Tip for today: foreclosure report

A press release from LPS' Mortgage Monitor Report shows Foreclosure Inventory Rising for 5th Straight Month

The November Mortgage Monitor report released by Lender Processing Services, Inc. (LPS) shows that the volume of loans moving to REO continued to drop as moratoria further delayed foreclosure sales. While the 90+ delinquency category has steadily declined, the number of loans moving to seriously delinquent status beyond 90 days far outpaced the number of foreclosure starts. Nearly 2.2 million loans are 90 days or more delinquent but not yet in foreclosure.

Foreclosure inventories also continued to rise for the fifth straight month as delinquent accounts are referred for foreclosure, but the sale of foreclosure properties continued to decline. When compared to January 2008 levels, the foreclosure inventory of Jumbo Prime loans is nearly seven times higher; the inventory of Agency Prime loans is nearly six times higher; and the foreclosure inventory of Option ARM loans is approaching five times the inventory in January 2008.

The report also shows that one-third of loans that are 90 days or more delinquent have not made a payment in a year; however, the number of new problem loans declined nearly 5.4 percent from October, which is opposite of the seasonality trend that typically impacts new delinquencies this time of year. Self-cures for loans one to two months delinquent increased in November to a six-month high.

In the month of November, 261,153 loans were referred to foreclosure, which represents a 0.7% month-over-month decline. The total number of delinquent loans is nearly 2.1 times historical averages - and foreclosure inventory is currently at 7.7 times historical averages.

As reported in LPS' First Look release, other key results from LPS' latest Mortgage Monitor report include:

Total U.S. loan delinquency rate: 9.02 percent
Total U.S. foreclosure inventory rate: 4.08 percent
Total U.S. non-current* loan rate: 13.10 percent
States with most non-current* loans: Florida, Nevada, Mississippi, Georgia, New Jersey
States with fewest non-current* loans: North Dakota, South Dakota, Alaska, Wyoming, Montana

Charts From The Report

The report is 34 pages long. Inquiring minds may wish to give it a closer look. Here are a few select charts.

click on any chart for sharper image

Delinquent and Foreclosure Rates by Month

Total Delinquency Percent Excluding Foreclosures

Total Foreclosure Percent By Product

Foreclosure Increase Compared to January 2008

Loan Cures

Serious Delinquencies

Foreclosure Starts vs. Serious Delinquencies

While there are some welcome trends in direction, actual foreclosures are lagging. The pent-up need to foreclose is huge.

Moreover, mortgage rates have rising nearly a full percentage point in the last 45 days. This will put a damper on already depressed home sales, making it harder to unload inventory.

Look for months of inventory to soar in the upcoming months with continued declines in home prices. Contrary to what most think, falling prices are a good thing. Home prices need to fall to a point low enough where genuine demand kicks in.

Foreclosure moratoriums are counterproductive and exacerbate existing problems.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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"Treasury's reluctance to acknowledge HAMP's shortcomings has had real consequences," the bailout watchdog declared in its report. An "untold number of borrowers may go without help -- all because Treasury failed to acknowledge HAMP's shortcomings in time."

Housing experts have declared that the administration's botched program leaves the broader housing market and the economy susceptible to more shocks ahead, as foreclosed homes pile up, pulling down real estate values.

"Having dragged their feet through various revisions to the program, and with their ability to now redesign it shut down, they have ensured HAMP its place in the trash bin of history," said noted bond analyst Joshua Rosner, a managing director at Graham Fisher & Co. who analyzes housing.

The abundance of data in the oversight panel's report presents a picture of a flimsy government program that has been swamped by an unceasing flood of homeowners landing in trouble and houses sinking into foreclosure. Since the program began, nine new foreclosures have been initiated for every permanent loan modification that has been approved, the panel found.

Under the program, troubled homeowners who qualify are enrolled for three-month trial periods during which they make lower monthly payments. So long as they make their payments on time and document their distressed situation, borrowers are supposed to be automatically rolled into so-called permanent modification plan in which their monthly payments stay relatively flat for five years.

Some homeowners have been stuck in the trial phase for as long as 20 months, according to the Congressional Oversight Panel. The chairman of the panel, former Delaware Senator Ted Kaufman, called that "egregious," during Monday evening's call with reporters. He singled out for criticism the giant banks that collect mortgage payments--servicers, in industry parlance. He also blamed Treasury for failing to hold the mortgage companies to account.

"There is extensive anecdotal evidence servicers aren't living up to the rules," said Kaufman, a Democrat. "Treasury is not nearly being as forceful as they can."

The panel asserted that Treasury can levy penalties on mortgage companies for failing to abide by the program's rules. Treasury insists that it lacks such authority, though it clearly has the power to claw back the incentive payments it makes to servicers for enrolling homeowners in five-year modification plans. Despite heavy criticism from Congress, Treasury has withheld no payments. Treasury is now considering withholding payments for 132 modified loans, the panel's report notes.

Even those homeowners who have successfully navigated the Kafkaesque bureaucracy required to secure a loan modification have rarely received significant relief. Nearly 95 percent of such homeowners have ended up with higher principal balances after receiving a modification, according to the report. More than 76 percent of homeowners in the program owe more on their mortgage than the home is worth, a situation referred to as being "underwater."

About 10.8 million, or 22.5 percent, of all homeowners with a mortgage were underwater as of Sept. 30, according to CoreLogic, a data provider.

A range of housing experts have long argued that the foreclosure crisis can only be stemmed by a more aggressive program that shrinks the outstanding balances on mortgages. The Treasury and the financial industry has long resisted such calls on the grounds that it would cost someone money--either the banks or taxpayers.

Writing down principal balances on mortgages would give people whose are worth less than they owe greater incentive to stay current on their payments, say experts.

"Negative equity is a primary factor holding back the housing market and broader economy," Mark Fleming, CoreLogic's chief economist, said in a Monday statement.

According to the oversight panel's report, homeowners are falling further underwater after their loans are modified under Obama's plan. After their loan is restructured, the typical HAMP homeowner owes $1.25 on their mortgage for every $1.00 their home is worth.

The oversight panel zeroed in on the problem of underwater borrowers as a key challenge for the economy. With so many people underwater, many homeowners who would like to sell their properties and move to parts of the country with more abundant jobs are stuck in place. Some borrowers have opted to simply forego making payments and relinquish their homes to foreclosure.

"Negative equity can restrict the ability of homeowners to move, whether for family reasons or to pursue greater job opportunities, since home sale proceeds will not be sufficient to repay their loan," the report states. "It also provides an incentive for borrowers who can afford to pay their mortgages to stop paying intentionally and walk away."

This dynamic seems likely to worsen before it gets better, with many analysts anticipating that housing prices will continue to fall in much of the country through the end of next year. Housing prices have fallen by 30 percent nationwide since early 2006, according to the S&P/Case-Shiller Home Price Index.

Massad, the Treasury official overseeing the rescue program, said the department grasps that underwater borrowers are playing a significant role in exacerbating the foreclosure crisis. He emphasized that Treasury recently launched additional programs aimed at shrinking balances for people whose homes are worth less than they owe the bank.

But despite these programs, mortgage companies have reduced the principal for only three percent of the homeowners in the HAMP program, according to the the panel's report.

"Clearly, it's a big, big problem," said Kaufman.

Rosner and other experts assert that Treasury should force lenders to write down second mortgages, such as home equity lines of credit--a popular way in which homeowners turned increased real estate values into the cash during the boom. And if writing down those loans still leaves borrowers unable to make their monthly payments, primary mortgages should be written down, he added.

But that approach has been emphatically rejected by Treasury and the large banks, who are themselves on the hook for many second mortgages. While the largest four American banks generally sold off primary mortgages to investors and now merely collect fees for handling the bills, these same four banks themselves hold 43 percent of second mortgages--an amount reaching $420 billion, according to the panel.

That, say analysts, largely explains the dismal state of the administration's foreclosure program and Treasury's unwillingness to champion the only clear remedy: writing down principal balances. Indeed, the oversight panel concludes that forcing lenders to absorb losses on second mortgages could leave the four biggest banks severely crippled.

"Treasury's HAMP program has, in policy and practice, been a colossal failure," Rosner wrote in an e-mail. "Rather than working in the interests of borrowers and investors, whose interests are fundamentally aligned, HAMP appears to have been designed to shield banks and their captive servicers from the negative financial impact that a reasonable resolution to the crisis would require."

*************************

Shahien Nasiripour is the business reporter for The Huffington Post. You can send him an e-mail; bookmark his page; subscribe to his RSS feed; follow him on Twitter; friend him on Facebook; become a fan; and/or get e-mail alerts when he reports the latest news. He can be reached at 646-274-2455.

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Tip for today

Tuesday, December 28, 2010

foreclosure report

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