settlement negotiations in October but can still rejoin. Though the exact amount of the settlement is unknown, Bloomberg reported it will likely be in the range of $25 billion. In addition, Miller told the Des Moines Register the settlement requires “substantial principal reductions” for underwater homeowners as well as a new set of servicing standards. In other developments, Bloomberg reported Monday that former chairman of the FDIC, Sheila Bair, is being considered as a monitor for the settlement. As such, she would be charged with making sure banks comply with all aspects of the agreed upon settlement.
Fed: House Flipping Led to Deeper Housing Collapse
There’s been much debate over the root causes of the housing meltdown that catapulted the nation into the worst financial crisis in 80 years – from lax lending and subprime loans to over-leveraging in the secondary market. A new report from researchers at the Federal Reserve Bank of New York focuses on the sharp run-up and subsequent collapse in housing prices during the 2000s.It concludes that real estate investors who used mortgage credit to purchase multiple residential properties with the intent of flipping, or reselling them within a short period of time, played a larger role in fueling the housing bubble than previously recognized.These investors, the Fed researchers say, helped push prices up during 2004-2006, but when prices began to head south, they defaulted in large numbers, which served to intensify the housing cycle’s downward leg.Fed officials point out in their report that investors are more likely than owner-occupants to walk away from an underwater property. As such, lenders typically factor in that higher default risk by requiring larger down payments from buyers who acknowledge that they won’t be living in the house.The expansion of the nonprime mortgage market during the 2000s, however, provided the perfect opportunity for optimistic investors to get low-down-payment credit, according to the report. “Buy-and-flip” investors, in particular, were able to make higher bids on houses, even if they had relatively little cash.At the peak of the boom in 2006, the New York Fed’s researchers found that over a third of all U.S. home purchase lending was made to people who already owned at least one house. In the four states with the most pronounced boom-and-bust cycles – Arizona, California, Florida, and Nevada – the investor share was as high as 45 percent. Overall, the investor share of mortgage-financed home purchases roughly doubled between 2000 and 2006, with the largest increases seen among those owning three or more properties, according to Fed data. In 2006, Arizona, California, Florida, and Nevada investors owning three or more properties were responsible for nearly 20 percent of originations, almost triple their share in 2000, Fed officials report.“Longstanding tradition in the mortgage lending business and the predictions of economic models hold that investors will quickly default if prices begin a persistent fall. This is what happened starting in 2006,” according to the Fed researchers.From 2007 to 2009, they found that investors were responsible for more than a quarter of seriously delinquent mortgage balances nationwide, and more than a third in Arizona, California, Florida, and Nevada.“We conclude that investors were much more important in the housing boom and bust during the 2000s than previously thought,” the researchers wrote in a blog post explaining their findings. They stress that the availability of low- and no-down-payment mortgages in the nonprime sector enabled investors to make highly leveraged bets on house prices, which likely allowed the bubble to inflate further and caused millions of owner-occupants to pay more for their homes. “In the end, even the value of the 20 percent down-payments made by responsible, prime borrowers was wiped out — leaving the housing market, and the economy, in the vulnerable state we find them in today,” according to the researchers at the New York Federal Reserve.
Mortgage Default Risk Edging Toward 'Normalcy'
Lenders and investors should expect defaults on mortgage loans currently being originated to be 31 percent higher than the average of loans originated in the 1990s, according to a new report from University Financial Associates (UFA).The UFA Default Risk Index for the fourth quarter of 2011 edged lower to 131 from last quarter’s revised 133. The index’s baseline of 100 correlates to the default risk of loans made during the 1990s.As a point of comparison, UFA’s index reading measuring the risk associated with mortgage default was 141 as recently as the first quarter of this year. For what UFA says were the worst vintages of this cycle (2006-2008), the default index soared above 225. UFA says its Default Risk Index finds that residential mortgage default and prepayment risks are continuing their return to normalcy.“Despite continuing high unemployment and the threat of contagion from Europe, our Default Risk Index has improved,” said Dennis Capozza, who is the Dale Dykema professor of business administration in the Ross School of Business at the University of Michigan, and a founding principal of Ann Arbor, Michigan-based UFA. “With consumer balance sheets improving and mortgage rates at record lows, the stage is set for a recovery in the housing market, for which lenders and investors may do well to prepare. We await the catalyst,” Capozza said.The UFA Default Risk Index measures the risk of default on newly originated prime and nonprime mortgages. UFA’s analysis is based on a “constant-quality” loan, that is, a loan with the same borrower, loan, and collateral characteristics. Each quarter, UFA evaluates economic conditions in the United States and assesses how these conditions will impact future mortgage defaults, prepayments, loss recoveries, and loan values.The index reflects only the changes in current and expected future economic conditions, which the company says “are much less favorable currently than in prior years.” UFA’s current assessment has GDP growing just above trend for the next two years and at trend thereafter, but does not envision another recession.
GSE Execs Say Defined Foreclosure Timelines Are Necessary
Representatives from both Fannie Mae and Freddie Mac upheld the companies’ practice of assessing penalties against servicers who fail to meet defined timelines for processing foreclosures. Speaking to mortgage professionals at the Five Star MPact Conference in Dallas, Steve Clinton, Freddie Mac’s SVP of single-family operations, said “clearly the better outcome for both Fannie and Freddie is to keep the borrower in the home” with a loan modification offered early in the default process.But as Edward Seiler, a director in Fannie Mae’s National Servicing Organization, acknowledged, sometimes servicers are faced with a difficult decision – sometimes “a borrower just shouldn’t be in that home,” Seiler said. In such a situation, it’s critical that servicers complete the foreclosure process in a timely manner to clear bad loans from the pipeline and limit losses for the GSEs and taxpayers, according to the companies’ execs. Rep. Elijah Cummings (D-Maryland) recently began inquiring about policies in place at Fannie and Freddie that fine servicers when they don’t complete a foreclosure action within the window of time established by the GSEs’ servicing guidelines. Cummings says internal records show the GSEs assessed $150 million in fines against servicers last year for not processing foreclosures fast enough. “I am concerned that these penalties, at least some of which were ordered by the Federal Housing Finance Agency (FHFA), may have contributed to widespread abuses by mortgage servicing companies and law firms attempting to meet arbitrary deadlines to expedite foreclosures,” Cummings said in a letter sent last month to Edward DeMarco, acting director of FHFA. Cummings cites a June 2010 report from FHFA’s Office of Conservatorship Operations which concluded that “servicers, attorneys, and other supporting personnel were overloaded with the volume of foreclosures … documentation problems were evident, and law firms … were not devoting the time necessary to their cases.”Clinton and Seiler stress that the foreclosure timeline mandates come into play only after all loss mitigation options are exhausted.“Our biggest problem was loans from a year and two years ago were just sitting there,” stagnant in the foreclosure pipeline, Clinton said. Fannie Mae and Freddie Mac have synchronized their individual foreclosure timeline requirements with the coordinated Servicing Alignment Initiative that went into effect October 1. Clinton notes that the timelines and penalties have been in place for some time, but with the newly enacted guidelines, the GSE have aligned their parameters in order to help simplify and standardize procedures for their servicers. “We don’t want the money” from penalties, Clinton said, “we want the behavior,” in terms of servicer compliance with both foreclosure prevention and foreclosure processing procedures.In today’s environment of mass default, Clinton says the industry needs mass loss mitigation – effective procedures, standardized evaluations, and timely resolutions.
Bill Proposes Limitations on Deficiency Judgments
Rep. Ed Towns (D-New York) has introduced a new bill to limit the period of time during which a bank can bring deficiency judgments against foreclosed borrowers. Currently, the window during which a lender may pursue a deficiency judgment varies by state and can be anywhere from six months to six years. The Fairness in Foreclosure Act (H.R. 3566) would prohibit lenders from pursuing deficiency judgments more than 12 months after foreclosure, except in states with shorter windows for deficiency judgments. The act also aims to restrict deficiency judgments against all low-income families. Additionally, if the amount secured through foreclosure sale does not recover the full amount owed to the lender, the bank would not be allowed to report the deficiency to consumer reporting agencies as an unpaid debt from the borrower. “A deficiency judgment after foreclosure seems to be one of the greatest injustices that occur to homeowners after they have gone through the arduous foreclosure process,” Towns stated in a press release announcing the Fairness in Foreclosure Act. “Not only are they behind by thousands of dollars on their mortgage payments and facing public auction of their houses, the ordeal may continue indefinitely,” Towns continued.
National 'Occupy Our Homes' Day Kicks Off New Occupy Initiative
Last month the Occupy Oakland movement announced its intention to occupy vacant properties. On Tuesday, Occupy Oakland was one of 25 local Occupy groups to observe a national “Occupy Our Homes” day. “This Tuesday, thousands will be standing up for their neighbors in a struggle against a system that places financial gain above the human need for shelter,” said a statement on the Occupytogether.org website prior to the event.The statement referred to the trillions of dollars in loans the banks received from the Fed and the billions borrowed from taxpayers through TARP, and went on to say, “Homeowners take risks when buying homes; however, when they lose their jobs or are unable to afford their medical attention, they don’t get bailouts, they lose everything.” Several Occupy movements made the first steps to occupy foreclosed homes or homes in the process of foreclosure. Occupy Atlanta members started their day on courthouse steps in Fulton, Gwinnett, and DeKalb Counties. “Over 200 Occupy Atlanta protesters descended on the Fulton County courthouse steps with whistles, sirens, drums, and blow-horns and made it as difficult as possible for the auction to continue,” according to the Occupy Atlanta website. Protesters then visited the homes of two homeowners facing foreclosure to demonstrate their support and their intention to continue to occupy the homes despite foreclosure actions. “This is only the beginning of the fight against Foreclosure and lack of housing in America,” states the Occupy Atlanta website. Occupy Brooklyn members marched through a Brooklyn neighborhood “to liberate a foreclosed home,” according to their website. Like the Occupy Atlanta movement, Occupy Brooklyn made it clear that this is just the beginning of a new initiative for the movement. “This action is part of a national kick-off for a new frontier for the occupy movement: the liberation of vacant bank-owned homes for those in need,” stated a post on the Occupy Brooklyn website.
Industry Approaches 1M Loan Modifications This Year
About 885,000 borrowers have received permanent loan modifications this year, according to October data from HOPE NOW. The voluntary alliance of mortgage industry participants announced last month that the industry had completed 5 million modifications since 2007. “With almost a million loan mods completed this year, it is clear that the industry and its partners continue to invest a tremendous amount of resources into assisting homeowners across the country,” said HOPE NOW executive director Faith Schwartz Wednesday with the release of the October data. The industry completed almost 80,000 modifications in October after completing a little more than 90,000 in September. Of the 80,000 modifications completed in October, more than 53,000 were proprietary modifications, while 26,102 were completed through HAMP. Of the year-to-date modification total of 885,000, about 582,000 are proprietary, while 303,426 were completed through HAMP. About 79 percent of all proprietary loan modifications completed in October included principal and interest payment reductions. On about 74 percent of the loans, the reductions in principal and interest were at least 10 percent. Additionally, about 86 percent of proprietary modifications completed in October were fixed-rate modifications. HOPE NOW also reported that foreclosure starts rose during the month of October, while foreclosure sales fell. Foreclosure starts increased 7 percent, rising from 196,000 in September to 209,000 in October. Foreclosure sales fell 5 percent over the month from 68,000 to 64,000. Delinquencies of 60 days or more fell along with foreclosure sales, dropping 6 percent from 2.81 million in September to 2.65 million in October. While Schwartz credited the industry for its efforts in accomplishing more than 5 million loan modifications since 2007 and its evolving efforts in borrower outreach, she stated, “The work is not done.” However, HOPE NOW continues to conduct borrower outreach events throughout the nation to assist struggling homeowners. “HOPE NOW recently wrapped up its 2011 homeowner outreach schedule – including 15 separate events with close to 12,000 attendees. Events are being planned for the first quarter of 2012 in Charlotte, Miami and Tampa, plus several cities to be determined,” Schwartz said.
LPS Technology Safeguards Against Foreclosing on Military Personnel
Florida-based Lender Processing Services (LPS) has added additional functionality to its MSP loan servicing platform that the company says will help servicers better track and manage loans belonging to military service members.LPS’ Military Service Relief (MSR) workstation adds 30 fields to MSP to allow servicers to identify and process loans protected under the Servicemembers Civil Relief Act (SCRA), while providing stop-gap measures to guard against foreclosing on military personnel. SCRA prohibits mortgage servicers from foreclosing or seizing property from active-duty military personnel unable to meet their mortgage obligations. The protection from foreclosure lasts up to nine months after active duty has ended, and service members also qualify for interest rate limits and other shields under the law.“Due to the current mortgage environment, LPS saw a widespread need to add additional holds and stop-gap measures to help servicers identify loans belonging to our nation’s military personnel,” said Joseph Nackashi LPS’ chief information officer.“The expanded functionality can capture and store information about a borrower’s active duty status, while other unique identifiers detect SCRA-eligibility to ensure fees are not assessed or collected in error and that payoff interest is calculated using the correct SCRA rate limits,” Nackashi explained.LPS says future MSR enhancements will deliver additional functionality related to default and credit bureau reporting, as well as reconciliation of advances.The company’s MSP is used to service approximately half of the nation’s mortgage loans by dollar volume.
GSEs Total 2 Million Foreclosure Prevention Actions
Servicers for Fannie Mae and Freddie Mac have completed almost 2 million foreclosure prevention actions for the two companies since they went into conservatorship in 2008, according to the Federal Housing Finance Agency’s (FHFA) third-quarter report.More than half of these actions have been loan modifications, and of the remainder, about 676,500 have kept homeowners in their homes. About 269,700 were short sales or deeds in lieu. The number of loans modified by the GSEs in the third quarter was 3 percent higher than that of the second quarter. The GSEs modified 83,600 loans during the third quarter. About two-thirds of loan modifications completed during the third quarter included repayment reductions of more than 20 percent.Fannie and Freddie also completed 48,900 repayment plans and 7,000 forbearance plans in the third quarter. The number of borrowers in HAMP trial periods declined from 51,000 at the end of the second quarter to 42,300 at the end of the third quarter. The FHFA says this decline occurred as borrowers completed their trial modifications and received permanent modifications. About 22,600 trial modifications graduated into permanent modifications in the third quarter. The total number of loans modified under HAMP since its inception falls just short of 400,000 at 380,300. The GSEs also increased the number of loans refinanced under the Home Affordable Refinance Program (HARP) in the third quarter.HARP refinancings increased 11 percent over the quarter, bringing the total to 928,600. Additionally, over the third quarter, the GSEs saw serious delinquency rates decline from 3.85 percent to 3.81 percent. However, the percentage of homeowners between 30 and 59 days delinquent increased from 2.04 percent in the second quarter to 2.07 percent in the third quarter. REO inventory decreased from 196,000 to 182,000 over the quarter.inance Agency’s (FHFA) third-quarter report
Treasury to Withhold Foreclosure Prevention Incentives from Two
The U.S. Treasury said Wednesday that it will continue to withhold incentives from JPMorgan Chase and Bank of America for modifications, short sales, and deeds-in-lieu completed through government programs.JPMorgan is the only servicer participating in Treasury’s Making Home Affordable program that was determined to need “substantial improvement” in complying with program guidelines during the third quarter. The company – now said to be the largest U.S. bank by assets – was also in need of “substantial improvement” during the first and second quarters of this year. JPMorgan’s servicer incentives have been withheld since the first assessment was made at the conclusion of Q1.Treasury called out JPMorgan in its report for the servicer’s “lack of progress in implementing previously identified improvements.”Bank of America was given a grade of needing “substantial improvement” during the first and second quarters, but moved up a notch on the assessment scorecard to needing only “moderate improvement” for the third quarter. Still, Treasury says it “will continue to withhold servicer incentives from Bank of America, NA, until it makes additional improvements.”Treasury’s quarterly compliance assessments cover the 10 largest servicers participating in the Making Home Affordable program.Six other servicers were also found to need “moderate improvement” during the third quarter: American Home Mortgage Servicing, CitiMortgage, GMAC Mortgage, Litton Loan Servicing, Ocwen, and Wells Fargo. Incentives are not being withheld from any of these program participants.Two servicers met the established benchmarks for program compliance, indicating that they require just “minor improvement” on the areas reviewed for the third quarter: OneWest Bank and Select Portfolio Servicing.Treasury says when Making Home Affordable began, “most servicers did not have the staff, procedures, or systems in place to respond to the volume of homeowners struggling to pay their mortgages, or to respond to the housing crisis generally.” Officials note that participating companies have taken specific actions to better their servicing processes. “While the servicers have improved their performance, they still have more progress to make,” according to Treasury. Treasury says its decision to make individual servicer assessments public is intended to push servicers to correct identified shortfalls. Treasury notes that participation in Making Home Affordable – including the Home Affordable Modification Program (HAMP) and the Home Affordable Foreclosure Alternative (HAFA) program– is voluntary. As such, Treasury does not have the authority to impose fines or penalties, but can take certain remedial actions for non-compliance such as withholding incentive payments.
Mortgage Delinquencies to Decline in 2012: Study
The current year will close with a 7 percent yearly decline in mortgage delinquencies, matching last year’s decline, according to predictions released Wednesday by TransUnion. The percent of borrowers 60 days or more delinquent will fall to 5.95 percent by the end of the year, and will fall to 5 percent by the end of 2012, according to TransUnion. However, despite yearly declines, the forecasters expect a slight rise in delinquencies through the first quarter of 2012.After reaching 6.02 percent in the first quarter, delinquencies will decline for the following three quarters, the forecasters predict. Tim Martin, group VP of U.S. housing in TransUnion’s financial services business unit, believes house prices and unemployment will continue to pose problems for the market in the coming year, but the market will see some positive movement due to “improving credit quality of new originations, consumer confidence, and GDP.” “If things go as expected, there are no additional negative shocks to the U.S. economy and the average borrower’s situation, mortgage delinquencies could fall as much as 16% in 2012 compared to 2011,” Martin said. While the nation is expected to experience overall declines in mortgage delinquencies in the coming year, 12 states and the District of Columbia will likely see increases. Thirty-eight states will experience declines. TransUnion expects Florida, Nevada, and the District of Columbia to close the fourth quarter of 2012 with the highest delinquency rates. Florida and Nevada will be seeing double-digit delinquency rates at 13.20 percent and 11.09 percent respectively. The District of Columbia will follow with a rate of 7.91 percent. At the other end of the spectrum, North Dakota will see the lowest delinquency rate in the nation at the end of 2012 at 1.3 percent. South Dakota and Wisconsin will follow with rates of 1.96 percent and 2.11 percent respectively.
Experts Advocate Stabilizing Neighborhoods with Short Sales
Foreclosures are going to go up before they go down,” according to Craig Nickerson, president of the National Community Stabilization Trust.Nickerson says estimates put foreclosure tallies at 850,000 this year, as high as 1.5 million in 2013, and then back to the levels we’re at today by 2015. With all these distressed properties potentially making their way to an already stressed marketplace, Nickerson, along with a panel of industry professionals at the inaugural MPact Conference advocated for bulk short sales.The panel discussion centered around neighborhood stabilization initiatives and HUD’s $7 billion program created to facilitate the rehabilitation of properties in communities challenged with high levels of foreclosures and property vacancies – aptly named the Neighborhood Stabilization Program (NSP). “Foreclosure prevention by itself is not going to [be the] cure” for the housing crisis, Hala Farid, deputy director of Citigroup’s Office of Homeownership Preservation, told those attending the standing-room-only session. Farid says Citi is devising a procedure where NSP program participants will have access to escalated points of contact to expedite the short sale process in support of neighborhood stabilization efforts.Francis Martinez Myers, president of Employee Transfer Corporation (ETC) and ETCREO Management, said the industry is “on the cusp” of utilizing short sales as a viable means of stabilization, “but it’s not without its challenges,” she added.“Lenders have to be aggressive about offering pre-approved listing prices for short sale properties,” according to Myers. She says having pre-approvals in hand would help facilitate transactions for bulk short sales.Myers described the size and magnitude of this crisis as unprecedented. “I feel like we are in a five-alarm fire and we are still negotiating over which kind of garden hose we’re going to use … If we’re not careful and not aggressive, it’s going to be very difficult to get through this,” she said.“Holistically we’re not doing enough fast enough,” according to Myers. Just “selling one house at a time, means 10 years from now we’ll still be here having this conversation,” Myers said. She spoke of the advantages of tailoring services that are geared toward investors and nonprofit groups to facilitate bulk purchases of short sale properties. Myers says her organization is working on a pilot initiative which aggregates available short sales in the market, pools together properties meeting investors’ and nonprofits’ qualifications, and lines them up for inspection. Tyler Smith, VP of Wells Fargo’s REO disposition team, noted that managing investor participation with communities’ neighborhood stabilization efforts “can sometimes be a conflict of interest.”According to Jerome Devadoss, manager of alternative dispositions for Fannie Mae’s REO sales operation, it’s important to engage community-minded investors to work alongside local nonprofits toward neighborhood stabilization, whether it’s through short sales or any other loss mitigation strategy.Jim O’Donnell, manager of the West Coast REO Revitalization Program at Chase, says his company is exploring ways to facilitate short sales to nonprofit organizations. Chase is looking to make short sales and distressed portfolios part of its “First Look” program.Short sales are increasingly making their way into the conversation as a practicable solution to support neighborhood stabilization. Eric Will, senior REO sales director for Freddie Mac’s HomeSteps division, said “knowledge around this [short sale] space is growing. We know it needs to be done.”
Analysts: Market Recovery On the Horizon But Will Vary by Location
With about 800,000 REOs and about 1 million properties in some stage of default, according to Rick Sharga, EVP of Carrington Mortgage Holdings, it is difficult to see the light at the end of the tunnel. However, that is just what a group of four analysts – including Sharga – tried to do at a panel Monday at the Five Star MPact Mortgage Banking Conference and Expo. “In every previous recession, housing has brought us out of the recession,” Sharga said, but in this recession, “it dragged us in.” As a result, he says, recovery this time will be a bit different. “Inventory continues to outpace sales,” Sharga said, and as long as this is the case, the market cannot recover. However, Eugenio Aleman, director and senior economist at Wells Fargo, pointed out that the economy is growing – though the pace remains slow. Unemployment remains high, but the economy is adding jobs – slowly. “In 10 years, we’ll be saying, ‘Why didn’t we buy a house today?’” said Aleman. “This is the best time to buy.” While Aleman does not know for sure when interest rates and prices will rise, he is certain they will. According to Sharga, foreclosures should have peaked this year, and recovery should have started in the coming year. However, foreclosure delays due to robo-signing have hindered this process. Ultimately, market recovery will depend on a number of variables and differ greatly by locale, according to Eric Fox, VP of statistical and economic modeling for Veros Real Estate Solutions. For example, in the New York metropolitan area, a projection about 12 months ago saw the market falling 3 percent, but this rate came with a 13 percent spread, depending on the type of property and neighborhood, Fox said. Local variables contributing to and detracting from market recovery include price-to-rent ratio, population trends, affordability, school districts, and more. Another factor contributing to market recovery is whether a state is a judicial or non-judicial state. Kostya Gradushy cites data predicting it will take eight years to clear the foreclosure inventory in judicial states and three years in non-judicial states.
Foreclosure Crisis Isn't Even Halfway Over: Study
The foreclosure crisis has had a long and destructive run – five years and counting, with millions put out of their homes. According to the Center for Responsible Lending (CRL), we’re not even halfway through the devastation.The organization’s analysis of 27 million mortgage loans originated over a five-year period found that 6.4 percent of mortgages made between 2004 and 2008 have ended in foreclosure, and an additional 8.3 percent are at immediate, serious risk.The study also offers up evidence that foreclosure patterns are strongly linked with patterns of risky lending. According to CRL, foreclosure rates are consistently worse for borrowers who received high-risk loan products that were aggressively marketed before the housing crash, such as loans with prepayment penalties, hybrid adjustable-rate mortgages (ARMs), and option ARMs.Looking at the demographics of foreclosure casualties, CRL found that the majority of people affected by foreclosureshave been white families. However, borrowers of color are more than twice as likely to lose their home, the organization says.According to CRL, these higher rates reflect the fact that African Americans and Latinos were consistently more likely to receive high-risk loan products, even after accounting for income and credit status.African Americans and Latinos were much more likely to receive subprime loans with high interest rates and loans with features that are associated with higher foreclosures, CRL explained. The nonprofit group found that these disparities were evident even when comparing borrowers within the same credit score ranges, with the gap especially pronounced for borrowers with higher credit scores. “Our study provides further support for the key role played by loan products in driving foreclosures,” CRL said. “Specific populations that received higher-risk products-regardless of income and credit status-were more likely to lose their homes.”While some blame the subprime disaster on policies designed to expand access to mortgage credit, CRL says the facts undercut these claims.Instead, the group argues that dangerous products, aggressive marketing, and poor loan underwriting were major drivers of foreclosures in the subprime market. CRL credits the Dodd-Frank Act as the first vital step taken to strengthen mortgage protections by restricting the use of risky products and requiring lenders to consider each borrower’s ability to repay a loan. “These new rules will certainly have a positive effect on the success of future mortgages,” CRL said.
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