First-Time Mortgage Default Rates Going Against Trends

Default rates rose for first time mortgages rose for the third month in a row, according to the latest S&P Dow Jones Indices and Experian released through October 2019 for the S&P/Experian Consumer Credit Default Indices. Despite this rise in mortgage defaults, the indices shows that the composite rate was unchanged at 0.93%, as other forms of credit fell that month. The bank card default rate fell 44 basis points to 2.88%. The auto loan default rate was down two basis points to 1.03%, and the first mortgage default rate increased four basis points to 0.77%.

Three of the five major metropolitan statistical areas (“MSAs”) showed higher default rates compared to last month. New York showed the largest increase, up 11 basis points to 1.07%. The default rate for Dallas rose four basis points, to 0.97%, while the rate for Miami was up one basis point, to 1.31%. The level for Los Angeles dropped seven basis points to 0.65%, while the rate for Chicago was two basis points lower, at 1.17%.

The previous release from S&P/Experian Consumer Credit Default Indices saw the first mortgage default rate increased four basis points to 0.73% in September 2019.

In an effort to further reduce future defaults on FHA-insured mortgages, the Federal Housing Administration (FHA) has signaled that it may tighten credit, noting that the debt-to-income (DTI) ratio for FHA-insured loans has been consistently increasing for six years. In a new report, Urban Institute examined  how important DTI ratios in predicting a borrower’s ability to make on-time mortgage payments, and how debt burden impacts ability to repay FHA mortgages.

According to Urban, DTI ratios are much less significant predictors of loan performance than FICO scores and that many high-DTI loans have strong FICO scores. Additionally, Urban’s analysis found that higher-DTI loans do not always have higher serious delinquency rates, and 5.6% of loans with DTI ratios ranging from 0 to 35% have been seriously delinquent at 60 months of age, compared with 7.6% of loans with DTI ratios of 35–45. But for loans with DTI ratios greater than 50, the D90+ rate at 60 months is 6.9%, lower than those with DTI ratios of 35–45.

Posted on November 28, 2019 at 7:54 AM
Guy Arnone | Posted in Real Estate |

Opportunity Zones Paying Dividends for Home Investors

residential segregation in housingInvestors are seeing home prices rise in Opportunity Zones, according to the new Q3 2019 Opportunity Zones Report from ATTOM Data Solutions. The report found that about half the zones saw median home prices rise more than the national increase of 8.3% from the third Q3 2018 to the Q3 2019.

The report also shows that 79% of the zones had median home prices in the third quarter of 2019 that were less than the national median of $270,000almost the same percentage as in the second quarter of 2019. Some 46% of the zones had median prices of less than $150,000, also roughly the same as in the prior quarter.

“The nationwide home-price surge in the third quarter spread through so-called Opportunity Zones, much as it did the rest of the country,” said Todd Teta, chief product officer with ATTOM Data Solutions. “Despite sitting in some of the nation’s poorest areas, Opportunity Zones were hardly immune from a housing boom heading into its ninth year. That’s encouraging news for people living in those communities as well as investors looking to take advantage of the Opportunity Zones program.”

Among the 3,658 Opportunity Zones with sufficient data to analyze, median prices rose in 48% of the zoned areas by more than the national rate of gain from Q3 2018 to Q3 2019. The national year-over-year increase was 8.3%.

Among the 3,658 Opportunity Zones with sufficient data to analyze, California had the most Opportunity Zones, with 477, followed by Florida (332), Texas (293), Pennsylvania (176) and North Carolina (170). Of the tracts analyzed, 46% had a median price in the third quarter of 2019 of less than $150,000 and 17% ranged from $150,000 to $199,999. Another 16% ranged from $200,000 up to the national median of $270,000, 21% were more than $270,000. All percentages were similar to those in the second quarter of 2019.

The Midwest continued to have the highest rate of Opportunity Zone tracts with a median home price of less than $150,000 (71%), followed by the South (56%), the Northeast (47%) and the West (12%).

Posted on November 25, 2019 at 7:56 AM
Guy Arnone | Posted in Real Estate |

Top 10 Home Features for Baby Boomers

Baby Boomer home-buyers must have a laundry, but they would rather do without an elevator or a wine cellar in their home according to a recent study by the National Association of Home Builders (NAHB).

The study, was published on NAHB’s Best in American Living blog and is part of its What Homebuyers Really Want report, revealed that while their top home feature likes and dislikes are in sync with other generations, baby boomers are more likely to have strong opinions about what they want, and don’t want, in their homes.

While a laundry room topped the list of must-have features with 94 percent baby boomers listing it as an essential feature, 91 percent of this generation would also like energy efficient windows. At 89 percent a patio also rated high among home features desired or essential for baby boomers followed by a ceiling fan, garage storage, and exterior lighting with 88 percent boomers listing these features as essential or desirable in a home.

A full bath on the main level, walk-in pantry, hardwood flooring, and a fully energy efficient home rounded off the top 10 home features that baby boomers desired.

The report noted that the only feature listed by baby boomers that were different from other generations was the desire to have a full bath on the main level. Among community features that were ranked as most desirable by baby boomers, having a home near a retail space ranked first, followed by walking/jogging trails, suburban homes, walkable communities, and homes close to a park area.

Like other generations, baby boomers also rated an elevator and a wine cellar among the most undesirable features in a home. Seventy-four percent of this generation said that they were unlikely to buy a home if it had an elevator while 69 percent felt the same way about a wine cellar.

A daycare center, two-story family rooms, and plant-covered roofs were among other home features that baby boomers would rather do without. More than 50 percent of this generation said that they could also do without a pet washing station, dual toilets in the master bath, golf course community, cork flooring, and living in a high-density development.

Posted on April 14, 2019 at 5:23 PM
Guy Arnone | Posted in Real Estate |

Best Markets for Baby Boomers

A report by found that a growing number of baby boomers are changing the notion of retirement, as they seek to live their golden years in urban areas that have walkability, culture, and public transportation—many of the same traits sought by millennials. says the largest generation ever is set to retire, approximately 74 million—10,000 people per day are hitting the age of 65.

“Many boomers recognize that cities are a great place to age,” says Daniel Levine, Founding Director of the Avant-Guide Institute trends consultancy. “Everything is often within walking distance, from restaurants to hair salons. Add the plethora of cultural activities and aging in the city is sort of like one big retirement home.

“America’s cities are dynamic engines of change,and boomers are as much as part of that as younger generations.”

The top market on the list for boomers is Tuscon, Arizona, with its average home price of $290,000. Tuscon also offers a surplus of 65-plus retirement communities, with an active downtown, biking and hiking trails, and public transportation. The area is also home to one of U.S. News & World Report’s top 50 hospitals in the nation.

Following the desert market is St. Louis, Missouri, which has a median-home value of $209,000. A caveat for St. Louis, according to, is that it ranks higher in overall crime than most U.S. urban areas. However, the report states there are many areas that offer single-family homes for less than $300,000.

Following those top-two markes was Tampa, Florida; Denver, Colorado; Atlanta, Georgia; Las Vegas, Nevada; Albuquerque, New Mexico; Portland, Oregon; Sacramento, California; and New Orleans, Louisiana.

report in March by Rent Cafe studied the top markets for baby boomers, and fellow Arizona market Phoenix came in at No. 2. Markets included in that list were Austin, Texas; Fort Worth, Texas; Jacksonville, Florida; Charlotte, North Carolina; Dallas, Texas; and Houston, Texas.

Posted on February 25, 2019 at 8:00 AM
Guy Arnone | Posted in Real Estate |

8 Million First-Time Homebuyers Primed to Boost Market

Analysis from TransUnion projects at least 8.3 million first-time buyers will enter the housing market between 2020 and 2022, but could expand to 9.2 million if economic growth exceeds expectations.

This a steep increase from the 7.6 million first-time buyers who entered the market between 2016 and 2018.

TransUnion states this comes at a time when overall homeownership growth has stalled. As of Q2 2019, there were 68.3 million people with a mortgage balance—essentially unchanged from the 68.2 million during Q2 2018.

The share of consumers with a mortgage balance in Q2 2010 was 73.1 million.

“While we’ve recently seen a boom in refi activity, actual homeownership rates are down. Challenges have included high home prices, sluggish wage growth and limited housing inventory,” said Joe Mellman, SVP and Mortgage Business Leader at TransUnion. “But we may be starting to see daylight as slowing home price appreciation, low unemployment, increased wage growth and low interest rates are helping affordability. As a result, we are optimistic that first-time homebuyers will contribute more to home ownership than at any time since the start of the Great Recession.”

Of the respondents, 45% said they wanted to seek more privacy and 44% wanted to build equity and wealth. Fifty-eight percent of respondents said not having enough money for a down payment or monthly payments delayed homebuying. Half of those respondents said they believed  they would need a down payment of 10-20%.

Data also found that first-time buyers are younger today than they were a decade ago. The average age of homebuyers declined from 39 in 2010 to 36 in 2018.

Consumers between the ages of  25-34 have seen their share of all first-time homebuyers rise by 6%.

“There has been a lot of discussion in the marketplace that younger people today may not be as interested as prior generations in buying a home and being tied down to one location. Our survey results suggest that is not the case at all. Rather, younger people may have in fact been deterred from home purchase by challenges they faced in the financially difficult times of the last decade.” said Mellman. “Only 10% of respondents said being tied down to one location would be a reason to delay home purchase. Just like others before them, the younger generation seem to place value in home ownership.”

Posted on January 25, 2019 at 7:56 AM
Guy Arnone | Posted in Real Estate |

Is History Repeating Itself?

Warning signs are flashing in the housing market, says Lakshman Achuthan, COO and Co-Founder of the Economic Cycle Research Institute in New York. Achuthan recently published an article with Bloomberg in which he discussed the decline in growth in real home price since the summer of 2018 began.

This drop in home prices has been closely monitored across the industry, as seen in a recent report on the Redfin Housing Demand Index showing demand flat for a third consecutive month. But Achuthan goes further, claiming research done at his institute indicates real home price growth hasn’t just declined in recent months, but rather has “entered a cyclical downturn that is likely to intensify.”

This trend in decline home price growth, he suggests, very well could lead to an actual drop in housing values, reversing significant gains made since housing prices plummeted in the wake of the subprime mortgage crisis.

“With rates rising and the broader economy in a stealth slowdown that few recognize,” Achuthan warns, “stock prices are vulnerable to corrections… In this context, the home price downturn raises the risk of generalized asset price deflation that could result in a negative wealth effect for the first time since the financial crisis.”

As underlying factors fueling this downturn, Achuthan points to forecasts in data which reveal a drop in housing starts and existing home sales, both trends have been discussed by our sister publication, MReporthere and here.

Another factor Achuthan cites for his belief that home prices have entered a cyclical decline is the affordability issue, which continues to be a serious problem for many potential homebuyers who feel locked out of the market. But affordability is likely to persist as a dampener for home sales for the foreseen future—and will likely to be exacerbated by mortgage rates also widely expected to increase (as reported on by Deborah Kearns in a recent Bankrate article). Achuthan believes the increase in mortgage rates outpacing home prices combined with a paucity of new housing starts and rising costs in construction all together signal a real driver in a cyclical downturn in home prices across the nation.

“If nothing else,” Achuthan insists in closing, “the prospect of this scenario warrants serious monitoring.”

Posted on December 31, 2018 at 4:33 PM
Guy Arnone | Posted in Real Estate |

Worrying Delinquency Trends

Mortgage delinquencies rose more than 13 percent in September registering the largest single-month rise since November 2008 according to Black Knight’s First Look at the mortgage performance data for September.

Black Knight said that while September delinquency increases are quite common, three factors led to the large surge seen during the month this year.  “Sixteen of the last 19 Septembers have seen delinquencies increase, averaging a 5.2 percent rise over that time frame, the largest of any month during the calendar year,” the report stated.

While that may be the case, the fact that September ended on a Sunday and cut short the number of days for mortgage payments to be processed also contributed to the increased number of delinquencies. Though both these factors have been a common occurrence over the years and were by far the bigger reason for the spike, the report indicated that Hurricane Florence also contributed to the surge in delinquencies during the month.

Hurricane Florence-related delinquencies increased 38 percent month-over-month, with more than 6,000 borrowers already missing a payment as a direct result of the storm, Black Knight said in its report.

These three factors—the impact of Hurricane Florence, the fact that the month ended on a Sunday, and that historically September has been a month where delinquencies increase—have resulted in the sudden spike.

Despite this increase, the report revealed that foreclosure starts posted a double-digit monthly decline and hit an 18-year low with 40,000 starts recorded during the month. The report also indicated that the inventory of loans in active foreclosure and the foreclosure rate fell below their pre-recession averages for the first time since the financial crisis.

However, monthly prepayment activity fell by 25 percent from August 2018. The report attributed this fall to rising interest rates and home prices that were putting pressure on home affordability as well as prepayment speeds.

Regionally, Mississippi saw the highest non-current percentage of loans at 10.33 percent followed by Louisiana, Alabama, West Virginia, and Arkansas.

Colorado led the states that saw the least number of non-current percentage of loans at 2.01 percent, followed by Oregon, Washington, Idaho, and North Dakota.

Posted on December 15, 2018 at 4:32 PM
Guy Arnone | Posted in Real Estate |

HUD Awards $47M in Housing Counseling Grants Share 

“HUD-approved housing counselors are on the front lines, guiding people through their first home purchase and the ups and downs of homeownership,” says HUD Secretary Ben Carson. “Their efforts give families a real opportunity to realize their dream of owning a home is obtainable by offering advice on affordable rental housing, home financing, and tools to prevent foreclosure.”

HUD housing grants

© Pachai-Leknettip – iStock/Getty Images Plus

The grants will go toward supporting housing counseling services within 31 national and regional organizations, six multi-state organizations, 19 state housing finance agencies, and 207 local housing counseling agencies. Grant recipients will use the funds to address low- and moderate-income families’ housing needs, such as evaluating their readiness for a home purchase, helping them to understand financing and down payment options, and navigating the home buying process. The organizations will also help households find affordable rental housing and identify ways to repair any credit problems that may be restricting their housing choices. They also assist homeless people find transitional housing and senior citizens who are seeking reverse mortgages.

HUD and the Federal Reserve Bank of Philadelphia have published recent research that shows housing counselors provide significant benefits for first-time home buyers and families who are struggling to prevent foreclosure.

See the full list of all counseling agencies that have been granted funding.

Posted on November 30, 2018 at 6:00 AM
Guy Arnone | Posted in Real Estate |

Fixed-rate Mortgages Still the Loan of Choice

According to Fitch Ratings, 90 percent of Reverse Mortgage Backed Securities (RMBS) contain fixed interest rates for their full term this year, meaning U.S. mortgage borrowers still choose fixed-rate mortgages as their loan of choice. Fitch notes that even with the upcoming termination of the London Interbank Offered Rate (LIBOR) in 2021, the most commonly used index for U.S. adjustable-rate mortgages (ARMs).

The percentage of RMBS containing fixed rate mortgages increased from 80 percent to 90 percent year over year in 2018, with Fitch noting that market interest rates for ARMS have “not been highly compelling.” According to Fitch, “hybrid” form ARMS, or those with fixed rates for the first five or 10 years, after which they adjust based on movements in LIBOR, have been impacted by slow moving long term rates. Current seven-year hybrid ARM rates are typically only 0.25 percent to 0.375 percent lower than available fixed-rate loans, which Fitch notes is not enough to entice borrowers.

Though most borrowers tend to lean toward fixed rate loans, for non-prime mortgage borrowers, hybrid ARMs are an attractive lending alternative as even small differences in mortgage rates can increase affordability during the initial level payment period. Currently, over 50 percent of non-prime loans currently being originated are five- to 10-year hybrid ARMs with LIBOR cited as the reference index for the adjustable term.

With LIBOR no longer available to mortgage servicers once these new hybrid loans roll to adjustable-rate, the mortgage and securitization documents allow for replacement. Just five percent of RMBS include an unpaid principal balance floating off of LIBOR. The end of LIBOR gives RMBS programs the opportunity to explore alternative options.

“Typically the note holder or servicer will choose a new index based upon comparable information and will give notice of this choice,” said Fitch. “Servicers are expected to make applicable interest rate adjustments in compliance with servicing standards and document references to an alternative index for the affected mortgage loans.”

Posted on November 15, 2018 at 2:30 PM
Guy Arnone | Posted in Real Estate |

Study Finds: FSBOs Net ‘Significantly’ Lower Profits

For-sale-by-owners tend to sell their homes for lower prices than homes sold through traditional agents via the MLS, and in many cases below the average differential represented by the prevailing commission rate, according to a new study by Collateral Analytics.

The study examined the price differences between homes sold through traditional agents versus those sold by FSBOs from 2016 to the first half of 2017.

Some homeowners may be tempted to try to avoid commission costs to a broker and try to sell the home on their own. But that can backfire and turn into a much lower sales price, the study found.

Even successful FSBO sellers achieve prices “significantly below” those from similar properties sold more traditionally via REALTORS®, the study found.

The authors found that the differential in selling prices for FSBOs when compared to MLS sales is “remarkably close to average commission rates.” A FSBO sale, on average, nets nearly a 6 percent lower price than an MLS sale for a similar property.

“Assuming that both buyers and sellers pay the commission, one might have expected something less than this average,” the researchers note. “It appears that many sellers are avoiding commissions while netting home prices less than they would with an agent-represented MLS sale. They are avoiding commissions at any price, even one that exceeds a commission rate.”

Source: “Saving Real Estate Commissions at Any Price,” Collateral Analytics Research (Aug. 16, 2017)

Posted on October 30, 2018 at 4:17 PM
Guy Arnone | Posted in Real Estate |