Posts Tagged ‘ home equity ’

Foreclosures Cost Nearly $2 Trillion in Home Equity: Report

Foreclosures Cost Nearly $2 Trillion in Home Equity: Report

10/29/2012 BY: TORY BARRINGER

Foreclosures have drained nearly $2 trillion in home equity from neighborhoods across the United States, according to a report from the Center for Responsible Lending (CRL).

In a report titled “Collateral Damage: The Spillover Costs of Foreclosures,” researchers Debbie Bocian, Wei Li, and Peter Smith conclude that, based on the 10.9 million loans that entered foreclosure between 2007 and 2011, approximately $1.95 trillion in property value has been lost or will be lost by residents who live close to foreclosed properties. This estimate includes losses stemming from completed foreclosures and future losses projected on foreclosure starts.

The researchers noted that the estimated cost does not include the total loss in home equity resulting from the foreclosure crisis (estimated at $7 trillion) and also does not take into account the equity lost by families who are actually foreclosed on.

In addition, the report doesn’t cover “the billions of dollars drained from communities as a result of lost tax revenue, vacant properties, increased crime, and lower school performance by children.”

Communities of color are seeing the greatest share of the $2 trillion loss, with more than half of the home equity drain impacting minority neighborhoods. The average spillover cost per family is or will be $21,000 in household wealth, or 7 percent of median home value, according to the report. However, in minority neighborhoods, the average loss is or will be $37,000, or 13 percent of home value.

Wade Henderson, president and CEO of the Leadership Conference on Civil and Human Rights, called the report “troubling evidence of how much the economic costs of foreclosures are spilling over into communities all over America.” He also said the increased cost to minorities comes at the hands of abusive lending and servicing behavior.

“Communities of color—which have been targeted for years by predatory lenders, and abused for years by mortgage servicers-have been practically drowning. Until policymakers get serious about reducing foreclosures and restoring meaningful home ownership in all communities, a full economic recovery will likely remain out of reach,” Henderson said.

Janet Murguia, president and CEO of the National Council of La Raza, echoed the sentiment.

“The wealth drain triggered by foreclosures is continuing unabated, hurting Latino families and other vulnerable communities the hardest,” Murguia said. “We’re calling on policymakers to show strong leadership in stopping the foreclosure crisis and making fair and sustainable housing a national priority.”

2012
10/30
CATEGORY
Foreclosures
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New York Fed Reports Mortgage Delinquency Rates Down in Q2

New York Fed Reports Mortgage Delinquency Rates Down in Q2

08/31/2012BY: TORY BARRINGER

 

Low interest rates and better debt management brought mortgage delinquencies down in Q2, the Federal Reserve Bank of New York reported Wednesday.

The New York Fed released its latest Quarterly Report on Household Debt and Credit, revealing that the delinquency rate for mortgages declined from the first quarter to 6.3 percent.

Transition rates for current mortgages were unchanged, with 1.8 percent of current mortgage balances transitioning into delinquency. The rate of transition from early (30-60 days) to serious (90-plus days) delinquency fell to 23.5 percent, contrasted by a slight drop in the rate of delinquent mortgages becoming current (28.5 percent).

The decline in mortgage delinquency helped fuel a drop in overall delinquencies in the second quarter. As of the end of June, 9.0 percent of outstanding debt was in some stage of delinquency, down from 9.3 percent the previous quarter.

Meanwhile, an estimated 256,000 consumers had a foreclosure notation added to their credit reports, the lowest number since mid-2007.

“The continuing decrease in delinquency rates suggests that consumers are managing their debts better,” said Wilbert van Der Klaauw, VP and economist at the New York Fed. “As they continue to pay down debt and take advantage of low interest rates, Americans are moving forward with rebalancing their household finances.”

The New York Fed estimated that about $1.02 trillion of outstanding household debt was delinquent at the end of the second quarter, with $765 billion of that considered seriously delinquent. Outstanding household debt has been trending downward since peaking in the Q3 2008.

Mortgage balances on consumer credit reports fell to $8.15 trillion, a 0.5 percent drop from Q1. At the same time, home equity lines of credit (HELOC) balances dropped by 3.7 percent.

These falls appeared to be instrumental in decreasing debt balances-excluding mortgages and HELOCS, household debt balances actually increased 0.4 percent in Q2 (led largely by auto and student loans).

2012
09/01
CATEGORY
Mortgage
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AARP: Older Homeowners Hit Just as Hard by Foreclosure Crisis

AARP: Older Homeowners Hit Just as Hard by Foreclosure Crisis

07/19/2012BY: TORY BARRINGER

A report released Thursday from AARP suggests that older Americans may not have escaped the foreclosure crisis unscathed, as some previously thought.

The report, titled Nightmare on Main Street: Older Americans and the Mortgage Market Crisis, showed that many of the country’s older citizens are taking their mortgage debt with them into retirement. As of December 2011, an estimated 3.5 million older (age 50 and up) mortgage holders were underwater. Approximately 600,000 older homeowners were experiencing foreclosure, and another 625,000 were 90 or more days delinquent.

Between 2007 and 2011, an estimated 1.5 million older homeowners lost their homes. The foreclosure rate on prime loans in 2011 for older borrowers was 2.3 percent, 23 times higher than rate in 2007 (0.1 percent).

Even more worrying was the fact that homeowners age 75 and older showed the fastest rise in mortgage debt and had a higher foreclosure rate than younger members of the 50-plus group (3.2 percent).

“More older Americans are carrying mortgage debt than in the past, and the amount of that debt is also increasing … leading to their worsening situation,” said Debra Whitman, AARP executive vice president for policy. “It’s one thing if your housing value goes down in your 50s. It’s another thing if you’re 75. For some people, it’s not like you can go back to work.”

There are many potential issues unique to older citizens that may be fueling their foreclosure crisis. One such cause is the combination of fixed incomes and higher living costs. Seniors also cited the death of a family member as reason for default.

Adding to the problem is the fact that older Americans are more likely to have a mortgage rate above 8 percent (13 percent of Americans age 50 or older, as opposed to 10 percent of younger homeowners).

The effects of lost home equity and foreclosure can be drastic for an aged population with few-if any-working years left with which to build a cushion for retirement. Home equity is usually a source of money for retirement expenses, so a sudden loss of that equity is a serious concern.

“You may have been working for years toward paying your mortgage, and the security you thought you’d have isn’t there,” said Whitman. “Not only that, the downturn in the market meant savings fell flat. Pensions are going away. It’s really this huge storm of things hitting people right now.”

Minorities saw the worst news, with foreclosure rates on prime fixed-rate mortgage loans hitting 3.9 percent for Hispanics and 3.5 percent for African-Americans in 2011. These figures were about double the rate for white borrowers (1.9 percent).

African-Americans had the highest subprime foreclosure rate among older borrowers in 2007, being overtaken in that statistic by older Hispanics starting in 2008. Hispanics had the largest percentage of delinquent subprime loans (25.9 percent) in 2011, followed closely by Asians (25 percent) and African-Americans (24.9 percent). Older white borrowers had a delinquent percentage of 24.4 percent.

The one piece of good news for older homeowners was that they had a slightly lower overall foreclosure rate (2.9 percent) in 2011 than the younger population (3.5 percent). However, the older group’s rate grew at a faster pace.

Examining the data, AARP’s Public Policy Institute called for more foreclosure mediation programs and expanded access to housing counseling programs. In addition, the group recommended development of rent-to-own programs to help people buy bank-owned or vacant homes, as well as an agreement with all loan servicers to follow practices that would prevent abuse and misconduct leading to foreclosure.

“Regulatory uncertainty in the housing finance system needs to be resolved promptly and must maintain an appropriate balance between consumer protection and access to capital. The foreclosure backlog requires concerted action at the federal, state, and local levels to implement the recent settlements and regulatory actions. Additional efforts need to evaluate and strengthen the current array of assistance programs to meet the needs of struggling homeowners, especially older homeowners,” said the report.

2012
07/20
CATEGORY
Foreclosures
Homeowners
Mortgage
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Risks of Eminent Domain in California: Fitch

Risks of Eminent Domain in California: Fitch

07/13/2012BY: ESTHER CHO

In a commentary, Fitch stated the proposed uses of eminent domain in California could negatively affect private label RMBS performance.

Recently, the board of supervisors of San Bernardino County voted to form a joint powers authority with California cities Fontana and Ontario to look into the option of using eminent domain to seize underwater homes. In previous cases, eminent domain has been used by the government to take over private properties for public interest, such as to expand highways.

But, San Bernardino County is considering the use of eminent domain to seize underwater homes and have them sold and repurchased at fair market value while allowing the homeowners to stay in their home with a new mortgage that reflects the current value of their home.

Fitch said one proposal, which is of particular concern, indicates that only current and delinquent mortgages, not those in foreclosure, would be eligible. Thus, borrowers who would have stayed current on their payments could have their mortgage seized by the local, state, or county government. If eminent domain was to be used in such a way, then holders of the seized homes could experience losses, Fitch said.

Between San Bernardino county, Fontana, and Ontario, there are about $14 billion worth of nonagency mortgages and more than 46,000 of the loans have mark-to-market combined loan-to-value (MTM CLTV) ratios of more than 100 percent, according to Fitch. About half of those underwater mortgages are current.

In addition to causing losses on performing loans, Fitch said the proposal could also have other unintended consequences, including negatively affecting mortgage interest rates and credit availability in affected areas.

“Likewise, the implementation of this program could further weigh on private investor confidence and appetite for private-label mortgage-backed securities going forward,” Fitch warned.

Edward Pinto, resident fellow at the American Enterprise Institute, raised concern over the issue of what fair market value will be defined as going forward.

“Are they actually going to be paying fair value? I don’t think they are going to be paying fair value. The court may have decided the value is x, but the x might not be fair value relative to what the security holders are getting if these loans were not condemned,” he said.

While opponents of the proposal find the debated use of eminent domain to be alarming, Fitch said due to the legal challenges involved, movement towards the proposed use of eminent domain will be slow and difficult.

As for who will lose the most, Rep. Brad Miller (D-North Carolina) wrote an article in the American Banker and said the program would likely target homeowners with second liens, so it’s the big banks and second lien holders who will come out with the biggest losses, not mortgage investors.

“Mortgage investors own most first mortgages, but the biggest banks own most second mortgages and home equity lines of credit,” wrote Miller. “So the real losers from the program would be the biggest banks, the holders of second liens, not investors in first mortgages. And even for the biggest banks, eminent domain would not cause losses but reveal losses.”

2012
07/14
CATEGORY
Foreclosures
Mortgage
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GAO: Foreclosure Mitigation Efforts Need Improvement

GAO: Foreclosure Mitigation Efforts Need Improvement

BY: TORY BARRINGER

Outreach programs designed to help struggling borrowers just aren’t doing enough to mitigate foreclosure, the U.S. Government Accountability Office (GAO) said in areport Thursday.

With high foreclosure rates still presenting a major hurdle to housing and economic recovery, GAO conducted a study to evaluate and find opportunities to enhance foreclosure mitigation efforts. The report asserts that government agencies participating in foreclosure mitigation programs need improve their existing strategies to help borrowers.

The report specifically addressed loans modified by the Treasury (through HAMP), the United States Department of Agriculture (USDA), FHA, and the GSEs. Although nearly 2 million loans were modified by those agencies, the number of loans in foreclosure remains elevated, and signs still suggest a weak housing market. GAO’s analysis of mortgage data showed that in June 2011, between 1.9 and 3 million loans still had “characteristics associated with an increased likelihood of foreclosure, such as serious delinquency and significant negative equity (a loan-to-value ratio of 125 percent or greater).”

“These loans were concentrated in certain states, such as Nevada and Florida. Further, more recent indicators such as strong home prices and home equity remain near their post-bubble lows. As of December 2011, total household mortgage debt was $3.7 trillion greater than households’ equity in their homes-representing a significant decline in household wealth nationwide,” said the report.

Furthermore, a large number of borrowers that sought assistance were unable to receive a modification. Approximately 2.8 million borrowers had their HAMPloan modification application denied or their trial loan modification canceled, and the volume of federal modifications has declined since 2010. Although recent efforts have expanded refinancing programs, low participation rates in FHA’s program “raise questions about the need for Treasury’s financial support,” which could go up to $117 million. GAO recommended that funding for the underused program should be reevaluated.

While most agencies and enterprises (excepting the USDA) had stepped up efforts to monitor servicers’ outreach to struggling borrowers, not all of them were conducting analyses to evaluate the effectiveness of their foreclosure mitigation efforts. GAO suggested that better data collection and analysis on various factors (such as the size of payment change, delinquency status, and current loan-to-value ratio) could influence the success of foreclosure mitigation actions. These changes could also cut program costs, the report said.

The study also suggested that principal forgiveness could help some homeowners stay in their homes, particularly owners with significant negative equity. However, the agencies and enterprises were not using it consistently, and some were not convinced of the idea’s merits.
“The Federal Housing Finance Agency (FHFA), for instance, has not allowed the enterprises to offer principal forgiveness. Treasury recently offered to pay incentives to the enterprises to forgive principal, and FHFA is reevaluating its position,” said the report.

While GAO supplied specific suggestions for various agencies and enterprises to improve their foreclosure mitigation activities, the report largely called for better analysis of loan data to find the most effective solutions.

“Until agencies and the enterprises analyze data that will help them choose the most effective tools and fully utilize those that have proved effective, foreclosure mitigation programs cannot provide the optimal assistance to struggling homeowners or help curtail the costs of the foreclosure crisis to taxpayers,” said the report.

2012
07/02
CATEGORY
Foreclosures
Homeowners
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Reverse Mortgages Puts Confused Homeowners at Risk of Foreclosure

Reverse Mortgages Puts Confused Homeowners at Risk of Foreclosure

06/28/2012BY: TORY BARRINGER

The Consumer Financial Protection Bureau (CFPB)released a report Thursday showing that although reverse mortgages are meant to help borrowers in retirement, they are in fact causing problems for many who don’t fully understand them.

A reverse mortgage is a type of home loan that lets older homeowners access the equity they have built up on their homes and defer loan payment until they sell the home, move out, or pass away. The original purpose of reverse mortgages was to allow these homeowners to convert home equity into an income stream or line or credit to use in retirement. Borrowers were largely expected to age in place with their loans, living in their current homes until they passed or needed skilled care.

Reverse mortgages require no monthly mortgage payments, but borrowers must still pay property taxes and homeowner’s insurance. The report showed that nearly 10 percent of reverse mortgage borrowers are at risk of foreclosure because they failed to pay those costs.

“Reverse mortgages are complex and have the potential to become a much more pervasive product in the coming years as the baby boomer generation enters retirement,” said CFPB director Richard Cordray. “With one in ten reverse mortgages already in default, it is important that consumers understand what they are signing up for and that it is the right product for them.”

The report found that many reverse mortgage borrowers do not understand how their loan balance will rise and their home equity will fall over time. In addition, the influx of new choices brought on by innovations and policy changes have made the matter too complex for many homeowners. The bureau further found that the tools currently available to help consumers understand the risks and tradeoffs are not enough. The report called for improved methods for housing counselors to help consumers understand their choices.

There are many other problems with reverse mortgages as they currently stand, the report pointed out. Many consumers are getting reverse mortgages before the age of 70 (with the most common age for a new borrower being 62, the first age at which reverse mortgages are available), and some are even getting them before retiring.

“These borrowers will have fewer resources to pay for everyday and major expenses later in life and may find themselves without the financial resources to finance a future move-whether due to health or other reasons,” said the report.

Another problem is that 70 percent of borrowers are taking out the full amount of proceeds as a single lump sum instead of treating the payment as an income stream. As a result, these borrowers have fewer available financial resources later in life. They may not be able to continue paying taxes and insurance on their homes, leading to potential foreclosure. The report found that borrowers who save or invest their money may earn less on the savings than they spend paying interest on the loan.

Finally, the bureau addressed the issue of deceptive or misleading marketing materials about reverse mortgages. The report cited examples of mailers that depict reverse mortgages as a government benefit or entitlement program in the vein of Medicare and use images resembling government seals to entice consumers. It can be difficult for consumers to tell that a reverse mortgage is a financial product, not a government benefit.

In order to address these issues and help consumers better understand reverse mortgages, the CFPB has released arequest for information.

2012
06/29
CATEGORY
Foreclosures
Homeowners
Mortgage
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Household Net Worth Plummeted After 2005, Alongside Income

Household Net Worth Plummeted After 2005, Alongside Income

06/18/2012BY: RYAN SCHUETTE

The middle class seemed to take another drubbing Monday with news that U.S. median household net worth fell 35 percent between 2005 and 2010.

Excluding home equity, the Census Bureau found that median household net worth ticked up by 8 percent during the financial crisis.

Who got hit the hardest? Of the many age groups, heads of households from 35 to 44 accounted for nearly 60 percent of the decline in net worth during the five-year period.

But they weren’t alone. Median net worth also declined for all age groups between 2005 and 2010, with householders 65 years and older feeling the brunt of it, as theirs slid from $195,890 to $170,128.

Although heads of households under 35 saw their net worth fall from $8,528 to $5,402 – much less in real terms – percentages tell a different story: Younger homeowners saw their net worth decline by 37 percent, compared with older homeowners, whose net worth fell by only 13 percent.

Census Bureau economist Alfred Gottschalck said in a statement that the overall decline “reflects drops in housing values and stock market indices.”

Government data found that the declines also slammed educational groups across the board. Net worth plunged by 39 percent for those with only high school diplomas and 32 percent for those with bachelor’s degrees.

Even so, the data correlated higher education with higher net worth, with median net worth at $245,763 for heads of households with graduate or professional degrees. Those with bachelor’s degrees saw their median net worth hover at around $142,518.

The dismal news for householders seems to reflect a widening gap for those in the middle class. Last week theFederal Reserve released a survey of consumer finances that found similar results for householders between 35 and 44, whose median worth fell by 54.4 percent.

The survey also found that heads of households with more education saw their median income shrink between 2007 and 2010. Those with college degrees saw their pre-tax income dip from 81.9 percent to 73.8 percent, for example.

Timothy Smeeding, director of the Institute for Research on Poverty at the University of Wisconsin at Madison, tells us that housing and financial crises slammed emerging middle-class families with a one-two, sizably reducing their home equity and net worth.

“The major asset of the middle class is their home,” he says. “Their own home – and that got clobbered.”

The professor says that historically low interest rates allows someone with his background to refinance – he has done so twice in recent years – but that younger householders enter a down market without the equity needed to save money and build their net worth.

“We’re living in an economy in decline,” Smeeding adds. “It’s crawling back a little bit, but it’s going time.”

2012
06/19
CATEGORY
Economy
Homeowners
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Bank of America Reports Net Income of $653M for Q1

Bank of America Reports Net Income of $653M for Q1

04/19/2012BY: ESTHER CHO

Bank of America reported a net income of $653 million, or $0.03 cents per share for the first quarter of 2012. This includes charges of $4.8 billion, or $0.28 cents a share, from accounting adjustments due to a rise in the value of its debt. After the first quarter a year ago, the bank reported a net income of $2 billion, or $0.17 cents per share.

The bank’s revenue was $22.5 billion when including the negative valuation, compared to $27.1 billion a year ago; when excluding the valuation adjustments, revenue was down about 3 percent for the first quarter of 2012 to $27.3 billion.

The bank’s real estate services reported a net loss of $1.1 billion for the first quarter, compared to a net loss of $2.4 billion a year ago. The net loss is caused by the high costs of managing delinquent and defaulted loans in the servicing portfolio combined with associated costs.

Real estate revenue increased to $2.7 billion from $2.1 billion in the first quarter of 2011 due to higher mortgage banking income, the bank reported.

The bank also reported it funded $16 billion in residential home loans and home equity loans during the first quarter of 2012.

The mortgage portfolio serviced for investors declined to $1.3 trillion at the end of the first quarter compared to $1.6 trillion the same quarter a year ago.

The bank reported the number of 60-plus delinquent first mortgage loans serviced by Legacy Assets and Servicing declined to 1.09 million at the end of the first quarter of 2012 from 1.30 million at the end of the first quarter a year ago.

The bank’s provision for credit losses dropped 37 percent to $2.4 billion the first quarter, compared to $3.8 billion a year ago due to improved credit quality across consumer and commercial portfolios and the impact of changes to underwriting applied over the past several years.

2012
04/20
CATEGORY
Home equity
Real Estate
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CFPB Files Amicus for Borrowers’ Right to Cancel Certain Loans

CFPB Files Amicus for Borrowers’ Right to Cancel Certain Loans

03/27/2012BY: ESTHER CHO

The Consumer Financial Protection Bureau (CFPB) filed an amicus brief on behalf of borrowers for their rights to cancel home equity-loans or second mortgages if they did not receive important disclosures required by the Truth in Lending Act (TILA).

The amicus brief – or “friend of the court” – was filed to ensure proper implementation of statutes allowing certain borrowers to rescind on their loans if they notify the lender of their intent to cancel within three years of signing the loan.

“We are committed to making sure that borrowers can exercise their rights to the full extent allowed under this law,” said CFPB Director Richard Cordray. “The consumer’s right to cancel gives lenders a powerful incentive to provide the disclosures that consumers need to make good financial choices.”

The CFPB was granted by Congress the authority to implement and interpret TILA in July 2011.

The act requires lenders to disclose information such as annual percentage rates and finance charges when borrowers decide to take out second mortgages. UnderTILA, if this information is not given to borrowers, they can back out of the loan within three years.

If a borrower decides to cancel a loan, the lender must release its liens against the borrower’s home, and the borrower must return the loan. If the lender does not cancel the loan, the courts can determine whether the borrower had the right to rescind.

2012
03/28
CATEGORY
Home equity
Mortgage
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Credit Trends Among U.S. Consumers Point to End of Housing Downturn

Credit Trends Among U.S. Consumers Point to End of Housing Downturn

03/05/2012BY: CARRIE BAY

Consumer credit data suggests spending will increase and the housing market will begin to emerge from its slump this year, according to Equifax and Moody’s Analytics.

Statistical analysis applied by CreditForecast.com, a joint product of Equifax and Moody’s, to new performance data for consumer credit supports the forecast issued by the credit bureau and ratings agency.

Both companies note that as key market data align with pre-recession totals, consumers should anticipate steady economic growth for major credit sectors.

Looking across the full spectrum of consumer credit, Equifax and Moody’s found that delinquency rates for auto, bankcard, and consumer finance are back to pre-

recession levels. These sectors are expected to contribute to the U.S. economy’s nascent recovery.

The home mortgage lending sector continues to see the highest percentage of delinquencies, the companies’ report notes, even with outstanding mortgage balances (including first liens and home equity lines and loans) having declined by $1 trillion since 2008 and continuing to drop.

Even so, mortgage rates are at all-time lows, with refinance activity at high levels and offsetting diminished demand for new loan originations, according to Equifax and Moody’s.

The companies also note that tighter lending guidelines are reflected in loans made to the prime risk segment (those borrowers with an Equifax score of 700 or above). Consumers that fit the bill of a prime risk now account for more than 80 percent of all new mortgage originations.

“After spending recent years in the financial doldrums, U.S. consumers are poised to make a comeback in 2012,” according to Amy Crews Cutts, chief economist for Equifax.

She says the most promising indicators are showing up in consumer spending and the auto financing sector, but even the housing market is exhibiting incremental progress that points to increased traction in the coming months.

2012
03/06
CATEGORY
Housing Market
Mortgage
Real Estate
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