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Delinquencies, Foreclosure Starts Increase in Latest MBA National Delinquency Survey
The delinquency rate for mortgage loans on one-to-four-unit residential properties increased to a seasonally adjusted rate of 10.06 percent of all loans outstanding as of the end of the first quarter of 2010, an increase of 59 basis points from the fourth quarter of 2009, and up 94 basis points from one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey. The non-seasonally adjusted delinquency rate decreased 106 basis points from 10.44 percent in the fourth quarter of 2009 to 9.38 percent this quarter. The percentage of loans on which foreclosure actions were started during the first quarter was 1.23 percent, up three basis points from last quarter but down 14 basis points from one year ago. The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure.
The percentage of loans in the foreclosure process at the end of the first quarter was 4.63 percent, an increase of five basis points from the fourth quarter of 2009 and 78 basis points from one year ago. This represents another record high. The combined percentage of loans in foreclosure or at least one payment past due was 14.01 percent on a non-seasonally adjusted basis, a decline from 15.02 percent last quarter. “The issue this quarter is that the seasonally adjusted delinquency rates went up while the unadjusted rates went down. Delinquency rates traditionally peak in the fourth quarter and fall in the first quarter and we saw that first quarter drop in the data. The question is whether the drop represents anything more than a normal seasonal decline or a more fundamental improvement. Most importantly, the normal seasonal drop is coming right at the point where we believe delinquencies could potentially be declining and the problem for the statistical models is determining which is which,” said Jay Brinkmann, MBA’s chief economist. He adds, “Simply put, fundamental market factors may be having a greater influence on the delinquency rates than is normally the case, but mathematical models have difficulty discerning the difference over a short period of time.“
Regulators Testify on Market Dive, New Rules
Two weeks after the stock market’s epic dive, federal regulators and U.S. securities exchanges have a new plan to keep it from happening again, proposing that essentially markets call a “time out” when trading gets too chaotic. The question is whether it will work. The big stock exchanges say that new curbs on trading known as “circuit breakers” will help prevent runaway market drops. But not everyone is convinced. To some market watchers, the rules are too limited. To others, the rules go too far. The government’s two top market regulators are appearing before a Senate panel Thursday in the aftermath of the wild trading day that stunned Wall Street, and Washington, on May 6. Mary Schapiro, chairman of the Securities and Exchange Commission, and Gary Gensler, head of the Commodity Futures Trading Commission, will testify at the hearing.
The SEC on Tuesday unveiled the new plan for circuit breakers, which was agreed upon with the exchanges. Under the plan, trading of any Standard & Poor’s 500 stock that rises or falls 10 percent or more within a five-minute period would be halted for five minutes. The rules would be applied if the price swing occurs between 9:45 am and 3:35 pm New York time — nearly the entire trading day. The reality, however, is that it may not be know whether the new curbs are effective, too limited or too extreme until there is another day like May 6, when intense selling sent the Dow Jones industrials down to a loss of almost 1,000 points in less than a half-hour. The idea behind the circuit breakers is that by giving investors a break during extreme market dips, they’ll be less likely to set off a chain reaction of human and computerized selling. That’s one of several possible causes of the May 6 plunge, dubbed as “flash crash,” briefly wiped out $1 trillion in market value as some stocks traded as low as a penny. Meanwhile investigators are focusing on, among other things, a possible link between the steep decline in prices of stock indexes, and “simultaneous and subsequent” waves of selling in individual stocks.
Diana Olick – Mortgage Crisis Creating Drag on Economic Recovery
“The mortgage crisis is dragging on the economic recovery as more homeowners fall behind on their payments. Analysts expect improvement soon, but the number of homeowners in default or at risk of foreclosure will have a lingering effect on the broader economy. More than 10 percent of homeowners had missed at least one mortgage payment in the January-March period, the Mortgage Bankers Association said Wednesday. That’s a record high. A big jump in the number of borrowers who have missed three months of mortgage payments drove the increase. There was one encouraging sign: The number of homeowners just starting to show trouble is trending downward as the economy improves. As of March, nearly 3.5 percent of homeowners had missed one month of mortgage payments. Around 4.3 million homeowners, or about 8 percent of all Americans with a mortgage, are at risk of losing their homes, the trade group’s top economist estimates.
They have either missed at least three months of payments or are in foreclosure. Should loan modification programs fail to help, their homes will go up for sale either as a foreclosure or short sale—when the bank agrees to sell the property for less than the original mortgage amount. Many analysts have been forecasting home prices will dip again as more of these homes go up for sale at deeply discounted prices. “It’s certainly a weight on the economy,” said Mark Zandi, chief economist at Moody’s Analytics, who predicts home prices will fall about 5 percent and hit the bottom next spring. Federal tax credits boosted home sales this spring but they expired last month. As a result, mortgage applications to purchase homes fell to the lowest level in 13 years this week, the Mortgage Bankers Association said in a separate report Wednesday. The latest foreclosure figures from the trade group are adjusted for seasonal factors. For example, heating bills and holiday expenses tend to push mortgage delinquencies up near the end of the year. Many of those borrowers become current on their loans again by spring. More than 4.6 percent of homeowners were in foreclosure, also a record. But that number, which is not adjusted for seasonal factors, was up only slightly from the end of last year.
Stocks slid Wednesday as investors remain concerned with the European debt crisis. The rising number of mortgages also drew some attention. The Dow Jones industrial average fell more than 100 points in midday trading. The Obama administration’s $75 billion foreclosure prevention program has barely dented the problem. Many homeowners are still in limbo. Economic woes, such as unemployment or reduced income, are the main catalysts for foreclosures this year. Initially, lax lending standards were the culprit. But homeowners with good credit who took out conventional, fixed-rate loans are now the fastest growing group of foreclosures. The risky subprime adjustable-rate loans that kicked off the foreclosure crisis are making up a smaller share of new foreclosures. They made up 14 percent of new foreclosures in the January-March period, down from 27 percent a year earlier. ”
Fed in No Rush to Sell Mortgage Assets, Minutes Show
Federal Reserve policy makers last month said they were in no rush to sell $1.1 trillion of mortgage-backed securities, with a majority preferring to wait until after the central bank starts raising interest rates. “Most participants favored deferring asset sales for some time,” while others wanted to announce a schedule or start sales soon, the Fed said in minutes of its April 27-28 meeting in Washington, released today. Officials lowered their projections for inflation, excluding food and fuel, while keeping forecasts little changed for economic growth and unemployment in 2011 and 2012. The minutes show that Chairman Ben S. Bernanke and his colleagues are still trying to each a consensus over when and how fast to reduce the Fed’s balance sheet as the economy recovers. The Fed aimed to lower home-loan costs and boost growth by buying mortgage securities through last March after cutting the benchmark interest rate almost to zero in December 2008.
“Even though the recovery appeared to be continuing and was expected to strengthen gradually over time, most members projected that economic slack would continue to be quite elevated for some time,” according to the Federal Open Market Committee report, which doesn’t identify the specific governors or regional-bank presidents making comments. Some policy makers said at the meeting they were concerned about potential spillover to the U.S. from the Greek debt crisis, more than a week before European officials stepped in with an almost $1 trillion aid package and the Fed decided to restart emergency currency swaps. Former Fed Governor Lyle Gramley, now senior economic adviser at Potomac Research Group in Washington, said in an interview with Bloomberg Radio, “Asset sales won’t occur for a while because the housing market is still “very fragile.”
DSNews.com – FBI’s Mortgage Fraud Cases up 400% since 2005
Of all frauds perpetrated against financial institutions, mortgage fraud, in particular, has spiked, the Office of Thrift Supervision (OTS) said in a report released this week. During 2009, the Federal Bureau of Investigation (FBI) delved into more than 2,100 mortgage fraud cases, up 400 percent from five years ago. According to the OTS report, the increase can be attributed to declining economic conditions, liberal underwritings, and declining home values. With the rapid growth of real estate markets and the development of new technology associated with refinancing and computer-driven underwriting methods, the opportunity for mortgage fraud continues to escalate. The OTS says warehouse lines have been particularly vulnerable, with their 90-day window of “purchasing” mortgages and awaiting ultimate repayments from final investors.
The FBI reports that equity stripping and property flipping are common schemes. The FBI estimates that 80 percent of all mortgage fraud involves collaboration or collusion by industry insiders. The FBI reports that mortgage fraud schemes continue to adapt as the economy changes and that individuals are victimized even as they are about to lose their homes. Foreclosure rescue scams take several forms but usually involve payment of an upfront fee in exchange for a promise to resolve a pending foreclosure, the OTS report explained. While this type of fraud is not perpetrated directly against the bank or thrift, the end result can still have a negative impact on the lender, according to the federal regulator. The OTS noted red flags for a number of fraudulent mortgage schemes, including straw borrower schemes, “builder bailout” schemes and flipping schemes.
Investor fear is back
Roughly four weeks ago, the Dow (INDU) was at an 18-month high, Wall Street’s fear gauge, the VIX (VIX), was at a three-year low and the yield on the 10-year Treasury note was flirting with 4% as investors poured money into stocks. Meanwhile, the euro was still falling apart on worries about Greece and the European debt crisis. Gold and other commodity prices were still rising. But investors weren’t panicked. Strong corporate earnings and signs that the recovery was underway tempered worries about global markets, currencies and commodities. One month later and investors have done a complete 180. And the recent record run on gold “is a vote of no confidence in the euro.”
U.S. stocks are down: Markets were already wobbling ahead of the flash crash of May 6, when the Dow plunged nearly 1,000 points during its worst intraday session ever. Since then, stocks have zigzagged, with the Dow posting a series of triple-digit swings as investors struggle to find their footing. Since peaking at 17-month highs in late April, the Dow has lost 6% and the broader S&P 500 has lost 8%. The Nasdaq reached a 22-month high in late April and has since fallen 9%. Global markets have had it even worse than markets in the United States. Volatility is rising: After a relatively calm period following the 2008-early 2009 whiplash, volatility has returned. Wall Street’s fear factor, the CBOE Volatility index (the VIX), closed at a 13-month high of $40.95 two weeks ago and has seesawed since then.
Now on to our real estate investing education section …
Finding Freedom
Learning how to buy and sell short sales and other real estate investments for profit is actually pretty simple; like many of the most important things in life, the important lesson isn’t understanding the process or even figuring out the math…it’s understanding the identity traps and negative thinking that keep you from success.
Over the years a lot has been written about the power of positive thinking but one of the most enduring classics is the out of print book “How I Found Freedom in an Unfree World”. Although originally penned in the 70′s, the content is still as fresh and relevant today as it was 30 years ago. Short Sale investors and real estate pro’s alike would do well to contemplate how these mind games and identity traps restrain growth and keep you from living the life you love. For those who haven’t managed to track down a copy of this somewhat elusive book, here are just a few of the primary reasons “Why you are not free” according to the former Harry Browne:
1. Identity Traps – do you have a negative self image? Believe you can never be “rich” or associate a certain lifestyle or stereotype with the trappings of success? Forget everything you think you know about wealth. Instead, learn to live life on your terms.
2. Intellectual & Emotional Traps – Fear, anxiety, guilt. These are just a few of the most common intellectual and emotional traps the trip people up. You have choices – get counseling or start interacting with others that have learned how to leave these behind.
3. The Morality Trap – This is actually a big one for short sale investors. The popular media like to paint a very negative picture about evil investors or greedy landlords…in fact, being a victim is all the rage but woe to those that pull themselves up by their own bootstraps. Don’t fall for it! It’s not immoral to take control of your financial future.
4. The Government Trap – Fear “Big Brothers” control over you? You aren’t alone. Research shows that many high net worth individuals, investors and small business owners are increasingly weary/leery of good old Uncle Sam. Take appropriate steps to stay informed while understanding the real rates of risk involved in investing.
5. The Despair Trap – It’s easy to fall into a state of despair especially if life has tossed a few set-backs your direction. On the other hand, learning to overcome and accept these as a natural course of action is part of thriving rather than barely surviving. Surround yourself with the news, information and examples that are relevant to a life of success.
6. The Rights Trap – Modern society is literally suffocating from the number of individuals with an entitlement attitude. You have two choices in life…take responsibility for your life or wait until someone decides to take notice and do it all for you. Just remember the old adage “beggars can’t be choosers”.
7. The Previous Investment Trap – This works for and against investors every day. The fallacy of believing the future can be determined from the past is simply that…a fallacy. Whether you won or lost – this time it really is different because every transaction is individualized.
See you at the top!
Chris McLaughlin
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Copyright Loss Mitigation Institute LLC 2009.
All Rights Reserved.
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About the author:
Chris McLaughlin is widely known as America’s top
Real Estate Attorney and Investment Consultant.
* As the top Florida foreclosure and pre-
foreclosure expert, he oversees more than
100 short sale & REO closings each month
* Long-time authority on real estate investing
and rapid reselling of distressed homes. Owns
portfolio of nearly 100 high-value, high-profit
properties
* Owner of one of Florida’s largest Real Estate firms,
running 4 different offices, supporting over
400 agents, uniquely positioning him to help
thousands of investors make money in the
biggest market opportunity ever!
* Highly sought-after speaker, consultant, and
seminar leader for current trends and hot topics
in Real Estate Investing, Entrepreneurship, and
Wealth Building
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