According to the American Bankers Association (ABA), lenders wrote off $11.1 billion in home equity loans and $19.9 billion in home equity lines of credit in 2009, more than they wrote off on primary mortgages, government data shows.
So far this year, the trend is the same, with combined write-offs of $7.88 billion in the first quarter. Even when a lender forces a borrower to settle through legal action, it can rarely extract more than 10 cents on the dollar.
“People got 90 cents for free,” says Christopher A. Combs, a real estate lawyer. “It rewards immorality, to some extent.”
The amount of bad home equity loan business during the boom is incalculable and in retrospect inexplicable, housing experts say. Most of the debt is still on the books of the lenders, which include Bank of America, Citigroup and JPMorgan Chase.
“No one had ever seen a national real estate bubble,” said Keith Leggett, a senior economist with the American Bankers Association. “We would love to change history so more conservative underwriting practices were put in place.”
The delinquency rate on home equity loans was 4.12% in the 1st quarter, down slightly from the fourth quarter of 2009, when it was the highest in 26 years of such record keeping.
Showing posts with label default. Show all posts
Showing posts with label default. Show all posts
Thursday, August 19, 2010
Monday, August 9, 2010
20 Million Underwater Mortgages by 2012?
More than 14 million borrowers were underwater as of Q1 2010, and with a further 10.8% decline in house prices expected relative to Q4 2009 levels, another 6 million borrowers are likely fall into negative equity by the end of 2011, according to commentary by Deutsche Bank.
The presence of negative equity goes hand-in-hand with an increased likelihood of strategic default, as borrowers may sometimes not be willing to pay the mortgage when the house has lost substantial amounts of value.
The firm noted that, even when strategic default makes economic sense, many borrowers resist on moral and social grounds, as well as from fear of legal consequences. The existence of recourse — when a lender is able to pursue a borrower's other assets — also acts as a disincentive against strategic default.
Deutsche Bank noted 11 states are considered non-recourse — though not all explicitly forbid deficiency judgments on homes or on purchase loans. Underwater borrowers are more likely to default in non-recourse states. The greater the negative equity, the higher the cumulative default rate.
"Walk away or strategic default from a house with negative equity makes economic sense, especially in locations that have less expensive rentals," Deutsche Bank researchers said.
Many existing academic studies model homeowners' default decision based on the theoretical hypothesis that a borrower would exercise a default when it is in-the-money, i.e., when the borrower's house has negative equity.
Therefore, a homeowner with negative equity would default even though they can still afford to make their mortgage payments.
The presence of negative equity goes hand-in-hand with an increased likelihood of strategic default, as borrowers may sometimes not be willing to pay the mortgage when the house has lost substantial amounts of value.
The firm noted that, even when strategic default makes economic sense, many borrowers resist on moral and social grounds, as well as from fear of legal consequences. The existence of recourse — when a lender is able to pursue a borrower's other assets — also acts as a disincentive against strategic default.
Deutsche Bank noted 11 states are considered non-recourse — though not all explicitly forbid deficiency judgments on homes or on purchase loans. Underwater borrowers are more likely to default in non-recourse states. The greater the negative equity, the higher the cumulative default rate.
"Walk away or strategic default from a house with negative equity makes economic sense, especially in locations that have less expensive rentals," Deutsche Bank researchers said.
Many existing academic studies model homeowners' default decision based on the theoretical hypothesis that a borrower would exercise a default when it is in-the-money, i.e., when the borrower's house has negative equity.
Therefore, a homeowner with negative equity would default even though they can still afford to make their mortgage payments.
Thursday, July 29, 2010
Foreclosures Climb in 75% of Metro Areas
RealtyTrac, an online marketer of foreclosed homes, says that foreclosure filings climbed in 75% of the nation's metro areas during the first half of 2010.
California, Florida, Arizona and Nevada continue to lead the nation in the rate of foreclosures. Las Vegas was the worst-hit city.
According to spokesman Rick Sharga, unemployment has replaced toxic mortgages as the leading cause of foreclosures throughout the country. "Las Vegas has seamlessly shifted from having a high level of foreclosures due to bad loans," said Sharga, "to defaults caused by a high level of unemployment." Some 14.5% of its work force was idle in June, up +2.1 points from last June. Las Vegas had 1 filing for every 15 households in the metro area.
The second highest rate was in Cape Coral/Fort Myers, Fla., with 1 for every 20 households. Two California cities, Modesto and Merced, tied for third with one filing for every 22 households. One in every 48 Salt Lake City households filed foreclosure notices during the first six months of 2010, a +55% increase over the same period in 2009.
Besides Salt Lake City, other metro areas where foreclosures have soared primarily due to the economy include Chicago, which saw filings climb +23% year-over-year to 1 in every 48 households. Charleston, S.C.'s, rate climbed +17% to 1 in every 68 homes, while Albuquerque saw a +157% jump in filings to 1 in 80 households. Each of these cities has rising unemployment.
California, Florida, Arizona and Nevada continue to lead the nation in the rate of foreclosures. Las Vegas was the worst-hit city.
According to spokesman Rick Sharga, unemployment has replaced toxic mortgages as the leading cause of foreclosures throughout the country. "Las Vegas has seamlessly shifted from having a high level of foreclosures due to bad loans," said Sharga, "to defaults caused by a high level of unemployment." Some 14.5% of its work force was idle in June, up +2.1 points from last June. Las Vegas had 1 filing for every 15 households in the metro area.
The second highest rate was in Cape Coral/Fort Myers, Fla., with 1 for every 20 households. Two California cities, Modesto and Merced, tied for third with one filing for every 22 households. One in every 48 Salt Lake City households filed foreclosure notices during the first six months of 2010, a +55% increase over the same period in 2009.
Besides Salt Lake City, other metro areas where foreclosures have soared primarily due to the economy include Chicago, which saw filings climb +23% year-over-year to 1 in every 48 households. Charleston, S.C.'s, rate climbed +17% to 1 in every 68 homes, while Albuquerque saw a +157% jump in filings to 1 in 80 households. Each of these cities has rising unemployment.
Thursday, June 3, 2010
Commercial Defaults Hit Record for Both Investors and Banks
Pressures continue to drive up commercial mortgage defaults.
The economic downturn has choked off demand for retail and office space, with vacancy rates rising and prospects of new occupants limited by the duress of today’s job market.
At the same time, commercial real estate (CRE) values have dropped more than -40% in some markets, pushing a growing number of property owners severely underwater.
According to new data from Real Capital Analytics, the default rate for commercial real estate loans owned by the nation’s FDIC-insured banks increased from 3.83% in the 4th quarter of 2009 to 4.17% in the 1st quarter of 2010.
Real Capital says this is the highest default rate reported since 1992, the first year for which data is available, when it was 4.55%.
Year-over-year, the default rate is up by 192 basis points. By contrast, at its cyclical low in the first half of 2006, the commercial mortgage default rate was only 0.58%.
As of the 1st quarter of this year, $45.5 billion of bank-held commercial mortgages were in default, according to Real Capital’s tally.
A separate study released this week by Trepp LLC shows that the share of past due loans held by investors in commercial mortgage-backed securities (CMBS), including those already in foreclosure and bank repossessed, jumped 40 basis points in May to 8.42% – the highest in the history of the CMBS industry.
To put the delinquent CMBS universe into perspective, Trepp says that just six months ago, the delinquency rate was 5.65%. One year ago, it was 2.77%.
The economic downturn has choked off demand for retail and office space, with vacancy rates rising and prospects of new occupants limited by the duress of today’s job market.
At the same time, commercial real estate (CRE) values have dropped more than -40% in some markets, pushing a growing number of property owners severely underwater.
According to new data from Real Capital Analytics, the default rate for commercial real estate loans owned by the nation’s FDIC-insured banks increased from 3.83% in the 4th quarter of 2009 to 4.17% in the 1st quarter of 2010.
Real Capital says this is the highest default rate reported since 1992, the first year for which data is available, when it was 4.55%.
Year-over-year, the default rate is up by 192 basis points. By contrast, at its cyclical low in the first half of 2006, the commercial mortgage default rate was only 0.58%.
As of the 1st quarter of this year, $45.5 billion of bank-held commercial mortgages were in default, according to Real Capital’s tally.
A separate study released this week by Trepp LLC shows that the share of past due loans held by investors in commercial mortgage-backed securities (CMBS), including those already in foreclosure and bank repossessed, jumped 40 basis points in May to 8.42% – the highest in the history of the CMBS industry.
To put the delinquent CMBS universe into perspective, Trepp says that just six months ago, the delinquency rate was 5.65%. One year ago, it was 2.77%.
Monday, May 24, 2010
Scary Math - Depressing Housing, Unemployment and Business Stats
SCARY MATH |
| by David Rosenberg - Gluskin Sheff |
1 in every 10 American homeowners missed a mortgage payment in Q1 (a record) 1 in 6 Americans are either unemployed or underemployed. 4 in 10 unemployed Americans have been out of work for at least 6 months. 1 in 4 Americans with a mortgage have negative equity in their homes. 1 in 10 Americans believe their income will rise in the next 6 months. 1 in 5 Americans see business conditions improving in the next 6 months. 1 in 50 Americans plan to buy a home in the next 6 months. 1 in 8 Americans believe that current government policy is actually helping the economy. 1 in 10 American small businesses have a job opening. 1 in 10 American’s credit card usage is being written off (a record). There are 5 unemployed workers competing for every job opening (hence downward pressure on wage growth). Outside of these, it’s all good. Lagged impact of gargantuan fiscal stimulus (the longevity of which is now being challenged with Greece the proverbial canary in the coal mine) and inventory-led production gains (the longevity of which is now being challenged by the fact that real final sales since the recession technically ended is running at a pace that is two-thirds weaker than what is “normal” coming out of a “downturn”). |
Monday, May 17, 2010
The Housing Market Still Has The Blues
There are some strong negatives overwhelming the housing market...
1. Intermittently increasing interest rates
2. Bank repossessions surpass 1 million homes in 2010.
3. More than a 25% of borrowers are "underwater," meaning they owe more than their homes are worth.
4. "Strategic defaults" close to 31% of all foreclosures in March -- where "underwater" home owners walk away even when they can still afford to pay.
And the scary truth: Right now, there could be more than 4.5 million homes that are ready to be sold but not on the market, also called “shadow inventory," according to a recent report by Barclays Capital.
This so-called "shadow inventory" is a recent phenomenon.
In the past, inventory was either tight or it wasn't. But now, with home prices so low and so many foreclosures on the market, both homeowners and banks have been waiting to put properties on the market. But as more sellers put their homes up for sale, supplies increase, which will depress prices again.
Rinse and repeat ad infinitum.
That vicious cycle could cause prices to bounce up and down for years, low or no appreciation and more homeowners in negative equity.
1. Intermittently increasing interest rates
2. Bank repossessions surpass 1 million homes in 2010.
3. More than a 25% of borrowers are "underwater," meaning they owe more than their homes are worth.
4. "Strategic defaults" close to 31% of all foreclosures in March -- where "underwater" home owners walk away even when they can still afford to pay.
And the scary truth: Right now, there could be more than 4.5 million homes that are ready to be sold but not on the market, also called “shadow inventory," according to a recent report by Barclays Capital.
This so-called "shadow inventory" is a recent phenomenon.
In the past, inventory was either tight or it wasn't. But now, with home prices so low and so many foreclosures on the market, both homeowners and banks have been waiting to put properties on the market. But as more sellers put their homes up for sale, supplies increase, which will depress prices again.
Rinse and repeat ad infinitum.
That vicious cycle could cause prices to bounce up and down for years, low or no appreciation and more homeowners in negative equity.
Saturday, November 28, 2009
Next Wave of Foreclosures Coming?
According to a new report released this week by Standard & Poors (S&P), 93% of option-ARM buyers selected the worst, most irresponsible, option.
Given a choice of which to pay: interest and principal, interest only, or a minimum amount less than the interest due; almost everyone paid the minimum -- presumably in hopes that the value would keep going up.
Nearly all of the 350,000 option-ARM borrowers owe more than when they first bought their homes thanks to the unpaid interest accumulating, and many loans written during the first big wave, which started in 2004, are getting ready for their five-year reset when they become standard amortizing loans. Some newer loans will even reset early if the accumulated interest has pushed the loan-to-value ratio above 110% to 125%.
That will change things -- in one scenario outlined in the S&P report, the payment on a $400,000 mortgage jumps from $1,287 to $2,593.
Some industry pessimists say the looming default problem could have the power to derail the nascent housing market recovery. "The crux of the matter is that as soon as these mortgages recast, the history is that they will default," said Brian Grow, one of the S&P report's coauthors.
The last year that any option-ARMs were issued was 2007. In the first 20 months after issuance, this vintage of option-ARMs had an average default rate of just over 22%.
But if you calculate only default rates for 2007 option-ARM borrowers who are now underwater, the default rate jumps to 25% after just 20 months, according to S&P.
So, regardless of how many of these kinds of loans there are out there, their high default rates will have an outsized influence on housing markets, adding to already bloated foreclosure inventories and driving prices down further.
Given a choice of which to pay: interest and principal, interest only, or a minimum amount less than the interest due; almost everyone paid the minimum -- presumably in hopes that the value would keep going up.
Nearly all of the 350,000 option-ARM borrowers owe more than when they first bought their homes thanks to the unpaid interest accumulating, and many loans written during the first big wave, which started in 2004, are getting ready for their five-year reset when they become standard amortizing loans. Some newer loans will even reset early if the accumulated interest has pushed the loan-to-value ratio above 110% to 125%.
That will change things -- in one scenario outlined in the S&P report, the payment on a $400,000 mortgage jumps from $1,287 to $2,593.
Some industry pessimists say the looming default problem could have the power to derail the nascent housing market recovery. "The crux of the matter is that as soon as these mortgages recast, the history is that they will default," said Brian Grow, one of the S&P report's coauthors.
The last year that any option-ARMs were issued was 2007. In the first 20 months after issuance, this vintage of option-ARMs had an average default rate of just over 22%.
But if you calculate only default rates for 2007 option-ARM borrowers who are now underwater, the default rate jumps to 25% after just 20 months, according to S&P.
So, regardless of how many of these kinds of loans there are out there, their high default rates will have an outsized influence on housing markets, adding to already bloated foreclosure inventories and driving prices down further.
Subscribe to:
Posts (Atom)
