Homeownership Remains Low Despite Decreasing Burden of Owning

11/16/2012 By: Krista Franks Brock 

The landscape of homeownership has undergone significant changes in recent years: The homeownership rate has declined, but so has the cost burden of owning a home. Both of these trends are most prevalent among young homeowners, according to a recent report from Fannie Mae.

The national homeownership rate has declined in each of the past four years, according to the most recent Census data, which extends through 2011. The 2011 homeownership rate of 64.6 is 2.6 percentage points lower than the 2007 rate.
The decline among those 25 to 44 years of age is more than twice the overall decline.
This shift, which Fannie Mae attributes to the Great Recession, comes after a decade of steady homeownership increases in which young households played a major role.

Despite the recent declines in homeownership, the cost burden of owning a home decreased in 2011 and has “fallen substantially for young owners during the last four years,” according to Fannie Mae.
When measuring housing cost burden, analysts often look for households paying more than 30 percent of their gross income in housing costs, which analysts define as rental or mortgage payments combined with utility spending.
In 2011, the percentage of homeowners who fell into this category decreased by about one percentage point. In contrast, the number of renters in this category grew.
The percentage of 25 to 44 year-old renters who paid more than 30 percent of their gross incomes on housing costs rose 4 percentage points between 2007 and 2011.
In the same timespan, the percentage of homeowners of the same age who paid more than 30 percent of their incomes on housing costs declined by 5.8 percentage points.
Rising affordability among younger homeowners can be attributed to low mortgage rates and perhaps “exits from homeownership by households who had high and unsustainable housing cost burdens,” Fannie Mae stated in its report.
Another factor is tightening mortgage standards, which “may have also helped to create a cohort of young homeowners who have housing costs that are better aligned with incomes,” according to Fannie Mae.
The report also noted growth for the single-family rental industry, which has attracted former homeowners who may be locked out of the market due to a foreclosure.

Threat of Shadow Inventory Fades as Delinquencies, Foreclosures Decline

11/15/2012 By: Esther Cho 

The percent of loans in foreclosure, or the foreclosure inventory rate, fell to the lowest level since the first quarter of 2009, according to the latest delinquency survey from the Mortgage Bankers Association (MBA).

On a non-seasonally adjusted basis, the foreclosure inventory rate in the third quarter was 4.07 percent, down 20 basis points from last quarter and 36 basis points from a year ago. MBA reported the quarterly decrease was the largest since the survey’s history.
“The level however, is still roughly four times the long-run average for this series as we continue to see back logs of loans in the foreclosure process in states with a judicial foreclosure system,” said Mike Fratantoni, MBA’s VP of research and economics, in a release.
MBA noted five states alone accounted for 51.7 percent of the nation’s share of foreclosure inventory: Florida (23.4 percent), California (8.3 percent), New York (7.2 percent), Illinois (6.5 percent) and New Jersey (6.3 percent).
On a seasonally adjusted basis, the national delinquency rate stood at 7.40 percent in the third quarter, according to the survey. The decrease is a quarterly and yearly decline of 18 and 59 basis points, respectively.
The non-seasonally adjusted rate, however, increased quarterly by 29 basis points to 7.64 percent. The MBA explained the a typical seasonal pattern is for the rate to increase from the second to third quarter.

The delinquency rate includes loans that are at least 30 days or more past due but not in foreclosure and covers mortgages on one-to-four-unit residential properties.
The delinquency rate for loans that are 90 days or more past due was 2.96 percent, a drop of 23 basis points from the second quarter and 54 basis points from last year.
Fratantoni explained the decline in mortgage delinquencies was helped by a decline in 90-plus delinquencies.
“The 90 day delinquency rate is at its lowest level since 2008, and together with the decline in the percentage of loans in foreclosure, this indicates a significant drop in the shadow inventory of distressed loans-a real positive for the housing market,” Fratantoni stated.
The rate for 30-day delinquencies increased to 3.25 percent, rising quarterly and yearly by 7 and 6 basis points.
“The 30 day delinquency rate increased slightly, but remains close to the long-term average for this metric. Given the weak economic and job growth in third quarter, it is not surprising that this metric has not improved,” he added.
The serious delinquency rate, which includes loans 90 days or more past due or in the process of foreclosure, declined yearly by 86 basis points to 7.03 percent.
On a non-seasonally adjusted basis, the percentage of loans that began the foreclosure process in the third quarter also fell, dropping 18 basis points from last year to 0.90 percent. Quarter-over-quarter, the rate was down by 6 basis points.
“The improvement in total delinquency rates was accompanied by a further drop in the foreclosure starts rate, which hit its lowest level since 2007,” Fratantoni noted.
In a commentary, Capital Economics also suggested the data points to a decline in shadow inventory.
“Admittedly, we estimate that there are still a very high 3.8m homes which are waiting in the wings to join the visible supply. But this is down from a peak of 5.1m. In other words, the threat to the housing recovery from the shadow inventory is fading into the background,” the research firm stated.

Reports: Refi Numbers Low Despite Low Mortgage Rates

10/12/2012 By: Esther Cho 

It was no surprise when mortgage rates dropped in the weeks following the Fed’s announcement that it would purchase $40 billion of agency mortgage-backed securities (MBS) each month until the labor market shows substantial improvement.

Even with the record-low mortgage rates seen today, refinancing numbers are still not as high as expected.
In CoreLogic’ most recent MarketPulse report, Sam Khater and Molly Boesel noted, “the overall level of refinancing is still low given current mortgage rates, and there are still many homeowners nationwide with above market rates.”
Despite the new expansions from HARP 2.0, including the removal of its 125 percent LTV ceiling, other restrictions are still preventing homeowners from refinancing.
One of those restrictions is a HARP guideline that makes borrowers ineligible if they obtained their GSE-backed mortgaged after May 31, 2009.

CoreLogic conducted an analysis to find out who would be excluded from HARP based this particular requirement.
According to its analysis, CoreLogic found that “lifting the restriction on origination date would expand eligibility of HARP by an additional 2 percent of currently outstanding mortgage, or approximately one million borrowers.”
The report found that those borrowers who are ineligible based on their origination date have an average mortgage rate of 5.22 percent and would save an average of $333 a month.
The authors suggested removing the origination date restriction to extend HARP benefits to an additional one million borrowers, who could then use the savings as a economic stimulus.
Capital Economics also discussed the weak impact of low mortgage rates on refinancing in an analysis wrapping up economic news for the week.
Authored by economists Paul Ashworth and Paul Dales, the report did acknowledge that low mortgage rates led to a surge in mortgage applications, especially for refinancing.
Despite the surge, Capital Economics noted refinancing applications still didn’t rise above levels seen in early 2009 when interest rates were also declining.
Rather than focusing on what’s specifically preventing HARP refinancings, Capital Economics provided a more general picture of what is happening in refinancing.
“This illustrates how big a restraint it is that almost half of mortgage borrowers can’t qualify to refinance because, thanks to the collapse in home prices and tighter lending standards, they don’t have the 20% in home equity needed to qualify,” the research firm observed.

Rates Make Slight Increase After Dropping to Record Lows

10/11/2012 By: Tory Barringer 

Freddie Mac’s Primary Mortgage Market Survey (PMMS) showed surprisingly little life this week following the better-than-expected jobs report for September.

While rates did rise for the week ending October 11, most increases were mild. The 30-year fixed average posted the largest growth, rising to 3.39 percent (0.7 point) from 3.36 percent-a record low the week before.
The 15-year fixed-rate mortgage also saw an increase, averaging 2.70 percent (0.6 point), up from 2.69 percent previously. For the second week in a row, the 15-year fixed average was lower than the average for a 5-year adjustable-rate mortgage (ARM). Until last week’s survey, the last time the 15-year fixed dipped lower than the 5-year ARM was in October 2009.

Meanwhile, the 5-year ARM averaged 2.73 percent (0.6 point), up from 2.72 percent before, while the 1-year ARM edged up to 2.59 percent (0.4 point) from 2.57 percent previously.
Bankrate’s survey saw more dramatic increases, with the 30-year fixed hiking up seven basis points to 3.59 percent. At the same time, the 15-year fixed slid up to 2.84 percent.
The 5/1-year ARM inched up, averaging 2.68 percent for the week.
With the Federal Reserve working to keep rates down and a slowly recovering economy propping them up, the vast majority of experts-67 percent-interviewed by Bankrate anticipate little to no change in the coming week.
“A lower-than-expected unemployment rate in the U.S. and a lack of bad news out of Europe were the catalysts for the slight rise in rates,” said Michael Becker, a mortgage banker for WCS Funding Group. “Looking forward, QE3 and weaker third-quarter earnings keep bond yields and mortgage rates from rising. But it’s also hard to see them dropping from current low levels. I expect mortgage rates to hold steady in the coming week.”
Market expert Dan Green, one of the 19 percent minority who expect rates to fall again, offered much simpler reasoning for his forecast.
“Don’t fight the Fed,” Green told Bankrate. “QE3 for the win.”

Distressed Sales Interfere with Accurate Appraisals: NAR

10/10/2012 By: Esther Cho 

Inflated appraisals were identified as one of the causes of the housing bubble, and now undervalued appraisals are viewed as a reason for a stalled recovery.

In a September National Association of Realtors (NAR) survey related to home appraisals over the past three months, 11 percent of Realtors said a contract was cancelled because a home was appraised at a value below the negotiated price.
Another 9 percent said a contract was delayed, and 15 percent said a contract was renegotiated to a lower sale price.
A much larger majority, 65 percent, reported no contract problems stemming from home appraisals.
One reason for the low values, according to the NAR, is because some appraisers are not taking into account the difference between distressed and non-distressed homes when making comparisons.
“Some appraisers are using foreclosures, short sales and run-down properties as comparable homes, and are not making adjustments for market conditions or the condition of the property,” the group stated in a release.
Compared to traditional sales, a foreclosure sells for a 20 percent discount on average and a short sale for a 15 percent discount.

NAR acknowledged issues appraisers deal with, noting “appraisers have faced undue pressure – whether from a lender or an AMC – to complete appraisals using distressed sales as comps, to complete an appraisal in an unacceptably short time frame, and to complete a scope of work that is not justified by the fee being offered.”
NAR further added some appraisers have to use eight to 10 comparable sales when previously, three comparable homes were sufficient and the norm.
When using a high number of comps, discounted, distressed homes end up in the equation. NAR explained this can lead to traditional homes in good condition being compared to distressed homes without appropriate adjustments.
However, with the distressed market share decreasing, the impact of distressed inventory on appraisals should also subside.
According to the NAR, distressed sales accounted for about one-third of all sales in 2011, and by 2013, the association expects to see the share of distressed sales fall to 10 to 15 percent.
Even if the issue of distressed properties starts diminishing, there are still other issues in the appraisal industry NAR addressed, including out-of-town appraisers who are not familiar with the area or local market conditions, slow turnaround times, and inconsistencies and fluctuations in appraised values.
NAR President Moe Veissi, broker-owner of Veissi & Associates Inc., in Miami, explained the NAR’s position on the issue.
“Our long-standing policy is that all appraisals should be done by licensed or certified professionals with local expertise, which also is what Fannie Mae and Freddie Mac recommend, but clearly this isn’t practiced universally,” he said.
“In the meantime, buyers, sellers and real estate agents need to be aware that there are problems with some real estate appraisals, but also be aware of their rights to communicate with appraisers and lenders about errors or concerns with individual valuations,” he added. “In some cases, a second appraisal may be justified.

Mortgage Rates Find New Bottom for 2nd Straight Week

10/04/2012 By: Krista Franks Brock 

For the second week in a row, mortgage rates hit new record lows, and for the first time since mid-October 2009, the 15-year fixed-rate mortgage is lower than the 5-year adjustable-rate mortgage (ARM).

The average 30-year fixed-rate mortgage for the week ending October 4 was 3.36 percent (0.6 point), down from last week’s average of 3.40 percent, according to Freddie Mac. Bankrate also recorded a fall in the 30-year fixed-rate mortgage but recorded an average rate a little higher at 3.52 percent (0.44 point).

The 15-year fixed-rate mortgage fell to an average of 2.69 percent (0.5 point), down from 2.73 percent the previous week, according to Freddie Mac. Again, Bankrate recorded a slightly higher average, albeit a record-low for its index. The 15-year fixed-rate mortgage averaged 2.84 percent, according to Bankrate.
The 5-year Treasury-indexed hybrid ARM was the only rate to rise over the last week, up to 2.72 percent (0.6 point) from 2.71 percent the previous week, according to Freddie Mac.
The 1-year Treasury-indexed ARM fell from 2.60 percent to 2.57 percent (0.4 point).
Frank Nothaft, VP and chief economist at Freddie Mac, attributes the falling rates to “mortgage securities purchases by the Federal Reserve and indicators of a weakening economy,” such as slow personal income growth in August–just 0.1 percent–a 2.6 percent decline in pending home sales, and last quarter’s downwardly revised Gross Domestic Product.
According to Bankrate, the “historically low rates led to a surge in refinances last week.”
Looking forward, Bankrate suggests it’s unlikely rates will rise “anytime soon.”

NAR: Tight Lending Standards Stunting Home Sales and Employment

09/17/2012 By: Ryan Schuette 

If Realtors have anything to say about tight lending standards, the observation would be such standards are preventing more home sales and holding back job creation.

The Washington, D.C.-based National Association of Realtors recently reached their conclusions in a survey conducted with real estate agents.
“Sensible lending standards would permit 500,000 to 700,000 additional home sales in the coming year,” NAR chief economist Lawrence Yun said in a statement. “The economic activity created through these additional home sales would add 250,000 to 350,000 jobs in related trades and services almost immediately, and without a cost impact.”
The findings? Lenders take too long with applications, requiring excessive information and preferring only interested homebuyers with high credit scores.
Survey respondents reported that 53 percent of loans went to borrowers with credit scores above 740 in August, a sharp contrast when compared with the fact that 41 percent of homeowners with the same credit held these mortgages from 2001 to 2004.

According to NAR, about three-fourths of loans bought by Fannie Mae and Freddie Mac went to borrowers with credit scores of 740 or above.
The trade group observed that loan applications backed by the Federal Housing Administration showed an average FICO score of 669 in May, significantly higher than 656 for loans originated in 2001.
Yun intimated that reportedly tight lending standards could hurt existing-home sales, which typically range from 5 million to 5.5 million in better times.
“Sales this year are projected to rise 8 to 10 percent. Although welcoming, this still represents a sub-par performance of about 4.6 million sales,” Yun said.
“These findings show we need to return to the sound underwriting standards that existed before the aberrations of the housing boom and bust cycle, and thoroughly re-examine current and impending regulatory rules that may cause excessively tight standards,” he added.
While looser lending standards can threaten default rates, NAR brought attention to improving loan performance in recent years.
Yun pointed out that since 2009, the 12-month default rates have been abnormally low, with Fannie Mae default rates averaging 0.2 percent and Freddie Mac rates averaging 0.1 percent. NAR stated this is notable considering higher unemployment in the timeframe.
In 2007, the twelve-month default rates peaked to 3.0 percent for Fannie Mae loans and 2.5 percent for Freddie Mac loans, according to NAR.