Posts Tagged ‘refinancing’

Mortgage Delinquencies on the Decline

Tuesday, July 3rd, 2012

The percentage of borrowers who are behind on making mortgage payments fell to a four-year low in the first three months of 2012, according to the Mortgage Bankers Association (MBA).  The percentage of loans that were delinquent or in the foreclosure process during the 1st quarter was 11.33 percent, the lowest level since 2008.  That was a decrease of 1.2 percentage points from a quarter earlier and 0.98 percentage point below the rate reported one year ago.

A flare up of the sovereign debt troubles in Europe once again led investors to flee to the safety of U.S. Treasury securities last week.  As a result, mortgage rates have reached new lows in our survey, and refinancing application volumes picked up substantially as a result,” Fratantoni said.  ”Survey participants indicated that this was not due primarily to HARP (Home Affordable Refinance Program) volume – the HARP share of refinances fell to 28 percent of refinance applications, down relative to last week and last month, when the share was just above 30 percent in April.”

These new delinquencies represent 3.1 percent of loans outstanding, said Jay Brinkmann, the MBA’s chief economist.  That corresponds to the historical average dating back to the 1990s, he said.  “Basically, we’re back to normal on that count,” he said.  “The short-term delinquencies are back to normal, longer-term delinquencies still continue to go down.  The remaining problem is this backlog of foreclosures in certain states,” Brinkmann said.

One cause that has slowed the recovery is the ongoing difficulty lenders face completing the foreclosure process, particularly in states that involve the courts in the foreclosure process.  In the judicial states, 6.9 percent of loans are in foreclosure inventory, loans that the banks have started the legal process of foreclosing on but have not yet taken control of the property through a foreclosure sale.  In states where foreclosures are handled by trustees such as title companies, only 2.9 percent of loans are in foreclosure inventory.

The delinquency rate peaked at 10.1 percent in the 1st quarter of 2010 and was last lower in the 3rd quarter of 2008, when it was 6.99 percent.  The majority of troubled loans were originated between 2005 and 2007.  Tighter lending standards and deflated prices for borrowers who got mortgages after the housing market collapsed are the reason for better performance of loans issued since 2008.  Loans that are more than 90 days overdue — the point at which lenders usually begin the process of seizing a property – fell to 3.06 percent from 3.11 percent in the 1st quarter and 3.62 percent one year ago.  The share of homes that had received a foreclosure notice and hadn’t been seized by banks increased to 4.39 percent, an increase of one basis point, or 0.01 percentage point, from the previous quarter.

The bad news is that the percentage of loans in the foreclosure process rose slightly to 4.39 percent in the 1st quarter from 4.38 percent in the 4th quarter, reflecting slow judicial-foreclosure systems in states such as Florida, according to the MBA.  The rate was at 4.52 percent a year ago.

According to the MBA, foreclosure starts fell in 41 states.  The MBA survey covers 42.8 million loans on one- to four-unit residential properties, or approximately 88 percent of all first-lien residential mortgages in the country.

The average rate on 30-year fixed-rate mortgages with conforming loan balances declined to 3.96 percent from 4.01 percent, while rates on similar mortgages with jumbo loan balances fell to 4.2 percent from 4.29 percent.  The typical rate on FHA-backed 30-year fixed-rate mortgages slipped to 3.75 percent from 3.81 percent.

Despite the good national news, the MBA survey found that Illinois still has a high foreclosure rate.  Nearly 7.5 percent of all one-to-four-unit mortgage loans in Illinois were in foreclosure in the 1st quarter, compared with a national average of 4.39 percent.  “Illinois and New Jersey trail only Florida as being the worst in the country, and they’re getting worse,” Brinkmann said.  “The rate in Illinois is more than twice that of California.  In the judicial states the problem continues to get worse in terms of the backlog of loans in the foreclosure process.”

Government Wants to Sell Foreclosed Properties in Bulk as Rentals

Tuesday, January 24th, 2012

The Obama administration plans to work closely with federal regulators, Fannie Mae and Freddie Mac to start a pilot program to sell government-owned foreclosures in bulk to investors as rentals, according to administration officials.

There currently are approximately 250,000 foreclosed properties on the books of Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA), and millions more are expected.  Last year’s foreclosure processing delays created an enormous backlog of properties yet to be processed and are just now being restarted. One of the program’s initiatives is for the federal government to mitigate and manage new foreclosures.  Late-stage delinquencies still number close to two million, according to a report from Lending Processing Services (LPS).  Foreclosure starts are double foreclosure sales and “the trend toward fewer loans becoming delinquent, which dominated 2010 and the 1st quarter of 2011, appears to have halted,” according to LPS.

“I think there is a fair amount of money in the wings waiting to buy, investors doing cash raises to buy properties on a large scale,” said Laurie Goodman of Amherst Securities. “But that means they have to build out a rental organization; it means they build out a management company, because if you’re accumulating a hundred homes in Dallas that’s very different than running a multifamily building.”

This is good advice. The recession began with housing, and is one of the main things holding back the recovery.   The most recent unemployment numbers — which showed that non-farm payrolls grew by 200,000 in December, and the jobless rate declined to 8.5 percent from 8.7 percent  — join other cautious signs of an improving economy, although the housing situation is worsening.  There’s still a serious risk it might put a halt to and not just delay expansion.

“Foreclosed homes are a complex problem. We need some creative thinking and new processes to solve the problem of so many distressed homeowners.  I would love to see the market handle it on its own but what makes sense for a single home is likely to destroy confidence in the housing market in aggregate,” said Jafer Hasnain, Partner at Lifeline Assets.  “Housing distress needs a Michael Dell to think about streamlining process details, and a Steve Jobs to make it elegant and human.”

House prices fell again in October, according to the S&P/Case-Shiller index.  The pipeline of delinquencies and future foreclosures is full, which continues to dim the prospects of a quick recovery.  Efforts so far, such as the Home Affordable Modification Program (HAMP), have helped, but less than hoped.

According to the Federal Reserve, there are no simple answers, but it makes several suggestions that Congress should examine.  One is to encourage conversions from owner-occupied to rental because that market has strengthened in recent months: Rents have risen and vacancies have declined.  A faster conversion rate would hold down rents and ease the pressure of unsold homes on house prices. Fannie, Freddie and the Federal Housing Administration account for about 50 percent of the inventory of foreclosed properties.  Many of these are viable as rentals.  A government-sponsored foreclosure-to-rental program to clear away regulatory hurdles would make a big difference.

A second suggestion is to encourage refinancings.  The administration tweaked the existing HAMP program in October, easing some of the earlier restrictions on eligibility.  Even more could be done, according to the Fed.  One possibility involves the fees that lenders pay to Fannie and Freddie for assuming new risks when loans to distressed borrowers are refinanced. These charges could be cut or eliminated, even though Congress just voted to increase them to help pay for the payroll-tax extension.

Some institutional investors have shown interest in bulk REO deals, but the plan has to incorporate ways to help facilitate financing.  That has been one of the biggest barriers to deals already in the works between hedge funds and the major banks.  There is plenty of cash to buy properties, but creating a management structure for the rentals is costly, and some investors are finding the math doesn’t add up to make it worth their while.

Larger investors want to get real scale in any government program, in the range of 50, 100, 500 properties per deal, or $1 billion-plus in assets. That’s why the government is looking to test several different approaches.  Fannie Mae did a $50 million sale in June, although that was on the small side. Officials are evaluating what larger asset sales would look like.

“We expect several pilots that will involve both local investors and institutional investors. The goal here is to reduce supply by converting foreclosed homes into rental units,” says Jaret Seiberg of Guggenheim Securities. “Less supply – even less fear about a flood of foreclosed homes hitting the market – could stabilize (home) prices.”

Home Delinquencies Fall; Foreclosures Rise

Tuesday, December 6th, 2011

Fewer borrowers currently are delinquent on their home loans, a Mortgage Bankers Association (MBA) report shows.  Curiously, new foreclosures are rising in states like California.  This is evidence that the nation still must endure significant pain before the housing crisis finally comes to an end.  According to some analysts, the nation is only halfway through the wrenching grip of the foreclosure epidemic.  That’s reflected in the housing market, where sales and prices continue to sag despite record low interest rates.  Five years after the crisis began, 7.99 percent of all mortgages were behind by at least one payment in the 3rd quarter but not yet in foreclosure.  Nevertheless, that’s down by nearly half a percentage point from the 2nd quarter and more than one percent when compared with last year.

The percentage of American mortgages that were somewhere in the foreclosure process at the end of the 3rd quarter was 4.43 percent, a slight increase over last year.  The rate of homes in foreclosure was highest in the East and Midwest that route residential repossessions through the courts, with Florida at more than 14 percent and New Jersey at eight percent.

Rather surprisingly, new foreclosures rose to 1.08 percent of all loans from 0.96 percent in the prior three months, according to the MBA. The rate had been declining since the 3rd quarter of 2010, when regulators began investigating robo-signing.  Some of the nation’s largest banks temporarily halted foreclosures while they addressed claims of flaws in their court documents.  The moratoriums clogged the entire foreclosure pipeline as banks investigated their procedures, said Patrick Newport, an economist at IHS Global Insight.  “Banks are starting to speed up the process now that they’ve cleaned up their paperwork,” Newport said.  “We’re seeing the backlog begin to move.”

Unfortunately, the improvement may be short lived.  For the 4th quarter, the pace probably will slow to 2.3 percent, according to the median estimate among 86 economists surveyed by Bloomberg.  The pace likely will slow to two percent in the first three months of 2012, according to the estimates.  “While the delinquency picture changed for the better in the 3rd quarter, the foreclosure data indicated that we are not out of the woods yet and that the issues continue to vary by geography,” Michael Fratantoni, the Mortgage Bankers Association’s vice president of research and economics, said.

“That’s really just reflecting the modest improvement we’ve seen in the economy broadly and the job market in particular,” Fratantoni said. “Job growth is not what we want it to be, but it’s been good enough to keep the unemployment rate at least level and that’s been beneficial here with fewer people falling behind.”

“While foreclosure activity in September and the 3rd quarter continued to register well below levels from a year ago, there is evidence that this temporary downward trend is about to change direction, with foreclosure activity slowly beginning to ramp back up,” said James Saccacio, chief executive officer of RealtyTrac.  “Third quarter foreclosure activity increased marginally from the previous quarter, breaking a trend of three consecutive quarterly decreases that started in the fourth quarter of 2010,” according to Saccacio.  “This marginal increase in overall foreclosure activity was fueled by a 14 percent jump in new default notices, indicating that lenders are cautiously throwing more wood into the foreclosure fireplace after spending months trying to clear the chimney of sloppily filed foreclosures.”

Foreclosure were filed on 214,855 U.S. properties in September, a six percent decrease from August and a 38 percent decrease when compared with September of 2010.  September marked the 12th consecutive month where foreclosure activity decreased on a year-over-year basis.

A report issued by the Center for Responsible Lending found that 6.4 percent of mortgages created between 2004 and 2008 ended in foreclosure.  Another 8.3 percent of mortgages are at “immediate, serious risk.”  According to Fratantoni, “Given the pace of foreclosure sales — about one million foreclosure sales a year — it’s a three- or four-year process to get it back to a more typical level of foreclosed properties.”

The refinance share of mortgage activity fell to 77.3 percent of total applications from 78.6 percent the previous week.  The adjustable-rate mortgage (ARM) share of activity increased to 6.1 percent from 5.8 percent of all applications.  In October, 50.6 percent of refinancing applications opted for fixed-rate 30-year loans, 28.8 percent opted for 15-year fixed loans and six percent went with ARMs.  In terms of applications for home purchase mortgages, 85.5 percent were for fixed-rate 30-year loans, 6.9 percent for 15-year fixed loans and 5.9 percent for ARMs, the lowest share of that vehicle for purchases since January.

A Lifeline for Underwater Homeowners?

Wednesday, October 26th, 2011

Federal officials and some of the nation’s largest banks are collaborating on a plan that would make refinancing available to some borrowers whose houses are worth less than their loans, with the caveat that they must be up-to-date on mortgage payments.  Typically, these borrowers can’t refinance because they don’t have enough equity in their homes.  The plan would apply only to bank-owned mortgages.

Federal officials have been trying to negotiate a deal with the five largest mortgage servicers – Ally Financial, Inc, Bank of America, Citigroup Inc, J.P. Morgan Chase and Wells Fargo & Co.  Officials favor a plan that would break a legal impasse with big banks over alleged foreclosure abuses such as robo signing and ease problems in the housing market.  Discussions are still underway and the final outcome is not yet known.

Pressure is building in Washington, D.C., to help underwater homeowners with a generous refinance plan.  President Barack Obama told Congress that he wants to help “responsible homeowners” refinance, saying it would “give a lift to an economy still burdened by the drop in housing prices.”  A bipartisan coalition of 16 senators wrote to the administration urging swift action on a refinance plan.

“A huge floodgate would open up” if underwater refinancing were broadly available, said Fif Ghobadian, a broker at Guarantee Mortgage in San Francisco.  “It would provide the help that lowering interest rates cannot do alone.  Someone who’s been making payments at 7.5 percent religiously but cannot qualify to refi – boy, would that four percent make a huge difference in their life.”

A program has existed for some time that provides guidelines to lenders for refinancing some Fannie Mae- and Freddie Mac-backed underwater mortgages.  The program is called HARP (Home Affordable Refinance Program), it’s two years old and has resulted in approximately 800,000 refinances, far short of the five million originally envisioned.  Only a fraction of those homeowners were deeply underwater.  HARP’s main impediment has been the lenders themselves.  Concerns about issues such as being forced to take responsibility for refinances that default (known in the industry as “buybacks”) has made lenders reluctant to issue HARP mortgages.  The proposed new plan would likely expand HARP to make it more acceptable to lenders and more usable by a broader swath of homeowners.  “Changes (being contemplated) would address several HARP obstacles,” said Erin Lantz, director of the mortgage marketplace for Zillow.  “The industry now makes it hard for people to qualify.  The process would be more streamlined.”

According to a recent Harvard study, approximately 11 million homeowners with mortgages are underwater.  This accounts for roughly one-fourth of all homes with mortgages in the nation.  An additional five percent have near-negative equity (<five percent home equity).

Writing for Reuters, Felix Salmon doesn’t think much of the potential mortgage plan.  “It’s pretty weak tea: under the terms of the deal, if (a) you’re underwater on your mortgage, and (b) you’re current on your mortgage payments, and (c) your mortgage is owned by the bank outright, rather than having been securitized, then you would be given the opportunity to refinance your mortgage at prevailing market rates.  It’s worth remembering, at this point, that mortgages are by their nature pre-payable.  When you write a fixed-rate mortgage, you make a general assumption that if mortgage rates fall substantially, the borrower is going to pay you off and refinance.  The underwater questions we’re talking about here were written during the housing boom, when banks simply assumed that house prices always went up; those banks cared massively about prepayment risk at the time, and spent huge amounts of money and effort trying to hedge it.  As it happened, mortgage rates did fall substantially — with the result that the banks’ hedges paid off.  But then the banks realized that they could make money on both legs of the deal — that they could collect on their mortgage-rate hedges, without having to worry about prepayment.  Because now the borrowers are underwater, they’re not allowed to refinance. So the banks continue to cash above-market mortgage payments every month — something they never expected that they would be able to do.

“It’s not inconceivable at all.  In fact, wholesale mortgage refinance for underwater borrowers is a major part of Barack Obama’s jobs bill, and the Congressional Budget Office (CBO) has been costing it in various ways.  At heart, it’s a way of rectifying a market failure, and thus makes perfect sense.  But that’s precisely why I don’t think that this plan deserves a place in the mortgage-settlement talks.  For one thing, it’s downright unfair and invidious to allow 20 percent of underwater homeowners to refinance while ignoring the other 80 percent.  More to the point, giving homeowners the ability to refinance their mortgages is what you do, if you’re a bank.  It’s not some kind of gruesome punishment.”

Mortgage Applications Spike 16 Percent as Investors Take Over the Residential Market

Tuesday, March 29th, 2011

Although analysts are sounding a cautionary note, the number of Americans applying for mortgages rose by 16.1 percent in the first week of March – the largest monthly increase since June of 2009. The activity could be due to investors with money to spend, and not the first-time homebuyers who will play a vital role in the housing market’s recovery.  The refinance index increased 17.2 percent and the purchase index increased 12.5 percent, to the highest level this year.  The refinance share of activity increased to 65.5 percent of all applications from 64.9 percent the last week of February.  That’s the good news.  That bad news is that mortgage applications are likely to decline over the next several months because homeowners are unable to sell their current homes and trade up.  At present, cash buyers and investors — lured by low prices and soaring rents — represent the majority of sales, said Paul Ashworth, chief U.S. economist with Capital Economics.  Also, rates are low.  According to Zillow.com, the average 30-year fixed-rate mortgage is now 4.73 percent.

During January, first-time homebuyers fell to 29 percent of the market, the lowest percentage in almost two years.  Foreclosures made up 37 percent of sales and all-cash transactions were 32 percent of sales — twice the rate when compared two years ago when the National Association of Realtors began tracking these deals.  New-home sales fell to a seasonally adjusted rate of 284,000 in January. That is significantly less than the 700,000-to-800,000 pace considered healthy by a number of economists.

“Taking into account typical seasonal patterns, purchase applications rose to their highest level of the year last week.  On an unadjusted basis, purchase application activity is the highest since last May,” said Michael Fratantoni, MBA’s Vice President of Research and Economics. “An improving job market is beginning to pave the way for an improving housing market.  Additionally, mortgage interest rates remained below five percent for a second week, maintaining affordability for buyers and leading to an increase in refinance applications.”  The four week average for the seasonally adjusted Market Index rose percent.  The four week average rose 1.2 percent for the seasonally adjusted Purchase Index, while this average is up 3.6 percent for the Refinance Index.  The refinance share of mortgage activity increased to 65.5 percent of total applications from 64.9 percent the previous week.  Adjustable-rate mortgages (ARM) rose to 6.0 percent from 5.5 percent of total applications from the previous week.

“The housing market in the U.S. still has a lot of challenges ahead of it,” said Michael Gregory, a senior economist at BMO Capital Markets in Toronto.  “Ultimately it’s all about how many homes still are going to hit the market. People don’t want to buy homes because they feel prices could fall further.”

House Built of Old Tires Searching for a Mortgage

Tuesday, March 30th, 2010

Houses built of discarded materials may be environmentally friendly, though difficult to mortgage.  Families looking to refinance their mortgages don’t face quite the uphill battle that Jon and Laura Hagar have in their search for the right lender.  That’s because the Hagars’ house in rural Hot Sulphur Springs, CO, is made of 17,000 old tires.  The Hagars’ 2,700 SF house is built of stacked tire bales – five-foot-wide blocks of compressed tires – that form the exterior walls.  The gaps between are filled with cans, bottles, plastic plates and other junk.  The trash is covered with concrete, clay and stucco, while the south-facing windows capture light, heat and mountain views.  “We lovingly call it the trash house,” Laura Hagar said of the house her family moved into at the end of 2008.

The Hagars’ dilemma represents a niche mortgage market for houses constructed of earth, tires, concrete and trash by environmentalists who want to conserve energy and re-use materials that might otherwise end up in landfills.  The problem is that the housing bust has made banks reluctant to finance these houses because it is difficult to study sales of comparable homes when deciding how much to lend.

The Hagars received a $240,000 line of credit from Red Rocks Credit Union to finance the house’s construction.  At the time, a credit appraiser – though unable to find a comparable house among recent sales – valued the Hagars’ house at $500,000, in line with a listing for a straw-bale house in the area.  With interest rates currently at historic lows, the Hagars are trying to refinance their house with a long-term, fixed-rate mortgage.  Their loan officer responded via email, “I think we have really hit a brick wall here.”  Because lenders can’t value the property, they cannot give the Hagars the mortgage they want.

The Hagars’ credit union hasn’t given up yet and is looking at the secondary mortgage market.  The house is so unique that the mortgage might not be attractive to investors, which means the credit union would have to keep the loan on its own books.  With regulators looking at the health of small financial institutions, Red Rocks prefers to make loans than can be sold easily to raise cash.

Construction-Loan Delinquencies on the Rise

Monday, June 30th, 2008

The surge in the construction-loan delinquency rate – both residential and commercial – suggests that lenders will remain reluctant to make loans for new construction.

Developers usually finance projects through short-term construction loans.  Once the project has stabilized, the developer seeks long-term debt.  With the current economic downturn, developers are finding it difficult to obtain capital.  This is compounded by a lack of liquidity in the mortgage market.  As a result, projects are worth less than they were a year or two ago.  Lenders also are more stringent in their underwriting standards, preferring highly stabilized projects with significant pre-leasing.

Short-term, the outlook is negative, as maturing loans may have problems refinancing if liquidity is non-existent.

The silver lining is that seasoned developers with strong lending relationships and leased portfolios are better positioned to develop product on an “as-needed-and-warranted” basis.