Scotsman Guide - July 2012 Residential Edition

Data
By david h. Stevens

PRESIDENT AND CEO, MORTGAGE BANKERS ASSOCIATION

decoded

DeliNqUeNcieS AND FOreclOSUreS DOwN TO Pre-receSSiON levelS

Mortgage delinquencies continue to decline, according to this past first quarter’s National Delinquency Survey, released by the Mortgage Bankers Association (MBA).

The delinquency rate for mortgage loans on one-to-four-unit residential properties decreased to a seasonally adjusted rate of 7. 4 percent of all loans outstanding as of the end of first-quarter 2012, a decrease of 18 basis points from fourth-quarter ’ 11, and a decrease of 92 basis points from first-quarter ’ 11. The non-seasonally adjusted delinquency rate decreased 121 basis points to 6.94 percent this past first quarter from 8. 15 percent this past fourth quarter. This is the largest quarterly decrease in the unadjusted rate in the history of the survey.

The percentage of loans on which foreclosure actions were started this past first quarter was 0.96 percent, down three basis points from the previous quarter and down 12 basis points year over year. This is the lowest this measure has been since 2007.

The percentage of loans in the foreclosure process this past first quarter was 4. 39 percent, up one basis point from the previous quarter but down 13 basis points year over year. The serious delinquency rate — the percentage of loans that are 90 days or more past due or in the process of foreclosure — was 7. 44 percent, a decrease of 29 basis points from the previous quarter and a decrease of 66 basis points from first-quarter ’ 11.

The combined percentage of loans in foreclosure or at least one payment past due was 11. 33 percent on a non-seasonally adjusted basis, a 120 basis point decrease from the previous quarter and 98 basis points lower than a year ago. This is the lowest this measure has been since 2008.

u.S. hiSTorical delinquency and ForecloSure ra TeS

12%

10%

8%

6%

4%

2%

0

All past-due loans

Q1 ’07 Q1 ’08

30-day delinquency rate

Q1 ’09 Q1 ’ 10

Foreclosures starts

Q1 ’ 11 Q1 ’ 12

Overall delinquency rates continue to drop, and the non-seasonally adjusted delinquency rate had its largest decline in the history of the survey. Short-term delinquencies are down, largely attributable to recent job growth and a decline in the unemployment rate. Longer-term delinquencies — loans that are at least 90 days past due — also decreased, and there was no corresponding increase in loans in foreclosure. This may indicate that those troubled loans in the gravest danger of entering the foreclosure process are becoming healthy loans again.

Source: Mortgage Bankers Association
The foreclosure inventory rate is getting worse, however. The discrepancy in the percentages
of homes in foreclosure between judicial foreclosure states — states in which foreclosure
proceedings must be handled through the court systems — and nonjudicial foreclosure
states has been a problem for some time. judicial foreclosure states have an average
foreclosure inventory rate of 6. 9 percent, while nonjudicial foreclosure states only average
2.8 percent. judicial foreclosure states have much higher foreclosure inventory rates than
nonjudicial ones because the latter are able to work through troubled loans much more
rapidly. As a result, these states can begin healing their housing markets faster.

Arizona is a prime example of a state that was hit hard by the housing crash, but because it is a nonjudicial foreclosure state, it has been able to work through its foreclosure inventory faster than many other states. Arizona has a foreclosure inventory rate of 3. 57 percent and began to see home price appreciation this past spring.

In comparison, Florida and New jersey also were hit hard by the crisis, and both are judicial foreclosure states. They have foreclosure inventory rates of 14. 31 percent and 8. 37 percent, respectively.

Overall, the housing picture is improving, albeit at a slower pace than we might want. Delinquencies and foreclosures are down to pre-recession levels, and the problem remains the high number of foreclosures, which must be cleared before any real progress can be made in the return to normalcy in the market.

To subscribe to MBA’s National Delinquency Survey, contact MBAResearch@mortgagebankers.org.

David h. Stevens was president and CEO of the Mortgage Bankers Association. Previously, Stevens served as assistant secretary for housing at the U.S. Department of Housing and Urban Development and was appointed commissioner of the Federal Housing Administration by President Obama. Stevens was also president and chief operating officer of Long and Foster Companies, senior vice president at Freddie Mac, and executive vice president at Wells Fargo. Reach the MBA at (202) 577-2700.

QA&

reed piano MANAGING DIRECTOR NATIONAL ASSOCIATION OF MORTGAGE UNDERWRITERS

BY RAYMOND FLEISCHMANN

The underwriting process is an integral part of every loan that’s completed in the mortgage industry — from jumbo loans to Federal Housing Administration loans, purchase loans to refinances. To learn more about this vital facet of the industry, we spoke with Reed Piano, managing director of the National Association of Mortgage Under writers (NAMU).

What are some of namu’s concerns for the
next few years?

From an underwriting perspective, we just don’t want to go backward and loosen up the guidelines and allow for subprime loans, which could take us backward. I think that, ultimately, having tighter standards is a good thing, but I think it needs to be balanced out. Right now, [the standards are] overregulated and need to be eased up a little bit. So, a concern is that those regulations don’t get eased and the real estate mortgage market remains stalled. It needs to be eased up a little bit, but not to a point where it’s like it was before the crash.

What can mortgage brokers and originators
do to help their deals get approved?

From an originator’s standpoint, the trick is to package the deal correctly upfront. The idea is to obtain everything that’s needed from a borrower, so you’re finding out upfront if the deal is going to be good. That includes obtaining their credit [reports], having W-2s, getting an appraisal and making sure all the pieces of the puzzle are put together. A trend right now, if you want to call it a trend, is manual under writing. A lot of banks and lenders have shifted from automated underwriting — which in some ways is what got us into this problem, underwriters were relying too heavily on automated under writing. Now, there’s more of an emphasis on manual under writing, which is basically having the skills to pick apart a file by hand. But I would say, in terms of the broker or loan officer, the main thing to expedite a closing and increase closing ratios at the end of the month is if they put together a good package upfront. Then there’s less chance that it’ll be rejected and fewer stipulations that come back from the underwriter.

What are some of the most common snags that
originators run into during underwriting?

I would say occupancy and debt-to-income ratios. Misrepresentation of occupancy happens all the time, and not disclosing debts that the underwriter finds throughout the review processes alone can cause ratios to exceed guidelines. I think the GFE [good-faith estimate] and accurate disclosure of common mortgage fees and charges continue to challenge origination staffs. Because, obviously, there’s a balance there — the originator wants to not scare off the borrower, but at the same time, they have to enlighten the borrower upfront. The bottom line is: Be accurate upfront with the borrower. you might scare them off, but at the same time, you’re going to close the loan if it is a good borrower and if the borrower agrees to the fees.