Mortgage Delinquencies Rise After Hurricanes

Posted on December 11, 2017 by Laura Lam

storm surgeThe three major hurricanes that caused devastation during August and September were largely responsible for the third-quarter increase in mortgage delinquencies.  The seasonally adjusted delinquency rate of 4.88% was 64 basis points higher than the second quarter, according to the Mortgage Bankers Association’s National Delinquency Survey. The 30-day delinquency rate was responsible for 50 basis points of that increase, said Marina Walsh, the MBA’s vice president of industry analysis.  Compared with one year ago, delinquencies were 36 basis points higher.

“Hurricanes Harvey, Irma and Maria caused disruptions and destruction in numerous states,” Walsh said. “Florida, Texas, neighboring states, as well as devastated Puerto Rico, saw substantial increases in their past-due rates.”

Federal Housing Administration-insured mortgages had a 146-basis-point increase in their delinquency rate from the second quarter, to 9.4%. This was the largest quarter-to-quarter increase in the MBA survey’s history, Walsh said.  There was a 52-basis-point increase in Veterans Affairs mortgage delinquencies to 4.24%, while the conventional loan delinquency rate rose 50 basis points to 3.97%.

“While the storms played a critical factor in explaining the rise in the overall delinquency rate, there are other factors to consider, especially given delinquency rate increases in other states not directly impacted by the storms,” she said.

Plus, delinquency rates were at historic lows in the second quarter. The FHA delinquency rate was at its lowest point in 21 years, while for the VA, late payments were at a level not seen since 1979.  “Foreclosure starts were down 1 basis point from the previous quarter,” Walsh said. “In future surveys, we may see a temporary drop in foreclosure starts in hurricane-impacted states due to storm-related foreclosure moratoria, as was seen during Hurricane Katrina in 2005.

“It will likely take about three or four more quarters for the effects of the most recent hurricanes on the survey results to dissipate.”

Source:  National Mortgage News

The Recession: 10 Years Later

Posted on December 08, 2017 by Laura Lam

Recession 10 years 1In December 2007, employment peaked and started to head south – for two long years.  What followed: The loss of more than 8 million jobs, half the value of the Dow and the S&P 500, and trillions of dollars in retirement accounts and household wealth. Lives and businesses were ruined and whole neighborhoods emptied out, as banks took back homes bought on badly underwritten credit.

A decade later, the American economy has recovered in many ways. Employers have been steadily adding jobs since early 2010, the stock market is booming and home prices have reached new all-time highs.  But in other ways, Americans still carry the scars of the recession, some of which will never heal.

Jobs are back, but the workforce has shrunk

One of the most remarkable aspects of America’s rebound is the unemployment rate. It sunk to a 16-year low of 4.1% in October, with some industries reporting difficulty finding workers.  Even a more expansive measure of unemployment — which includes people who want a job but have been discouraged from looking for one and those who work part-time but want to work full-time — has matched its pre-recession low of 7.9%.  But even that isn’t the whole story. The share of Americans who are working or want to work has been falling for a couple decades, from a peak of 67.3% in 2000 to 62.5% in 2015.

In large part, that reflects how America’s workforce is getting older and retiring faster, and economists at the Federal Reserve Bank of Dallas expect the overall rate to keep falling. Still, participation rates for prime-age workers remain depressed as well, with large numbers of people sidelined by opioid addiction, low wages that make work less attractive, and the high cost of childcare that keeps women in particular at home.

Wages are rising, but wealth hasn’t recovered

Recession 10 years 3For several years during the recovery, the big problem was wages: Even as hiring picked up, paychecks remained depressed.  That started to change around 2015, as state and local minimum wage hikes kicked in and employers started raising base pay to attract and retain good workers. Now, median household income is back up to approximately where it was in 2007, at just above $59,000 a year.  In 2016, the Federal Reserve found that 70% of adults reported living comfortably or doing okay financially, up from 62% when they began asking the question in 2013.

But the recession didn’t just impact earnings — it slashed savings and investments. The median household’s net worth dropped by 40% between 2007 and 2013, according to a triennial survey by the Fed, and had only recovered slightly by 2016.  The decline in net worth has implications for retirement security, with 28% of Americans over age 18 claiming no savings whatsoever.  Still, Americans are feeling better about their prospects, according to Gallup: 54% of those who haven’t retired yet say they’ll be able to live comfortably when they do. That’s up from 38% in 2012, but still below pre-recession levels.

Home prices are rising, but fewer people are buying

A big part of the plunge in household net worth had to do with housing.  As the financial crisis deepened, the delinquency rate for single-family mortgages spiked to 11.5%, and millions of homes went into foreclosure. In three years, the total amount of equity held by homeowners was cut in half.

Now that the real estate market has recovered and mortgages have stabilized, household equity has bounced back to exceed its pre-recession high. The delinquency rate has also steadily been sinking back towards its 2005 low of 1.42%.  However, owning a home isn’t as popular as it used to be. The homeownership rate sank from 69.4% in 2004 to 63.1% in the middle of last year, and has only just started to bounce back.  The reasons behind that trend are numerous and complex: tighter credit, hefty student loan debts, skyrocketing home prices in select cities, supply shortage, etc.  One in three young people lived with their parents in 2015, up from one in four a decade earlier, the Census Bureau reported.

Source: CNN Money

Mortgage Delinquency Rates Lowest Since Recession

Posted on December 07, 2017 by Laura Lam

delinquencies q317The serious mortgage borrower delinquency rate, which is considered 60 days or more past due, dropped about 16% annually to 1.91% by the end of the third quarter of 2017, according to TransUnion’s report.  “Serious mortgage delinquency rates continue to drop to new post-recession lows, indicating there may be opportunities to responsibly expand access,” said Joe Mellman, TransUnion senior vice president and mortgage business leader.

Delinquency rates have continued to drop consistently year-over-year since the third quarter of 2010, and now fell to the lowest point since the recession. In fact, the only state that didn’t see a decrease in annual delinquency rates was Alaska, which continues to struggle with lower oil prices.

The total number of outstanding mortgages increased 1% over the last year to 52.7 million mortgages in the U.S., reversing last year’s trend of annual declines. The average mortgage debt per borrower also increased from $193,489 last year, reaching $199,417, continuing the trend unbroken since the first quarter of 2005.

However, probably due to a decrease in the share of refinance originations, the average new account balance dropped 2.4% from last year to $224,502 in the third quarter. The share of refinances decreased to 33% in the second quarter this year, up from 37% in the second quarter of 2016. TransUnion explained refinances tend to hold higher balances than purchase originations.

“A higher interest rate environment and market saturation have negatively impacted refinance market share, and we anticipate it to decline even further,” Mellman said. “Tight supply, especially for starter homes, will pose some growth headwinds, though a strong economy and a high demand for housing will likely overcome that and lead to growth in home purchase activity.”

Source:  TransUnion/Housing Wire

Could Capital Gains Tax Reform Reduce Housing Supply?

Posted on December 06, 2017 by Laura Lam

taxesWhile tax reform will impact everyone who works in mortgage finance to some degree, it may also affect potential homeowners and home sellers via reform to the capital gains tax.  Capital gains is a tax that may be levied when an investor sells an asset at a notable profit — selling a home may be an example of this type of taxable transaction.

Data and analytics firm Black Knight did a deep dig into the tax reform.  One clear finding from Black Knight is that proposed changes to the capital gains exemption on profits from the sale of a home (requiring 5 years of continuous residence as compared to the current 2 years) could impact approximately 750,000 home sellers per year, also potentially increasing pressure on available inventory, the company said.

According to their SiteX property record database analysis, Black Knight found that on average, over the past 24 months, more than 14% of property sales were by homeowners falling into that 2-to-5-year window and who would no longer be exempt from capital gains taxation. On average, $60 billion in capital gains each year could be impacted, with a worst-case scenario (taxing the full amount under the highest tax bracket) putting the cost to home sellers at approximately $23 billion. If such homeowners choose to forego or delay selling to avoid a tax liability, this may also further reduce the supply of homes for sale.

In a market already plagued with a housing supply crunch, the Black Knight finding does not provide a silver lining.

Source:  Housing Wire

Cybercrime Will Increase in 2018

Posted on December 05, 2017 by Laura Lam

If you think 2017 was a bad year for cyberattacks, just wait to see what happens in the coming years, one cybersecurity expert warns. “We’ve only seen the beginning,” said Dr. Eric Cole, CEO of Secure Anchor and former CTO of McAfee and Lockheed Martin.  “Cybercrime is big business, it’s a very high-payoff, low-risk crime … we’ve seen nothing yet.”

In 2016, U.S. financial losses stemming from cyberattacks totaled $1.33 billion, a 24% increase over the year prior, according to an FBI report. An Accenture study concluded that the number of hacks likely increased by more than 27% between 2016 and 2017.

Throughout 2017, U.S. institutions and businesses suffered some high-profile data breaches, including the U.S. Securities and Exchange Commission and credit reporting giant Equifax. The Equifax hack resulted in thieves gaining access to the personal information of more than 145 million Americans, which will have financial implications for consumers for years to come.

Cole, who was a member of the Commission on Cyber Security for President Bill Clinton and a security advisor for Bill Gates, said criminals tend to get away with cybercrime because they are often international actors from countries with no cybercrime laws or extradition treaties. That means, even when authorities figure out who is responsible for an attack, which is a challenge unto itself, they have no way of punishing the offenders.

In order for the U.S. to begin to combat that issue, Cole said the government needs to work with other countries, and the United Nations, to implement international laws governing cybercrime. Each country’s individuals laws are largely “useless,” because most of the time the crimes are being committed in a different country

Secondly, the U.S. government can implement penalties in order to enforce good security practices, Cole added. A company like Equifax, for example, failed to update a software vulnerability that led to the compromise of more than 145 million Americans’ personally identifiable information, and faced no clear punishments for putting consumers in financial jeopardy.

While Cole said security experts are constantly trying to figure out how cyberattacks will evolve in the future, he believes an attack on the United States’ critical infrastructure, including water supply and electrical grid, is “on the radar.” Further, he said a “true information war,” which could devastate countries and result in loss of life, is within the realm of possibilities.

In the interim, it’s critical for security teams to be proactive, because cybercriminals, unfortunately, have the upper hand.  “[Cybercriminals’] game is easier, they have to find one weakness. We have to find them all,” Cole said.

Source:  Fox Business

The Anatomy of Today’s First Time Homebuyer

Posted on December 04, 2017 by Laura Lam

first time home buyerMillennials continue to surge into the housing market, their demand rising unchecked by rising home prices or increasing mortgage rates.  Ellie Mae’s Millennial Tracker showed these first-time homebuyers saw a jump of more than .5 percentage points from their mortgage rates last year, yet they continue to buy homes.

Now, a new infographic from the National Association of Realtors shows exactly what these younger homebuyers look like, and what they want. NAR pointed out Millennial homebuyers faced various obstacles in their path to homeownership including higher rents and home prices, tight inventory conditions and repaying student loan debt.

These impediments continue to hold first time homebuyers at just 34% of all market transactions, down from the historical average of 39% since NAR’s Profile of Home Buyers and Sellers survey began in 1981.

However, despite these obstacles, demand for starter homes remains strong. These are some of the characteristics of a successful first-time buyer.

Their average age is 32 years old, and they earn a household income of $75,000. The average home purchased costs $190,000, for which they usually put in a 5% down payment. The average amount of student loan debt per homebuyer is $29,000.  NAR explained these homebuyers are typically looking for a single-family home to purchase in a suburban area.

A recent report from Ellie Mae showed the most popular metropolitan area for homes purchased by Millennial buyers was Mount Vernon, Illinois. Other popular Midwestern cities included Hutchinson, Kansas, New Philadelphia-Dover, Ohio, Defiance, Ohio, Dickinson, North Dakota, Owosso, Michigan and Ashland, Ohio.

Source:  Housing Wire/National Association of Realtors

Debt-to-Income Levels Could be Under Stress

Posted on November 28, 2017 by Laura Lam

default ratesDefaults for second lien mortgages and other types of consumer credit in October were up compared to the previous month, according to Standard & Poor’s and Experian’s indices.  “For the first time since January 2017, the default rate for autos, bank cards and mortgages all rose together,” said David Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices.

“The data does not suggest any unusual financial stress facing consumers which would explain the small, but across the board increases in default rates,” he said.  However, “the one concerning item, which might explain the default numbers, is recent softness in real disposable personal income. If a widening spread between income and spending appears, defaults may fill the gap.”

The composite default index was up 3 basis points from a year ago and 2 basis points from a month ago at 0.9%, and the second mortgage default rate was up 21 basis points from last year and 26 basis points from last month at 0.79%.

Also the bank card default rate was up 52 basis points from a year ago and 13 basis points from the previous month at 3.28%. The default rate for auto loans was up 3 basis points from a year ago and six basis points from September at 1.11%.

The trends suggest there is pressure on the debt-to-income ratios that single-family lenders look at closely when originating first mortgages.  But so far the first-mortgage default-rate is up by only a basis point on a month-to-month basis, and it is still 3 basis points lower year-over-year at 0.67%.

Source:  National Mortgage News

Housing Affordability May Plummet in 2018

Posted on November 21, 2017 by Laura Lam

affordability chart 1During the recent CoreLogic and the Urban Institute’s Housing Finance, Affordability and Supply in the Digital Age conference, CoreLogic Chief Economist Frank Nothaft predicted rising interest rates will cause home prices to rise.  Mortgage interest rates are expected to continue rising over the next couple years as experts predict the Federal Reserve will raise the Federal Funds rate in once more this year in December and up to 4 more times in 2018. As the chart shows, CoreLogic forecasted it will rise to 4.7% by December 2018.

Nothaft explained as mortgage interest rates increase throughout 2018, less current homeowners will be motivated to sell their home, wanting to keep their low interest rate. This will then lead to less homes coming onto the market, and will squeeze the already tight housing inventory.  First American Financial Chief Economist Mark Fleming agreed it could hurt housing supply, saying, “There is no reason the current homeowner today will want to sell.”

Nothaft predicted home prices will rise yet another 5% in 2018, benefitting current homeowners as their home equity increases. CoreLogic data shows the average homeowner gained $13,000 in home equity in just the past year. In Washington, where Seattle saw a surge in home prices, homeowners gained a full $40,000 in equity since last year.

affordability chart 2The chart shows the amount of equity the average homeowner gained in each state from the second quarter of 2016 to the second quarter of 2017.

However, the rise in prices will not bode as well for the mortgage market, which will continue to see decreases in refinance originations. But refis will not fall off completely as Nothaft explained many FHA borrowers will seek to refinance their mortgage into a conventional loan in order to cancel their mortgage insurance.

In fact, FHA to conventional refinances reached a new all-time high since CoreLogic began tracking in 2000 at just over 10%.  Nothaft predicted while originations will continue to rise, it will be much more moderate, and see less volatility from year to year.  The decrease in refi originations and the slowdown of purchase origination will be partially offset by a rise in home equity lines of credit, which has been rising steadily over the past several years.  But will interest rates increase in 2018? Fleming cautioned economist have been forecasting an increase to 4.5% in mortgage rate for the past three years.

Source:  Housing Wire

Americans Waiting for a Bigger Raise

Posted on November 17, 2017 by Laura Lam

wage growthThe government said that average hourly earnings rose 2.4% over the past 12 months.  That’s a slip from the 2.9% increase reported in September. It remains below the 3% to 3.5% range that many agree is normal in a truly healthy economy.  The last time wages were up more than 3% year-over-year was in April 2009, just as the economy was emerging from the depths of the global banking crisis that fueled the Great Recession.

Why have wages remained stagnant even though many other indicators of the job market and broader economy look healthy? Unemployment continues to drop. The housing market is vibrant and stocks continue to soar.

John Bellows, a portfolio manager at Western Asset, argues that the impact of globalization, more automation and an increased number of people working part-time are keeping wages in check.  Bellows and others think lawmakers and President Trump need to take action to improve American wages.  “I’m not sure how much the Fed can do to increase wages,” Bellows said. “But we shouldn’t be defeatist about it. It’s now just mostly up to Congress.”

Erik Weisman, chief economist at MFS, says that if tax reform passes and leads to lower corporate tax rates, big multinational U.S. companies may bring back to the U.S. cash that’s sitting overseas, and use it to boost salaries and hire more workers.  “Lower taxes could incentivize companies to keep profits onshore and invest more domestically,” Weisman said.

Matt Schreiber, president and chief investment strategist of WBI Investments, thinks there’s another problem. Now that companies are hiring again, people who had been unemployed or underemployed may be returning to the workforce for lower salaries.  “More people are getting jobs that underpay and are not making what they used to,” he said.  He added that businesses are still waiting to see if recent signs of U.S. economic improvement — two consecutive quarters of annualized growth of at least 3% — is sustainable.  Schreiber said that he is also hoping “corporate tax cuts could turbocharge the economy and wage growth.”

There are some hopeful signs.  Matt Toms, CIO for Voya Investment Management, said it is good to see that more states and cities are raising their minimum wages, as are giant American employers like Walmart (WMT) and McDonald’s (MCD).  But the average hourly workweek has remained relatively flat over the past few months, stuck around 34.4 hours. Toms suggests that some employers could be limiting worker hours in light of wage increases in order to keep labor costs in check.  “We’d be more encouraged if there was even more wage growth. It’s needed at this part of the economic cycle,” Toms said.

Source:  CNN Money

Sales to First-Time Home Buyers Fell 34% in 2017

Posted on November 16, 2017 by Laura Lam

first time homeowners 1981First time homebuyers continue to struggle to enter the housing market amidst limited housing inventory, falling to the fourth lowest level since 1981, according to the National Association of Realtors’ 2017 Profile of Home Buyers and Sellers report.  The share of first time homebuyers in the housing market decreased from 35% in 2016 to 34% in 2017. In the 36-year history of NAR’s report, the long-term average of first-time homebuyers rests at 39%.

“The dreams of many aspiring first-time buyers were unfortunately dimmed over the past year by persistent inventory shortages, which undercut their ability to become homeowners,” stated NAR Chief Economist Lawrence Yun.  “With the lower end of the market seeing the worst of the supply crunch, house hunters faced mounting odds in finding their first home.”

While “solid economic conditions and millennials in their prime buying years” should translate to many first-time home sales, Yun said the unfortunate reality is that the homeownership rate will remain suppressed until “entry-level supply conditions increase enough to improve overall affordability.”

In addition to low inventory, student debt is also working against young potential homeowners.  While student debt has affected multiple generations, college tuition costs have become so high, that getting a job and working your way through is simply no longer possible.  In 1993, 47% of college students graduated with student debt of about $9,450 per grad, according to the Federal Reserve Board of New York. As of 2012, that number surged to 71% of college graduates, and in 2016 the average loan amount totaled a shocking $37,172 per graduate.

NAR’s study showed 41% of first time homebuyers held student debt of $29,000 in 2017, up from 40% of buyers with $26,000 in debt in 2016. While only 41% had student debt while buying their home, 55% of first-time buyers said student debt delayed saving for their home purchase.

Why the surge? As of 2014, undergraduate education cost 12 times more than it did 35 years before, far outpacing inflation. The price of college tuition and fees surged 1,122% since 1978 while the cost of medical care increased 600%, and housing and food increased 300%.  Incomes are also rising but not at a rate to counter the inflation surge.  With student loans outpacing other forms of debt, it should come as no surprise that first-time homebuyers continue to decrease lower than historical norms.

Source:  Housing Wire/NAR