Six years after the start of the
foreclosure crisis, American homeowners are paying their mortgages like the
housing crash never happened.
The number of home loans with
negative equity fell to about 9 million or 18 percent of homes with a mortgage
in January, the report said.
Mortgages at least 30 days
delinquent or in some stage of foreclosure fell to 5 million in March, down
from a peak of 7.7 million in January 2010.
First-time delinquent home loans
fell to 0.84 percent of the 50.2 million mortgages in March, the first month
below 1 percent since 2007, before a wave of defaults led to the financial
crisis, according to a report today by Lender Processing Services Inc. The rate
of first-time defaults, defined as loans that went from performing to at least
60 days delinquent, peaked at 2.89 percent in January 2009.
The decline in new problem loans
shows that the recovering U.S. economy, falling unemployment and rising home prices,
combined with more than four years of banks’ tightening lending standards, are
propelling the worst real estate crash since the Great Depression into the
rearview mirror.
“Mortgage quality is improving
rapidly,” Mark Zandi, chief economist for Moody’s Analytics Inc. said in a
telephone interview from his office in West Chester, Pennsylvania. “Once we’re able to work through this last bulge of
foreclosed property, which I think we’ll be able to do over the next 18 to 24
months, mortgage credit quality is going to look absolutely beautiful.”
Mortgages at least 30 days
delinquent or in some stage of foreclosure
fell to 5 million in March, down from a peak of 7.7 million in January 2010,
according to Lender Processing Services, a real estate information service
based in Jacksonville, Florida. That’s still
more than double the 2.2 million non-current mortgages of January 2005, when
the housing market was rising toward its peak.
Lending
Standards
Tight lending standards have made it
harder for borrowers to obtain mortgages, helping drive down default rates
while reducing the homeownership rate in the first quarter to 65 percent, the lowest since
1995.
The Federal Housing Administration,
which offers loans to buyers with down payments as low as 3.5 percent, has
steadily raised its credit scores. In the third quarter of 2012, the most
recent available, 97 percent of FHA borrowers had credit scores above 620 of a
possible 850. In the last quarter of 2006, only 53 percent had a score above
620.
New mortgage default rates are
highest among so-called “underwater” borrowers, who have negative equity
because they owe more on their home than the balance of their loan, said Herb
Blecher, senior vice president at LPS Applied Analytics.
The new default rate was 4 percent
for borrowers who owe at least 50 percent more than the value of their home
compared with 0.6 percent for owners with equity, according to today’s report.
Negative
Equity
The number of home loans with
negative equity fell to about 9 million or 18 percent of homes with a mortgage
in January, the report said. That’s down 41 percent from a year earlier and 47
percent lower than the peak of 17 million loans in February 2011.
U.S. home prices climbed at the
fastest pace since May 2006, rising 9.3 percent in February from a year
earlier, according to an April 30 report by the S&P/Case-Shiller index of property
values.
There’s a “feeding frenzy in
housing” as Americans seek to take advantage of prices still about 29 percent
below their 2006 peak and mortgage rates near record lows, said Ross Perot Jr.,
54, chairman of Dallas-based real estate company Hillwood Development Co., in a
telephone interview. Perot’s father, H. Ross Perot, twice ran for president as
an independent candidate.
‘Very
Shrewd’
“The big picture: this economy is
coming back,” Perot said during a telephone interview from Newport Beach, California, where he was breaking ground on a condo project backed by
his Dallas-based company. “The American people are very shrewd and they realize
it’s a great time to borrow to buy a home because pricing is very cheap.”
The average rate for a 30-year fixed
mortgage dropped to 3.35 percent last week, down from 3.84 percent a year ago
as the Federal Reserve has bought $85 billion of bonds to stimulate the
economy. The average 15-year rate is a record low 2.56 percent.
Demand is also rising as more
Americans find jobs. The unemployment
rate fell to 7.5 percent in April, its lowest rate since December 2008, the
Labor Department reported May 3. The Dow Jones Industrial Average last week
rose above 15,000 for the first time.
As the quality of new mortgages
improved, government regulations have become a barrier limiting lenders’
willingness to extend credit to more borrowers, David Stevens, chief executive
officer of the Mortgage Bankers Association said today.
‘Being
Rejected’
“Too many families with solid credit
who want to buy a home are being rejected,” Stevens said at a conference in New
York. “Right now, overlapping regulations keep responsible young families from
buying their first home. What’s holding us back? Let’s streamline the process,
and help our economy grow.”
While new defaults have declined,
loans that are at least 90 days delinquent account for a growing share of the
non- performing mortgage pie: 62 percent this year compared with 30 percent in
2005, according to Lender Processing Services. The late-stage delinquency loans
are increasingly concentrated in so-called judicial states that require court
approval for foreclosures.
Florida had the highest rate of
non-current mortgages with 18.2 percent of loans either delinquent or having
received a foreclosure notice, followed by New Jersey, Mississippi, Nevada and New York.
While Florida’s problem loans declined over the last year, the number increased
5.8 percent in New Jersey and 6.1 percent in New York. All three are judicial
states, where homes languish in foreclosure more than 1,000 days while waiting
to be repossessed.
“The new problems coming into the
system have alleviated,” Blecher said in a telephone interview. “It’s really
about addressing what’s still in the pipeline.”