FHFA OIG Recommends More Efficient Pursuit of Deficiencies

The Office of the Inspector General (OIG) of the Federal Housing Finance Agency (FHFA) has issued a pair of reports critical of the GSEs’ efforts to collect billions of dollars in deficiencies from underwater homeowners who walked away from their mortgages.

“If either the foreclosure sale’s proceeds or the value at which [the GSE] records a property in its real estate owned portfolio is less than the borrower’s mortgage loan balance, the shortfall (or deficiency) represents a loss to [the GSE],” one of the reports explained. “Such losses can be reduced if the enterprise recovers deficiencies from borrowers who possess the ability to repay. Enhanced deficiency management practices can also serve as a deterrent to those who would choose to strategically default on their mortgage obligations.”

The reports found that Freddie Mac did not refer nearly 58,000 foreclosures with estimated total deficiencies of approximately $4.6 billion to its deficiency collection vendors. Between January 2010 and June 2012 Fannie

Mae failed to pursue 26,000 foreclosures that had an average deficiency of $79,000.

In most cases the collection of deficiencies was abandoned because of state laws limiting the amount of time that can pass between a foreclosure sale and a collection action. Delays in collecting and processing paperwork often allowed this statute of limitations to pass.

“Of the 44,652 foreclosure sales, Fannie Mae’s vendors reviewed 14,960 foreclosures and confirmed the existence of deficiency balances, before ceasing action to pursue these deficiencies,” the report on Fannie Mae said. “It is likely that only a portion of these deficiencies may be recoverable, as many borrowers likely do not possess the ability to repay. Further, the deficiency vendors did not pursue or estimate the total deficiencies on the remaining 29,692 accounts because the statutes of limitation expired before the vendor could gather the necessary information to review the accounts and calculate the deficiency balances.”

Both reports found that one of the primary reasons vendors were unable to pursue collections was a delay in the receipt of required information from servicers and foreclosure attorneys. As a result, both reports recommended that Fannie Mae and Freddie Mac install firm guidelines for timely delivery of documents and information from servicers and attorneys. They recommended that the enterprises apply financial penalties for parties that fail to meet deadlines.

The management of the GSEs agreed with all of the recommendations in the reports and are currently in talks with the FHFA to implement new standards for deficiency collection by January 31, 2014.


Report Indicates Improving Mortgage Performance in Q2

Delinquency and foreclosure rates continued to fall in the second quarter of 2013 according to the Mortgage Metrics Report issued by the Office of the Comptroller of the Currency (OCC). The Mortgage Metrics Report examined first-lien mortgages held by the top seven lenders in the United States, 52 percent of all residential mortgages.

“Strengthening economic conditions, servicing transfers, home retention efforts, and home forfeiture actions contributed to improving performance of home mortgages in the second quarter of 2013,” the report said. “At the end of the second quarter of 2013, 90.6 percent of mortgages serviced by the reporting servicers were current and performing, compared with 90.2 percent at the end of the previous quarter and 88.7 percent a year earlier. The percentage of mortgages that were 30 to 59 days past due

was 2.9 percent, up 11.6 percent from the previous quarter and up 1.8 percent from a year ago. The percentage of mortgages in this report that were seriously delinquent – 60 or more days past due or held by bankrupt borrowers whose payments were 30 or more days past due – decreased to 3.8 percent compared with 4.0 percent at the end of the previous quarter and 4.4 percent a year ago.”

Foreclosure activity in the second quarter fell to its lowest level since the report’s inception in 2008. The number of loans in foreclosure decreased 39.8 percent from a year ago to 744,369. The number of newly initiated foreclosures also fell to 150,592, the lowest level since early 2008 and a 50.8 percent decrease from a year ago.

The percentage of mortgages that were seriously delinquent in the second quarter fell 15.0 percent from a year ago, to 3.8 percent of the total.

Serivicers implemented 314,672 home retention actions – including modifications, trial-period plans, and shorter-term payment plans – in the second quarter, compared to 121,746 home forfeiture actions – including completed foreclosures, short sales, and deed-in-lieu of foreclosure actions.

Mortgages serviced for Fannie Mae and Freddie Mac made up 57.1 of the mortgages in the Mortgage Metrics Report. The percentage of those mortgages that were current and performing was 95.1 percent, a 0.5 percent increase from last quarter and a 1.6 percent increase from last year.

Pending Sales Index in 3rd Straight Monthly Drop

Continuing to respond to higher mortgage rates, the Pending Home Sales Index (PHSI) slipped for the third straight month, dropping 1.6 percent in August to 107.7 the lowest level since April, the National Association of Realtors which compiles the index reported Thursday. Economists had expected a more modest decline, 1.0 percent, to 108.3. NAR also revised the July index down to 109.4 from the originally reported 109.5.

The index covered the same month in which new home sales, reported Wednesday by the Census Bureau of Department of Housing and Urban Development, improved 7.9 percent. Like the PHSI, new home sales are tracked when buyers sign contracts. The existing home sales report for, also a product of the NAR, is based on closed transactions.

NAR Chief Economist Lawrence Yun said the drop was expected as a consequence of buyers accelerating purchase decisions while mortgage rates were increasing. Indeed, existing home sales jumped in both July and August. The corresponding PHSI rose a sharp 5.8 percent in May – the strongest month-month increase in two years. The index dropped a scant 0.4 percent in June.

Yun downplayed expectations for home sales.

“Moving forward, we expect lower levels of existing-home sales,” he said, “but tight inventory in many markets will

continue to push up home prices in the months ahead.”

According to the Case Shiller home price index, reported Tuesday, home prices rose 1.8 percent in July and are up 12.4 percent in the last year, the fastest annual growth rate in seven years.

Increasing rates and prices should serve as a catalyst for contracts and sales as buyers rush to lock in prices or rates before they go higher.

The drop in the August PHSI was the seventh in the last 12 months suggesting a slowdown in home-buying activity which could have a negative impact on the entire economy. Home buying drives new construction as well as certain housing related retail activity. The laast time thePHSI dropped fort here straight months was July-August-September 2011.

With the month-month decline, the PHSI is up 5.8 percent over August 2012, the 28th straight month of year-year increases, but the weakest 12-month increase since December 2011 when the index was up 3.9 percent year-year. New home sales have been up year-year for 23 straight months and in 26 of the last 28 months.

The PHSI fell in three of the four Census regions in August, improving only in the Northeast where it rose 4.0 percent and is up 5.1 percent in the last year. The index fell 3.5 percent in the South but is up 3.7 percent over August 2012. The index dropped 1.6 percent in the West but is 1.7 percent ahead of last year in that region. And, the index declined 1.4 percent in the Midwest but is 13.8 percent higher than August 2012.

The PHSI, according to the NAR, is based on a sample of about 20 percent of transactions for existing-home sales. An index of 100 is equal to the average level of contract activity during 2001, the base year.

LPS Report Shows Falling Delinquency, Foreclosure Rates

The total United States mortgage loan delinquency rate fell to 6.2 percent in August according to a new report by Lender Processing Services (LPS). August’s rate represented a 3.31 percent decrease from the previous month and a 9.71 percent decrease from August 2012.

The report examined data from LPS’s loan-level database representing approximately 70 percent of the overall market.

The total U.S. foreclosure pre-sale inventory rate stood at 2.66 percent, a 5.74 percent decrease from the previous month and a 34.08 percent decrease from August 2012.

The states with the highest percentage of non-current loans were Florida, Mississippi, New Jersey, New York, and Maine.

The states with the lowest percentage of non-current loans were Montana, Colorado, Wyoming, South Dakota, and North Dakota.

LPS will provide more detail in its monthly Mortgage Monitor Report, which will appear on the company’swebsite by October 7.

Report: Recovery Driven by Cash Buyers, Investors

The median sale price for a distressed residential property was $116,000, up one percent from a month ago but down three percent from a year ago, according to theAugust 2013 U.S. Residential Foreclosure and Sales Reportreleased Thursday by RealtyTrac. The national median sales price for other residential properties was $175,000, up three percent from last month and up six percent from a year ago, making August the 17th consecutive month that home prices have increased annually.

“Seven years after the housing bubble burst, U.S. home prices are clearly on the rise again, up 23 percent from the bottom in March 2012 although still 26 below the peak of the housing price bubble in August 2006,” said Daren Blomquist, vice president at RealtyTrac. “This recovery in home prices and sale volume continues to be driven in large part by cash buyers and institutional investors, as evidenced by the increasing share of sales represented by those two categories in August.”

Sales volume increased from the previous month in 39 out of the 42 states tracked in the report and was up from a year ago in 37 states, including Texas, (up 31 percent), Illinois (up 29 percent), Pennsylvania (up 28 percent), Virginia (up 26 percent), and Florida (up 22 percent). Notable exceptions where sales volume decreased from a year ago included California (down 17 percent), Arizona (down 12 percent), Nevada (down 6 percent).

The report also noted that among metro areas with a population of 1 million or more, those with the biggest annual increases in median prices included San Francisco (up 35 percent), Sacramento (up 35 percent), Riverside-San Bernardino in Southern California (up 28 percent), Atlanta (up 28 percent), Los Angeles (up 26 percent), Las Vegas (up 26 percent), and Phoenix (up 25 percent).


Report Shows Home Price Rebound in Nearly 25 Percent of Key Markets

Property data through July shows home prices have rebounded completely in more than one-fifth of the nation’s top regional markets, according to a report fromHomes.com.

According to the site’s latest report, 22 of the top 100 markets in the United States reported price increases of more than 100 percent from their respective troughs, up from 19 the month prior.

Marketing analyst Nicole Selvaggi explained that most of the markets that have come back completely “never suffered the significant numbers of foreclosures and short

sales that characterized the housing economy from 2007 to 2012,” and seven of the top 20 have benefited greatly from energy development from oil, gas, shale, or coal.

“As a result, these markets experienced a very different housing scenario, with lower peaks and higher troughs than other markets in the same region,” Selvaggi said.

At this point, 44 markets have seen a rebound of at least 50 percent, up from 41 in the last report.

In addition to the rebound, all 100 of the markets tracked in the Homes.com Local Market Index Report reported increases in home prices on both a monthly and yearly basis.

In terms of yearly growth, many of California’s most highly populated markets (including the Los Angeles, San Diego, and San Francisco areas) were among the top metros, with five additional smaller cities making the top list.

“Rising home prices in California’s coastal areas (Los Angeles, San Diego, and San Francisco), could be ‘pushing buyers inland to more affordable Riverside and San Bernardino counties,’” Selvaggi said, quoting an analysis from John Burns, CEO of John Burns Real Estate Consulting.

Household Net Worth Growth Slows in Q2

Household net worth improved $1.3 trillion in the second quarter — half as fast as the first quarter — as real estate values grew $626.7 billion, the Federal Reserve reported Wednesday in its quarterly Flow of Funds report.

But, with a drop in mortgage debt — including home equity loans and lines of credit –- from $9.39 trillion in the first quarter to $9.34 trillion in the second, homeowner equity grew to 49.8 percent in the second quarter from 48.1 percent in the first.

Household investment in the stock market grew $265 billion in the second quarter compared with $929 billion in the first when overall net worth grew $2.8 trillion.

Owners’ equity as a percentage of real estate value has been on a steady upward trajectory since dropping to 36.3 percent in the first quarter of 2009. It rose to 45.4 percent at the end of 2012 and to 48.1 percent one quarter later. The 2.7 percentage point increase in the first quarter of this year is the fastest quarter-to-quarter growth this century. Even with the increase, though, the equity percentage remains sharply lower than 57.7 percent in 2000.

After falling $223 billion in the first quarter, disposable personal income grew $98.6 billion in the second. The first quarter drop reflected the rollback of the cut in payroll taxes which ended January 1. With the increase, second quarter disposable personal income — essentially after-tax income — was $12.39 trillion, about $130 billion less than the record $12.52 trillion in the fourth quarter last year.

Consumer borrowing – non-real estate debt – grew $41.7 billion in the second quarter after increasing just $104 million (cq) in the first. Residential mortgage debt fell $41.8 billion in the second quarter after dropping $49.7 billion in the first. Residential mortgage debt has dropped for 21 consecutive quarters from a peak of $10.67 trillion in the first quarter of 2008.

All in, household assets grew $1.3 trillion in the second quarter – compared with $2.8 trillion in the first – to $88.4 trillion.