Monday Morning Cup of Coffee: Will record low rates jumpstart mortgages?

Plus a new subprime wave, revised stress test, and housing metrics galore

Monday Morning Cup of Coffee takes a look at news crossing HousingWire’s weekend desk, with more coverage to come on bigger issues.

With mortgage rates down five weeks in a row to 3.92% last week, most in the industry are hoping for a new wave of refis and purchase applications.

But there are limits. A good portion of homeowners locked in good rates in 2013, and tight mortgage credit, rising – though moderating – home prices and stagnant incomes hamper housing sales.

Still, refi applications jumped an astonishing 23% last week.

But Nela Richardson, Redfin’s chief economist, tells theAssociated Press that she thinks that only homeowners with rates above 4.25% would benefit from refinancing, so there’s a top end to how much low rates can do for the industry.

Meanwhile, the not-so-foolish boffins at Motley Foolask if the new, easier guidelines from the Federal Housing Finance Agency opening the credit box for those with less-than-stellar credit will lead to a surge in mortgage lending.

Will this have the desired effect of boosting home sales? After all, loans with low down payment requirements are already available to low-credit borrowers through the Federal Housing Administration, or FHA. Also, isn’t it true that easy mortgages caused the mortgage crisis in the first place?

Critics of the new guidelines argue that looser lending standards could lead to another housing bubble and subsequent crisis. However, no matter how loose lending standards get, there is one key difference: documentation.

As long as lenders are required to thoroughly document borrowers’ income, assets, and other qualifications, the risk remains relatively low. As we know, during the mid-2000s’ lending bubble banks regularly would simply take the borrowers’ word regarding income and other qualifications.

Plus, even with the lower down payment requirements, it’s unlikely that borderline candidates in terms of credit and income will qualify for a conventional loan with 3% down anytime soon. The report said “mortgages with down payments of as little as 3% for some borrowers,” so until details become known when the official guidelines are released, it sounds like the lowest down payments will still only be available to those borrowers with the highest credit scores.

Subprime lending definitely has a place in a healthy real estate market — as long as it is done right. Hopefully this will give the real estate market a nice boost during the coming months.

The Federal Deposit Insurance Corporation on Friday released the economic scenarios that will be used by most financial institutions with total consolidated assets of more than $10 billion for stress tests required under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

The baseline, adverse, and severely adverse scenarios include key variables that reflect economic activity, including unemployment, exchange rates, prices, income, interest rates, and other salient aspects of the economy and financial markets.

The baseline scenario represents expectations of private sector economic forecasters. The adverse and severely adverse scenarios are not forecasts, rather, they are hypothetical scenarios designed to assess the strength and resilience of financial institutions and their ability to continue to meet the credit needs of households and businesses under stressed economic conditions.

The FDIC coordinated with the Board of Governors of the Federal Reserve System and the Office of the Comptroller of the Currency in developing and distributing these scenarios.

While there’s a brief pause in third-quarter earnings reporting the next few days, there’s no pause in key housing metric this week. On Monday we get the pending home sales index from the National Association of Realtors.

The pending home sales index decreased 1% in August. Year-on-year, pending home sales in August were down 2.2%. A lack of first-time buyers and strong demand for rentals remain key obstacles for home sales. A lack of distressed homes on the market is another negative factor.

Then on Tuesday comes the S&P/Case-Shiller home price index. The S&P/Case-Shiller 20-city home price index contracted sharply in July, down 0.5% for the third straight decline and the steepest monthly decline in Case-Shiller 20-city seasonally adjusted data going back to November 2011.

The year-on-year rate, which has been coming down steadily all year from the low doubled sharply from 8.0% in June.

Also Tuesday is the consumer confidence index which, while not housing centered, is a good measure of how consumers are thinking and how much they’re willing to spend on big ticket items.

Wednesday and Thursday give us the weekly reports from the Mortgage Bankers Association on mortgage applications and mortgage rates, respectively.

And on Friday we get consumer sentiment and personal income reports, both of which, like consumer confidence, offer good tea leaves when taken as a whole on what buyers are thinking.

The FDIC reports that one bank, the National Republic Bank of Chicago in Chicago, failed the week ending Oct. 24.

Pending homes sales slightly increase in September

Finally above last year’s levels

Although pending homes sales only recorded a meager increase in September, the index is officially above year-over-year levels for the first time in 11 months, the most recent report from the National Association of Realtorssaid.

The Pending Home Sales Index grew 0.3% to 105.0 in September from 104.7 in August, and is now 1% higher than September 2013 when it was 104.0.

Meanwhile, the index is above 100 for the fifth consecutive month, reaching the second-highest level since last September.

“Housing supply for existing homes was up in September 6% from a year ago, which is preventing prices from rising at the accelerated clip seen earlier this year,” Lawrence Yun, NAR chief economist, said. “Additionally, the current spectacularly low mortgage rates should help more buyers reach the market.”

Regionally, the PHSI in the Northeast increased 1.2% to 87.5 in September, and is now 2.9% above a year ago, while the South increased 1.4% to an index of 118.5 in September, and is 1.7% above last September.

In the Midwest the index decreased 1.2% to 101.2 in September, and is now 4% below September 2013.

The index in the West slightly decreased 0.8% in September to 101.3, but is still 3.6% above a year ago.

Strongest September for Bay Area Home Sales in Five Years; Prices Flat

October 14, 2014

http://dqnewspressreleases.blogspot.com/2014/10/september-bay-area-home-sales-press.html

Irvine, CA.—-The number of homes sold in the Bay Area last month edged up to its highest level for a September since 2009, the result of some spillover summer activity and sustained demand in a strong regional economy. Prices appear to have flattened out at a level reached this spring, Irvine-based CoreLogic DataQuick reported.

A total of 7,443 new and resale houses and condos sold in the nine-county Bay Area last month. That was down 1.8 percent from 7,578 in August and up 4.2 percent from 7,141 in September last year, according to CoreLogic DataQuick.

A decline in sales from August to September is normal for the season. Last month’s sales count was the highest for any September since 7,879 homes were sold in 2009. Sales for the month of September have varied from 5,014 in 2007 to 13,343 in 2003. The average since 1988, when CoreLogic DataQuick’s statistics begin, is 8,479.

The median price paid for a home in the nine-county Bay Area was $604,000 in September. That was down 0.5 percent from $607,000 in August, and up 14.0 percent from $530,000 in September last year. The median sale price lurched above $600,000 this April, when it was $610,000, and then reached a 2014 high of $618,000 in June. Since then the median has declined slightly on a month-to-month basis.

The Bay Area’s median sale price peaked at $665,000 in June and July 2007, then dropped to a low of $290,000 in March 2009.

“Some analysts are re-calculating what they consider to be normal sales levels, taking out the ‘loans-gone-wild’ years of over-available credit. And if you do that, current sales are right in the normal range. We still have issues today, though. The mortgage market is still dysfunctional. There are categories of buying and selling that are still inactive, and nobody really has any idea just how much pent-up demand there is out there,” said John Karevoll, CoreLogic DataQuick analyst.

A variety of market indicators are trending slowly toward long-term norms.

Adjustable-rate mortgages (ARMs), an important indicator of mortgage availability, accounted for 24.4 percent of the Bay Area’s home purchase loans in September, up from a revised 23.6 percent in August, and up from 20.3 percent in September last year. ARMs hit a low of 3.0 percent of loans in January 2009. Since 2000, ARMs have accounted for 46.5 percent of all Bay Area purchase loans.

Jumbo loans, mortgages above the old conforming limit of $417,000, accounted for 55.7 percent of last month’s purchase lending, down from a revised 56.1 percent in August, and up from 46.7 percent a year ago. Jumbo usage dropped to as low as 17.1 percent in January 2009.

Last month foreclosure resales – homes that had been foreclosed on in the prior 12 months – accounted for 2.8 percent of resales, unchanged from a revised 2.8 percent the month before, and down from 3.6 percent a year ago. Foreclosure resales in the Bay Area peaked at 52.0 percent in February 2009, while the monthly average over the past 17 years is 9.7 percent, CoreLogic DataQuick reported.

Short sales – transactions where the sale price fell short of what was owed on the property – made up an estimated 3.6 percent of Bay Area resales last month. That was down from an estimated 3.8 percent in August and down from 7.5 percent a year earlier.

Last month absentee buyers – mostly investors – purchased 19.1 percent of all Bay Area homes. That was up from August’s revised 18.6 percent, and down from 20.9 percent in September last year.

Buyers who appear to have paid all cash – meaning no sign of a corresponding purchase loan was found in the public record – accounted for 20.9 percent of sales in September, down from a revised 21.8 percent in August and down from 23.3 percent a year earlier.

Bay Area home buyers used $2.13 billion of their own money in the form of a down payment or as an outright cash purchase last month. They borrowed $2.8 billion in mortgage money from lenders last month.

The typical monthly mortgage payment that Bay Area buyers committed themselves to paying last month was $2,340. Adjusted for inflation, last month’s payment was 19.4 percent below the typical payment in spring 1989, the peak of the prior real estate cycle. It was 39.1 percent below the current cycle’s peak in July 2007. It was 82.4 percent above the February 2012 bottom of the current cycle.

Indicators of market distress continue to decline. Foreclosure activity remains well below year-ago and far below peak levels. Financing with multiple mortgages is very low, and down payment sizes are stable, CoreLogic DataQuick reported. Because of late data availability, sales were estimated in Alameda, San Francisco and San Mateo counties.

To view the county-by-county chart, please visit DQNews.com.

California September Home Sales

October 14, 2014

http://dqnewspressreleases.blogspot.com/2014/10/september-california-home-sales-press.html

An estimated 36,316 new and resale houses and condos sold statewide in September. That was down 2.4 percent from 37,228 in August, and up 0.8 percent from 36,027 sales in September 2013, according to CoreLogic DataQuick data.

Last month’s slight year-over-year sales increase was the first in a year, and sales were the highest for the month of September in five years. September sales have varied from a low of 24,460 in 2007 to a high of 69,304 in 2003. Last month’s sales were 15.5 percent below the average of 42,996 sales for all the months of September since 1988, when Irvine-based CoreLogic DataQuick’s statistics begin. California sales haven’t been above average for any particular month in more than eight years.

The median price paid for a home in California last month was $389,000, down 1.0 percent from $393,000 in August and up 9.6 percent from $355,000 in September 2013. Last month was the 31st consecutive month in which the state’s median sale price rose year-over-year. In March/April/May 2007 the median peaked at $484,000. The post-peak trough was $221,000 in April 2009.

Of the existing homes sold last month, 5.3 percent were properties that had been foreclosed on during the past year. That was down from a revised 5.4 percent in August and down from 7.1 percent a year earlier. Foreclosure resales peaked at 58.8 percent in February 2009.

Short sales – transactions where the sale price fell short of what was owed on the property – made up an estimated 5.9 percent of the homes that resold last month. That was the same as in August and down from 10.8 percent a year earlier.

The typical monthly mortgage payment that California buyers committed themselves to paying last month was $1,507, down from $1,523 the month before and up from $1,437 a year earlier. Adjusted for inflation, last month’s payment was 36.0 percent below the typical payment in spring 1989, the peak of the prior real estate cycle. It was 48.1 percent below the current cycle’s peak in June 2006. It was 60.5 percent above the January 2012 bottom of the current cycle.

Indicators of market distress continue to decline. Foreclosure activity remains well below year-ago and peak levels reached in the last five years. Financing with multiple mortgages is low, while down payment sizes are stable, CoreLogic DataQuick reported.

Source: CoreLogic DataQuick; DQNews.com

Golden State Foreclosure Starts Continue to Decline

October 17, 2014

http://dqnewspressreleases.blogspot.com/2014/10/3q2014-california-home-foreclosure.html

La Jolla, CA.–Lending institutions initiated formal foreclosure proceedings last quarter on the lowest number of California homes in more than eight years, the result of a recovering real estate market and the dwindling pool of toxic home loans made in 2006 and 2007, Irvine-based CoreLogic DataQuick reported.

A total of 16,833 Notices of Default (NoDs) were recorded at county recorders offices during the July-through-September period. That was down 3.9 percent from 17,524 for the prior quarter, and down 17.1 percent from 20,314 in third-quarter 2013, according to CoreLogic DataQuick data.

Last quarter’s NoD tally was the lowest since fourth-quarter 2005, when 15,337 NoDs were recorded. NoDs peaked in first-quarter 2009 at 135,431, while the low was 12,417 NoDs in third-quarter 2004. The NoD statistics go back to 1992.

A Notice of Default is recorded at a county recorder’s office and marks the first step of the formal foreclosure process.

“This home repo pipeline isn’t exactly drying up, but it sure is diminishing. Its negative effect on the overall market is only a fraction of what it was several years ago, and is really only still noticeable in some pockets of the hardest-hit markets of the Inland Empire and Central Valley,” said John Karevoll, a CoreLogic DataQuick analyst.

To some extent the level of NoD filings in recent quarters probably reflects the rate at which servicers are able to process paperwork. The 20,314 NoDs filed in third-quarter 2013 were followed by 18,120 the following quarter and then 19,215 in 2014Q1; 17,524 in 2014Q2; and 16,833 last quarter.

Most of the loans going into default are still from the 2005-2007 period. Last quarter the median origination quarter for defaulted loans was third-quarter 2006. That has been the case for more than five years, indicating that weak underwriting standards peaked then.

On primary mortgages, California homeowners were a median 12.5 months behind on their payments when the lender filed the Notice of Default. Borrowers owed a median $28,684 on a median $316,651 mortgage.

On home equity loans and lines of credit in default, borrowers owed a median $6,706 on a median $67,500 credit line. The amount of the credit line that was actually in use cannot be determined from public records.

The most active “beneficiaries” in the formal foreclosure process last quarter were Wells Fargo (2,244), Bank of America (1,372) and Nationstar (1,346).

The trustees who pursued the highest number of defaults last quarter were Quality Loan Service Corp (mostly for Wells Fargo), Clear Recon Corp (mostly Bank of America), and NBS Default Services (mostly Wells Fargo and Nationstar).

Although 16,833 default notices were filed last quarter, they involved 16,432 homes because some borrowers were in default on multiple loans (e.g. a primary mortgage and a line of credit).

Among the state’s larger counties, loans were least likely to go into default last quarter in Marin, Santa Clara and San Mateo counties. The probability was highest in Tulare, Madera and Fresno counties.

Lenders’ shift toward short sales as a foreclosure alternative has helped lower foreclosure activity in recent years. Short sales – transactions where the sale price fell short of what was owed on the property – made up an estimated 5.5 percent of the state’s resale market last quarter. That was down from an estimated 6.1 percent the prior quarter and 11.3 percent a year earlier.

To view a county-by-county NOD chart, please visit DQNews.com.

Is the era of buying homes with cash coming to an end?

At lowest level since August 2008

Cash sales are slowly turning into the endangered species of the industry, reaching the lowest share since august 2008.

Tumbling 35.9% from July 2013, cash sales made up 32.9% of total home sales in July 2014, according to CoreLogic’slatest report on July’s cash sales.

On a monthly basis, the cash sales share was mostly flat, falling only one tenth of a percentage point from June 2014. But it is important to note that cash sales share comparisons should be made on a year-over-year basis due to the seasonal nature of the housing market.

Cash sales have fallen each month since January 2013, and prior to the housing crisis, the cash sales share of total home sales averaged approximately 25%.

The peak occurred in January 2011, when cash transactions made up 46.3% of total home sales.

“A trend to watch is the cash share of re-sales, which has fallen almost 15 percentage points from its peak cash share of 47.1% in February 2011,” the report said. “This category will determine the direction of cash sales going forward, since re-sales make up the largest share at 81% of all sales.”

(Source CoreLogic, click to enlarge)

Cash Sales

Zillow: Mortgage rates drop to 16-month low

30-year, fixed mortgage continues to fall

The interest rate for a 30-year, fixed-rate mortgage continued its decline last week, falling further below 4% last week and also falling to a 16-month low, according to a new report from Zillow (Z).

Current rate borrowers were quoted an average interest rate of 3.81% on Zillow’s Mortgage Marketplace in the week that ended Tuesday, down from 3.96% in the previous week.

According to Zillow’s report, the 30-year fixed mortgage rate fell last Wednesday, and then hovered around 3.88% for most of the week before falling to the current rate.

“Rates dropped to the lowest level since June 2013 on news that the Federal Reserve has more reservations about the health of the U.S. and global economy than expected, which in turn, may delay rate hikes,” said Erin Lantz, vice president of mortgages at Zillow.

“With little economic news planned to overshadow the Fed’s latest comments, this week we expect rates to fairly remain stable, hovering just shy of 4%.”

Zillow also reported that the 15-year fixed mortgage rate fell below 3% last week, to 2.96 as of Tuesday morning. The rate for 5/1 adjustable rate mortgages also fell from 2.83% to 2.7%.

Those numbers were also down from last week’s Primary Mortgage Market Survey from Freddie Mac.

In that report, Freddie Mac stated that the 30-year, fixed rate mortgage declined from 4.19% in the previous week to 4.12% and is significantly down from 4.23% a year ago.

According to Freddie’s data, the 15-year, FRM decreased to 3.30% after remaining frozen at 3.36% a week ago. This is close to 2013’s 15-year, FRM of 3.31%.