Foreclosure Rate Falls to Lowest Level Since ’08

About 1.5 percent of all homes with a mortgage in the United States were in some state of foreclosure in November 2014, the lowest foreclosure rate since March 2008, according to CoreLogic‘s November 2014  National Foreclosure Report released Wednesday.

Foreclosure inventory, which includes homes in any state of foreclosure, plummeted year-over-year in November, falling from 880,000 in November 2013 to 567,000 in November 2014 – a decline of 35.5 percent. November represented the 37th consecutive month in which foreclosure inventory declined year-over-year and the 26th straight month in which the nation’s foreclosure inventory saw a double-digit percentage decline. Month-over-month, foreclosure inventory fell 3.3 percent from October to November.

“The number of completed foreclosures over the past twelve months–just under 575,000–are at the lowest level in seven years,” said Anand Nallathambi, president and CEO of CoreLogic. “This month’s figure of 41,000 foreclosures is in line levels experienced in the second half of 2007, which was the very beginning of the housing crisis.At current foreclosure rates, we expect to see the foreclosure inventory in the U.S. to drop below 500,000 homes sometime in the first quarter of 2015 which would be another milestone in the healing of the housing market.”

Foreclosure inventory declined by double-digit percentages year-over-year in all 50 states in November 2014 (although it increased by 17.8 percent in the District of Columbia). In 35 states, foreclosure inventory declined year-over-year by 30 percent or more in November, led by Utah (48.9 percent) and Florida (48.1 percent).

“The foreclosure rate fell in every state, with only the District of Columbia seeing a small increase,” said Molly Boesel, senior economist for CoreLogic. “However, some states still have foreclosure rates of more than twice the national rate. While the national level of foreclosures may normalize in the next two years, there will always be the potential for some pockets of distress in the mortgage market.”

Many homes currently in foreclosure inventory will not see the entire foreclosure process through, however. Foreclosure completions, which represent the number of homes lost to foreclosure, also experienced significant declines in November. In all, about 41,000 foreclosures were completed during the month, compared to 46,000 in November 2013 (a 9.9 percent drop) and the adjusted number of 47,000 for October 2014. November’s foreclosure completions total of 41,000 is down 64 percent from the peak level in September 2010 but is still nearly double the average monthly total of 21,000 from 2000 to 2006, before the housing crisis.

Since September 2008, about 5.5 million homes nationwide have been lost to foreclosure. Since homeownership peaked in the second quarter of 2004, foreclosure has claimed about seven million homes.

The nation’s serious delinquency rate (percentage of mortgages 90 days or more overdue or in foreclosure) for November 2014 was 4 percent, its lowest level since June 2008. November’s percentage represented a 22.8 percent year-over-year decline.

JPMorgan Chase Reports Record Earnings for 2014; Wells Fargo Net Income Up 5 Percent

Two of the nation’s largest mortgage lenders,JPMorgan Chase and Wells Fargo, reported year-over-year increases in their net incomes for 2014, according to the banks’ respective earnings statements released on Wednesday.

JPMorgan Chase reported a record net income of $21.8 billion for the full year of 2014, up from 2013’s net income of $17.9 billion. The firm’s earnings per share (EPS) for 2014 was $5.29, which was also a record (for 2013, EPS was $4.35). Revenue experienced a slight decline, however, from $99.8 billion in 2013 down to $97.9 billion in 2014.

“2014 was a record year for the firm for net income and EPS. We delivered on our commitments—including business simplification, controls, expense discipline and meeting our capital targets for the year—while maintaining excellent customer satisfaction rankings,” said Jaime Dimon, chairman and CEO of JPMorgan Chase. “I am proud of this great company, its exceptional management team and employees, and everything we are achieving for our clients, shareholders and communities. Each of our businesses and the company are very well positioned going into 2015 for long term growth and success.”

Wells Fargo’s net income for 2014 was $23.1 billion, a 5 percent increase from a year earlier. Diluted earnings per share also experienced a 5 percent jump in 2014 up to $4.10. Wells Fargo’s 2014 revenue of $84.3 billion represented a 1 percent increase from 2013.

“Wells Fargo had another strong year in 2014, with continued strength in the fundamental drivers of long-term performance: growing customers, loans, deposits and capital,” said John Stumpf, chairman and CEO of Wells Fargo. “As a result of this performance, we were able to return more capital to our shareholders during the year. Our success is the result of our 265,000 team members remaining focused on meeting the financial needs of our customers in the communities we serve. As the U.S. economy continues to build momentum, I’m optimistic that our diversified business model will continue to benefit all of our stakeholders in 2015.”

Despite reporting record net earnings for the full year 2014, JPMorgan’s Q4 2014 net income of $4.9 billion was actually a decline from $5.3 billion reported in the same quarter a year earlier. Earnings per share and revenues also experienced year-over-year declines in the fourth quarter of 2014—EPS fell from $1.30 to $1.19, while revenue dropped 2 percent down to $23.6 billion.

A decline in mortgage banking net income put a drag on earnings for the quarter. According to JPMorgan, mortgage income came out to $338 million in the quarter, a decline of $255 million from the year prior as credit losses and lower origination volumes ate into revenues.

On the other hand, originations did pick up from the previous quarter, rising 8 percent to an estimated $23 billion “despite a seasonally slow quarter,” the bank said.

Wells Fargo’s net earnings, diluted EPS, and revenues for Q4 2014 all increased from Q4 2013. Net income nudged upward by 2 percent to $5.7 billion; diluted EPS also rose by 2 percent up to $1.02; and revenues jumped by 4 percent up to $21.4 billion.

Originations also slowed at the country’s biggest mortgage lender, though it still turned out a substantial $44 billion in new loans. Third-quarter originations amounted to $48 billion.

Meanwhile, applications for new loans increased slightly to $66 billion, while Wells’ application pipeline rose to $26 billion, indicating a potential uptick in the bank’s first-quarter mortgage business if the economy holds steady and the market doesn’t take another downturn.

“Our performance in the fourth quarter was a great example of the benefit of our diversified business model and reflected a continuation of the solid results we generated all year,” said John Shrewsberry, CFO for Wells Fargo. “Compared with the prior quarter, we increased deposits and grew commercial and consumer loans while maintaining our risk and pricing discipline. Revenue increased as net interest income benefited from loan growth and the prudent deployment of our liquidity.”

Fed: Economy Growing at ‘Modest to Moderate’ Pace Amidst Concerns Over Oil Prices

Economic growth continued at a “modest to moderate” pace through November and December, though falling oil prices threaten to disrupt some areas in the coming months, according to reports collected by the Federal Reserve.

In the latest Beige Book report released on Wednesday, the Fed said that contacts in most of its 12 districts expect faster growth in the year ahead, though some in the Dallas district are worried about a slowdown as the oil market suffers.

While lower prices are bound to keep Americans happy at the gas pump, they could potentially be a problem for housing in oil-dependent states, including Texas, Oklahoma, and Louisiana. If the current decline impacts the local labor market (as the Dallas Fed indicated Wednesday in its own Beige Book), it could be a weight on their housing health in the next few years.

In the housing sector, the Fed reported little change for most districts, with both single-family home sales and construction flattening out. Sales were down somewhat on a yearly basis in Boston, Cleveland, Atlanta, Chicago, Minneapolis, Kansas City, and Dallas, while San Francisco posted a pickup. While existing-home sales fell annually in Philadelphia, contacts there are optimistic about pending home sales numbers, which improved year-over-year.

On the homebuilding side, construction on new homes slowed slightly in the Cleveland, Atlanta, Chicago, Minneapolis, and Kansas City districts. Homebuilding increased in some areas of the San Francisco district.

Overall, loan demand grew modestly, nudging up in Richmond, Kansas City, and Dallas, with the Philadelphia district also reporting a “modest” increase in total loan volume.

Credit quality also improved somewhat, with overall reductions in loan delinquencies. Credit standards were largely unchanged, though “several Districts commented that their contacts indicated that stiff competition for high-quality borrowers was leading to lower underwriting standards among lenders more generally,” the Fed said.

House Votes to Delay Key Provision of Dodd-Frank Act

With the Republican majority now in place, the U.S. House of Representatives voted on Wednesday to pass a bill that eased some portions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, according to multiple media reports.

The bill passed by a vote of 271 to 154, with 29 Democrats voting in favor of it. Nearly all of the Republican representatives (242 out of 246) voted in favor of the bill. On Monday, the White House threatened to veto the bill if it should pass.

A key part of the new bill delays the implementation of part of the “Volcker Rule,” a key piece of the Dodd-Frank Act that limits risky trading by financial institutions. The portion of the Volcker Rule delayed by the new bill had previously been put off by the Federal Reserve until 2017. The new bill gives financial firms another two years (until 2019) to sell off collateralized loan obligations, or bundled debt. Financially industry lobbyists have pushed for the further delay, which will keep them from having to sell off their investments in a fire sale.

The new bill will also allow some private equity firms an exemption from registering with the Securities and Exchange Commission, relax derivative regulation, and permit the omission of historical financial data in filings by some small, publicly traded companies, according to reports.

Republicans have promised to take aim at the Dodd-Frank Act since they gained a majority in both the House and Senate in November’s elections. The Dodd-Frank Act was passed in response to the financial crisis and it was intended to protect consumers and prevent another similar economic downturn, but Dodd-Frank opponents believe that the legislation embodies overregulation and as a result has had the opposite of its intended effect.

Democrats, led by Senator Elizabeth Warren (D-Massachusetts), one of Dodd-Frank’s fiercest backers and the creator of the controversial Consumer Financial Protection Bureau, have vowed they will fight against any attempts by Republicans to chip away at Dodd-Frank. The new bill moved through the House quickly, but is not likely to gain the support in the Senate needed to override a presidential veto.

FHFA Outlines 2015 Goals for Fannie Mae, Freddie Mac

The Federal Housing Finance Agency (FHFA) released its 2015 Scorecard for Fannie Mae andFreddie Mac on Wednesday, outlining the steps the two GSEs are expected to take this year to support the U.S. housing market.

As FHFA Director Mel Watt revealed in his first public speech as the agency’s chief, the companies’ new direction revolves around three main objectives: maintain, reduce, and build.

“Fannie Mae and Freddie Mac made significant progress toward achieving the goals in FHFA’s Strategic Plan for the Conservatorships last year and we look forward to building on that progress in 2015,” Watt said Wednesday.

The chief goal, maintain (which accounts for 40 percent of the scorecard), largely focuses on efforts to increase access to mortgages for creditworthy borrowers while still sticking to responsible risk management practices.

Among the goals in that category are instructions for the GSEs to finalize their rep and warranty frameworks (a process started late last year), encourage more participation from smaller lenders, and continue watching for other hurdles to credit access.

Also included on the “maintain” list are instructions to practice loss mitigation strategies by directing eligible homeowners to take advantage of the Home Affordable Refinance Program (HARP) and developing plans to cut down on severely delinquent mortgages in the GSEs’ portfolios with loan modifications, short sales, and other actions.

The next step in FHFA’s plan, “reduce,” outlines expectations for Fannie and Freddie to reduce their own presence in the mortgage market and boost the role of private capital.

Instructions in this category were separate for each GSE: In 2015, Fannie Mae will make credit transfers on reference pools of single-family mortgages with an unpaid principal balance of at least $150 billion, while Freddie Mac is expected to do the same for a balance of $120 billion. The balance requirement for both enterprises will be reviewed and adjusted when needed to reflect market conditions, FHFA said.

Finally, both Fannie and Freddie are expected to work with FHFA and each other to build and test a platform designed for a common security between the two of them.

While FHFA estimates it will still be years before the development of a common securitization platform (CSP), the agency and the GSEs have already made the first steps by establishing a joint venture—called Common Securitization Solutions (CSS)—to oversee the process.

For its part, CSS is tasked with designing the platform, focusing this year on including any functions the GSEs need for their securitization activities and working with them to get input from the public and the mortgage industry.

“These objectives will allow FHFA to work with Fannie Mae, Freddie Mac and Common Securitization Solutions to build a strong, vibrant national housing finance market, which will create new homeownership and rental opportunities for existing and potential borrowers,” Watt said.

Report: Mortgage Regulations Have Had Positive Impact on RMBS Sector

While the onslaught of new mortgage regulations in the last year has created headaches for lenders, it’s had a clear positive impact in one area, Fitch Ratings says in a new report: the residential mortgage-backed securities (RMBS) sector.

In its latest look at the RMBS segment, the company says that while the market still has some rebuilding left to do, it “has seen some rather substantial improvements of late,” owing in large part to improved loan underwriting standards in recent years. According to Fitch managing director Rui Pereira, the performance of recent vintage mortgage loans is the best on record so far.

“New legislation has completely eliminated some problem loan types like no documentation loans and has increased the liability of lenders that make irresponsible loans,” Pereira said.

Another major improvement, Fitch says, is the quality of loan-level data that’s available at issuance now that the industry has created expanded, standardized review and verification processes.

“These factors allow for more reliable credit analysis and earlier detection of negative credit trends,” the agency said in its report.

Fitch isn’t the only firm projecting a bright outlook for the sector. Last month, Moody’s predicted a slow increase in private-label RMBS issuance and continued strengthening in credit quality.

Despite those strengths, Fitch’s report also points to areas that “still require close attention,” chief of which is the issue of reps and warranties in new deals.

“While there have been notable improvements for rep and warranty enforceability, a lack of standardization across transactions is keeping investors wary,” Pereira said.

The agency also said the RMBS market remains vulnerable to political and regulatory risk, specifically from outside-of-trust settlements and government actions that could affect investors.

Obama to Speak About Housing on Thursday in Phoenix

President Barack Obama is scheduled to speak about the U.S. housing market at Central High School in Phoenix, Arizona, according to multiple reports.

Neither the president nor the White House has publicly announced exactly what he will speak about with regards to the housing market on Thursday. It is widely speculated that he will avoid the hot button topics of GSE reform and the elimination of Fannie Mae and Freddie Mac; though both parties agree that a change is needed where the GSEs are concerned, they disagree on what type of change should take place. Should the GSEs continue to function on their own independent of theFHFA conservatorship, or should they be eliminated altogether and replaced with a government agency?

Some analysts suggest that the omission of GSE reform from the president’s speech would cause a boost in Fannie Mae and Freddie Mac stock prices, since omitting GSE reform would almost assuredly mean that such reform is unlikely to happen.

“We believe the absence of the topic in his Phoenix speech may be seen as a sign that the administration is giving up on its goal of unwinding the (government sponsored enterprises),” analysts from New York-based investment bank Keefe, Bruyette, & Woods wrote.

As to what he will speak about, analysts say he will address the topic of lowering the premiums for federally-backed mortgage loans in order to help families and individuals who can’t afford the larger down payment to purchase a home.

“If President Obama does mention this then we think it could positively impact the mortgage lenders, title insurers, and homebuilders,” the KBR analysts wrote.

The FHFA recently made an announcement it would be offering mortgage loans backed by Fannie Mae and Freddie Mac with as low as a 3 percent down payment for qualified first-time homebuyers.