Editors know that there isn’t anything more eye-catching in real estate than talking about people losing their home. In California, lenders are required to offer every delinquent homeowner a loan modification before being able to foreclose, so those who want to keep their house will likely find a way to do it. Judging by the graph above, very few homeowners are giving it away!
Despite the declining rates and the robust economy that characterized the U.S. during the fourth quarter, the Federal Reserve’s pursuit of lower inflation has proven to be an obstacle for the American housing market.
The consequence of that pursuit, which pushed up borrowing costs on U.S. households, is a 16 percent year-over-year surge in mortgage delinquencies (60 days past due), according to TransUnion’s fourth-quarter Credit Industry Insights report, exposing the growing struggle of consumers in the face of evolving macroeconomic uncertainties.
TransUnion’s report, produced from billions of updates received each month from banks, credit unions, finance companies, auto dealers, mortgage companies, retailers, student loan providers and public records, found that a total of 1.3 percent of all consumer-level mortgages in the U.S. were in serious delinquency in the fourth quarter of last year.
With roughly 84 million mortgages active in the U.S., according to data from LendingTree, that would mean about 1,092,000 Americans are more than 60 days past due on their mortgages.
While that may seem alarming to some, it isn’t nearly as bad as what happened in the aftermath of the great financial crisis (GFC) in 2008, according to Michele Raneri, vice president and head of U.S. research and consulting at TransUnion.
“We’re still in a pretty good spot, especially when you’re looking at 60 days past due,” Raneri told Newsweek during an interview on Wednesday. “So it has inched up a little bit, but it’s still not come back to what would be considered pre-GFC or probably even pre-pandemic.”
Asked whether or not the slight uptick is of concern, Raneri said, “I don’t think so. Of course, people in the industry are watching it to see if it’s becoming a bigger problem, but I don’t think that it’s something that is an indication of a bigger problem.”
She continued that the delinquency issue is not a “systemic” problem reflective of the GFC, partly due to stricter lending standards, and that back in 2008, people had “so little equity in their homes.”
This seller did everything imaginable to upgrade this house in NE Carlsbad, and then got into trouble – BofA filed a Notice of Default in April on his $1.9 million mortgage. But don’t feel bad for him having to drop from his lofty $4.5 million initial list price to eventually sell for $3,175,000 – it is still the highest sales price ever in this zip code.
Those who still think we have a foreclosure event in our future are unfamiliar with how the rules have changed in California. There’s never been a better time to be a deadbeat:
The United States Department of the Treasury has approved California’s plan to provide $1 billion in mortgage relief, clearing the way for the California Mortgage Relief Plan to provide help to as many as 40,000 struggling homeowners, according to a statement from Gov. Gavin Newsom’s office. “We are committed to supporting those hit hardest by the pandemic, and that includes homeowners who have fallen behind on their housing payments,” Newsom said in a statement. “No one should have to live in fear of losing the roof over their head, so we’re stepping up to support struggling homeowners to get them the resources they need to cover past due mortgage payments.” California already has provided renters and landlords with assistance, he noted.
“Now, with our California Mortgage Relief Program, we are extending that relief to homeowners,” he said. The program will help homeowners make past due housing payments — to a maximum of $80,000 per household — by making a direct payment to the mortgage servicers.
The funding, which is allocated through the federal American Rescue Plan Act’s Homeowner Assistance Fund, is provided as a one-time grant that qualified homeowners will not be required to repay. Californians at or below 100% of their county’s area median income, who own a single-family home, condo or manufactured home, and who faced pandemic-related hardships after Jan. 21, 2020, may be eligible for the program. Applicants can visit the California Mortgage Relief Program at CaMortgageRelief.org for more information. Online applications will soon be available.
The post-frenzy headlines will revert back to their usual negative slant.
Will home buyers read the entire article? Or jump to their own conclusions?
Here are the actual numbers mentioned:
States with the largest number of new foreclosures were:
California: 3,434
Texas: 2,827
Florida: 2,546
New York: 1,363
Illinois: 1,362
“Despite the increased level of foreclosure activity in September, we’re still far below historically normal numbers,” said Rick Sharga, executive vice president at RealtyTrac, an ATTOM company.
September foreclosure actions were almost 70% lower than they were pre-pandemic. Total foreclosure activity is also still 60% lower than it was a year ago.
“I think the ‘forbearance cliff’ will be minimal,” said David Stevens, former CEO of the Mortgage Bankers Association and former FHA commissioner in the Obama administration.
“Unlike the Great Recession where home prices dropped approximately 20% from peak to trough, this recession saw home values rise by roughly the same amount. So while we should see some foreclosures, the likelihood is that there will be far fewer from a percentage basis due to the ability to sell a home versus default, or stay in the home due to far better workout options and higher re-employment.”
In a state of 40 million people, I don’t think anyone in California should get nervous over an additional 3,434 foreclosures filed (not completed). It’s different now that the Homeowners Bill of Rights was made law in this state, and anyone who gets foreclosed must want to lose their house, and their equity.
Regardless where the inventory goes (likely to retreat), the potential home buyers should stay interested, just because of rates staying low. Many of them may be looking forward to when the foreclosures start pouring in.
What’s the latest on the delinquencies/forbearances? From Black Knight:
Total U.S. loan delinquency rate (loans 30 or more days past due, but not in foreclosure): 4.37%
Top 5 states by 90-plus days delinquent percentage:
Mississippi: 4.89%
Louisiana: 4.59%
Hawaii: 4.14%
Nevada: 4.14%
Maryland: 4.08%
The takeaway:
The national delinquency rate is at its lowest level since the pandemic hit, even below the pre-Great Recession average.
While there’s been improvement, however, there are still 1.5 million homeowners 90 or more days past due on their mortgages but who are not in foreclosure—nearly four times pre-pandemic levels.
There are 1.5 million homeowners who are 90+ days late but who are not in foreclosure? Do you need any more evidence that lenders aren’t interested in foreclosing? They will give loan mods when they get around to it.
Rather than foreclose, they will keep changing the rules. They are creating a ‘Custom’ pool of mortgages to modify the loans again – even if it means extending them for 40 years!
Ginnie Mae sent out a press release last week could create some confusion for those readers who only skimmed the lede. The opening paragraph states that the agency is creating a new pool of mortgages for securitization on the secondary market. The pool, to be known as Pool Type C-ET, will contain loans with terms up to 40 years while the current set of pool types only supports loans with 30 year or shorter terms. It is easy to miss that this special pool is not a new offering for borrowers but is limited to loans that have gone through a loan modification.
It is probable that this pool is being created in anticipation of the number of FHA, VA, and USDA loans that will be coming out of pandemic-related forbearance plans. The latest survey by the Mortgage Bankers Association estimated that 5.13 percent of homeowners with those loans were still in the program as of June 20. Black Knight’s weekly survey estimates the raw number at over 800,000. Many of these borrowers have either entered or will soon enter he last three months of eligibility which is currently capped at 18 months, and most will have significant past due balances.
Borrowers who leave the program are offered several options for paying back their arrearages including several types of loan modifications. Among them is a re-amortization of the loan to spread the amount over the remaining life of the loan, but in many cases this could result in an unaffordable monthly payment.
The new pool type is expected to be available by October, at about the time the 18 month terms begin to expire. It will be a “Custom” pool with a minimum size of one loan and a $25,000 minimum balance. There will be no upper limit on the loan amount as long as the eligible collateral meets the participating agency’s requirements. That collateral will be participating agency modified loans with original terms of 361 months or more, capped at 480 months. All modifications of an included mortgage loan after its origination must have been occasioned by default or reasonably foreseeable default.
“It’s important that Ginnie Mae issuers have secondary market liquidity for options that our agency partners determine are appropriate for supporting homeowners in distress,” said Michael Drayne, Ginnie Mae’s Acting Executive Vice President. “Because an extended term up to 40 years can be a powerful tool in reducing monthly payment obligations with the goal of home retention, we have begun work to make this security product available.”
Drayne noted that the terms and extent of use of the included loans would ultimately be determined by the FHA, HUD’s Office of Public and Indian Housing, VA, and USDA’ Rural Development Program. Their loans are the basis for the Ginnie Mae pools.
“Ginnie Mae has been integral to the interagency actions to prevent foreclosure for homeowners experiencing financial hardship as a result of COVID-19,” said Alanna McCargo, HUD Senior Advisor to Secretary Marcia Fudge. “The challenges of the last year require meaningful solutions to help keep people in their homes, which has been a priority for Secretary Fudge. As interest rates rise, this 40-year feature will enable more payment reduction options to help homeowners.”
According to the latest report from Black Knight, Inc., a well-respected provider of data and analytics for mortgage companies, 6.48 million households have entered a forbearance plan as a result of financial concerns brought on by the COVID-19 pandemic.
Here’s where these homeowners stand right now:
2,543,000 (39%) are current on their payments and have left the program.
625,000 (9%) have paid off their mortgages.
434,000 (7%) have negotiated a repayment plan and have left the program.
2,254,000 (35%) have extended their original forbearance plan.
512,000 (8%) are still in their original forbearance plan.
116,000 (2%) have left the program and are still behind on payments.
This shows that of the almost 3.72 million homeowners who have left the program, only 116,000 (2%) exited while they were still behind on their payments. There are still 2.77 million borrowers in a forbearance program. No one knows for sure how many of those will become foreclosures. There are, however, three major reasons why most experts believe there will not be a tsunami of foreclosures as we saw during the housing crash over a decade ago:
Almost 30% of borrowers in forbearance are still current on their mortgage payments.
Banks likely don’t want to repeat the mistakes of 2008-2012 when they put large numbers of foreclosures on their books. This time, many will instead negotiate a modification plan with the borrower, which will enable households to maintain ownership of the home.
With the significant equity homeowners have today, most can sell their home, rather than get foreclosed.
Will there be foreclosures coming to the market? Yes. There are hundreds of thousands of foreclosures in this country each year. People experience economic hardships, and in some cases, are not able to meet their mortgage obligations.
Here’s the breakdown of new foreclosures over the last three years, prior to the pandemic:
2017: 314,220
2018: 279,040
2019: 277,520
Through the first three quarters of 2020 (the latest data available), there were only 114,780 new foreclosures. If 10% of those currently in forbearance go to foreclosure, 275,000 foreclosures would be added to the market in 2021. That would be an average year as the numbers above show.
It’s costing the taxpayers more than $7 billion, but nobody in government wants to be the one who foreclosed or evicted people during a pandemic. I’d guess that a Covid loan-modification program is coming next:
Today, to help borrowers at risk of losing their home due to the coronavirus national emergency, the Federal Housing Finance Agency (FHFA) announced that Fannie Mae and Freddie Mac (the Enterprises) will extend the moratoriums on single-family foreclosures and real estate owned (REO) evictions until at least January 31, 2021. The foreclosure moratorium applies to Enterprise-backed, single-family mortgages only. The REO eviction moratorium applies to properties that have been acquired by an Enterprise through foreclosure or deed-in-lieu of foreclosure transactions. The current moratoriums were set to expire on December 31, 2020.
“Extending Fannie Mae and Freddie Mac’s foreclosure and eviction moratoriums through January 2021 keeps borrowers safe during the pandemic,” said Director Mark Calabria. “This extension gives peace of mind to the more than 28 million homeowners with an Enterprise-backed mortgage.”
Currently, FHFA projects additional expenses of $1.1 to $1.7 billion will be borne by the Enterprises due to the existing COVID-19 foreclosure moratorium and its extension. This is in addition to the $6 billion in costs already incurred by the Enterprises. FHFA will continue to monitor the effect of coronavirus on the mortgage industry and update its policies as needed. To understand the protections and assistance offered by the government to those having trouble paying their mortgage, please visit the joint Department of Housing and Urban Development, FHFA, and the Consumer Financial Protection Bureau website at cfpb.gov/housing.
Hat tip to Susie who sent in this article about a law recently passed in California:
The new rules apply to one- to four-unit properties sold at foreclosure auctions. If an investor wins one of those homes at auction, then people who want to live in it, as well as nonprofit organizations and government entities, get 45 days to submit competing offers.
If the home is a rental, the tenants living there could win by matching the investor’s offer. Other would-be buyers must offer more than the investor.
Known as SB 1079, the law takes effect Jan. 1, 2021.
State Sen. Nancy Skinner (D-Berkeley), the bill’s author, said her goal was to make it easier for individuals and affordable-housing groups to compete with investors.
“Homeownership is the primary way people have to build up generational wealth,” she said. “When we have rules that give advantage to a corporation, then that dream is just not available.”
The manager of the foreclosure auction is required to maintain a website that details the highest bid at the auction and how to submit competing offers.
I don’t know how many amateurs will be paying more than investors for homes sight unseen, and without proper title searches for additional liens. But there will be a few!
It was the last paragraph that was the most intriguing.
The State of California has institutionalized transparency!
Making the highest bid known to the public could revolutionize our business. Can you imagine if Zillow ran a website that openly tracked the offers on their homes for sale – buyers would love the transparency! Then every brokerage would be pressured into doing the same, and boom – no more agent shenanigans!
Are you thinking of selling?
Transparency can help ignite a bidding war, and get buyers to bid up the price because it becomes more about winning, then getting a deal. It’s how I handle my listings – let’s talk about how I can help you!
Here’s the classic courthouse-steps example of how auctions help to drive up the price:
