The delinquency rate for mortgage loans on one-to-four-unit residential properties decreased to a seasonally adjusted rate of 8.22% of all loans outstanding as of the end of the fourth quarter of 2010, a decrease of 91 basis points from the third quarter of 2010, and a decrease of 125 basis points from one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey. The non-seasonally adjusted delinquency rate decreased 46 basis points to 8.93% this quarter from 9.39% last quarter. The percentage of loans on which foreclosure actions were started during the fourth quarter was 1.27%, down seven basis points from last quarter and up seven basis points from one year ago. The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure.

The percentage of loans in the foreclosure process at the end of the fourth quarter was 4.63%, up 24 basis points from the third quarter of 2010 and up five basis points from one year ago. The serious delinquency rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 8.57%, a decrease of 13 basis points from last quarter, and a decrease of 110 basis points from the fourth quarter of last year. The combined percentage of loans in foreclosure or at least one payment past due was 13.56% on a non-seasonally adjusted basis, a 22 basis point decline from 13.78% last quarter.

Jay Brinkmann, MBA’s chief economist said “These latest delinquency numbers represent significant, across the board decreases in mortgage delinquency rates in the US. Total delinquencies, which exclude loans in the process of foreclosure, are now at their lowest level since the end of 2008. Mortgages only one payment past due are now at the lowest level since the end of 2007, the very beginning of the recession. Perhaps most importantly, loans three payments (90 days) or more past due have fallen from an all-time high delinquency rate of 5.02% at the end of the first quarter of 2010 to 3.63% at the end of the fourth quarter of 2010, a drop of 139 basis points or almost 28% over the course of the year. Every state but two saw a drop in the 90-plus day delinquency rate and the two increases were negligible.”

“While delinquency and foreclosure rates are still well above historical norms, we have clearly turned the corner. Despite continued high levels of unemployment, the economy did add over 1.2 million private sector jobs during 2010 and, after remaining stubbornly high during the first half of 2010, first time claims for unemployment insurance fell during the second half of the year. Absent a significant economic reversal, the delinquency picture should continue to improve during 2011, Brinkmann said.

Mike Fratantoni, MBA’s vice president for single family research said “While the foreclosure starts rate fell during the fourth quarter, the percentage of loans in foreclosure rose to equal the all-time high. The foreclosure inventory rate captures loans from the point of the foreclosure referral to exit from the foreclosure process, either through a cure (perhaps through a modification), a short sale or deed in lieu, or through a foreclosure sale. As we predicted last quarter, the percentage of loans in the foreclosure process increased in the fourth quarter, largely due to the foreclosure paperwork issues that were being addressed in September and October. These issues caused a temporary halt in foreclosure sales, particularly in states with judicial foreclosure regimes, such as New Jersey, Florida, and Illinois.

With fewer loans exiting the foreclosure process through sales, the foreclosure inventory rate naturally increased, even as fewer foreclosure starts meant that fewer loans entered the foreclosure process in the fourth quarter.” “The share of loans in foreclosure in California and Florida combined was 36.0%, a decrease from 37.3% in the third quarter, and 39.3% a year ago. Over 24% of the loans in Florida are one payment or more past due or in the process of foreclosure, the highest rate in the nation, followed by Nevada at over 22%, compared to an average of 13.6% for the nation. Only eleven states saw an increase in their foreclosure start rate with Maryland seeing the largest increase.”

On a seasonally adjusted basis, the overall delinquency rate decreased for all loan types. The seasonally adjusted delinquency rate stood at 4.51% for prime fixed loans, 11.23% for prime ARM loans, 21.26% for subprime fixed loans, 25.32% for subprime ARM loans, 12.26% for FHA loans, and 6.67% for VA loans. The% of loans in foreclosure, also known as the foreclosure inventory rate, increased 24 basis points to 4.63%, which ties the survey’s record high, last reached in the first quarter of 2010. All loan types saw an increase in the% of loans in foreclosure. The foreclosure inventory rate for prime fixed loans, which, make up the largest portion of the survey (accounting for 63% of the loans), increased 22 basis points to 2.67%.

This was the highest rate recorded for prime fixed in the history of the survey. The rate for prime ARM loans increased 17 basis points from last quarter to 10.22%. Subprime fixed loans saw an increase of 104 basis points to 9.92%, which is a new record high in the survey. The rate for subprime ARM loans increased 26 basis points to 22.04%, while the rate for FHA loans increased eight basis points to 3.30% and the rate for VA loans increased 21 basis points to 2.35%.

The foreclosure starts rate decreased nine basis points for prime fixed loans to 0.84%, five basis points for subprime fixed loans to 2.73%, and 22 basis points for FHA loans to 1.02%. The foreclosure starts rate increased two basis points for prime ARM loans to 2.38%, 15 basis points for subprime ARM loans to 4.24%, and two basis points for VA loans to 0.88%. Given the challenges in interpreting the true seasonal effects in these data when comparing quarter to quarter changes, it is important to highlight the year over year changes of the non-seasonally adjusted results. The non-seasonally adjusted delinquency rate decreased for all loan types since the fourth quarter of 2009. The delinquency rate decreased 135 basis points for prime fixed loans, 124 basis points for prime ARM loans, 284 basis points for subprime fixed loans, 152 basis points for subprime ARM loans, 154 basis points for FHA loans, and 91 basis points for VA loans.

The non-seasonally adjusted foreclosure starts rate increased 21 basis points for prime fixed loans, 26 basis points for prime ARM loans, and seven basis points for VA loans, but is down 47 basis points for subprime ARM loans, 26 basis points for FHA loans, and remains unchanged for subprime fixed loans on a year over year basis. Forty five states saw increases in the rate of foreclosure starts on a year over year basis, with the largest increases coming in Washington, Rhode Island and the District of Columbia. The largest decreases were in Florida, Connecticut, and Maryland. Nevada and Arizona top the rankings in terms of foreclosure starts and loans in foreclosure across most loan types.

Bernanke worries about a cash bubble

Speaking in Paris to a Bank of France conference, Federal Reserve Chairman Ben Bernanke said the uneven flow of funds into the United States from 2003 to 2007 was one of the key factors that led to the meltdown in financial markets in 2008. He did not say the current flow of capital poses a threat of that magnitude. But he warned that while the global financial crisis is receding, “capital flows are once again posing some notable challenges for international macroeconomic and financial stability.” He did not specify specific nations by name in his brief remarks, but he appeared to be referring to the continued large investment in U.S. assets by China. He argued that countries with large trade surpluses must do more to let their exchange rates be set by markets rather than intervening to keep their currencies low.

He added that nations with large trade gaps must increase national savings by cutting large budget deficits. But Bernanke said the collapse that followed the inflating of the housing bubble was not the fault of countries that flooded the United States with cash. Instead, he blamed the United States, saying “the primary cause of the breakdown was the poor performance of the financial system and financial regulation in the country receiving the capital inflows, not the inflows themselves.”

Olick – delinquencies turn a corner

“Fewer Americans are falling behind on their mortgage payments; in fact, the fewest in two years. Mortgages just one payment past due (30 days) fell to their lowest level since just before the recession began. Is it delays in paperwork from the so called ‘robo-signing’ (faulty paperwork) foreclosure servicing scandal? No. It’s actual fundamentals in the economy and the mortgage market. Go figure. As we got toward the end of 2010 we began to see another drop in weekly claims for unemployment insurance. I think that’s a key driver of the short term delinquencies,’ notes Jay Brinkmann, chief economist at the Mortgage Bankers Association. But even more significant is the improved underwriting that began after the mortgage market crashed. ‘The loans that are in the system now on average are better quality than what was in there before,’ says Brinkmann, who explains that loans usually go bad in the first three years of life.

We’re now past the delinquency peak on loans that were underwritten during the worst, headiest phase of the housing boom in 2006 and 2007. ‘These new loans are less likely to go bad,’ Brinkmann adds. The national delinquency rate fell 10% in the fourth quarter of last year to 8.22%, according to the Mortgage Bankers Association’s latest survey. That’s still high by historical standards, but it’s a huge improvement. It’s also good to see that the FHA delinquency rate improved slightly, from 12.62% to 12.26% (also still high). The biggest issue going forward is not new delinquencies, but the huge pipeline of loans already in the foreclosure process. It stands at 4.63%, tying the survey’s record high. This is due to foreclosure paperwork issues that have stalled the process, especially in the key state of Florida, where nearly one quarter of all mortgages are either delinquent or in foreclosure.

“With fewer loans exiting the foreclosure process through sales, the foreclosure inventory rate naturally increased, even as fewer foreclosure starts meant that fewer loans entered the foreclosure process in the fourth quarter,’ says the MBA’s Michael Fratantoni. As these foreclosures do make it through the process, and most will, they will put additional pressure on home prices, but for those of you with the long view, the drop in new delinquencies does present a glimmer of hope, perhaps a light at the end of the tunnel.”

GOP to cut spending

“When we say we are going to cut spending, read my lips: We are going to cut spending,” said House Speaker John Boehner on Thursday. Republicans have vowed to cull $60 billion from the fiscal 2011 budget, in their first big opportunity to make good on campaign promises to rid Washington of mounting deficits and government spending. Some of the more controversial amendment votes expected later Thursday would determine funding for family planning and the major health care expansion Congress passed last year. Earlier Thursday, lawmakers took their scalpel to arts funding, slashing $20 million from the National Endowment for the Arts and $4.5 million from National Capital Arts and Cultural Affairs. Republican lawmakers also agreed to cut funding to eight “czars,” or top presidential or federal agency advisers who aren’t confirmed by the Senate, including the pay czar charged with watching executive compensation at TARP-funded banks. And they also blocked an effort to blunt so
me $50 million in cuts to the Consumer Financial Protection Bureau.

One of the largest additional budget cuts happened Wednesday, when lawmakers of both parties agreed to an amendment stripping $450 million slated to build a new engine for the F-35 fighter jet. However, for all the rhetoric, lawmakers are also voting to avert some major cuts. They agreed to restore funding that would keep some firefighters and police officers on the payroll through September, despite an $800 million tab for both. On Thursday, lawmakers voted on amendments to protect $450 million slated for Amtrak train service, as well as another $200 million in financial help for struggling nations abroad. Earlier this week, Boehner predicted budget cuts could cost some federal jobs, adding, “so be it.”

However, on Thursday he backed off the tough love stance. “Listen, I don’t want anyone to lose their job whether they are a federal employee or not. But come on! We’re broke!,” Boehner said. “We’ve got to make tough decisions and the American people sent their representatives here to Washington to make tough decisions on their behalf. Many amendments are aimed at undoing White House priorities, such as the Environmental Protection Agency’s efforts to label CO2 a dangerous substance. Late Wednesday, House Democrats largely abandoned efforts to save those programs, hoping that they’d have more success keeping the funding with negotiations with the Senate.

WSJ – mortgage rates ease

Mortgage rates declined in the latest week, with the average rate on 30-year fixed-rate mortgages landing at 5%, according to Freddie Mac’s weekly survey. Rates slumped through most of last year as yields on Treasurys declined. But yields have been on the rise recently, pushing mortgage rates back up. The rates generally track the yields, which move inversely to Treasury prices. Although rates have risen fairly sharply lately, Freddie Chief Economist Frank Nothaft said they “still continue to be very affordable.” He noted that before 2009, rates for 30-year fixed-rate mortgages had never been as low as 5%. Freddie started tracking them in 1971.

The 30-year fixed-rate mortgage averaged 5% for the week ended Thursday, down slightly from the prior week’s 5.05% average and above the year-ago level of 4.93%. In last week’s survey, the 30-year rate climbed to its highest level since April. Rates on 15-year fixed-rate mortgages were 4.27%, down from 4.29% in the previous week and down from 4.33% a year earlier. Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 3.87%, down from the prior week’s 3.92% and 4.12% a year earlier. One-year Treasury-indexed ARMs were 3.39%, up from 3.35% last week but down from 4.23% a year ago.

Now for our real estate education section…

Cultivating Ambition – It Really Is Different This Time

“Today’s youth aren’t what they were when I was young”…. It’s a common refrain among older persons but is it actually true? Is there something inherently different about today’s young people compared to earlier generations? Even more importantly, what does it have to do with real estate? Does it really matter if the youth of today lack ambition? Well, it does matter…quite a bit as it would turn out. According to industry experts, the average young person doesn’t believe in the American Dream nor do they embrace the value systems held so dear by their parents and grandparents. They are not willing to spend a lifetime loyally working for one corporation only to be given a pink slip months before retirement. In fact, the entire concept of working for the same company for thirty or forty years is as foreign to them as that of an 8-track tape. It’s simply not on their horizon.

Jobs and employment needs are closely correlated with housing choices. Without permanent employment, young people are much less likely to see the purchase of a home as a permanent decision and much more likely to see it as a temporary function. Other important differences rapidly transpire; rather than viewing home ownership as a fundamental part of their personal identity, today’s youth are more likely to see it in terms of “life stages” consisting of discreet and highly individualized situations. Home is not where the heart is but rather a location to sleep and store physical (as opposed to virtual) belongings at this time in life.
1. The American Dream has turned into the American Nightmare in the minds of many young people today. They see parents and grandparents losing their homes, slaving away for decades at jobs which leave little time for personal enjoyment and essentially buckling under loads of debt.

2. Home is Not Where the Heart Is. According to the most recent Census data, less than 1 out of every 2 newborns are born to married parents. Female head-of-household homes are becoming an increasingly popular option. Women are now the primary decision-makers when it comes to purchasing property.

3. Home Sweet Home – Once upon a time the family home was passed down from generation to generation. People lived and died in the same town. They lived in close proximity to their relatives and remained close throughout life. Today, technology allows people to remain in contact and the average family moves ever five to seven years.

As the administration’s mortgage and housing officials sing their own praises, the Treasury and the Department of Housing and Urban Development released a new monthly “housing scorecard” in an attempt to show that the administration is making progress in its efforts to heal the market. With rehashed statistics and numbers from various sources, many of them can be interpreted as “stable,” far from the truth.  But what some observers miss is that “stabilization” is temporary and is brought about by tax credits, very low interest rates and other forms of government intervention.  “Obviously, we are not out of the woods. Our housing market remains fragile, and we still may see further declines,” said HUD Secretary Shaun Donovan told reporters.

We already have seen evidence of very steep declines in newly contracted home sales since April 30, the deadline for home buyers to qualify for tax credits of up to $8,000. But that drop won’t show up in Tuesday’s report from the National Association of Realtors on May home sales because that will reflect sales that were completed in May, not new contracts signed. The Treasury also released its monthly update on the administration’s $50 billion drive to prevent foreclosures, known as the Home Affordable Modification Program, or HAMP. By the end of May, 429,696 trials had been canceled, up from 277,640 a month before. Nearly 468,000 households are still in trials, and 190,000 of them have been in limbo for at least six months, as loan servicers, slowly work through their huge backlogs of unresolved cases. Another big problem remains: Even after HAMP modifications, many borrowers still face crushing overall debt burdens, when credit cards, car loans, student loans and oth
 er obligations are considered.