Refinance Free Credit

Mortgage delinquencies will get worse before they get better, with more than 4 percent of mortgages 60+ days in arrears by the end of this year, according to analysis by TransUnion’s financial services group. Less than 3 percent of mortgages were 60+ days delinquent to start 2008.

TransUnion’s quarterly analysis found that average mortgage debt per mortgage borrower nationally fell 3.9 percent during the fourth quarter of 2007; only two states showed any increases in average mortgage debt from the previous quarter — Hawaii (0.31 percent) and Alaska (0.22 percent), with West Virginia showing the smallest percent decline (-0.11 percent).

“The market continues to see the effect of the mortgage crisis in the steeply increasing mortgage delinquency rates among borrowers across the country,” said Keith Carson, a senior consultant in TransUnion’s financial services group.

The top three areas showing the greatest growth in delinquency from previous quarters were Florida (34 percent), California (33 percent) and Arizona (32 percent), according to TransUnion. It’s worth noting — especially amongst the constant drumming of bad housing news — that states such as Alaska and Montana actually experienced a drop in their delinquency rates over the previous quarter (-21 percent and -5.6 percent, respectively).

Nevada, however, is anticipated to be the area of the country that will experience the highest average delinquency rate in 2008, at 9.34 percent of mortgage holders; North Dakota is forecast to register nationa’s lowest level of delinquency, TransUnion said.

While borrower delinquencies are expected to pile up further throughout 2008, TransUnion noted that it expects the rise in mortgage delinquency rates to taper off in 2009, as economic conditions improve and home prices begin to stabilize.

For more information, visit http://www.transunion.com.

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If anyone needed proof that default servicing is now headed towards the spotlight, look no further than yesterday’s announcement by the Senate Judiciary Committee that it will hold a session focusing on recent high-profile bankruptcy management missteps. The Judiciary Committee’s Subcommitree on Administrative Oversight and the Courts will hold a hearing titled “Policing Lenders and Protecting Homeowners: Is Misconduct in Bankruptcy Fueling the Foreclosure Crisis?”

The hearing, scheduled for May 6, was called by chairman Charles Schumer (D-NY) — who has said that he wants legislation enacted to protect borrowers from servicer missteps in and after bankrupcty proceedings.

Schumer has invited Countrywide Financial Corp. (CFC: 5.85, +0.34%) Angelo Mozilo to testify, the New York Times reported Tuesday. Also invited were representatives from McCalla, Raymer, Padrick, Cobb, Nichols & Clark in Atlanta, a creditor’s rights law firm and one of the largest such firms in the default servicing industry. Both the law firm and Countrywide have been at the center of a highly-publicized series of case involving the United States Trustee, in which the Trustee has alleged “abuses of the bankruptcy process” by Countrywide and its associated counsel in Georgia, Florida and Ohio.

A similar case, a putative class action suit filed in February by a group of borrowers in Texas, was thrown out by a judge in a federal bankruptcy court in Houston this past March.

While it’s unknown whether Mozilo or McCalla Raymer will be attending the hearing, the New York Times reported that three others will be testifying: Robin Atchley, the borrower at the center of the Countrywide bankruptcy brouhaha in Atlanta, as well as Clifford J. White III, director of the executive office for the United States Trustee, and Katherine M. Porter, an associate professor of law at Iowa University. Porter published a study in 2006 that found half of foreclosures contained “questionable fees.”

The New York Times covers more details:

“What the hearing is going to show is what an ongoing, awful enterprise some of these companies ran, not just taking advantage of the terms of the mortgage, but when they control the mortgage how they continue to squeeze and squeeze and squeeze,” Mr. Schumer, Democrat of New York, said.

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President Bush took a hard line on Tuesday in his administration’s latest push for housing reform, saying that key Congressional leaders had chosen to politicize economic issues, including housing, rather than working on what he called “critical legislation.” In remarks made at a press conference in the White House’s Rose Garden, the President said that Congress needed to “do its part, instead of issuing or sending bills that simply look like political statements.”

“Americans are concerned about making their mortgage payments and keeping their homes, and I don’t blame them,” he said.

This past week, administration officials signaled their opposition to housing reform measures currently being considered by Capitol Hill, with Deputy Secretary of Housing and Urban Development Roy A. Bernardi issuing a letter that detailed opposition to H.R. 5830, the FHA Housing Stabilization and Homeowner Retention Act. The bill has been pushed heavily by House Financial Services Committee Chairman Barney Frank (D-MA), although Republicans contend that the measure amounts to an unfair bailout.

“I am unable to support the Chairman’s new legislation, because I believe it will unfairly benefit a few homeowners at the expense of millions of careful borrowers and renters,” said Rep. Spencer Bacchus (R-AL) in remarks last week.

Earlier, the administration had also signaled a lack of support for the so-called Foreclosure Prevention Act of 2008, a bill introduced by senators Chris Dodd (D-CT) and Richard Shelby (R-AL) from the Senate Committee on Banking, Housing and Urban Affairs.

Both proposals, according to administration officials, would amount to a bail out of lenders and speculators. Both administration officials and the President have repeatedly said they will support Congressional efforts to modernize the FHA, reform Fannie Mae and Freddie Mac, and to allow state housing agencies to issue tax-free bonds to fund subprime mortgage refinancing.

President Bush said Tuesday that Congress had “failed to send a single one of these proposals to my desk.”

“Americans should not have to wait any longer for their elected officials to pass legislation to help more families stay in their homes,” he said.

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The Real Estate Market in California has hit bottom!  I stand by my numbers listed in my last posting.  If you take a closer look you will see demand increasing while supply is decreasing. (read it here) The Bank Owned Properties are still finding offers with nice down payments and they are limiting themselves to only a handful FHA transactions.  The FHA loan is the only loan in California that will allow for zero down payment outside CalHFA which is a much harder loan to process and get through underwriting. (see free report below) This leaves a very large group of people struggling to get their offers accepted and we are still seeing a huge number of open escrows in April.  We expect this to continue throughout the summer as inventory will remain and those buyers who still need property will be getting their offers accepted later in the year when the great buyers start to go away. (get your offer accepted now see free report below)

If you want my FREE REPORT on "5 Reasons You Should Avoid CalHFA Loans!" please email me at Brent@brentlane.net with "CalHFA FREE REPORT!" as the subject!

I have one additional report that will help home buyers and Realtors get offers accepted in the market.  "The 3 Things Every REO Offer Needs to Get Accepted by the Bank" 

If you would like this FREE REPORT please email me at brent@brentlane.net with "REO OFFER REPORT" as the subject.

The link below will detail the increase in foreclosures and we can hope to see a steady stream of inventory which will lead to an increase in affordable property available for purchase by those who are looking for a good deal.

http://biz.yahoo.com/ap/080429/foreclosure_rates.html

Market commentary Tuesday by Bill Gross over at PIMCO argues that home prices are what matters most going forward, and backs a proposal by Congressional Democrats that would serve to prop up home prices under logic that says further price declines must be avoided:

The better alternative is to initiate a limited mark-to-market write-down of private mortgage debt as envisioned in the Dodd-Frank Congressional proposal combined with government-subsidized loans at below market rates. Look at it this way: you can allow a home to fall in price from $400,000 to $300,000 and force an upside-down “short sale” foreclosure, or you can reduce the homeowners’ $400,000 mortgage to $350,000, refinance the loan through the FHA at 4% and stabilize the neighborhood and its home prices.

All of which leads me to ask: what’s the “right” price for housing, Bill? It’s both a simple and a tough question to answer, but one that Gross conveniently ignores in pumping up the Dodd/Frank plans.

For one thing, he assumes that “mark to market” writedowns of individual mortgages would lead to a value that is inherently greater than whatever market price would otherwise result. Why he expects this to be so, however, isn’t clear at all — why would a short sale ever be conducted at below market value, relative to some mark-to-market price? Alternatively, why would mark-to-market prices under the Dodd/Barney plan be higher than plain-old market prices observed in a short-sale transaction?

There’s only one lucid answer to that question, in my estimation: Gross, along with others who support the Frank/Dodd approach, are implicitly assuming that home prices can be propped up above some other natural equilibrium that would otherwise exist. Even if the chips do fall as Gross and Dodd and Frank suggest, who’s to say that the “new price equilibrium” established by having government intervene is one that will actually hold? What new and secret law of economics makes them believe they can maintain prices at an artificially-determined equilibrium that’s fundamentally disconnected from the market itself?

I may not be a billion-dollar fund manager, but I do know this: prices must eventually harmonize with personal income. The housing inventory overhang in nearly every major housing market is huge, and likely to reach historic proportions before this summer is out. Demand has fizzled out in part because the easy credit of two years ago is gone — some would call that constrained credit, others a return to risk-appropriate lending — but also because borrowers are waiting it out. Homeowner vacancy rates are at a record high. REO is set to flood many key markets in the next few months, based on estimates I’m hearing from those in the field.

In other words, prices are still too high.

I’ve written for months that where our money should be going isn’t to the task of trying to prevent a needed and inevitable correction in home prices — it should be going to help those caught on the wrong end of the correction land on their feet and move forward. So far, I’ve seen too much arguing about the former and not enough consideration of the latter from legislators and erstwhile bond gurus alike.

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This just in from the Department of Justice and one of our train wreck friends Elizabeth, Ed Okun's bond hearing scheduled for today (April 29) was canceled. The new date for Okun's bond hearing is Friday May 9 at 2pm. The reason for the postponement? Okun's appointed public defender asked for the postponement so your guess is as good as mine: preparation issues?

How do you represent a criminal like Okun to a court of law in hopes of gaining his freedom-even if it is a short lived freedom?

Here are the challenges Okun's attorney faces

1. Ed is reportedly flat broke
2. Ed may have hidden funds offshore
3. Ed is definitely a flight risk
4. Ed has embezzled, without recovery to victims, at least $132million
5. Ed's credibility and word are worthless

Against All Odds: Cases That Attorneys Represented the "Unrepresentable"

1. The OJ Case--Simpson walked to the amazement of the world
2. The "Nightstalker"-- Richard Ramirez sits on death row the best he could have ever gotten
3. Polly Klaus--Richard Allen Davis how could anyone represent this piece of _hit?
4. Scott Peterson--Did anyone and I mean anyone ever believe this punk?
5. Rodney King's Cops--just change the venue and everything goes bye-bye

In the United States, most Americans are juggling several different forms of debt at once and many will reach a point where they simply cannot afford to pay all of them. Each month, you might have five credit card payments, a car payment, a mortgage, and possibly a loan. That’s eight different payments each month and some people could easily have double that. When it comes time to choose which payment doesn’t get made, it’s surprising how many people are choosing their mortgage. Though statistics clearly show home foreclosure rates on the rise, it’s unknown why most people continue to make their credit card payments while ignoring their mortgage. A recent survey by Capital One showed that 70% of people who have mortgages at least 90 days overdue still make their credit card payments on time. Statistics like these beg the question of why some people see their credit cards as being more important than their home. Is it because they’re stuck in a bad mortgage and would rather face a home foreclosure than lose their credit cards? Traditionally, most people would never pay their credit cards over their mortgages. Clearly, times have changed and the statistics are showing that.

Credit Card and Mortgage Statistics

• About 70% of homeowners are paying for their home through a mortgage.
• Of that 70%, nearly a quarter of them have a second mortgage or home equity line of credit.
• More than 230,000 homeowners are facing some form of foreclosure, which comes out to nearly 1 out of every 500 people.
• Foreclosure filings have more than doubled since a year ago.
• The total US revolving debt is over $900 billion.
• The average household carries $8,500 in credit card debt, however the median balance is just $2,200.
• 1 in 6 families pay only the minimum credit card payment each month.
• Of every $100 spent in the US, almost $40 is spent in a form other than cash or check.

Related:

• AP Poll: Mortgage Payments Worry Many
• Bill Clinton on the Mortgage Crisis

Ailing mortgage lender Residential Capital LLC continued to weigh on GMAC Financial Services during the first three months of 2008, dragging the former General Motors financial division to a $589 million loss for the first quarter. The Q1 loss compared to a $724 million loss in the fourth quarter, and a $305 million loss in the year-ago period.

As with previous quarters, ResCap was the source of nearly all of the company’s red ink, with the troubled mortgage lender posting a $859 million loss during Q1. ResCap lost $924 million during the fourth quarter, and $910 million one year ago. Despite continued losses, there were signs that the mortgage business — at least domestically — was on the rebound.

Calling the mortgage business “improved,” CEO Alvaro de Molina said more work remained ahead.

“Continued volatility in the capital and credit markets put pressure on first quarter results,” said GMAC Chief Executive Officer Alvaro de Molina. “While the actions we have taken to date to reduce risk, reduce leverage and streamline the cost structure have produced results, there is still more to do to stabilize ResCap and position the overall company for profitable growth.”

Part of that positioning effort involved lending ResCap $468 million to keep it afloat as recently as April 18, according to earlier coverage on HW.

Troubles emerge outside the U.S.
While ResCap continued to falter during Q1, GMAC said that its U.S. mortgage finance business was improved during the quarter and that a “significant deterioration in international operations” offset any improvements state-side.

ResCap’s U.S. residential finance business posted prime conforming loan production of $15.4 billion in the first quarter of 2008, up more than 60 percent compared to $9.6 billion in the year-ago period; the servicing portfolio posted “strong results,” and operating expense targets were achieved as well, GMAC said. Government mortgage production — primarily FHA — also saw originations increase to $2 billion from $600 million one year earlier, underscoring the new-found popularity of FHA-insured mortgages during the current industry downturn.

Despite growth domestically, GMAC said “the international mortgage business experienced a significant decline in the first quarter.” The numbers give that sentiment some context, as international mortgage production fell by more than 50 percent, and ResCap booked a huge loss on the sale of mortgage loans internationally at $682.5 million.

Non-performing assets continued to soar during the quarter (although GMAC doesn’t break out domestic versus international mortgage performance in its quarterly reports). ResCap saw NPAs reach an eye-popping $7.4 billion during the first quarter, which was — surprisingly enough — a decrease from one year earlier, when NPAs registered an even bigger $10.7 billion. Nonaccrual loans represented roughly 85 percent of NPAs at the end of the first quarter, GMAC said.

Against this multi-billion dollar NPA/non-accrual backdrop, ResCap provisioned $299.3 million during the first quarter for credit losses, bringing the total loan loss allowance to $888.6 million. Last year, the loan loss allowance stood at $2.2 billion.

“[C]hallenging market conditions are likely to persist and have not shown signs of moderation,” the company said in a press statement, suggesting the financial services giant would not return to profitability until 2009.

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Subprime loan delinquencies have stabilized after their torrid run-up in late payments according to the latest remittance reports. This is obviously a positive sign for the housing market as fewer 60-day delinquencies mean fewer eventual 90-day delinquencies and NOD’s. While analysts caution against over-reaching in the importance of the improvement they do note that it is significant.

Unfortunately, the metrics for foreclosures, REO properties and vacancies were all higher - which may negate any improvement in the delinquency number. Further, a full 33% of all tranches of the 80 deals tracked on the ABX index are rated ‘CCC’ which mean they are in imminent danger of default.

Compounding the problem is that subprime is just a small chunk of the market that is going to see delinquencies and NOD’s as we move through 2008-11. A majority of the loans that will be hardest hit are the limited-documentation, I/O, and Neg Am option ARMs that make up the Alt-A bucket of lending.

From the Reuters article on the slowing subprime loan delinquencies:

The performance of subprime mortgage loans pooled into U.S asset-backed securities showed signs of stabilizing in April, although analysts signal caution ahead.

Remittance reports, which provide a snapshot of subprime loan performance over the last 30 days, showed the pace of delinquencies slowed from the sharp climb in previous months, snapping a long period of pronounced deterioration.

“The deceleration is partly attributable to seasonality (tax refunds), but is nevertheless a fairly significant slowdown,” said Chris Flanagan, analyst at JPMorgan Securities.

…

“Given the historical seasonal pattern of significant percentage change improvements in 30- and 60-day delinquencies in April, we believe the latest report portends additional collateral performance deterioration over the next several months,” the firm said.

Cumulative losses on the risky home loans that support the series of ABX indexes continue to rise.

“This translates to 33 percent of all outstanding bonds across ABX reference entities are in imminent default. Even bonds originally in the ‘AA’ category have fallen to ‘CCC’ or lower,” said Flanagan.

Countrywide Financial Corp. (CFC: 5.87, +0.69%) said Tuesday morning that losses continued to widen during the first quarter as homeowners faltered at a record pace.

The nation’s largest lender and servicer said that it lost $893 million, or $1.60 per share, during Q1, compared to $434 million in earnings one year earlier; the net loss during the first quarter was more than double the loss recorded during the fourth quarter.

Citing “materially higher credit-related costs,” Countrywide said it set aside more than $3 billion for credit-related losses and write-downs during the quarter as delinquencies, defaults and loss severities continued to climb higher. Roughly $1.5 billion of that amount was tied to expected credit losses — a ten-fold increase from year-ago levels — and another $456 million was set aside for expected loan buybacks, it said. Rapidly rising delinquencies on home equity loans and so-called rapid amortization on HELOCs also led to hundreds of millions of dollars in losses.

Rapid amortization charges were the source of significant concern in Countrywide’s fourth quarter results, according to rating agency Moody’s Investors Service. The lender took a $704 million charge tied to subordination of its repayment interest on HELOC advances in the fourth quarter; similar charges fell to $154 million during Q1.

Origination volume fell 38 percent during the quarter to $73 billion, off 38 percent from one year earlier, as conduit acquisitions essentially ceased and CRE (commercial real estate) fundings dropped 96 percent. Reflecting broader market movement towards FHA-insured originations, Countrywide saw government fundings rise 188 percent to $10.2 billion during Q1, while ARM and home equity funding activity both fell more than 70 percent relative to year-ago funding activity.

Despite struggles in originations, Countrywide’s substantial servicing portfolio continued to grow, posting 10 percent annual growth and finishing March at $1.48 trillion in volume.

Borrowers under duress
Delinquencies continued to increase during the first quarter, according to statistics in Countrywide’s quarterly report with the Securities and Exchange Commission. A stunning 35.9 percent of all subprime loans serviced were recorded as delinquent by the end of March; 21 percent of the total were 90 or more days in arrears, including 11.6 percent of subprime loans classified as held for investment.

Prime home equity loans also saw DQs ratchet up to 8.29 percent from 3.77 percent one year earlier — underscoring the duress now facing many prime borrowers, given that the HELs on the books at Countrywide boast an average CLTV of 84 percent and average FICO of 727.

But perhaps the most surprising delinquency statistic of all was a stark jump in prime, conventional firsts that appear to have hit a wall during the first three months of 2008. Countrywide said that 6.48 percent of more traditional borrowers were delinquent during March, with 3.19 percent 90 or more days in arrears. That’s a jump of 127 percent in conventional first-lien DQs from one year ago, and a rise of nearly 13 percent in just one quarter.

It also appears that once they get there, more prime borrowers aren’t getting out of delinquency: the number of severe delinquencies within prime firsts alone rose nearly 40 percent between December and March.

For more information, visit http://www.countrywide.com.

Disclosure: The author was long CFC when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

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