Bad Mortgages Hit Lowest Level Since 2008

By Nick Timiraos

The number of U.S. mortgages that were behind on their payments or in foreclosure in March fell below the 5 million mark for the first time since 2008, according to a report released Tuesday.

The number of loans in the foreclosure process fell to just below 1.69 million in March, the lowest level in nearly four years, according to Lender Processing Services. That was down by almost 20% from one year ago. Overall, around 3.4% of all U.S. mortgages were in foreclosure at the end of March, down from 4.2% a year ago.

Foreclosures have been falling because fewer borrowers are falling behind on their payments and because banks have been more aggressive about modifying loans or approving short sales, where properties are sold before the bank completes foreclosure.

Another almost 3.31 million loans were behind on their payments in March, with around 1.47 million of those that had missed at least three payments. The level of delinquent loans was down by 3% from a year ago, with around 6.6% of all borrowers in some stage of delinquency, excluding those in foreclosure.

Delinquencies tend to fall in March because homeowners use year-end bonuses and tax refunds to help catch up on their mortgages.

Before the housing crisis, around 5% of borrowers were delinquent on their mortgages and another 1% of loans were in foreclosure. The latest data show that while delinquencies and foreclosures are moving in the right direction, it’s probably going to take a few more years before delinquencies and foreclosures get back to pre-crisis levels.

Fannie Economists Project 1.8M Borrowers Could Regain Equity in 2013

The broadening housing recovery has firmed up home prices around the country, with the potential to restore many underwater mortgages to a position of positive equity, according to Fannie Mae’s Economic and Strategic Research (ESR) group.

Citing data from CoreLogic, Orawin Velz, Fannie Mae’s director of economic and strategic research, notes that 1.7 million properties moved from negative to positive equity last year. Provided the home price gains seen so far this year continue, Velz anticipates another 1.8 million properties will rise out of their underwater positions by the end of 2013.

In a new commentary piece entitled “Down But Not Out: Many Underwater Borrowers Will Likely Regain Buoyancy This Year,” Velz examines the extent to which home price appreciation can lift underwater properties into positive equity positions and the anticipated recovery time for transitioning the nation’s housing markets toward “normal” activity.

“The first annual rise in home prices on a national basis in six years has contributed to a positive feedback loop for the housing market by helping many underwater homeowners … regain their positive equity positions,” Velz said. “This improving trend should help spur mobility and housing turnover….The broader economy also should benefit.”

Main measures of home prices showed continued robust gains through the first part of 2013, thanks to an improving labor market, low mortgage rates, and very lean inventory—which Velz contends has been the principal driver of price gains so far.

She says rising home prices should help some homeowners who have involuntarily remained on the sidelines to put their homes on the market. According to CoreLogic’s data, the number of underwater residential properties peaked in the fourth quarter of 2011 at 12.1 million and declined in each quarter of 2012, with 10.4 million properties remaining in negative equity by year-end.

About 3.7 percent of those—or 1.8 million—were in a slightly negative position, which Velz defined as those with loan-to-value (LTV) ratios of 100 to less than 105 percent. She says these properties may switch to positive equity positions this year assuming home prices continue their upward trend. Based onCoreLogic’s latest negative equity report, the share of properties with a slightly negative equity position varied across the country, ranging from 1.3 percent in North Dakota to 5.4 percent in Georgia.

Velz concludes that all but about 10 percent of properties currently underwater will be back in positive territory within three and a half years. Most analysts expect home prices to trend up this year. Zillow polled more than 100 economists, housing analysts, and other industry experts in March. The consensus for median appreciation in 2013 was 4.8 percent, with only two respondents out of 117 indicating a decline.

Applying the Zillow survey’s consensus expectation for home prices—a cumulative gain of 17.5 percent between 2013 and 2016—and assuming continued amortization, Velz says most of the underwater properties at the end of 2012 would likely regain their positive equity positions by 2016—all except the most severely underwater, meaning those with LTVs of 120 percent or higher.

Underwater properties remain concentrated in a few states with those in the worst five states—Nevada, Florida, Arizona, Georgia, and Michigan—accounting for nearly a third of total underwater properties, according to CoreLogic’s assessment. Velz stresses the speed of the transition of underwater loans to positive equity positions is expected to vary regionally.

Nevada and Arizona are among the states with the highest share of negative equity properties, yet these states witnessed very robust home price gains over the past year, Velz points out. On the other hand, Michigan’s negative equity share is the lowest among the five worst states, but its home price appreciation has been the most modest.

Fannie Mae’s economic and research director also noted strong home price appreciation bodes well for California, which was consistently among the five worst underwater states until the second quarter of 2011. Since then, California has moved out of the worst five states, as its home prices troughed in the first quarter of 2011—much sooner than trends have demonstrated in other severely underwater states and much earlier than national prices, which didn’t witness a trough until 2012.

According to Velz, that rate at which underwater borrowers are elevated above the break-even surface will depend on the severity of their underwater conditions—or their LTV ratios—and the pace of home price gains in specific markets.

BY: CARRIE BAY

New Rules of House Flipping

By Chris Taylor

NEW YORK | Thu Apr 18, 2013 10:51am EDT

(Reuters) - When the housing market went bust, house flippers went into hibernation. Now, as the recovery creeps along, bargain-hunters are once again looking for homes to fix up and resell for a quick profit.

Just take a look at the numbers. Home values are on the rise, with a year-over-year price increase of 11.6 percent, according to the National Association of Realtors. Inventory has cratered to levels not seen since 2005.

Irvine, California-based RealtyTrac, an online marketplace for foreclosure properties, says that flipping - defined as buying and selling a property within six months - rose for the second year in a row, up a slight 0.33 percent in 2012 after logging a 12 percent increase in 2011. Those deals were churning out real gross profits, at an average of $37,375 per transaction for all of 2012.

Today's flippers have learned some hard lessons. The housing crash of 2006-2011 wiped out more than $7 trillion in household wealth across the nation, according to data from the Federal Reserve. The fallout left countless speculators holding properties they could no longer move.

This time, homebuyers are being more selective - putting more money down and making calculated bets on smart renovations.

"There are fewer real estate investors now, compared to during the boom. But this time, they have really done their homework," says Andy Heller, author of "Buy Low, Rent Smart, Sell High: Real Estate Investing for the Long Run."

Here are a few tenets to hold close, as you tiptoe back into this dangerous game:

1. Pick your spots

The best places to flip in 2012 included Orlando, Florida; Richmond, Virginia; Tucson, Arizona; and Charlotte, North Carolina, according to RealtyTrac. Flipped homes in Orlando, for instance, were bought for an average of $100,397 and sold for an average of $174,895, for gross profits of almost $75,000.

Jon Maddux, a San Diego-based house flipper and founder of the site AfterForeclosure.com, also found luck in Atlanta, Georgia - far beyond his local region. The one-year average price increase their stands at 13.4 percent, according to the S&P/Case-Shiller Home Price Indices, 2 percent above the national average.

Last year, Maddux, 39, and a business partner bought two single-family homes. The first they bought for $62,900, put in about $28,000 of renovations, and sold for $139,000. The second house they purchased for $79,000, chipped in $25,000 to rehab, and sold for $149,000.

A caveat: Since home prices are not exactly secret information, it means if you find a promising area to invest, other flippers will likely be there, too.

2. Cash is king

During the housing boom, late-night infomercials blared about how anyone could flip a home without putting in a dime of their own.

But this time, banks have tight restrictions, and that means real estate investors coming in with all-cash deals have the upper hand. They can move faster and offer quicker closes than, say, first-time homebuyers who are constantly having to wrangle with their bank.

Even better, having cash on hand "can actually generate you some significant discounts on the deal," says Heller.

3. Renovations matter, but stick to a budget

In today's market, you will likely only get a bargain if the house is in truly rough condition. There is no shortage of homes that need upgrades, though. In 2012 there were 1.8 million properties in America with foreclosure filings, according to RealtyTrac, many of them in poor condition.

While every property is different, Maddux suggests spending up to around 25 percent of your expected sale price on necessary upgrades. Exceed that level, and the economics of your flip start to get riskier, with scant room for error if buyers do not show up.

The renovations that offer you the most money back upon resale, according to Remodeling Magazine's 2013 Cost vs. Value Report: Unsexy projects like window replacements, minor kitchen remodels and fixing garage doors.

Heller likes to focus on the basics - doing a fresh paint job, installing gleaming new floors, fixing any problems like leaks - and then providing an additional "improvement allowance," so the new buyer can tailor the home to their personal specifications.

With his latest project in Marietta, Georgia, he bought a single-family home for $205,000. Heller put in $17,000 worth of upgrades, most of it for a paint job and new flooring. He got an offer within a few weeks for $270,000.

4. Be prepared to hold

Back in 2003 the Federal Housing Administration (FHA) instituted anti-flipping regulations, prohibiting insuring a mortgage on a property owned by the seller for less than 90 days.

Those rules have been waived since 2010, in a bid to support the housing market. But a quickly-flipped home requires documentation on renovations, as well as additional appraisals, to justify a much higher resale price if the deal involves an FHA-insured loan. And in practice, many skittishbanks still adhere to the 90-day rule, says Maddux. That is why the average flipping time from purchase to resale is just over that level, at 106 days, according to RealtyTrac.

"That seems to be the sweet spot for a profitable deal," says Daren Blomquist, vice president at RealtyTrac. "Back in the housing bubble, many flippers were solely relying on price appreciation, sitting back and selling for big profits within a month or two." Now, real improvements are needed, he says.

Do not expect to flip the property within days and realize lightning-quick profits. You may want to rent it out for a while as the housing market continues to recover, says Heller, in order to cover some costs and eventually secure an even higher resale price.

"In some ways, this is a dream environment," Heller says. "You would be crazy to be on the sidelines."

(Follow us @ReutersMoney or here. Editing by Beth Pinsker, Lauren Young and Chris Reese)

MONEY

Pending Home Sales Tick Upward in March

Contracts to buy existing homes rose slightly in March, as a historically low supply of for-sale listings nationwide continues to plague the housing market. The Pending Home Sales Index from the National Association of Realtors increased 1.5 percent month to month. It is 7 percent higher than March 2012.

These numbers represent signed contracts, not closings, and are therefore an indicator of future final sales.

"Contract activity has been in a narrow range in recent months, not from a pause in demand but because of limited supply," said Realtors chief economist Lawrence Yun in a release. "Little movement is expected in the near-term sales closings, but they should edge up modestly as the year progresses.

Listings were down 17 percent in March from a year earlier, according to the association, with several factors affecting inventories. Millions of Americans still owe more on their mortgages than their homes are worth, and that makes it impossible for them to move without incurring major expense.

Others are watching home prices rise and may be waiting to see just how high they go before listing their homes.

Meanwhile, home builders, while trying to ramp up production, are faced with a lack of land, labor and materials. Single-family starts were at a seasonally adjusted annual rate of just 619,000 units, an improvement from the worst of the crash but far below historical norms.

Regionally, the pending home sales index was unchanged in the Northeast from February, up 0.3 percent in the Midwest, up 2.7 percent in the South and up 1.5 percent in the West.

Existing home sales in March, based on closings, fell just under one percent in March. While higher than a year ago, home sales appear to have leveled off, despite this being the normally busy spring season.

—By CNBC's Diana Olick

California Foreclosures Plunging, Sales Rising

The Mortgage Corner

California Foreclosures Plunging, Sales Rising

 The number of California homeowners entering the foreclosure process plunged to the lowest level in more than seven years last quarter, reports DataQuick. The unusually sharp drop in the number of mortgage default notices filed by lenders stems mainly from rising home values, a strengthening economy and government efforts to reduce foreclosures, says DQ.

No wonder, as the median price paid for a California home last quarter was $297,000, up 22.7 percent from a year ago, reports DataQuick.  During first-quarter 2013 lenders recorded 18,567 Notices of Default (NoDs) on California houses and condos. That was down 51.4 percent from 38,212 during the prior three months, and down 67.0 percent from 56,258 in first-quarter 2012

Graph: Econoday

Most of the loans going into default are still from the 2005-2007 period, per DQ. The median origination quarter for defaulted loans is still third-quarter 2006. That has been the case for more than three years, indicating that weak underwriting standards peaked then. The most active creditors in the formal foreclosure process last quarter were Wells Fargo (5,546), JP Morgan Chase (3,863) and Bank of America (2,565).

And Calculated Risk’s Bill McBride has become very sanguine about real estate’s role in boosting economic growth. He maintains that new-home sales will pick up due to unfilled demand, due to the big jump in household formation—to 1.3 million new households last year and the prediction this level will be maintained over the next decade. He sees the so-called existing-to-new home sales ratio trending back down to its historical average of 6 to 1 from its current heightened ratio, in this very interesting graph. It was the “flood’ of depressed sales from foreclosures that depressed new home sales because of the plunge in housing prices brought on by the foreclosures.              

Graph: Econoday

“According to the Census Bureau, there were 104 thousand new homes sold in Q1 2013, up about 19.5 percent from the 87 thousand sold in Q1 2012. That is a solid increase in sales, and this was the highest sales for Q1 since 2008,” said McBride.

“Although there has been a large increase in the sales rate, sales are still near the lows for previous recessions. This suggests significant upside over the next few years.  Based on estimates of household formation and demographics, I expect sales to increase to 750 to 800 thousand over the next several years. Also housing is historically the best leading indicator for the economy, and this is one of the reasons I think The future's so bright, I gotta wear shades.”

                                           Harlan Green © 2013

2013 Home Prices Soar

The Mortgage Corner

 

2013 Home Prices Soar

Housing prices are soaring, with both the S&P Case-Shiller Home Price Index 3-month average (for November, December and January) and FHFA conforming loan indexes accelerating. Mortgage delinquencies also continue to decline, which should help depleted inventories.

The S&P/Case-Shiller Home Price Indices showed average home prices increased 7.3 percent for the 10-City Composite and 8.1 percent for the 20-City Composite in the 12 months ending in January 2013.

“The two headline composites posted their highest year-over-year increases since summer 2006,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “This marks the highest increase since the housing bubble burst."

In January 2013, nine cities -- Atlanta, Charlotte, Las Vegas, Los Angeles, Miami, New York, Phoenix, San Francisco and Tampa -- and both Composites posted positive monthly returns. Dallas was the only Metro Area where the level remained flat. 

Graph: Calculated Risk 

The FHFA price index for January increased 0.6 percent, following a rise of 0.5 percent the prior month.  The January gain was led by the Pacific region, increasing 1.6 cent.  The weakest region was New England, down 0.7 percent for the month. But the index is up 6.5 percent year-over-year.

 

More good news was the continuing decline in mortgage delinquencies, according to LPS lenders’s services, as reported by Calculated Risk. LPS reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) decreased to 6.80 percent from 7.03 percent in January. The percent of loans in the foreclosure process declined to 3.38 percent in February in January. 

Both numbers are still high, with 4.25 percent being the long term delinquency rate and 1 to 2 percent the historical foreclosure rate. This decline is already showing up in increasing for sale inventories, with Calculated Risk also reporting that through March 25th - inventory is increasing faster than in 2011 and 2012. But Housing Tracker reports inventory is down -21.2 percent compared to the same week in 2012—still a rapid year-over-year decline (2013 is red line in graph).

Graph: Calculated Risk 

What does all this mean? As delinquency/foreclosure rates continue to decline, inventory should continue to increase, which means more housing sales. Although new-home sales declined slightly in February, sales are still 12.3 percent higher than February 2012.

And February existing home sales rose 0.8 percent to an annualized pace of 4.98 million units.  January was revised to up 0.8 percent from the initial estimate of 0.4 percent. Low supply had been holding down sales but that appears to be changing as higher prices are bringing more homes into the market.  Supply jumped 9.6 percent to 1.94 million units.  Months’ supply rose to 4.7 months from 4.3 months in January.

 

Harlan Green © 2013

Accuracy of Zillow, Trulia listing data under fire again

Summary of ZipRealty study findings

Site	% of listings on the site versus the MLS	% of listings on the site listed as for sale while not listed for sale in the MLS
Zillow	73%	16%
Trulia	78%	17%
ZipRealty	99%	1%

Source: ZipRealty

ZipRealty looked at a control set of 2,981 homes actively listed for sale in the 16 MLSs in the markets above on Oct. 28, 2012. That set of homes was then cross-referenced, using both the properties' addresses and MLS listing identification numbers, with the homes listed for sale on Zillow, Trulia and ZipRealty in those markets.

If an MLS-listed home was not found on one of the three sites, ZipRealty manually double-checked for incorrect information and updated its results as needed.

For homes listed for sale on the three sites that were not listed for sale in the MLS, the properties' historical information in the MLS was looked at.

"In many cases," the report noted, "these 'extra' homes shown within the portals' home listings results reflected listings that had previously expired, sold or otherwise been deactivated within the MLS database while still shown as 'for sale.'"

Last fall, technology-based brokerage Redfin hired a consulting firm, WAV Group, to compare the accuracy of listing data published by Zillow and Trulia in 11 major markets with IDX listing data displayed by Redfin and two other brokerages.

The WAV Group study found that about 36 percent of the listings shown as active on Zillow and Trulia were no longer for sale in the local MLS, while brokerage websites had few or no such errors.

Trulia and Zillow, which have both instituted programs to improve listings accuracy, said the WAV Group study did not tell the whole story.

Both companies said they offer tools that are often now found on broker and MLS sites that allow consumers to research market conditions. Some homes -- such as those being sold by owners, and newly constructed homes -- are not listed in the MLS because they are not represented by a real estate broker.

Trulia spokesman Ken Shuman said ZipRealty didn't detail which ZIP codes were looked at in its report, or why the markets that were studied were chosen.

"I raise an eyebrow at this," Shuman said. "Did they look at all 15 ZIP codes in San Francisco. or just the four where Trulia had the most discordant match with the MLS?"

Shuman said Trulia has "invested heavily in delivering quality data to consumers," pointing out the firm's Trulia Broker Program, which gives brokers incentives for providing a direct listing feed to the portal, and new continuously updated protocol for data it gets directly from MLSs.

Zillow has also been focused on improving listing coverage and accuracy. Itannounced its 49th broker in the Zillow Pro for Brokers program last month and in July it started ramping up its efforts at getting listing feeds directly from MLSs.

"What's more important to understand about a study like this is that there is no gold standard for real estate listings," said Zillow spokeswoman Cynthia Nowak.

Nowak said Zillow has information on many listings -- like for-sale-by-owner, pre-market and new construction homes -- that aren't in MLSs because they aren't represented by real estate brokers.

Nowak also pointed out that home shoppers use Zillow for reasons beyond looking for for-sale homes, but also for "deep information on all homes, the Zestimate, price cuts, communities, rental listings and historical home information."

"If (Zillow and Trulia) are saying this isn't right, God bless them. Let's see the data," ZipRealty CEO Lanny Baker told Inman News. The study looked at the prime ZIP codes in the markets covered, he said.

Baker says he's aware that consumers use real estate sites for different reason. The new ZipRealty tool and study, he said, is an effort to point out where he thinks ZipRealty excels -- providing search for MLS-listed homes.

Baker said many consumers aren't aware that popular portals like Zillow and Trulia don't have all the for-sale listings in some markets. Studies like ZipRealty's are meant to bring the issue to light, he said.

Editor's note: This story has been updated with comments from Zillow and Trulia, and additional details on ZipRealty's study of listings accuracy.

Following in the footsteps of Redfin, ZipRealty Inc. is emphasizing the timeliness and accuracy of the Internet Data Exchange (IDX) listing data it serves up on its website in comparison to the sometimes dated and incomplete information on third-party listing portals like Zillow and Trulia.

ZipRealty is offering a "Listing Check" tool that it says will allow consumers to use its website to double-check whether a home they've seen listed for sale on another site is actually for sale.

The Listing Check tool is available in 34 markets where ZipRealty has access to IDX listings. The company operates as a brokerage in 19 markets, and is also able to display IDX listings in 15 other "Powered by Zip" markets where it provides leads and customer relationship management tools to other brokerages.

Websites operated by real estate brokerages and agents receive listings directly from multiple listing services, which provide IDX listing feeds to members. The feeds include all listings represented by participating brokerages in a given market.

Thanks to its ties to the National Association of Realtors, Realtor.com gets listings directly from most of the nation's more than 900 MLSs.

Other third-party listing portals, like Zillow and Trulia, receive some of their listings directly from MLSs. But brokers have the right to withhold listings they represent from the portals, and in many markets, portals must rely on individual brokerages, agents and third-party syndicators for listing data. Difficulties in managing feeds from multiple sources means that portals sometimes have incomplete or inaccurate listing data.

Brokerages in "Powered by Zip" markets can withhold listings from third-party websites like Zillow and Trulia, but cannot prevent their listings from appearing on ZipRealty.com without withdrawing entirely from IDX agreements.

To emphasize the accuracy of the IDX listing data displayed on ZipRealty.com, the company says it analyzed listings published by Zillow and Trulia in 50 ZIP codes across the following 13 major metropolitan areas: Boston, Chicago, Dallas, Denver, Houston, Las Vegas, Los Angeles, Philadelphia, Portland, the San Francisco Bay Area, San Diego, Seattle and Washington, D.C.

In the areas studied, ZipRealty claims that more than 15 percent of homes shown for sale on Zillow and Trulia weren't actually on the market, and up to 30 percent of homes that were listed for sale in an MLS were not identified by the portals as being on the market.

"Finding that perfect home online and then discovering that it's already been sold presents an extremely frustrating scenario to homebuyers," said ZipRealty CEO Lanny Baker in a statement. "Other major online real estate websites continue to show homes listed as 'for sale' for several days -- even weeks -- after they have sold, and no homebuyer wants to waste time chasing after properties that are already off the market."