Foreclosure squatters beware
The golden age for foreclosure squatters may soon be coming to an end now that the $26 billion mortgage settlement has been approved.
The settlement, agreed to by the nation’s five largest mortgage lenders, is expected to speed up the foreclosure process by providing stricter guidelines for the banks to follow when repossessing homes. The banks involved include Bank of America, JPMorgan Chase, Citibank, Wells Fargo and Ally Financial. Many foreclosures have been in limbo since fall 2010 following the so-called robo-signing scandal, when banks allowed employees to sign off on thousands of foreclosure documents a month with little verification. Lenders hit the pause button on foreclosures because they “were afraid that anything they did would be under a microscope,” said Eric Higgins, a professor of business at Kansas State University. As a result, borrowers who were seriously delinquent on their loans have been able to stay in their homes for months or even years without making a single payment. Nationwide, the average time it takes to foreclose on a home — from the first missed payment to the final bank repossession — stretched to 370 days during the first quarter, almost twice as long as it took five years ago, according to Daren Blomquist, the marketing director at RealtyTrac.
In some states, delinquent borrowers have been squatting in their homes much longer. In Florida, the average time was 861 days, and in New York it was 1,056 days — close to three years. “Perhaps a million foreclosures could have been pursued last year but weren’t,” said Rick Sharga, executive vice president for real estate investment company, Carrington Holdings. But that’s all about to change, he said. “We’re going to see an increase in the speed of foreclosures and a higher number of foreclosure starts.” In fact, there are indications that the pace of foreclosures are already starting to pick up.
While overall foreclosure activity was down during the first quarter, filings were up 10% in the 26 states where foreclosures must undergo court scrutiny, according to RealtyTrac. It was in these judicial states that the processing of foreclosures slowed the most following news of the robo-signing scandal, said Blomquist. Many banks in these states stopped filing foreclosures unless they were extremely confident it would pass muster in the court. (In non-judicial states, foreclosures are reviewed by a trustee, which is a third party such as a title company and less likely to parse every legal document). But now lenders can move more confidently, said Brandon Moore, RealtyTrac’s CEO. In the judicial state of Indiana, for example, foreclosure filings were up 45% year-over year. And in Florida, they were up by almost 26%, according to RealtyTrac. “The dam may not burst in the next 30 to 45 days, but it will eventually burst, and everyone downstream should be prepared for that to happen — both in terms of new foreclosure activity and new short sale activity,” Moore said in a statement. The resulting flood could bring home prices down even further — yet another impetus for the banks to clear out their foreclosure pipeline as quickly as possible, said Kansas State’s Higgins. Then, industry thinking is, the housing market would be able to get back to normal and home prices could eventually find their true value. Some industry analysts, such as the chief economist for listing site Zillow, Stan Humphries, are predicting that could happen as soon as the end of the year. Zillow estimates that home values nationwide will fall another 3.7% by the end of 2012, and that price will likely bottom out by early 2013. Should home prices hit a bottom then stabilize, it would push many potential buyers off the fence, according to Mike Fratantoni, a vice president at the Mortgage Bankers Association. House hunters would no longer be afraid of investing in assets that were losing money. “The market is already on the verge of turning the corner on prices and this will help,” said Fratantoni.
Inflation up
The Labor Department said on Friday its Consumer Price Index increased 0.3% after advancing 0.4% in February. That was in line with economists’ expectations. Outside the volatile food and energy category, inflation pressures appeared to be modest. Core CPI edged up 0.2% after gaining 0.1% in February. The US Federal Reserve has said it will probably hold interest rates super low into 2014 to help the economy, which is limping back from the 2007-2009 recession. Amid recent signs of weakness in the labor market, investors are betting the Fed could unleash further monetary stimulus to boost growth, although comments by Fed officials this week suggested the central bank is on hold as it waits to see whether the recovery gains traction. Last month, overall inflation was pushed up by gasoline prices, which rose 1.7%. That was a much more mild increase than the 6% gain in February. But electricity prices fell 0.8%, the steepest decline since June. Food prices climbed 0.2% last month. Overall consumer prices rose 2.7% year-on-year, down from a reading of 2.9% in February. In the 12 months to March, core CPI increased 2.3% after rising 2.2% in February. This measure has rebounded from a record low of 0.6% in October.
Wells Fargo has record earnings
Wells Fargo, the largest mortgage lender in the US, reported record earnings in the first quarter. The San Francisco-based bank earned $4.2 billion, or 75 cents per share, a 10% increase from the $3.8 billion profit one year prior. Revenue jumped to $21.6 billion in the first quarter from $20.6 billion last year. It’s the highest quarterly revenue in more than two years, the bank said. Wells still held nearly $2 billion in provision for credit losses at the end of the first quarter. It did release $400 million from its loan loss reserve, compared to a $600 million release in the previous three months. Wells Chief Financial Officer Tim Sloan said he expects expenses to drop by as much as $700 million in the second quarter. Roughly $100 million in expenses during the first quarter came from consent orders signed with federal regulators last spring to settle mortgage servicing issues. Mortgage originations totaled $129 billion in the first three months of 2012, up significantly from $75 billion in the same period last year and up from $121 billion in the last quarter of 2011. The bank did say 15% of the originations during the first quarter were workouts under the Home Affordable Refinancing Program. Demand is also increasing at Wells. The bank reported $188 billion in mortgage applications as of the end of the quarter, up 20% from the previous three months.
New bubble
According to Citigroup economist Steven Wieting health care is the next big bubble looming in the distance. And to make matters all the more worrisome, his analysis suggests it’s like nothing we’ve seen before. “It’s not a single asset price that’s about to pop (like housing) and it doesn’t have a cyclical component,” he said. Rather, “It’s a fundamental bubble that will have a large impact on the economy.” Wieting says the trouble is spiraling health care costs that are growing at a fast and furious pace, a pace that will become all but impossible to support. “Ultimately there will be a price to pay” he says. With the lion’s share of health care costs shouldered by companies and governments, he thinks the rising costs will ultimately hit budgets. “We’ll either have to raise taxes or increase budget deficits in order to finance it. And it will crowd out other things. Already we’re starting to see it impact education and infrastructure spending.” Going forward, Wieting tells us areas in health care that will be hardest hit are areas that operate at high margins. Those companies will probably see their margins squeezed.
DSNews.com – strategic default here to stay
With reports that around 20% of mortgages are underwater, about 46% of bank risk professionals surveyed by FICO expect to see the volume of strategic defaults in 2012 exceed 2011 levels. “After five years of a brutal housing market, many people now view their homes more objectively and with less sentimentality,” said Dr. Andrew Jennings, chief analytics officer at FICO and head of FICO Labs. “Regardless of legal or ethical issues around strategic defaults, lenders must account for this risk when they evaluate mortgage applications in declining markets. Many homeowners who find themselves upside down on mortgages in the future are likely to consider strategic default as an acceptable exit strategy.” Combined with concerns over strategic default are disconcerting results about consumer priorities. Only 29% of bankers said the current generation of homeowners considers their mortgage to be their most important credit obligation, while 49% said its not a priority.
Even with this discouraging data, 53% of survey respondents expect to see the housing market improve by the end of 2012, compared to 24% who said the market would deteriorate. Also, 64.8% of respondents think mortgage delinquencies will decrease or stay the same, an 11.3% increase from the previous quarter. “If job creation continues, banks will be more likely to embrace mortgage lending once again. A healthy job market is essential for improving the quality of mortgage applications and reducing default risk,” said Jennings. Most respondents, 56%, expect demand for residential mortgage credit to exceed supply over the next six months. A similar majority, 53%, project demand for the supply of credit for mortgage refinancing surpass supply. The survey included responses from 263 risk managers at banks throughout the US in February 2012 and was a joint effort between FICO, provider of analytics and decision management technology, and the Professional Risk Managers’ International Association, a nonprofit that works to define and implement the best practices of risk management through education.
