A common theme on this blog over the years, “shadow inventory” and the future of distressed sales (foreclosures and short sales), is coming up one more time. While conventional wisdom for years has been every bit of good news on the housing front has been a bunch of hype I have been sharing statistics with you that spells out what has actually been happening.
In reality the future foreclosure rate is determined by one thing, one thing most media source and people never mention, people missing their first mortgage payment today. It is as simple s that. If you read this website you know that I share these statistics every few months or so and the number of people missing their mortgage payments has been going down, down, down; and with it the number of foreclosures 6-12 months later.
The nationwide delinquency rate is lower than any time since Q1 2008, the time we began to see cracks in the market but well before the crash happened. This means the foreclosure rate over the next couple years will be lower and lower too. To boot the actual foreclosure start rate is lower than at any time since Q2 2006!
“Shadow inventory,” homes that banks are holding onto or short sales/foreclosures that just haven’t happened yet, the media (and some gloomy Gus’) favorite boogie man is non-existent. The banks have already unloaded their inventory for the most part and home prices have rebounded so much only a small fraction of people still owe more than their home is worth.
I’m sure if you have been in the market to buy or sell a home lately you see that short sales and foreclosures are a very small part of what is out there, when just two years ago they made up the bulk of the market in the greater Sacramento area; including Roseville and Rocklin.
This is all good news!
Senior Mortgage Consultant – 19 Years Experience
This has been a popular subject on this site, I’ve often discussed it in a way that flies in the face of what the conventional media has been pushing for the last few years; the rate of mortgage delinquencies nationwide has decreased to its lowest level in the last six years (since “pre-crash”).
In the 4th quarter of 2013 the percentage of homeowners at least 60 days late on their mortgages had dropped to under 4.0%. Marking two straight years of quarterly improvements and the first time this metric has been sub-4% since 2008.
The level is still too high, with most economists preferring it be under 2% in a normal market, but improvement is improvement. And steady improvement is even better!
But real estate is always local, right? Indeed, for the most part that is true, and in California our rate is 3.06% for Q4 2013! Beating the national average by quite a bit and putting us nearly in the normal range and at one of the lowest mortgage delinquency rates of any of the 50 states. The rate in the Roseville/Rocklin/Lincoln area is even lower, well within the historically normal range.
Looking forward? As we’ve discussed many times here, less delinquent accounts = less foreclosures in the future. This is why I was telling everyone that was so scared of the media’s boogeyman of the last half decade, “shadow inventory,” that they have nothing to worry about. It didn’t exist and, while the foreclosure problem looked as scary as could be in 2010-2012, the fact late payments were on the decline told us that distressed sales in the future were also going to decline.
Couple that with the FACT that mortgages of the last 5 years have been of MUCH higher credit quality (no more people that couldn’t buy homes could anymore, and are therefore less likely to default), we see an ever-improving real estate market that should stand on its own after years of being propped up by Washington.
Put this one in the win column!
SOURCE: TransUnion Data
Senior Mortgage Consultant – 18 Year’s Experience
Towards the end of 2013 Fannie Mae quietly released an update to their Desktop Underwriter (DU) underwriting system, the system used to underwrite the vast majority of Conventional mortgages nationwide.
Much of the update is inconsequential, it mostly had to do with updating the software to comply with the new QM (Qualified Mortgage) rules that went into effect on Jan 10th, as well as some minor changes to the way DU underwrote HARP refinances, but one big change may positively affect a lot of people. Definitely a lot of people I have talked to over the last couple years.
One of the good things about current conventional guidelines is they allow qualified borrowers to buy or refinance in as little as two years after a short sale so long as they have a 20% down payment or 20% equity in the case of a refinance.
Many people suffered the effects of the Great Recession from 2008 – 2011, losing their primary residence or maybe a 2nd home or investment property, and today qualify under Fannie Mae’s guidelines for getting a new mortgage. The issue has been DU has not been able to differentiate between a short sale and a foreclosure when it reads credit reports and it made it so A LOT of people could still not qualify because of the issue with the software.
Yes, a glitch was making it so people could not buy a home or take advantage of recent low rates.
Fannie Mae has been aware of this issue for a while but never did anything to fix it. Versions of DU were announced and announced and there was no update to fix this issue. Creative lenders (like me) created a workaround with our credit report providers to help DU read the data is was getting wrong accurately but Fannie Mae asked the credit report providers to stop doing this. At the end of the day well-qualified people could not get their loan even though they met all the guidelines.
That is until Fannie FINALLY did something about it with the release of Desktop Underwriter 9.1. Now the software is able to correctly read the credit report and determine if the loan was foreclosed on or was a short sale. Big difference.
If you or someone you know had issues qualifying to buy a home or refinance in the last couple of years with this glitch please give me a call (916.412.3313). It may (probably should) just work this time around! If you want to buy a home or refinance to a lower rate and payment and you had a short sale as recently as January 2012 you may already be able to qualify!
The amount of homes worth less than owed on their mortgage in the Sacramento area has continued to fall.
Just two years ago almost 50% were underwater and as recently as January 2012 over 40% were still underwater. Since then things have changed immensely. Looking at the immediate past, 4th quarter 2012 (data for the 1st quarter of 2013 is not yet available) there were only 32% in that same boat.
In the 4th quarter of last year, 32% or about 150,000, of all residential properties in the Sacramento region had a mortgage for more than their homes were worth. This is compared to 36%, or about 175,000 properties, in the previous quarter.
This is still a high number but that means about 25,000 homeowners in region now have equity when they didn’t have it just three months earlier.
The 1st quarter 2013 data is not available yet but there is no doubt in my mind there will be another dramatic change as property values are appreciating even more today than they were in the 2nd half of last year. My guess is when it is reported the number will be well under 30%. Not quite where we want it to be yet, but definitely headed in the right direction.
Senior Mortgage Planner -17 Years Experience
I know I know, it has been a long time since I have posted. And I meant to post this a few weeks ago, a HAPPY NEW YEAR and WELCOME 2013 post if you will. So consider it a belated one of those… 🙂
2012 was a very interesting, and depending on who you ask, a good year for jobs, the economy, and real estate (I of course will be focusing on the latter).
Completed Foreclosures were down a whopping 23% year over year (Nov 2012 compared to Nov 2011). The number is still too high but has been shrinking month after month, and year after year, for long enough to call it a trend.
There were approximately 1.2 million homes in some stage of foreclosure (the foreclosure inventory) in November, about 3.0 percent of all homes with a mortgage. In November 2011 there were 1.5 million homes or3.5 percent of all mortgaged homes in the inventory. This is a decrease of 18 percent year-over-year.
CoreLogic’s Mark Fleming said, “The pace of completed foreclosures has significantly improved over a year ago as short sales gain popularity as a disposition method. Additionally, the inventory of foreclosed properties continues to decline while the housing market demonstrates an ongoing ability to absorb the distressed sales that result from completed foreclosures.”
All data points show a continuing trend of ever improving housing markets, jobs increasing, and improvements to the economy. As mentioned these are not good enough, but I have a good feeling about the future!
Images and data courtesy of CoreLogic. http://www.corelogic.com
Last week California Governor, Jerry Brown, signed legislation to increase protections for California homeowners facing the possibility of foreclosure. Making the state the first to put into law major provisions of the national mortgage settlement (see my previous story here) reached with all but one US state and the nation’s major mortgage lenders.
The new law’s goal is to curb “dual tracking”, no longer allowing lenders to begin foreclosure proceedings while a loan modification is being negotiated, and expands foreclosure notice requirements. It also will require large institutions to give homeowners a single point of contact for dealing with their mortgage and allows more opportunities for homeowners to sue their lender for improper foreclosure processes if the bank does not fix their mistake first.
“Californians should not have to suffer the abusive tactics of those who would push foreclosure behind the back of an unsuspecting homeowner,” Brown said in a statement. “These new rules make the foreclosure process more transparent so that loan servicers cannot promise one thing while doing the exact opposite.”
All provisions of the law will be enacted January 1st, 2013.
Foreclosure and mortgage default activity continues to fall…
If you have been reading my posts for the last few years I’ve been trying to put the media’s doom and gloom into proper prospective. YES, there have been a lot of foreclosures out there.
But homes in foreclosure today don’t tell us a thing about foreclosures of the future. Homeowners missing their first monthly payments do (can’t go into foreclosure if you are making your payments). Regardless of what you read in the paper or see them screaming at you about on cable news, anyone looking at the right data (patting myself on the back and saying “I told you so”) could tell you that – even though there was a sea of foreclosures a few years ago – with less and less people missing mortgage payments foreclosures of the future would be down.
I love being right! (especially about things that mean good news for all of us)
Dwight Schrute has it all figured out…
Every metro area in California saw a year over year drop in both foreclosures and first payment defualts from June 2011 – June 2012. To top that off, only two metro areas in the state, the epicenter of the mortgage crisis, were above the national average in these stats. These are wholesale changes in the data as compared to the last few years.
Even the Central Valley is showing signs of recovery. If California was the epicenter of the crisis, the central valley was the epicenter of the epicenter! The two areas mentioned above were Stockton and Merced, hit even harder than we were here in Sacramento and the rest of the state, but even their numbers are steadily improving. Topping the foreclosure news in Stockton the more important delinquency rate has improved by a full 3% year over year. Down from 12% to 9%. Still a high number but, as everything else is, slowly headed in the right direction.
More locally the data in the Sac Metro market (which includes Roseville and Rocklin) shows similarly encouraging results. The foreclosure rate is down to 2.5% from over 3% a year earlier. Surprisingly still, the foreclosure rate for the Sac Metro market is BELOW THE NATIONAL AVERAGE for the first time since before the crisis. Piling on the (relatively) good news the delinquency rate in our market was down over 2.0%, to 7% from slightly above 9% a year ago.
Our economy, looking at jobs and real estate has steadily, although slowly, been improving pretty much every month for a couple of years now. This is natural improvement, slow and steady in in the right direction, and I like what the future looks like.
Sincerely your Roseville Loan Guy,
Good news. The S&P Case-Shiller Home Values Index, for the second month in a row, gave us a positive reading. Admittedly, it’s a small positive reading (up 0.2% in the February and up 0.1% in the March 20-major city readings) but even small is significant here. This is one of the most closely-followed indices there is.
Year-over-year, there was a 2.6% rate of decline – still headed south, but by the smallest amount since December 2010. Looking closer at the details, Bloomberg.com noted, “Phoenix is really on the rebound with Miami, Tampa, Minneapolis and Dallas all showing a run of stand-out strength. But Atlanta shows continued contraction as does Chicago and New York.” (The Phoenix real estate market is getting a lot of positive press of late.)
Bloomberg.com concludes: “Unadjusted data show no monthly change in March and, like the adjusted data, minus 2.6% contraction for the year-on-year rate. Home prices may finally be moving up from the bottom, and more recent data on existing home sales show a sharp upward spike in prices underway, the result of fewer distressed properties on the market.”
And there we have what may prove to be the biggest news of the moment (unless you happen to invest in Greece’s sovereign debt); we’re seeing fewer distress property transactions than we expected to. They’re just not having the impact of the market that we anticipated. As a result, the real estate market is improving at a faster pace than was expected.
Now, this doesn’t mean it’s necessarily safe to jump into the deep and rocky waters. There are still sharks out there. But it does mean that the waters are surprisingly smooth, and it’s looking more and more like a recognizable (dare I say “normal”?) real estate market.
By the way, Zillow.com last Friday reported great sales and rental figures for the month of April. Zillow computed a 0.7% rise for home values.
“This is the largest monthly increase in home values since January 2006, and it makes April the second month in a row in which home values climbed up,” noted Tory Barringer at DSNEWS.com. And rental rates climbed by a rather dizzying 1.6%. As with the S&P Case Shiller Index, the growth in home prices was very strong in Phoenix (1.9%); it was also notable in Fort Lauderdale. But prices in certain markets, such as Atlanta, GA, remain motionless or worse… Reminding us that, as always, Real Estate is always LOCAL.
Zillow also said that 6.4 of every 10,000 homes in the U.S. are in the process of being foreclosed on. But that is down from 8 out of every 10,000 homes a couple months ago in March.
As we’ve discussed before, there is real reason to watch the effects that distress properties continue to have in this market. But there is also ample room for us to celebrate a brighter real estate recovery at this point than we were expected to see. Doomsday economists not yet ready to admit their err in projections may not be paying quite enough attention to the fact that this will be a self-fueling recovery in which every advance in the number and quality of sales is likely to inspire more buyers into the marketplace, as people make sure they don’t miss out on the disappearing bargains and super-attractive financing.
~ Greg Cowart
I puzzled over a bit of seemingly self-negating information Tuesday. Housing starts in the month of March declined by a striking 5.8%. This takes some of the wind out of our sails. Obviously, we don’t get to continue moving toward a sustainable recovery on a straight, easy-to-negotiate path, it’s a little more complicated than that.
This should not surprise us, even if it shakes us up a bit. The other possibility, of course, is that we’re not moving securely down the recovery trail at all, and the remaining gloomsters who see us – particularly the real estate market – dropping off the edge of the earth sometime soon are giving each other high-fives because of their seeming sagacity.
Pay no mind – not even to the wonderful Nouriel Roubini. We are still headed in the right direction, for the most part. After all, the seemingly self-negating portion of this indicator was that, while March starts fell by 5.8%, builders bought up 4.5% more housing permits than they did in February.
Does this mean that builders are less sanguine about today’s market but, at the same time, a bit more optimistic about the future of the market – say, three plus months in the future???
It very well may. And it would serve us well to remain aware of the fact that large construction firms, lenders and real estate brokers are readying themselves for sizable growth in real estate sales – not tomorrow, but not too long after tomorrow either. We read a lot about how things will be visibly improved in 2013, we’ll see… In the meantime we ready ourselves for the possibility.
Actually, last week’s was a tepid serving of economic indicators, at best. Even the fact that the Freddie Mac average fixed rate for 30-year mortgages fell to within one basis point of its all-time low of 3.87% barely elicited a smile on the face of the markets.
One little piece of information, though, seemed to me extremely relevant – and under-reported: This past January saw more short sales close nationally than foreclosures. Stay with me on this.
The number of foreclosures on the market has tightened up a bit. The people at DataQuick, who watch this sort of thing, warned us not to get too excited because there is still a mountain of foreclosures to process. The lenders, they said, are just pausing for a time – then watch out! Foreclosures everywhere we look!
But here’s how it’s actually working. Lenders are finally discovering that they can process short sales in less time and at significantly less cost than foreclosures. Consequently, they’re putting fewer foreclosures on the market. Consequently, market inventory of distress properties has declined. And consequently, fewer homes are selling each month. Nowhere is this more true that the Roseville and greater Sacramento market, where real estate inventories are near all time lows.
However, more homes are selling as short sales, which – if done right – makes everyone a lot happier and costs less to accomplish. Good deal! We may at last be in the first stages of developing short sale systems that are truly efficient and cost-effective.
And these short sales may just prove to be the first version of a new generation of mortgages that meet the needs of individuals more precisely, and are far less likely to be hit by defaults.
Lastly, of course, a more efficient use of short sales is surely the best way to establish the floor of today’s real estate values and to get distress sales off the back of our real estate market. The overall local economy, as well as that of the entire nation, would benefit greatly from that.
We’ll see, but so far, this looks like good news and quacks like good news. It must be good news, therefore….
With more than 11 million homeowners underwater on their mortgages, 2008’s HARP (Home Affordable Refinance Program) mortgage has been updated to allow more homeowners to refinance their mortgages, taking advantage of today’s historically low interest rates. AKA: HARP 2.0…
The first edition of HARP was a great idea, in theory anyways. If the banks, lenders, and servicers implemented the program exactly as it was written it would have helped many millions of homeowners refinance to lower interest rates, lowering their payments, and even probably had a positive effect on the national housing market and overall economy as less of those homeowners would have lost their homes and had more money in their pockets to spend.
But that’s not how it happened, the banks and servicers applied their own “overlays” to the program’s guidelines, making it hard for many underwater homeowners to qualify. Because of this only about 800,000 homeowners were able to take advantage and lower their rate/payment.
In comes HARP 2.0, with easier guidelines for borrowers to qualify, now unlimited Loan-To-Value ratios are allowed, as well as “Representation & Warrants” requirement waivers, relieving lenders of almost all Reps & Warrants of the original loan, making it much more likely that they participate. The Federal Housing Finance Agency estimates that at least another 1 million homeowners will benefit from a HARP 2.0 refinance before expiration of the program at the end of 2013.
Here are some important facts!
- The current loan must be backed by Fannie Mae or Freddie Mac. You may not know your loan is backed by either of these entities because you make your payment to someone else (Bank of America or Wells Fargo for example) but in reality they are probably just the servicer of your loan and the security was at some point sold to Fannie/Freddie. I can quickly help you do this search to find out.
- The current mortgage must have been originated before May 31st, 2009.
- HARP loans are available for all occupancy types (primary residence, second home, and investment properties).
- The mortgage must have not had a 30 day late payment in the past 6 months, and must have had no more than one 30 day late payment in the last year.
- The current Loan-To-Value ratio must be over 80% (otherwise you may already qualify for a non-HARP refinance)
- Except for a small exception for some of the earliest HARP refinances in March-May of 2009, those that have previously refinanced under the HARP program will not qualify.
- Both Fannie and Freddie’s guidelines are nearly the same but Fannie Mae’s are actually a little bit more liberal (which is a good thing as they hold many more HARP-eligible loans than Freddie Mac does).
- Loan-Level-Price-Adjustments (LLPA’s), fees added on that can increase closing costs, the interest rate, or both (depending on how your lender structured your scenario) have been drastically reduced for HARP 2.0 loans. This was one of the issues with HARP the first time around, LLPA’s would make it very tough to refinance as they would add up to a point that HARP borrowers were no longer eligible for the lowest rates. Under the new program it’s feasible for a HARP borrower to get a lower rate than an non-HARP borrower because of the LLPA cap.
- Property Inspection Waivers (PIW’s) are the big one here. Under the new rules lenders will be issuing PIW’s allowing the HARP borrower to not have to have an appraisal at all. Not only making a lot of these refinances possible, but saving consumers a few hundred more dollars in the process! PIW’s will not be issued on all refinances, but they will be on many (I can tell you before you shell out $400 for an appraisal if your loan was issued a PIW).
This is great news for homeowners who have made it a point to keep up with their payments! With the updated guidelines rolling out in March eligible homeowners in this category may be able to take advantage of HAPR 2.0 in the very near future. And even if you did miss a payment this program is available through December 2013. If you can get and stay current for the next 6 months, you may be eligible too.