Credit Defaults Increase, Led by Mortgage Markets

Bank cards were the only type of
consumer debt to see a decline in defaults during December according to data
released today by S&P Indices and Experian. 
The S&P Experian Consumer Credit Default Indices showed increased
defaults in both first and second mortgages and in auto loans.  Driven primarily by the increase in mortgage
defaults, the national composite index rose from 2.22 percent in November to
2.24 percent in December, the highest rate since April of 2011.  In December 2010 the Index stood at 3.01
percent.

The default rate for second mortgages increased
from 1.26 percent to 1.33 percent, auto loan defaults rose to 1.27 percent from
1.17 percent and first mortgage defaults increased to 2.19 percent from 2.17
percent.  The default rate for bank cards
however dropped from 4.91 percent to 4.60 percent.  All rates have improved from those of one
year earlier when the default rate for second mortgages was 1.74 percent; first
mortgages, 2.93 percent; auto loans, 1.69 percent; and bank cards, 6.73
percent.

“Led by the
mortgage markets, the second half of 2011 saw a slight reversal of the two-year
downward trend in consumer credit default rates,” says David M. Blitzer,
Managing Director and Chairman of the Index Committee for S&P Indices.
“First mortgage default rates rose for the fourth consecutive month, as did the
composite. Since August, first mortgage default rates have risen from 1.92% to
the 2.19%. The composite also rose those months, from 2.04% to 2.24%.  The
recent weakness seen in home prices is reflected in these data.  Bank card
default rates, on the other hand, were favorable, falling to 4.6% in December.
This is more than a full percentage point below the 5.64% we saw as recently as
July 2011.

S&P Experian data highlighted
five Metropolitan Statistical Areas (MSAs). 
Three of the five showed increases in default rates for the month: Miami
increased from 4.47 percent to 4.73 percent; Dallas from 1.38 percent to 1.56
percent, and Los Angeles to 2.54 percent from 2.53 percent.  Chicago was unchanged at 2.84 percent and New
York decreased from 2.21 percent n November to 2.13 percent in December. 

Blitzer said
of the MSA data, “Given what we know about the mortgage markets, it is likely
that these cities are seeing this recent weakness because their housing markets
have still not stabilized.”


 

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S&P: Second Mortgage Defaults at Lowest Point in 7 Years

Default rates fell in May for all types
of loans tracked by the S&P/Experian Credit Default Indices. For most loan types it was the fifth
consecutive drop and four loan types posted their lowest rates since the end of
the recession.

The national composite default rate
declined to 1.62 percent in May from 1.86 percent in April and the first
mortgage rate was down to 1.50 percent from 1.76 percent. Second mortgage defaults were at 0.88 percent,
compared to 0.93 percent and bank card defaults dropped to 4.35 percent from
4.49 percent. Auto loans fell four basis
points to 1.03 percent, a low point in the eight year history of the index.

Second mortgage defaults were at their
lowest point in seven years and first mortgage and credit card defaults were
the lowest since May 2007 and 2008 respectively.

“May 2012 data show continued
improvements in consumer credit quality,” says David M. Blitzer, Managing
Director and Chairman of the Index Committee for S&P Indices. “Consumer
default rates continue to fall and we are reaching new lows across all the loan
types. In the last recession, default rates peaked in the spring of 2009, since
then the decline has been bumpy but consistent.  Only bank cards remain
above their pre-recession lows.

S&P/Experian covers five
metropolitan statistical areas (MSAs) and all five saw their default rates fall
to post-recession lows. Chicago declined
for the fifth straight month to 1.85 percent, down nearly a percentage point
since December. Miami and New York recorded
their fourth consecutive decreases with Miami down by 59 basis points and New
York by 17. Dallas hit an index low at
0.94 percent, down from 1.25 percent in April and Los Angeles moved down
slightly from 1.88 percent to 1.82 percent.

The table below summarizes the May
2012 results for the S&P/Experian Credit Default Indices. These data are
not seasonally adjusted and are not subject to revision.


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Annual Foreclosure Rate Declines for 20th Straight Month; Nevada Gives Up Top Spot

Foreclosure
filings
topped 200,000 during May for the first time in two months but filings
were still below the rate a year earlier according to the U.S. Foreclosure
Market Report released by RealtyTrac this morning.  A total of 205,990 properties or one in every
639 housing units received some type of foreclosure filing during the month
compared to 188,780
in April, an increase of 9 percent.  Despite
the increase, filings were down 4 percent from May 2011 marking the 20th
straight month that year-over-year figures fell.  Judicial
states posted a 26 percent annual increase in overall foreclosure activity
while non-judicial states were down 20 percent.

RealtyTrac is an Irvine, California firm
that tracks three categories of foreclosure filings gathered from county level
sources. 

    “U.S. foreclosure activity has now
    decreased on a year-over-basis for 20 straight months including May, but the
    jump in May foreclosure starts shows that it’s going to be a bumpy ride down to
    the bottom of this foreclosure cycle,” said Brandon Moore, CEO of RealtyTrac.
    “Based on the rise in pre-foreclosure sales we’ve seen so far this year, a
    higher percentage of these new foreclosure starts will likely end up as short
    sales or auction sales to third parties rather than bank repossessions going
    forward. While pre-foreclosure sales have less of a negative impact on home
    values than bank-owned sales, they still represent a discounted sale where a
    distressed homeowner is losing his or her home.

    For the first time in years Nevada
    no longer topped the nation in foreclosure activity
    , falling to third place
    with 3,755 filings, a 4 percent decrease since April and 66 percent less than a
    year earlier.  One in every 313 housing
    units in Nevada received a filing. 
    Georgia leapt into first place with a 33 percent increase in activity in
    one month and was up 30 percent from May 2011. 
    One in every 300 Georgia housing units was affected by foreclosure
    during the month.  

    Arizona’s foreclosure activity rose
    24 percent in May, putting it in second place among the states despite the fact
    its rate, one in every 305 housing units, was down 29 percent from a year
    earlier. 

    Foreclosure starts were filed on
    109,051 U.S. properties in May, a 12 percent increase from April and a 16
    percent increase from May 2011. This was the first time in 27 months that
    foreclosure starts increased on an annual basis. Starts were up year-over-year in
    33 out of 50 states with the largest annual increases in Tennessee (165
    percent) New Jersey (118 percent), Pennsylvania (97 percent), and Florida (83
    percent).  Massachusetts, Texas, and New
    York also saw starts rise by more than 50 percent.

    After three straight monthly
    decreases to a 49-month low in April, bank repossessions (REOs) increased in
    May, rising 7 percent. Lenders completed the foreclosure process on 54,844 U.S.
    properties during the month.  This was
    still a decrease of 18 percent compared to May 2011.

    RealtyTrac attributes some of this
    decrease
    to a widening acceptance among lenders of the value of pre-foreclosure
    sales
    , usually short sales where the bank accepts less than the amount it is
    owned to allow the sale of a home to a third party.  Moore said, “More banks are now recognizing
    that treating the problem of delinquent mortgages with short sales rather than
    bank repossessions can help them minimize their losses and also avoid taking on
    more REOs, which they then have to manage, maintain and market for sale.”

    “Disposing of distressed homes by
    pre-foreclosure sale can also benefit lenders and servicers because
    pre-foreclosure homes sell at a higher average price point than bank-owned
    homes,” he continued. “Our first quarter foreclosure sales report showed that
    the average price of a pre-foreclosure home was more than $27,000 higher than
    the average price of a bank-owned home – which quickly adds up given that there
    have been an average of 1.6 million nationwide foreclosure starts per year for
    the past five years.

    REO activity increased on an annual
    basis in 17 states in May, including North Carolina (66 percent), Illinois (65
    percent), and Massachusetts (59 percent). 
    There were large decreases in Nevada (68 percent), Arizona (43 percent),
    Michigan (42 percent), and Colorado (42 percent).

     Riverside California, Atlanta,
    and Phoenix had the highest foreclosure rates among the 20 largest metropolitan
    areas in the country followed by Chicago and the Tampa-St. Petersburg area in
    Florida.

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