OCC: Mortgage Performance Best Since 2008

Mortgage performance during the
first quarter of 2012 was the best in three years according to the Office of Comptroller
of the Currency’s (OCC’s) Mortgage
Metrics Report
.  Percentages of
mortgages that were 30 to 59 and 60 to 89 days delinquent were at the lowest
level since at least the first quarter of 2008 when Metrics was first published. 
The percentage of mortgages current and performing at the end of the
quarter was 88.9 percent up 1.1 percent from the previous quarter and 0.3
percent from a year earlier. OCC attributed the improvement in performance to
several factors including strengthening economic conditions, seasonal effects,
servicing transfers, and the ongoing effects of both home retention programs
and home forfeiture actions.

The quality of government guaranteed
mortgages
improved during the quarter with current and performing mortgages at
85.9 percent of the portfolio compared to 84.2 percent in the previous quarter but
down from 87.0 a year earlier.  Mortgages
serviced for the two government sponsored enterprises (GSEs) Fannie Mae and
Freddie Mac made up 59 percent of servicer portfolios and 93.7 percent of these
loans were current and performing, a percentage that has changed little over
the past year.

New foreclosures initiated during
the quarter were down 1.8 percent to 286,951 which OCC said reflected the
emphasis on home retention actions as well as a decrease in delinquencies.  Many servicers have also slowed new
foreclosures in response to changing servicing standards and requirements.  

Completed foreclosures increased to
122,979-up 5.9 percent from the previous quarter and 2.7 percent from the first
quarter of 2011.  The inventory of foreclosures in process increased from
the previous quarter to 1,269,921, but is down from 1,308,757 a year ago.  Deeds-in-lieu of foreclosure, and short-sales
brought the total number of home forfeiture actions to 185,781 during the
quarter, an increase of 1.9 percent from the fourth quarter of 2011 and 8.3
percent from a year earlier.

Servicers initiated 352,989 home
retention actions
during the quarter and have initiated more than 2.2 million
such actions including modifications, trial-period plans, and payment plans
over the last five quarters.  At the end
of the first quarter of 2012, 50.7 percent of modifications remained current or
were paid off.  Modifications made since 2008 that reduced borrower
monthly payments by 10 percent or more performed better (57.6 percent remained
current) than those that reduced payments by less than 10 percent (36.8
percent.)

On average, modifications
implemented in the first quarter of 2012 reduced monthly principal and interest
payments by $437, which is 31 percent more than modifications implemented
during the first quarter of 2011. HAMP modification reduced payments by $588 on
average and those modifications performed better than others, with 68.2 percent
remaining current compared to 53.4 percent of modifications done by others.  OCC said HAMP’s performance reflects the
significantly reduced monthly payments, the program’s emphasis on affordability
relative to borrower income, required income verification, and the successful
completion of a required trial period.

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Pending Home Sales Rise; NAR Sees Tight Inventory Leading to Price Increases

Pending home sales in May bounced
back to match March numbers which were the highest seen in two years. The
improvement was broad-based, affecting every region in the country according to
the National Association of Realtors® (NAR). 

NAR’s Pending Home Sales Index (PHSI)
rose 5.9 percent in May from 95.5 in April to 101.1, equaling the index level last
March.  This was an increase of 13.3
percent from May 2001 when the index was 89.2. 
The last time the PHSI was higher than the March and May number was in
April 2010 when buyers were rushing to beat the deadline for the home buyer tax
credit.

The PHSI is a forward indicator
reflecting signed contracts for home purchases. 
The index does not include closing transactions which are generally
expected to occur within 60 to 90 days.

Lawrence Yun, NAR
chief economist, said longer term comparisons are more relevant.  “The
housing market is clearly superior this year compared with the past four
years.  The latest increase in home contract signings marks 13 consecutive
months of year-over-year gains,” he said.  “Actual closings for
existing-home sales have been notably higher since the beginning of the year
and we’re on track to see a 9 to 10 percent improvement in total sales for
2012.”

The national
median existing-home price is expected to rise 3.0 percent this year and
another 5.7 percent in 2013.

On a regional
basis, May pending sales in the Northeast increased 4.8 percent to 82.9, 19.8
percent above May 2011.  The pending sales number in the Midwest was 98.9
up 6.3 percent from April and 22.1 percent from a year ago.  The index for
the South increased 1.1 percent month over month and 11.9 percent year over
year to an index of 106.9.  In the West
the index jumped 14.5 percent in May to 108.7 and is 4.8 percent stronger than
a year ago.

Yun said that
low inventory could negatively impact some contract activity.  “If credit
conditions returned to normal and if we had more inventory, especially in the
lower price ranges, more people would become successful buyers.  In an
environment of historically favorable housing affordability conditions, it’s
frustrating to see some consumers thwarted in the process,” he said.

The low
inventory in some cases is because of the numbers of homeowners who are unwilling
to list their homes for sale because they are underwater on their mortgages.  Selling underwater homes requires that sellers
either bring cash to the table or undergo a lengthy and often frustrating short
sale process.  NAR estimates 85 percent
of homeowners have positive equity, with 15 percent in an underwater situation.

“Low inventory
can be cured by increasing new home construction,” Yun said.  He projects
housing starts to rise by 26 percent this year and another 50 percent in 2013.  “If housing starts do not rise in a meaningful
way over the next two years due to the difficulty in getting construction
loans, and barring an unexpected shift in the economy, the steady shedding of
inventory could lead to shortages where home prices could get bid up close to
10 percent in 2013,” Yun said.

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Mortgage Suspicious Activy Reports (SARs) Continue to Emerge from Pre-2008 Loans

Suspicious Activity Reports (SARs) related
to suspected mortgage loan fraud (MLF) filed by depository institutions decreased
sharply in the first quarter of 2012 compared to the first quarter of 2011 even
as SARs increased overall.  Data on these
MLF SARs filings was released Tuesday by the Treasury Department’s Financial
Crimes Enforcement Network (FinCEN).

There were 17,651 MLF SARs filed during
the quarter compared to 25,484 one year earlier, a decrease of 31 percent.  At the same time there were 205,301 SARs of
all types, an increase of 10 percent from 186,331 in the first quarter of
2011.  MLFs represented 14 percent of all
SAR filings in that earlier period compared to 9 percent in the January-March
2012 period.

FinCEN said there was an unusual spike
in MLF SARs
filings during the first three quarters of 2011.  These arose primarily out of mortgage
repurchase demands on banks which prompted a review of loan origination
documents and subsequent detection of suspected fraud.  Filings in early 2012 show that problems
continue to emerge from loans originated in the pre-2009 period which accounted
for the majority of delinquencies and foreclosures experienced since 2008.

Of the MLF SARs filed in the first
quarter, 28 percent related to loans that were four to five years old and 44
percent to loans that were more than five years from their origination data.  One year ago 79 percent were three or more
years old. 

While only a minority of filers included
loss totals and fewer did so in 2012 than in 2011, more than 80 percent of the
losses reported were for amounts under $500,000.  Very few filings (51 in 2012) reported any recovery
of losses.

Numbers of SAR were logically the
largest in the largest states – California, Florida, New York, and
Illinois.  On a per capita basis California
was in first place as it was during all of 2011.  Nevada ranked second, rising from fifth place
in 2011 and Florida was third.  Los
Angeles had the highest number of MLF SARs of any of the large metropolitan
areas both by volume and on a per capita basis. 
Two other California MSAs, the Riverside area and San Jose-Sunnyvale
were second and third on a per capital basis followed by Las Vegas and Miami.

To determine the latest trends in
suspected mortgage fraud FinCEN examined a subset of MLF SARs filings reporting
activities that were less than two years old.  Nineteen percent of 3,354 MLF SARs filed during
the first quarter met this criterion and FinCEN examined a sample of 334 or ten
percent.  The largest category of
suspected fraud was defined as income followed by occupancy, employment, and
debt elimination.  Compared to the Q1
2011 report, debt elimination fraud increased as did foreclosure rescue scams
while appraisal fraud was down. 

FinCen reported an increasing number of
SARs that appeared to involve “repeat subjects.”  For example, several foreclosure rescue scam
reports
noted that numerous borrowers had complained about the subject
organizations.  The same was true of some
SARs related to proposed debt relief services. 
Filers also noted several short sale SARs subjects who had been involved
in numerous fraudulent transactions. 
This information could provide useful information to law enforcement.

FinCen also identified fraud patterns not
noted in other reports.  One was homeowners
insurance fraud where borrowers pocketed insurance payments after home fires
and another, “Keys for Cash” where persons moved into bank owned properties
claiming to have long term leases.  Their
true objective appeared to be inducing lenders into paying them to vacate the
properties.

In a related matter, the Department of
Justice and the offices of the Inspector General for both the Department of Housing
and Urban Development and the Federal Housing Finance Agency held mortgage
fraud summits
in two cities on Tuesday to help protect homeowners in areas
hardest hit by mortgage scams.  A third
summit slated for Tallahassee, Florida is being rescheduled because of severe
weather in the area.  The summits were
organized by President Obama’s Financial Fraud Enforcement Task Force’s (FFETF)
Mortgage Fraud Working Group of which FinCEN is a member.  

“Preventing, detecting and
prosecuting mortgage fraud is a top priority of the Financial Fraud Enforcement
Task Force and its Mortgage Fraud Working Group members,” said FFETF Executive
Director Michael Bresnick. “It’s more important than ever that we arm
homeowners with the information they need to recognize the predators up front
and empower them to avoid falling victim to these devastating scams. That’s why
the task force is holding these summits in states hit hardest by the
foreclosure crisis.”

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Think Tank Measures FHA Progress

The American Enterprise Institute’s
(AEI) FHA Watch, a monthly on-line
publication tracking operations of the housing agency, just released its sixth
edition which makes clear the agenda of the conservative think tank.

Watch starts out by
quoting a Federal Reserve estimate that about one-third of the 11.1 million
underwater mortgages in the U.S. are FHA insured, a number which would account
for nearly half of FHA’s 7.4 million outstanding loans.  The Institute concludes that, since about 72
percent of outstanding FHA loans are of post 2009 vintage, about 1.5 million
recent loans must be underwater. 

“This comes as no surprise,” Watch
says, “since the FHA continues to combine minimal down payments (average of 4
percent) with slowly amortizing thirty-year loan terms. As a result, earned
homeowner equity (the combination of down payment and scheduled loan amortization)
amounts to less than 10 percent after four years, or about enough to sell a
home at the break-even point if home prices stay steady. However, prices have
declined nationally about 7 percent since mid-2009, with lower-priced homes
declining even more. When combined with borrowers’ low FICO scores and high
debt-to-income (DTI) ratios, the result is a continuation of the FHA’s
destructive lending-lending that has resulted in 20-25 percent of recent
borrowers facing a 10 percent or greater likelihood of foreclosure.”

In addition to the opening statement, Watch spotlights the following topics:

  • Insolvency: FHA’s Position Worsened in May, with an
    Estimated Current Net Worth of $22.11 Billion and a Capital Shortfall of $41-61
    Billion.
  • Delinquency: Total Delinquency Rate Increased in May to
    16.23 Percent Because of Increase in Both Thirty- and Sixty-Day Delinquencies;
    Serious Delinquency Rate Ticked Up to 9.43 Percent.
  • Underwater
    Loans: FHA Is Responsible for 1.5
    Million New Underwater Loans.
  • Best Price Execution:
    The Government Mortgage Complex’s Ginnie Brands Demonstrate Continued
    Pricing Dominance over Fannie Mae.
  • The Road Map to FHA Reform: Specific Steps to Reform and the Status
    of Each

The last category sets forth AEI’s goals
for program reform and fiscal reform, steps for accomplishing each, and a
report card on the progress made by FHA and Congress toward the goals.  AEI’s goals for Program Reform are:

  1. Stepping back from markets that the private
    sector can serve to gradually return to a “traditional”10 percent home purchase
    market share.
  2. Stop
    knowingly lending to people who cannot repay their loans.
  3. Help
    homeowners establish meaningful equity.
  4. Concentrate
    on homebuyers who truly need help purchasing their first home.

The only recent improvement acknowledged
by AEI in this area occurred in February with a proposed rule that limits
seller concessions to the greater of 3 percent of the loan or $6,000.  More than a dozen other steps have not been
acted on by the agency.

The Institute has set the following
goals for FHA to achieve in the area of fiscal reform:

  1. Utilize generally accepted accounting
    principles and set rigorous disclosure standards;
  2. Establish and maintain loan loss and unearned
    premium reserves;
  3. Establish and maintain a minimum capital
    requirement of 4 percent of amortized risk in force;
  4. Fund a countercyclical premium reserve.

AEI found that FHA had made a small
amount of progress in this area by requiring application of SEC disclosure
standards to the FHA’s insurance programs and funds and by taking steps toward
retaining an independent third party to conduct a safety and soundness review
under generally accepted accounting standards. 
There was no acceptable progress on the six remaining steps.

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Census: Drop in Net Worth Echoes Home Equity Loss

New comparative tables from the 2010 Census underline both
the importance of homeownership to building wealth
and the havoc wrecked by the
recession on that wealth
.       The Census
Bureau released detailed data on the type and value of assets owned by U.S. households
in 2005, 2009, and 2010.  We are
presenting a summary of the 2005 and 2010 figures based on actual numbers not
adjusted to 2010 dollars.  All numbers
represent U.S. medians.

The net worth of U.S. households was $93,200 in 2005, but had
dropped to $66,740 by 2010, a decrease of $26,460 or 28 percent.  Of this decline, $20,000 or 75.6 percent
could be attributed to loss of equity, from a median of $100,000 to $80,000
over the five year period.  Thus
household net worth, outside of home equity, declined from $18,150 to $15,000.

The median value of stocks and mutual funds declined from
$24,600 to $18,400, however the value of IRA/KEOGH accounts from increased from
$23,000 to 30,000 and 401K & Thrift Savings from $25,000 to $30,000.  Rental property equity declined, but not as
severely as the primary residence of households, from $10,000 to $170,000.  Other real estate equity was up marginally
from $74,000 to $75,000. 

It is important in analyzing the figures to recognize that
not all respondents owned a home or any of the other assets included in the
survey.  The differences in numbers reflect
changes in the population of those who do have such assets.

There were marked differences in how households fared over
the five years by race and age.  White
non-Hispanic households saw their net worth drop from $130,350 to $110,729 and
the equity in their home from $100,000 to $84,000.  Black and Hispanic households lost more than
half of their net worth with Black wealth dropping from $11,013 to $4,955 and equity
falling $70,000 to $50,000.  Hispanic
households went from a net worth of $17,078 to $7,424 and equity from $90,000
to $40,000.

The most interesting household wealth v home equity figures,
however are in the age cohorts.  Older
households lost dramatically less equity than did younger households.  The largest loss was among households in the
35 to 44 age range where the median home equity fell 45.45 percent.  Those less than 35 years of age saw equity
drop 31.5 percent.  The other two pre-retirement
cohorts – 45-54 years and 55-64 years were down 27.7 percent and 20.0 percent
respectively.  Then there was a
precipitous drop to a median loss of equity in the over 65 age group with the
three age groups within this category losing a median of 3.6 percent.   

This of course makes sense as older households had much more
equity to begin with so the rapid home price depreciation did not affect them
as severely on a percentage basis.  It is
harder to understand why they also were not as hard hit in the actual dollars
lost.  Those over 65 years of age had a
median loss $5,000 while those in the younger age groups saw their equity erode
by double digits.  

Whatever the reason, the stability of their home’s value was
reflected in the household wealth of older Americans.  The net worth of younger groups was down from
17 percent to 55 percent while the older households had a median decrease of
4.16 percent.  One of the older age
groups – 65 to 69 – had an actual increase of 2.36 percent although that was
offset by a near 10 percent decrease in the net worth of those 70 to 74 years
an age group that seemed to have suffered disproportionately from decreases in
IRA and 401(k) assets.

Change in Equity and
Net Worth – 2005-2010

Age Group

NW Change $

NW Change %

Equity Change $

Equity Change %

Under 35


2,326

30.10

$ 23,000

31.5

35 – 44

39,770

54.50

35,000

45.45

45 – 54

41,254

31.33

30,500

27.72

55 – 64

31,052

17.21

25,000

20.0

65 +

7,392

4.16

5,000

3.6

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