CMBS Delinquencies Continue to Decline

Posted on October 05, 2017 by Laura Lam

CMBS Sept 17Trepp, LLC, a leading provider of information, analytics, and technology to the structured finance, commercial real estate, and banking markets, recently released its September 2017 US CMBS Delinquency Report.  For the third straight month, the Trepp CMBS Delinquency Rate was pushed lower. The delinquency rate for US commercial real estate loans in CMBS is now 5.40%, a decrease of four basis points from August. The September 2017 rate is now 62 basis points higher than the year-ago level.

“After more than two years, the ‘wave of maturities’ has been reduced to a mere ripple,” according to Manus Clancy, Senior Managing Director at Trepp. “The volume of maturing debt coming due every month has already begun to wane, meaning the rate of delinquent loans should hold steady or recede in the coming months. We will probably look back on the past two years with a sense of relief.”

Nearly $1.3 billion in CMBS loans became newly delinquent in September, which is about $200 million more than what turned delinquent in August. However, more than $800 million in loans were cured in September, and almost $700 million in previously delinquent CMBS was resolved with a loss or at par.

The delinquency rate for the office sector decreased by the largest amount of all major property types in September, as it fell 21 basis points to 7.10%. Also dropping was the retail delinquency rate, as it shed six basis points to 6.55%. The steepest increase among major property types belonged to the lodging sector, as that delinquency reading climbed 35 basis points to 3.84%.

Source:  Trepp, LLC

Millennials Over-Extended and Frustrated with Home-Buying Process

Posted on October 04, 2017 by Laura Lam

Millennials poured some $514 billion into the U.S. housing market over the last year as the largest generation of home buyers, Zillow reported.  But new survey data shows their home-ownership aspirations are stymied by affordability issues, frustration with the buying and selling process, and a cutthroat housing market.

More than half of young buyers (53%) make multiple offers to buy their first home, and only 2 in 5 millennials (39%) are able to make the recommended 20% or more down payment.  The results of the Zillow Group Report on Consumer Housing Trends 2017 show how the nation’s highly competitive housing market is changing the way a new generation approaches buying a home.

More than half of millennials (62%) shop for a rental while they’re looking to buy a home, indicating they accept the fact that buying a home is not a sure thing. They are more likely to say they struggled to find a home in their price range and on their time frame, and over one-third (37%) of millennial buyers say they went over their budget, compared to 29% of all buyers.

Coming up with a down payment is one of the biggest hurdles young buyers face.  Zillow reports that less than half (39%) of millennials put down the recommended 20% or more on their home purchase, while 1 in 4 (21%) put down the bare minimum –5% or less — in order to secure a home loan.  One in 3 (29%) millennial buyers now gets financial help from friends or family to make a down payment, and 1 in 3 (31%) millennial buyers cobbles together a down payment from multiple sources.

The study reports that home ownership is out of reach for many Americans, including many families. In today’s hot housing market, more Americans are renting than at any time in recent history – 40% of families with children are renters.

Renters typically face higher monthly payments than homeowners, and 79% of renters who moved in the last year said the rent increase is the reason they moved.  In order to find their new affordable rental, 25% of renters had to look beyond the area they initially considered moving.  More than a third (37%) of renters who have not moved in the past year say they can’t afford to move elsewhere. Nearly half (48%) of renters who make less than $25,000 a year say they can’t afford to move.

Source:  Zillow Group/Builder

A Tale of Two Hurricanes: Equity Disparity in Harvey/Irma Housing Markets

Posted on October 03, 2017 by Laura Lam

Irma vs Harvey equityThe majority of borrowers impacted by Hurricane Harvey have a significant amount of equity, while about 350,000 in Hurricane Irma disaster areas have either limited or negative equity, according to Black Knight Financial Services.  Less than 0.5% of borrowers impacted by Hurricane Harvey were in negative equity positions before the storm hit, and less than 4% have below 10% equity.  In contrast, of borrowers in counties impacted by Hurricane Irma, 5.3% still owe more than the value of their home, and an additional 5.6% have less than 10% equity.  Nationwide, 1.4 million borrowers, or 2.8% of homeowners with mortgages, had negative equity in August.

“Before Hurricane Harvey made landfall, the average combined loan-to-value ratio for homeowners with mortgages in what became FEMA-designated disaster areas was 53%. Right on par with the national average, that’s the lowest we’ve seen since prior to 2004,” said Ben Graboske, Black Knight’s data and analytics executive vice president.  “This equates to approximately $131,000 in equity per borrower … and will likely serve as strong motivation for borrowers not to walk away from a storm-damaged home,” he continued.

Notably, more than 75% of mortgages for properties in Harvey-affected areas are held in Fannie Mae, Freddie Mac or Ginnie Mae securities, so the majority of borrowers affected by the storm will be able to find assistance under the various programs that have been instituted.

In Florida, the 48 FEMA-declared Irma disaster areas include over 90% of the state’s mortgaged properties, meaning that more than 5% of mortgages in the country are included in Hurricane Irma’s disaster areas, according to Graboske.  Unlike Houston, where higher-than-ever home prices have helped reduce negative equity, Florida home prices are 17% below their 2006 peak.

“Of the 3.2 million borrowers impacted by Irma, an estimated 170,000 were still in negative equity positions before the storm, with another 180,000 having less than 10% equity in their homes,” said Graboske. “Due to lackluster home price recovery since the housing crisis, the negative equity rate in Irma’s disaster area is nearly twice the national average.”

Source:  Nations Mortgage News/Black Knight

What’s Next for Consumer Data Security?

Posted on September 29, 2017 by Laura Lam

For Equifax, the fallout from its massive data breach is far from over.  The company is facing numerous inquiries from government agencies and even lawsuits.  The breach exposed serious flaws in the financial system’s consumer data security framework.  So how can the financial services industry protect against fraud in the future?  How can they make things safer?

According to a new report from ratings agency DBRS, the answer to making things safer is to further embrace technology.  Specifically, DBRS states that it believes the financial services industry needs to move towards biometric security, which would provide additional layers of protection that a Social Security number can’t provide.

“DBRS believes it is likely that some type of authentication feature will eventually be introduced into the credit process so that lenders can ensure that the person applying for credit is legitimate,” said DBRS Managing Director Kathleen Tillwitz.  “These verifications may include fingerprints, palm prints, retina iris authentication, voice identification and/or facial recognition.”

Basically, the idea is that it would be more difficult to perpetrate financial fraud if financial services companies also required biometric security measures.  According to Tillwitz, many government agencies and companies are already moving towards biometrics so adoption should not be that difficult.  “Since the technology for these security practices is readily available and currently being used by many companies, including the FBI, law enforcement, department stores, hospitals and Apple, DBRS believes the timeline for implementation could be quick if a company wanted to incorporate these security features into their processes,” she states.

“Therefore, in addition to increased cybersecurity measures, DBRS anticipates some type of biometrics will eventually be incorporated into the credit approval process at many firms as companies try to find new and innovative ways to save them the millions of dollars currently being lost due to fraud,” Tillwitz adds.

Source:  HousingWire

Mortgage Fraud Risk on the Rise

Posted on September 28, 2017 by Laura Lam

An estimated 13,404 mortgage applications, representing 0.82% of all applications, filed during the second quarter contained indications of fraud, according to the Mortgage Application Fraud Risk Index released by CoreLogic.  The second-quarter figure is a 16.9% increase from the 12,718 mortgage applications, comprising 0.70% of total applications, that contained indications of fraud recorded in the second quarter of 2016.

By state, mortgage application fraud risk was highest in New York, pushing it to overtake Florida as the state with the highest risk. After holding the top spot for the last several years, Florida is now in third after posting a 3% drop in risk compared to 2016.  The largest year-over-year increase in risk was recorded in Iowa. Other states that saw the biggest growths in risk were Indiana, Missouri, Louisiana, and Idaho. With the exception of Louisiana, these states remain out of the top 25 with the highest risk despite recording the quarter’s highest growth.

In terms of loan type, the greatest risk of fraud was seen in the jumbo refinance loan segment. Additionally, fraud related to occupancy, transaction, and income posted increases from a year ago, with risk for occupancy fraud posting the biggest growth at 7%.

“This past year we saw a relatively large increase in the CoreLogic National Mortgage Application Fraud Index,” said Bridget Berg, principal for fraud solutions at CoreLogic. “If the factors that influenced the increase continue, including a shift to purchase transactions and growing wholesale-channel origination activity, it is likely that mortgage application fraud risk will continue to rise as well. Fraud on cash-out refinance transactions and home equity loans may become more of a factor in the coming years as home values and equity rise.”

Source:  Mortgage Professional America/CoreLogic

Homeowners Continue to Regain Equity

Posted on September 27, 2017 by Laura Lam

Homeowners with mortgages saw an overall gain of $766 billion in their home equity during the second quarter from the year-ago period, or an increase of 10.6%, according to the second-quarter home equity analysis released by CoreLogic.  On average, the year-over-year gain is $12,987 for each homeowner. The biggest increases were seen in Western states as higher home prices drove equity gains. Homeowners in Washington saw average home equity gains of about $40,000, while California homeowners gained an average of $30,000 in home equity.

The quarter also posted a year-over-year decrease in the number of homes with negative equity. During the period, 2.8 million homes – representing 5.4% of all mortgage properties – were underwater, a 21.9% decrease from the 3.6 million homes that were underwater in the second quarter of 2016. On a quarter-over-quarter basis, homes with negative equity decreased 10%.

“Over the last 12 months, approximately 750,000 borrowers achieved positive equity,” said Frank Nothaft, chief economist for CoreLogic. “This means that mortgage risk continues to decline and, given the continued strength in home prices, CoreLogic expects home equity to rise steadily over the next year.”
At the end of the quarter, there was an approximately $284.4 billion aggregate value of national negative equity, an increase by 0.1% or about $200 from the $284.2 billion aggregate in the first quarter but a decrease by 0.2% or about $700 million from the $285.1 billion in the year-ago quarter.

“Homeowner equity reached $8 trillion in the second quarter of 2017, which is more than double the level just five years ago,” said Frank Martell, president and CEO of CoreLogic. “The rapid rise in homeowner equity not only reduces mortgage risk, but also supports consumer spending and economic growth.”

Source:  Mortgage Professional/CoreLogic

Texas Delinquencies Jump 16% After Harvey

Posted on September 26, 2017 by Laura Lam

harvey delinquentMortgage delinquencies in areas affected by Hurricane Harvey last month were 16% higher than in July, according to Black Knight Financial Services.  More than 6,700 new 30-day delinquencies stem from the hurricane and 1,000 borrowers already 30 days past due missed another payment, said Black Knight.

Despite the spike in Harvey-related delinquencies, nationally on loans not yet in foreclosure they were flat compared with July, rising only 0.72% to 3.93%, and compared with a year ago the rate is 7.27% lower than it was last August.

Texas is now among the 5 states that have seen the most deterioration in their non-current loan percentages over the last 6 months, although states like South Dakota, Nebraska and North Dakota have seen more deterioration than Texas.  Delinquencies related to a natural disaster historically peak in the first few months and late payments for September could be more pronounced as Harvey and other hurricanes affect loans. More than a quarter of properties in Harvey-affected areas could be delinquent within 4 months after the storm, Black Knight previously forecast.

More than 2 million loans had delinquencies of 30 or more days but were not in foreclosure last month. That total was up 17,000 from July and down 148,000 from August a year ago.  When foreclosures are added to the delinquent-loan total for August, it rises to almost 2.4 million.

Prepayments also were more frequent in August compared to July but slower than they were during the same month in 2016. The monthly prepayment rate was 1.13%, which was 11.47% faster than the previous month by 32.33%, but 32.23% slower than in August 2016.

Source:  National Mortgage News

New Jersey Ranks Worst in Nation for Finances

Posted on September 25, 2017 by Laura Lam

worst statesNew Jersey is nearly $209 billion in debt and has the worst finances of any state in the nation, according to a recent report.  Truth in Accounting, a think tank that analyzes government finances, ranked all 50 states based on their debt per taxpayer. The group’s latest report said New Jersey taxpayers carry $67,200 each in debt, a burden has almost doubled since 2013, when it was $36,000 per taxpayer.

New Jersey’s massive debt load largely stems from pension and retiree health care costs for state workers. The report said the state has $118.8 billion in unfunded pension benefits and $70 billion in unfunded retiree health care costs. The think tank accused New Jersey of using “accounting gimmicks” when calculating its finances, and said the state’s books are off by $57.6 billion when it comes to public debt.

“New Jersey is in a financial tailspin that could end in disaster for taxpayers or state employees counting on their retirement benefits,” said Sheila Weinberg, founder and CEO of Truth in Accounting. “The problem affects everyone in New Jersey, but there’s a surprising lack of public awareness of the issue.”

The three major Wall Street credit-rating agencies – Fitch Ratings, Moody’s and S&P Global Ratings – have cut New Jersey’s bond rating 11 times combined under Gov. Chris Christie in large part because of the ailing pension system. After years of neglect from previous governors and lawmakers, Christie tried to save the pensions from collapse with broad reforms in 2011, only to yank billions of dollars in contributions he had pledged three years later, in 2014, amid a budget crunch.

Weinberg said the state is “beyond the point of no return” and must reckon with its debt burden by instituting tax hikes or benefit cuts.  New Jersey was one of nine states to receive an “F” grade from the think tank and was dubbed a “sinkhole state” due to its debt burden. Alaska’s finances are in the best shape, with a taxpayer surplus of $38,200, according to the report.

Source:  The Observer/Truth in Accounting

Student Loan Debt Delays Homeownership by 7 Years

Posted on September 22, 2017 by Laura Lam

An overwhelming majority of Millennials with student debt do not own a home, and believe this debt is the cause for the delay.  These are the findings of the 2017 Student Loan Debt and Housing Report from the National Association of Realtors and nonprofit American Student Assistance.  The study revealed the typical delay is about 7 years.

But home buying isn’t the only factor affected by student debt. The study showed student debt is holding Millennials back from financial decisions and personal milestones such as saving for retirement, changing careers, continuing their education, marrying and having children.

“The tens of thousands of dollars many millennials needed to borrow to earn a college degree have come at a financial and emotional cost that’s influencing Millennials’ housing choices and other major life decisions,” NAR chief economist Lawrence Yun said.

“Sales to first-time buyers have been underwhelming for several years now, and this survey indicates student debt is a big part of the blame,” Yun said. “Even a large majority of older Millennials and those with higher incomes say they’re being forced to delay homeownership because they can’t save for a down payment and don’t feel financially secure enough to buy.”

In today’s market, only 20% of Millennial respondents own a home and the majority of them carry a student debt load that surpasses their income level at $41,200 versus an average annual income of $38,800.  Most of the survey’s respondents, 79%, indicated they borrowed money to pay for the education at a 4-year college and about 51% said they are repaying a balance of more than $40,000.

Among those Millennials who do not own a home, 83% indicated their student loan debt has affected their ability to buy. The median amount of time Millennials expect to be delayed at buying a home is 7 years, and 84% expect to postpone buying a home for a least 3 years.

And even among older Millennials who already own a home, student debt still continues to influence their decisions and prevent them from buying a trade-up home.  “Millennial homeowners who can’t afford to trade up because of their student debt end up staying put, which slows the turnover in the housing market and exacerbates the low supply levels and affordability pressures for those trying to buy their first home,” Yun added.

Source:  National Association of Realtors/Housing Wire

Irma Affected More than 90% of Florida Mortgages

Posted on September 21, 2017 by Laura Lam

hurricane comparisonMore than 90% of all mortgaged properties in Florida are in a FEMA-designated disaster area following Hurricane Irma, nearly three times the number impacted by Hurricane Harvey, according to Black Knight.  “While the total extent of the damage from Hurricane Irma is still being determined, it is clear that the size and scope of the disaster is immense,” said Ben Graboske, Black Knight data & analytics executive vice president.

Irma significantly outpaces even the number of borrowers impacted by Hurricane Harvey.  “More than 3.1 million properties are now included in FEMA-designated Irma disaster areas, representing approximately $517 billion in unpaid principal balances,” Graboske stated.  “In comparison, Harvey-related disaster areas held 1.18 million properties – more than twice as many as with Hurricane Katrina in 2005 – with a combined unpaid principal balance of $179 billion.”  There were 456,000 mortgaged properties in the Hurricane Katrina disaster area, with an unpaid principal balance of $46 billion.

Over 25% of the mortgage borrowers whose properties were in areas affected by Hurricane Harvey could miss at least one loan payment over the next 4 months, Black Knight previously said.  That analysis was based on the experience following Hurricane Katrina, where like Hurricane Harvey, the majority of the damage was flood related.  With Irma, most of the damage was wind-related.

One bright spot for mortgage lenders is that Irma did not directly pass over Puerto Rico and therefore did not cause the level of damage it did on other Caribbean islands.  “This was particularly good news, as delinquencies there were already quite high leading up to the storm. At more than 10%, Puerto Rico’s delinquency rate is nearly three times that of the U.S. average, as is its 5.8% serious delinquency rate,” said Graboske.  “In contrast, the disaster areas declared in Florida have starting delinquency rates below the national average, providing more than a glimmer of optimism as we move forward.”

Source:  National Mortgage News/Black Knight