Archive for June, 2010

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Nearly One in Five Mortgage Defaults Are ‘Strategic’

June 28, 2010

By Nick Timiraos

A new report estimates that nearly one in five mortgage defaults through the first half of 2009 were “strategic,” where borrowers who appeared to have the capacity to pay their mortgages stopped doing so.
The research follows on an earlier report by Experian and Oliver Wyman that first aimed to quantify the share of mortgage defaults that are “strategic.” Strategic defaulters are defined as those who miss six straight mortgage payments without missing multiple payments on auto loans and other consumer debts for the six months after they first fell behind on mortgage payments.
The report finds that the share of borrowers who strategically defaulted through the first half of 2009 is unchanged from the end of 2008. Still, the absolute number of strategic defaults in the first half of 2009 increased 53% from the year ago period.
Researchers suggest that the share of strategic defaults may have hit a plateau as total mortgage delinquencies and may have also peaked in the fourth quarter of 2008. “We’re seeing this encouraging break in the quarterly data,” said Charles Chung, general manager of decision sciences at Experian.
But those results are “heavily contingent” on the stabilization in home prices that materialized one year ago, as government stimulus aimed to set a floor for home prices.
One big question going forward: do strategic defaulters begin to account for a growing share of defaults, especially if the total pool of mortgage defaults shrinks as unemployment subsides. While a better job market would slow the pace of traditional mortgage defaults, many potential strategic defaults—those who owe far more than their homes are worth—would need home prices to appreciate to change their calculus.
Indeed, the report finds that strategic default remains heavily concentrated in California, Florida, and western states that have seen the biggest run-up and decline in home prices. Strategic defaulters in California were nearly 80 times higher in the first two quarters of 2009 versus 2005.
While those states had higher concentrations of investor-owned properties that are particularly vulnerable to walkaways, the report finds that 68% of all strategic defaulters had just one first mortgage, up from 64% in 2008.
The report comes as Fannie Mae last week stepped up a public-relations campaign to warn of the possible repercussions of strategic default. The government-owned mortgage-finance titan said it would begin to pursue legal actions against borrowers who walked away from mortgages when they had the capacity to pay.
It also said it would lengthen to seven years, from five, the amount of time that borrowers must wait before receiving a new loan after a foreclosure unless those borrowers could show that they had defaulted due to hardship and after seeking a workout from their lender.
Readers, are you thinking about walking away from a loan you could afford to pay? Would tougher sanctions change your mind? Email us: nick.timiraos@wsj.com.
Follow for more mortgages and housing news on Twitter: @NickTimiraos

A new report estimates that nearly one in five mortgage defaults through the first half of 2009 were “strategic,” where borrowers who appeared to have the capacity to pay their mortgages stopped doing so.

The research follows on an earlier report by Experian and Oliver Wyman that first aimed to quantify the share of mortgage defaults that are “strategic.” Strategic defaulters are defined as those who miss six straight mortgage payments without missing multiple payments on auto loans and other consumer debts for the six months after they first fell behind on mortgage payments.

The report finds that the share of borrowers who strategically defaulted through the first half of 2009 is unchanged from the end of 2008. Still, the absolute number of strategic defaults in the first half of 2009 increased 53% from the year ago period.

Researchers suggest that the share of strategic defaults may have hit a plateau as total mortgage delinquencies and may have also peaked in the fourth quarter of 2008. “We’re seeing this encouraging break in the quarterly data,” said Charles Chung, general manager of decision sciences at Experian.

But those results are “heavily contingent” on the stabilization in home prices that materialized one year ago, as government stimulus aimed to set a floor for home prices.

One big question going forward: do strategic defaulters begin to account for a growing share of defaults, especially if the total pool of mortgage defaults shrinks as unemployment subsides. While a better job market would slow the pace of traditional mortgage defaults, many potential strategic defaults—those who owe far more than their homes are worth—would need home prices to appreciate to change their calculus.

Indeed, the report finds that strategic default remains heavily concentrated in California, Florida, and western states that have seen the biggest run-up and decline in home prices. Strategic defaulters in California were nearly 80 times higher in the first two quarters of 2009 versus 2005.

While those states had higher concentrations of investor-owned properties that are particularly vulnerable to walkaways, the report finds that 68% of all strategic defaulters had just one first mortgage, up from 64% in 2008.

The report comes as Fannie Mae last week stepped up a public-relations campaign to warn of the possible repercussions of strategic default. The government-owned mortgage-finance titan said it would begin to pursue legal actions against borrowers who walked away from mortgages when they had the capacity to pay.

It also said it would lengthen to seven years, from five, the amount of time that borrowers must wait before receiving a new loan after a foreclosure unless those borrowers could show that they had defaulted due to hardship and after seeking a workout from their lender.

Readers, are you thinking about walking away from a loan you could afford to pay? Would tougher sanctions change your mind? Email us: nick.timiraos@wsj.com.

Follow for more mortgages and housing news on Twitter: @NickTimiraos

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Bring back the tax credit – It’s time!

June 22, 2010

Sometimes NO News ISN’T good news. As predicted by me and by many others, since the tax credit expired – home sales would drop. SO it comes as no surprise to me that sales are downs significantly since the stimulus package ended. While the tax credit was not an astounding amount of money – it was enough to get people excited about the prospect of buying a home and receiving some financial benefit for their purchase.  It just proves that while only a slight gain – in the eyes of home buyers – IT IS STILL A GAIN.

Overview of Data in NAR’s Existing Home Sales 6/22 Release

Was anybody really surprised by today’s EHS release by NAR? The drop to a 5.66 million rate simply reflects what most have known for a while now: that second-half expectations will be tempered to reflect the pull-forward of sales brought about by the stimulus.

To sum: May’s transactions were up 18% nationally (when compared to May ’09), with all four regions showing double-digit gains led by the South (up 22%). For the second straight month, all four regions had higher mean average sales prices than the same period a year ago. Inventory declined marginally to 8.3 months.

South – April sales up 22% over 5/09, ASP up 3%. The South’s ASP is now 18% below its peak (hit 10/05) and 14% above the trough (reached 2/10). Transactions have been up vs. LY for 9 straight months; price, 5 straight months. LTM sales volume in the South is at about the same level as in May of 2003.

 

Bring back the credit. As home sales goes – goes the economy. Improved retails sales, increase in jobs, and more general spending by the American public. It doesn’t take a Harvard educated economist to figure this one out! Bring back the tax credit.

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Will work for a home? Unemployment affects housing.

June 1, 2010

It’s almost summertime and the market is starting to turn. It’s great news for some but not so great for others.

According to a study released Friday by NeighborWorks America, 58 percent of homeowners who’ve received assistance through its national foreclosure counseling program reported the primary reason they were facing foreclosure was reduced or lost income.

NeighborWorks was created by Congress in 1991 as a nonprofit organization to support local communities in providing its citizens with access to homeownership and affordable rental housing. In January 2008, with the foreclosure crisis raging, Congress implemented the National Foreclosure Mitigation Counseling (NFMC) Program and made NeighborWorks the administrator.

The organization says that over the course of the NFMC program, the percentage of homeowners who’ve cited wage cuts or unemployment as the primary reason they were facing foreclosure has steadily increased.

In November 2009, 54 percent of NFMC-counseled borrowers reported reduced or lost income as the main reason for default. Six months earlier in June 2009, it was 49 percent; in February 2009, 45 percent; and in October 2008, 41 percent.

These steady increases parallel the nation’s unemployment rate, which until the November 2009 employment report, had marched upward since October 2008.

“With unemployment numbers not likely to dip below nine percent in 2010, our report proves what many already believed to be true. Unemployment and reduced income are having a devastating effect on our nation’s homeowners,” said Ken Wade, CEO of NeighborWorks America.

So what does the future hold for real estate? Well as you can see a lot depends on the ability to create jobs in today’s world. WE NEED WORK and we need for Congress to act now to shore up  unemployment numbers. This could be a long recovery for our nation – but we WILL recover and we will go back to work.

I look forward to that day.