While the percentage of homes in the United States with negative equity has declined substantially since the fourth quarter of 2013, they experienced a slight increase quarter-over-quarter in Q4 2014, according to CoreLogic‘s Q4 2014 Equity Report released last Tuesday.
CoreLogic reported that 10.8 percent of all residential homes were underwater in Q4, this is about 5.4 million properties approximately, which was down from 13.3 percent in the same quarter a year earlier. The Q4 total was up slightly from the 10.3 percent that was reported for Q3 2014 – an increase of 3.3 percent.
Despite the year-over-year decline in the percentage of underwater residential properties, negative equity remains a serious issue, according to Anand Nallathambi, president and CEO of CoreLogic. For the full year of 2014, 1.2 million borrowers regained equity – but nearly five and a half million properties remained in negative equity as of the end of the year after approximately 172,000 homes slipped into negative equity from the third quarter to the fourth quarter in 2014.
Approximately 10 million of the nearly 50 million residential properties with a mortgage in the United States, which is about 20 percent of these properties have less than 20 percent equity, a condition known as under-equitied.
On today’s new analysis released by CoreLogic, leading global property information, analytics and data services provider, reported that 1.2 million borrowers regained equity in 2014. Nationwide, borrower equity increased year over year by $656 billion in Q4 2014. Borrowers with near negative equity are considered at risk of moving into negative equity if home prices fall. In contrast, if home prices rose by as little as 5 percent, an additional 1 million homeowners now in negative equity would regain equity. The calculations are not based on sampling, but rather on the full data set to avoid potential adverse selection due to sampling, and only data for mortgages residential properties that have a current estimated value is included.
Three of the nation’s largest mortgage lenders have put sizable packages of nonperforming and reperforming mortgage loans on the market for investors to buy, according to New York Mission Capital Advisors.
Bank of America has put up approximately $2.56 billion worth of delinquent debt for sale, including nonperforming loans, reperforming mortgages (those in which the borrower was 90 days or more behind but has resumed making payments), and home equity lines of credit (HELOCs), according to Mission Capital.
Citigroup has put up $1.8 billion worth of reperforming mortgages for sale, and JPMorgan Chase is looking for a buyer for $143 million worth of nonperforming mortgage loans, Mission Capital said. Last month, Freddie Mac announced that it intended to sell $410 million worth of delinquent mortgage loans. But there has been so much of a demand that the suppliers cannot keep up, Mission Capital said.
The Consumer Financial Protection Bureau (CFPB) has recently proposed additional set of measures to expand foreclosure protections for mortgage borrowers.
Currently the CFPB continues engaging in the outreach task along with consumer advocacy groups, industry representatives, and other stakeholders to develop additional provisions to protect consumers and make it easier for companies to comply with the rules. New proposals would give greater protections to mortgage borrowers.
Among these new proposals are a number of provisions to improve borrower/servicer communications and to clarify previous regulations, such as,
Protections for mortgage heirs
Servicers would be required to notify borrowers when their loss mitigation applications are complete and when their foreclosure protections kick in
The proposal offers full disclosure on “clarifications” from previous rules dealing with servicing rights transfers between firms.
Would require servicers to provide periodic loss mitigation information and other statements to borrowers in bankruptcy.
Servicing firms must also provide written early intervention notices to let those borrowers known about their loss mitigation options even after they’ve been told to stop contact.
Clarifying the meaning of “delinquency” for the purpose of its servicing rules. Delinquency begins on the day a borrower fails to make a periodic payment. If that payment is later made up, the bureau proposes that the date of delinquency should be pushed up creating room for servicers to consider a payment as “timely”.
We are experiencing one of the biggest foreclosure filling increases for the last four years.
The number of foreclosure filings experienced a big jump from September to October alone. These filings include but not limited to notice of defaults, scheduled auctions, and bank repossession. According to RealtyTrac this is the largest month-over-month jump since the peak of foreclosure activity in March 2010.
However even though Foreclosure filings reported were into a considerable 123,109 U.S. residential properties in October, fortunately still represented an 8 percent decline overall in the number of foreclosure filings from October 2013. This is equivalent to one house for every 1,069 residential properties in the U.S. reported a foreclosure filing in October based on the latest report from RealtyTrac.
These numbers did not take us by surprise due to that over the past three years an average of 8 percent monthly uptick was scheduled for foreclosure procedures in the country.
On the other hand, REO activity (lenders repossessing properties via foreclosure) increased by 22 percent from September. The largest month-over-month increase since June 2009. Overall, lenders repossessed 27,914 U.S. residential properties in October, as reported by RealtyTrac which is an agency that monitor housing foreclosure activities in the country.
Fannie Mae is set to raise the benchmark interest rate for its Standard Modification program. Fannie Mae will raise its required interest rate for standard modifications from 4.375% to 4.5%. The rate was lowered from 4.5% to 4.375% on Sept. 15, but will now rise again in one week. Fannie Mae announced the change on Tuesday in an email sent to its servicers.
When the program began in Jan. 2012, Fannie’s benchmark interest rate was 4.625%. Fannie lowered the interest rate to 4.25% in Sept. 2012, before dropping it to 4% on Dec. 1, 2012.
“Fannie Mae Standard Modification interest rate is not determined on a preset schedule,” Fannie said in the note to its servicers. “The interest rate is subject to periodic adjustments based on an evaluation of prevailing market conditions.”
Fannie also noted that any loan modification requests that were approved at the previous rate are not eligible to be resubmitted for approval under the new modification rule
The Federal Housing Finance Agency (FHFA) indicated in its report on foreclosure prevention for Q2 2014 released on September 24, that Fannie Mae and Freddie Mac prevented nearly 80,000 foreclosures nationwide in the second quarter, raising the total number of foreclosures prevented since the start of the conservatorship in September 2008 to 3.3 million.
The measures taken by the two GSEs to prevent foreclosures have helped about 2.7 million borrowers remain in their homes in the last six years, with approximately 1.7 million of those borrowers receiving permanent loan modifications. The number of foreclosures prevented is down 10 percent from Q1, when GSE measures stopped almost 89,000 foreclosures.
FHFA reports as well that about 37 percent of those who received permanent loan modifications were able to reduce their monthly payments by more than 30 percent in second quarter.
Paying a mortgage is cheaper than paying rent. But owning a home costs more. The never ending debate…Is better to buy or rent? This could be answered only after considering all of the expenses that contribute to homeownership.
The Bureau of Labor Statistics (BLS) says it’s cheaper to own. It has become less expensive to own. From 2009 to 2012, fueled by falling interest rates, homeownership has become more affordable, while renters saw costs go in the opposite direction, according to the BLS.
A recent report by Zillow found that current U.S. home buyers can expect to pay 15.3% of their incomes to a mortgage on the typical home – down considerably from the 22.1% of income homeowners had to budget in the pre-bubble years but renters pay today over 29.5% of their income to rent, compared to 24.9% in the pre-bubble period.
The main reason for the budget disparity is the income gap between owners and renters. At the end of the second quarter, the Census Bureau reported the median annual income in the U.S. was $53,216. But among homeowners, median salaries were $65,514 per year, while the typical renter’s income was just $31,888.
Congress is now back from its summer vacation, so the burning financial question on thousands of homeowners’ minds right now is this: Are you finally going to help the consumers who are underwater on their mortgages and have already accepted a principal reduction by their lenders?
Under current federal tax law, when the homeowners accept reductions in what they owe, the amount forgiven by the bank gets reported to the IRS, and the owner is hit with taxes as if it were ordinary income.
The Mortgage Forgiveness Debt Relief Act of 2007 was created to help distressed homeowners; that were faced with taxes after a Principal reduction; however this law has already expired Dec. 31, 2013.
If Congress does not extend the law retroactively thousands of underwater homeowners could be hit with tax burdens they may not be able to handle. We hope for the Best!
A new Legislation would open a bigger credit box for millions of homebuyers. The ranking democrat on the House Financial Services Committee wants to fundamentally change the rules on how lenders report consumer payments and debts to the credit bureaus, which could create a new path to homeownership for millions of Americans currently, shut out by mortgage lending restrictions.
These changes are part of a large shift in mortgage finance reform to open the credit box wider for potential homeowners. Some of the changes in this legislation would remove settled debts, remove negative reports after four years instead of seven, and would extend the removal of student debt defaults in private debts after a consumer makes nine consecutive, on-time payments.
Credit reports will no longer be used exclusively by lenders in making a credit decision. According to the Federal Trade Commission, one in five, or roughly 40 million consumers, have had an error on one of their credit reports, and about 10 million consumers have errors that could increase the cost of credit available to them.
The House Financial Services Committee will discuss U.S. Rep. Maxine Waters’ bill, the Fair Credit Reporting Improvement Act of 2014, on Wednesday afternoon at 2 p.m. ET.