Mortgage originations

Apache is functioning normally

Apache is functioning normally

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The U.S. looks to be headed for a “mild recession” in the first half of next year, but continued strength in the economy could keep mortgage rates from coming down as much as previously expected, economists at mortgage giant Fannie Mae said in a forecast released Monday.

While the Federal Reserve isn’t expected to raise rates when policymakers wrap up a two-day meeting Wednesday, persistent inflation could still prompt the Fed to hike rates later this year, or implement a “higher for longer” rate strategy.

The good news is that even though mortgage rates have settled in above 7 percent, the risk that rates will do even more damage to home sales is limited, as the share of cash purchases remains high and sales are now driven more by life events than discretionary move-up buys, Fannie Mae forecasters said.

Nevertheless, Fannie Mae economists forecast that home sales will drop by 14.7 percent this year, and stay at about the same level next year.

“We expect that total housing market activity will remain at a low level into 2024 as the Federal Reserve continues to hold the line on interest rates against inflation,” Fannie Mae Chief Economist Doug Duncan said, in a statement.

Last month, economists at Fannie Mae were expecting rates for 30-year fixed-rate conforming mortgages would peak at 6.8 percent during the third quarter of this year before retreating to an average of 6 percent during the final three months of 2024. Forecasters at the Mortgage Bankers Association (MBA) were even more optimistic, predicting mortgage rates would drop to an average of 5 percent by Q4 2024.

Mortgage rates projected to ease next year

Source: Fannie Mae, Mortgage Bankers Association forecasts.

That was before strong economic data sent rates on the popular 30-year fixed-rate conforming loans soaring to a 2023 high of 7.30 percent, according to rate lock data tracked by the Optimal Blue Mortgage Market Indices, which show rates have only pulled back slightly since then.

With the economy cooling more slowly than expected, Fannie Mae analysts now see mortgage rates peaking at 7.1 percent during the final three months of 2023, before easing to 6.3 percent by Q4 2024. In releasing their latest forecast Monday, MBA economists predicted mortgage rates will start coming down this year, but remain well above 5 percent next year.

Home sales projected to drop 17.4% this year

Source: Fannie Mae Housing Forecast, September 2023.

Fannie Mae is forecasting 4.8 million total home sales in 2023, which would be a 17.4 percent drop from last year and the slowest annual pace since 2011. Next year isn’t expected to be much different, with sales expected to bounce back by less than 1 percent.

“While the additional downside risk from rate movements to date is minimal, the prospects of a recovery in existing sales in the near future is unlikely given strong mortgage rate ‘lock-in’ effects and stressed affordability,” Fannie Mae economists said in commentary accompanying their September forecast.

New home sales are expected to grow by more than 6 percent this year, as builders race to complete homes in markets where the lock-in effect — reluctance on the part of homeowners to give up the low rate on their existing mortgage — has made listings scarce.

“New home sales were surprisingly strong in the first half of the year, due partly to homebuilder rate buydowns, which become more expensive when mortgage rates rise,” Duncan noted. But he said Fannie Mae forecasters expect new home sales to pull back slightly next year, “due to the higher mortgage rate environment and recent decline in homebuilder confidence.”

The National Association of Home Builders/Wells Fargo Housing Market Index, a gauge of builder confidence, dipped six points in August and another five points in September, to 45. It was the first time the index has been below 50 in five months, which indicates more builders view conditions as poor than good.

The recent rebound in mortgage rates “is making homebuilders nervous,” Pantheon Macroeconomics Chief Economist Ian Shepherdson said in a note to clients Monday.

“To be clear, the impact of mortgage rates returning to 7-1/4 percent from their recent 6-1/2 percent lows will be nothing like as bad as the initial surge from 3 percent to 7-1/4 percent in the year to September 2022,” Shepherdson said. “But it ought to be enough to quash the nonsensical media/Fed narrative that the housing market is starting to recover. It isn’t.”

Large pipeline of multifamily housing coming online

Source: Fannie Mae Housing Forecast, September 2023.

Fannie Mae economists expect single-family housing starts to plateau at 910,000 next year, and for multifamily construction to slow by 22 percent, to 389,000 units.

“With sluggish rent growth on a national level, more normalized vacancy rates, and tighter construction and development loan lending standards, we expect multifamily construction starts to continue to slow,” Fannie Mae forecasters said. “These dynamics may also play into softening demand for single-family housing: There is a large pipeline of multifamily housing coming online, and the rent-to-buy calculus for prospective homebuyers may tilt a little more in favor of renting for longer.”

Mortgage lending expected to grow by 20% next year

Source: Fannie Mae Housing Forecast, September 2023.

With home prices holding firm and mortgage rates expected to ease next year, Fannie Mae forecasters expect mortgage originations will grow by 20 percent next year. The slight uptick in home sales projected for next year would boost purchase loan originations by 9.4 percent, to $1.433 trillion, while lower mortgage rates are expected to boost refinancing by 76 percent, to $442 billion.

Mild recession seen as ‘likeliest outcome’ of Fed tightening

Fannie Mae economists have been predicting that the U.S. was headed for a recession since April 2022, after the Fed began raising interest rates and the impact of stimulus measures introduced during the pandemic faded.

While mixed economic data continues to “muddle the near-term outlook,” Fannie Mae economists say they continue to expect a “mild recession” in the first half of 2024, based on the belief that consumers will need to rein in spending in order to live within their means.

“Fundamentally, personal consumption remains at what we believe to be an unsustainable level relative to incomes, and the full effects of monetary policy tightening are still working through the economy,” Fannie Mae forecasters said.

In their weekly brief on the U.S. economy, Shepherdson and his Pantheon Macroeconomics colleague Kieran Clancy noted three potential wildcards on the economic horizon: A strike launched last week by the United Auto Workers targeting the big three automakers, next month’s resumption of federal student loan payments, and a “likely” government shutdown.

“An all-out strike lasting a month could be expected to depress quarterly GDP [gross domestic product] growth by about 1.7 percentage points, before taking account of the hit to the supply chain,” the Pantheon Macroeconomics team said. “The problem for the Fed is that it would be impossible to know in real time how much of any slowing in economic growth could confidently be pinned the strike, and how much could be due to other factors, notably the hit to consumption from the restart of student loan payments. The latter already is making itself felt in falling restaurant diner and airline passenger numbers.”

Fannie Mae economists agree that a sustained strike could “drive a negative payroll report in October, as well as dampen the GDP measure,” but that a short-lived strike “would likely be followed by a rebound in auto manufacturing output thereafter.”

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Source: inman.com

Apache is functioning normally

Apache is functioning normally

We maintain our forecast for a modest economic contraction in the first half of 2024. Fundamentally, personal consumption remains at what we believe to be an unsustainable level relative to incomes, and the full effects of monetary policy tightening are still working through the economy. We have upgraded our 2023 real GDP growth outlook to 2.2 percent from 1.9 percent on a Q4/Q4 basis largely due to incoming July data, while our forecast for growth in 2024 is unchanged. Meanwhile, we forecast the topline and core measures of the Consumer Price Index (CPI) to end the year around 3.1 percent and 4.0 percent in 2023, respectively, slowing further in 2024 to 2.4 percent and 2.5 percent.

With the jump in mortgage rates to above 7 percent, the housing market faces renewed headwinds. Mortgage origination activity has slowed further in recent weeks and total home sales remain at levels not seen since 2011. The new home market, which showed surprising strength over the first half of 2023, due in part to a limited inventory of existing homes for sale, may now be taking a breather. We forecast total home sales to be around 4.8 million in 2023, which would be the slowest annual pace since 2011 and 4.9 million in 2024. Similarly, our expectation for 2023 mortgage originations was downgraded from $1.60 trillion to $1.56 trillion in 2023 and from $1.92 trillion to $1.88 trillion in 2024.

Q3 GDP Growth Poised to Accelerate, but Strength is Likely Temporary
The third quarter started off on a strong note, with real personal consumption jumping 0.6 percent month over month in July, pointing to a stronger Q3 2023 GDP growth figure than previously anticipated. Even if personal consumption expenditures were to remain flat over the next two months, July’s growth alone would translate into a pace of personal consumption over the quarter of around 3.8 percent annualized. However, this surge in spending is likely unsustainable and our outlook is for decelerating activity. We believe much of the July consumption was the result of pulling forward future spending in part due to a combination of the release of popular movies and concerts as well as an increase in spending on energy during the July heat waves, and perhaps due to seasonal timing related to online retailer sales. Both recent credit card transaction data and auto sales data point to a likely pullback in consumption in August, with auto sales falling 4.6 percent month over month. August nominal retail sales jumped by 0.6 percent, but this was almost entirely due to price increases in gasoline. Control group retail sales, which feed into the GDP report, rose by only 0.1 percent in nominal terms, suggesting flat or slightly declining real sales. Furthermore, the 0.6 percent pop in real consumption in July came despite a decline of 0.2 percent in real disposable income, increasing the divergence between the two series. Recent spending growth has come via a further reduction in the already below-trend personal saving rate to 3.5 percent in July. This was down from 4.3 percent in June and around an average of 8.0 percent from 2017 to 2019. Especially when accounting for an expected deceleration in wage growth, we expect more modest consumer spending growth in coming quarters.

Refinance Application-Level Index (RALI), remains depressed given that mortgage rates remain above the 7 percent level.

Economic & Strategic Research (ESR) Group
September 14, 2023
For a snapshot of macroeconomic and housing data between the monthly forecasts, please read ESR’s Economic and Housing Weekly Notes.

Data sources for charts: Bureau of Economic Analysis, Bureau of Labor Statistics, Mortgage Bankers Association, National Association of REALTORS®, Fannie Mae

Opinions, analyses, estimates, forecasts and other views of Fannie Mae’s Economic & Strategic Research (ESR) Group included in these materials should not be construed as indicating Fannie Mae’s business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR group bases its opinions, analyses, estimates, forecasts and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts and other views published by the ESR group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.

ESR Macroeconomic Forecast Team

  • Doug Duncan, SVP and Chief Economist
  • Mark Palim, VP and Deputy Chief Economist
  • Eric Brescia, Economics Manager
  • Nick Embrey, Economist
  • Nathaniel Drake, Economic Analyst
  • Richard Goyette, Economic Analyst

Source: fanniemae.com

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It’s all about the vanilla.

The first half of 2008 was dominated by fixed-rate and government-backed mortgages, according to the Mortgage Bankers Association’s Mortgage Originations Survey released today.

Fixed-rate loans (excluding interest-only loans) accounted for 78.5 percent of the dollar volume of first mortgages during the six-month period, up from 63.6 percent in the second half of 2007.

Meanwhile, the share of government-backed loans (FHA loans, VA loans) more than doubled to 11.8 percent of all first half originations, up from 5.7 percent, thanks in part to the increased loan limits.

It’s clear mortgage lenders have continued to tighten guidelines, with 82.7 percent of all origination dollars tied to prime loans, up from 79 percent in the prior reporting period.

Non-prime production accounted for 3.8 percent of loan origination dollars, down from 7.5 percent, while Alt-A saw the worst decline holding just a 1.7 percent share, down from 7.8 percent.

Loans with an interest-only option also fell sharply, found on just 10.6 percent of originations during the first half of 2008, compared to 22.4 percent in the second half of last year.

The refinance share of total originations during the first half of 2008 was 61.7 percent, up from 54.8 percent, though nearly half were for rate and term refis, up about 10 percent from the prior reporting period.

Overall, purchase money mortgage originations were off 16.2 percent compared to the second half of 2007, while refinance originations actually increased 16.3 percent.

First-time homebuyers accounted for 32.2 percent of purchase volume in the first half of the year, up from 30.2 percent in the latter half of 2008.

The MBA survey utilizes data from first and second mortgages on single-family properties.

(photo: stuspivack)

Source: thetruthaboutmortgage.com

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Retail lender AmeriFirst Financial Inc. filed for Chapter 11 bankruptcy protection in Delaware, just two months after it got back into the forward mortgage origination business.

The Mesa, Arizona-based company listed estimated assets and liabilities as much as $100 million each, according to a filing in the U.S. Bankruptcy Court for Delaware.

RCP Credit Opportunities Fund is listed as the largest unsecured creditor in the AmeriFirst Chapter 11 case — with a claim of $17.9 million, court pleadings show. 

Other creditors in the AmeriFirst bankruptcy with unsecured claims exceeding $500,000 include – RCP Customized Credit Fund ($5.97 million) and Wells Fargo Bank ($1.1 million).

The nature of the claims is listed as bond debt for RCP Credit Opportunities Fund and RCP Customized Credit Fund; and trade debt for Wells Fargo in the court pleadings.

The bankruptcy filing so far does not include a list of secured creditors, only a creditors matrix (which does not include financial figures).

AmeriFirst told Housingwire that the bankruptcy action has no impact on closed mortgages and the loans in the pipeline will be closed and funded. No further detail was provided. 

The Arizona-based lender relaunched its forward mortgage origination business in June after ceasing it in December 2022 against the backdrop of rising interest rates. 

Through its origination business, AmeriFirst kept its business purpose lending (BPL), providing four products, including debt-service coverage ratio (DSCR) loans, bridge financing, investor construction loans and residential transition loans (RTLs). Its BPL business originated about $30 million in volume every month, Eric Bowlby, CEO at AmeriFirst Financial told HousingWire in June. 

The lender also maintained its servicing portfolio, servicing about $1 billion of Fannie Mae, Freddie Mac and Ginne Mae loans.

Getting back into the forward mortgage origination business, Bowlby had shared plans of keeping physical branches in 20 states while getting rid of regional and branch margins to give competitive rates to homebuyers. 

The goal was to eliminate about 100 to 125 basis points built into the rates and offer lower rates as mortgage brokers.

“When your branch margin is taking everything to begin with, how does corporate make any money? Because now what they have to do is they have to go in and charge points to get their loans done,” Bowlby said in a previous interview with HW.

However, mortgage rates that were on a rising trend — ticking upward toward the mid-7% range — made it a difficult environment for AmeriFirst to stay afloat.

Bowlby had aimed to close $100 million in origination volume a month but  AmeriFirst’s origination volume came in way lower than expectations. 

The Arizona lender logged a production volume of $3.6 million in June when it resumed forward mortgage originations, according to mortgage platform Modex. The following month, the lender posted $11.5 million. 

In 2022, AmeriFirst closed $2.5 billion in loan origination, data from Modex showed. 

Source: housingwire.com

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Wage growth also likely remains too high to be consistent with 2% inflation over the long run, which the ESR Group believes will keep monetary policy tight. 

Fannie Mae maintains its baseline call for a recession to occur – forecasting it to begin in the first half of 2024. In its July ESR note, Fannie Mae projected a modest recession beginning in Q4 2023 or Q1 2024.

The group upgraded its 2023 real GDP growth outlook to 1.9% from 1.1% on a Q4/Q4 basis and revised its 2024 GDP growth prediction to a 0.2% decline from 0.1% previously, reflecting a recession hitting later than was initially anticipated.

Subdued home sales 

Regardless of whether a soft landing is achieved over the coming year, Fannie Mae expects existing home sales to stay subdued and within a tight range.

“​​With an ongoing tight supply of existing homes for sale and the recent rise in the 30-year fixed-rate mortgage rate to around 7%, we expect home sales in 2023 to remain near the lowest annual level since 2009,” the group said. 

Total existing home sales fell 2.2% in July from June to a seasonally adjusted annual rate of 4.07 million. Year-over-year, sales slumped 16.6% down from 4.88 million in July 2022, according to the National Association of Realtors.

“If a recession is avoided, then ongoing limited supply of homes for sale on the market combined with continued affordability constraints and the ongoing ‘lock-in’ effect, whereby existing owners do not want to give up their current low mortgage rates, is expected to lead to a low pace of sales,” according to the ESR group.

Rising mortgage rates will also exert more downward pressure on sales. However, given the already very low pace of sales, the majority of highly interest-rate-sensitive borrowers are already on the sidelines and current sales activity is being supported by less rate-sensitive buyers, Fannie Mae said.

In the case of a recession scenario, interest rates would likely pull back somewhat, lessening the lock-in effect thereby potentially boosting the number of homes available for sale. 

However, in a recession, a weaker labor market, tighter credit, and lower consumer confidence would act as downward pressure on housing, Fannie Mae noted. 

In contrast, new home sales and construction, while choppy in recent months, have generally been on an upswing.

Single-family housing starts jumped in July by 6.7% to a pace of 983,000 annualized units. This was 9.5% higher than a year prior, the first annual increase since April 2022.

However, based on permits being substantially lower at 930,000, Fannie Mae expects some pull-back in the near term, especially given the recent rise in mortgage rates. 

Fanie Mae expects a modest pullback in construction due to a slowing economy, though a similar outcome may occur if instead a soft landing is accompanied by higher for longer mortgage rates leading to slower housing construction and sales. 

“In fact, somewhat softer housing construction and sales may be needed to make a soft landing possible,” according to the ESR group. 

Mortgage originations forecast little changed

The forecast for purchase origination volume in 2023 is largely unchanged at $1.3 trillion. 

For 2024, the ESR group revised upward its forecast of purchase mortgage originations volumes by $25 billion to $1.5 trillion, consistent with upward revisions to the home sales forecast.

Refinance volumes are expected to be $261 billion in 2023 and $456 billion in 2024, representing downgrades of $4 billion and $9 billion, respectively, from the July projections. 

Source: housingwire.com

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After a few great years, refinance activity has taken a bit of a dive.

Ironically, the recent decline is directly attributable to the refinance boom lenders experienced just months before.

One of the major problems with the current situation is that 30-year fixed mortgage rates have remained below 5% for much of the past four years.

And they increased about a percentage point from their lowest levels last seen in late 2012.

In other words, pretty much everyone who was able to refinance already did. And there hasn’t been much incentive to refinance again, seeing that rates have just increased over the past year or so.

Nowadays Most Refinances Involve Much Older Loans

During the fourth quarter, the median age of the original loan before refinance was a whopping seven years, the oldest in Freddie Mac’s history, which dates back to 1985.

Just to give you an idea of what the median age of such loans looked like in the recent past, we’ll look at the Los Angeles metro area.

Back in 2003 and 2004, the median age of a loan refinanced there was just 1.7 years. These were the days of the serial refinance, when borrowers used their homes as ATM machines.

Many homeowners had contacts at major lenders like Countrywide, and would often be advised to refinance over and over again, often pulling out wads of cash along the way.

This is exactly how we got into trouble to begin with; most of these loans were ARMs, in many cases option ARMs. They were held just long enough to convince the appraiser to tack on another 10-20% in home value.

Before long, these homeowners ran out of options and were holding the proverbial hot potato, otherwise known as an underwater mortgage and an exploding ARM.

Fast forward to 2013, and the median age of a refinanced loan in Los Angeles stood at 5.3 years.

I can’t see it go anywhere but up as time goes on, especially seeing how mortgage rates drifted so very low thanks to the Fed’s successful, but problematic QE3.

It certainly doesn’t set the stage for a subsequent refinance boom anytime soon, which could eventually translate to questionable lending in the near future.

Things that come to mind are the refinancing of previously modified loans, or lowering standards on new purchase loans to drum up business.

Of course, there will still be opportunities for lenders with cash-out refinancing eventually becoming popular again as home prices rise. And there’s always the opportunity to refinance a loan with mortgage insurance.

Still, it could be tough going for a while in the mortgage industry.

Homeowners Are Still Saving a Lot of Money by Refinancing

While my assessment is full of doom and gloom, there are still plenty of homeowners saving a ton of money by refinancing.

During the fourth quarter, the average interest rate reduction was a healthy 1.5%, or a savings of roughly 25%. On a $200,000 loan, that’s an annual savings of about $3,000.

And homeowners who refinanced via HARP saved even more money, with the average interest rate reduction 1.7%. That translates to about $3,300 in annual savings, or $275 a month.

Freddie noted that homeowners who refinanced last year would save approximately $21 billion in interest over the next year.

Borrowers continued to shorten their loan terms, with 39% doing so during the fourth quarter, up two percent from the third quarter and the highest level since 1992. Only five percent chose to increase their loan term.

More than 95% of borrowers chose a fixed-rate loan, with the 30-year fixed far and away the most popular.

Freddie Mac projects the refinance share of mortgage originations to be just 38% in 2014.

Source: thetruthaboutmortgage.com

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Reaction to a recent decision by Fannie Mae to not go forward with a proposed title-waiver pilot is drawing both praise and pushback from stakeholders in the space.

The government-sponsored enterprise first floated a potential program this spring that would have waived title insurance requirements on some loans sold to it in the secondary market. 

Along with fellow GSE Freddie Mac, Fannie Mae has actively looked for solutions to address affordability and widen homeownership opportunities across the country. Among several developments emerging in the past several months are new underwriting guidelines as well as decisions by both Fannie Mae and Freddie Mac to allow the use of attorney-opinion letters in lieu of title insurance in limited cases. But the suggestion of waiving insurance requirements altogether drew criticism and challenges from the title industry.

Upon learning of Fannie Mae’s decision to not move the proposal forward, the American Land Title Association lauded the outcome. 

“This is a significant achievement to protect consumers, lenders and the housing finance system, and showcases the benefits of our products, industry and your business,” the trade group said in a message to its members last week.

“We will also continue to collaborate with Fannie Mae and Freddie Mac to deliver innovative and cost-effective title insurance products and solutions that best protect lenders and consumers,” ALTA stated. 

Providers of attorney-opinion alternatives also came forward this week to clarify that the end of the title-waiver pilot had no connection to the products they offer. 

“Certain title alternatives, such as the attorney opinion letter (AOL), have been deemed acceptable alternatives to title insurance by agencies and investors,” said Stacy Mestayer, chief compliance officer at Voxtur Analytics, in a statement sent to National Mortgage News. 

“Importantly, the recent reports related to halting title waiver initiatives has no impact on existing agency approvals of title alternatives, including Fannie Mae’s approval of AOLs,” she said. 

Harsher words came from Theodore Sprink, founder of iTitle Transfer and a former executive at insurers Fidelity National and First American Financial. A frequent critic of ALTA, Sprink alleged the trade group “fabricated the title waiver ‘pilot’ program,” in multiple LinkedIn posts.

“ALTA created a solution in search of a problem,” he wrote, adding the waiver program had “nothing to do with AOLs as an alternative to costly and unnecessary title insurance.”

Fannie Mae’s title-waiver proposal emerged as both GSEs were tasked with introducing equitable housing plans in late 2021 to help close homeownership and disparity gaps. Subsequently, both Fannie Mae and Freddie Mac took a closer look at alternatives to title insurance, such as attorney-opinion letters, which they began accepting last year. 

The use of AOLs, similarly, has drawn its share of critics from within the title industry. But the GSEs’ announcement it would begin to consider them also drew increased interest from major industry names, such as United Wholesale Mortgage, in providing such options at the tail end of 2022.  

Adding further fuel to recent title industry discussions was a recent blog post by mortgage banking consultant Rob Chrisman, who highlighted an article claiming less than 5% of money collected from title insurance premiums went to claims, “the rest of it going to fat profits.” ALTA and mortgage industry lawyers attempted to refute the findings in following days. 

In 2022, the title industry collected approximately $21 billion off of premiums based on mortgage volume totaling $2.25 trillion, ALTA reported. Insurers also paid $596.1 million in claims last year, representing an increase of 25% from 2021. 

In the second quarter, five publicly-traded title insurers reported profits, recovering from a lackluster start to the year. But only two saw their profits increase on an annual basis as mortgage originations slowed substantially.

Source: nationalmortgagenews.com

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A new report from Black Knight Financial Services revealed that monthly mortgage origination volume fell to its lowest point on record in February.

And recent prepay speeds signal even more declines in refinance volume in the near future.

The company said mortgage originations hit at least a 14-year low during the second month of the year, thanks in part to an elevated share of all-cash transactions.

The government share of originations has also taken a hit, with HARP refinancing continuing to slow as the pool of eligible borrowers shrinks.

Homes Are Still Selling, Even If Mortgages Aren’t Being Originated

Despite the mortgage slowdown, traditional home sales (non-distressed) were up nearly 15% from a year earlier.

At the same time, distressed transactions continue to dwindle as short sales and foreclosures become less and less common.

Overall, residential real estate sales remained close to flat year-over-year, again because of the all-cash buyers, many of which were assumed to be investors.

Black Knight’s Data and Analytics division SVP Herb Blecher noted in a press release that cash sales accounted for nearly half of all transactions.

Mortgage Delinquencies Fall Below 6%

The good news is that mortgage delinquencies fell below six percent (5.97%) for the first time since 2008, and foreclosures were down 34% from a year ago to their lowest level since 2007.

Unfortunately, this means the foreclosure pipeline is steadily growing, with the average loan in foreclosure now 2.6 years past due, compared to 0.7 years in 2008.

The new CFPB rules don’t allow foreclosure proceedings to begin until after 120 days of delinquency, and data has revealed that foreclosure starts at the 90-day mark have pretty much come to a halt.

Florida, New Jersey, and New York have the highest level of seriously delinquent loans (90+ days late or in foreclosure), but foreclosure backlogs have grown the most in non-judicial states like California and Nevada thanks to newly imposed legislation.

Loan modification volume has also taken a hit, with activity ending the year around post-crisis lows. The only bright spot is the FHA-HAMP program, which has gotten a boost thanks to some recent program changes.

Those include eliminating the maximum back-end DTI ratio requirement of 55%, and allowing FHA borrowers to be more than 12 full payments past due.

Speaking of modifications, borrower equity continues to dictate re-default rates, with borrowers falling behind a second time 30% more when underwater.

Loose Mortgage Lending Hasn’t Arrived Yet

Black Knight also noted that only about 30% of mortgages last year went to borrowers with credit scores below 720, so it’s still very much about the most creditworthy individuals.

And though some lenders have announced pretty aggressive offerings of late, such as Carrington’s 550 minimum FICO score for an FHA loan, that type of subprime lending is still few and far between.

In fact, originations in the sub-620 bracket still account for less than five percent of residential mortgage lending volume, despite ticking up in recent years.

Many expect volume in this higher-risk band to increase as banks continue to grapple with flagging volume.

And the trend is already apparent in the FHA realm, where lending to borrowers with scores between 620-719 increased year-over-year after steadily declining.

However, the sub-620 category is still pretty flat and that doesn’t appear to be changing anytime soon.

Source: thetruthaboutmortgage.com