Quint Cobb & Associates
Record Foreclosures cause opportunity and concern for Americans
My name is Quint Cobb and I am the Managing of Director of Investment Loan Operations and I thank you for taking the time to visit my blog.
I wanted to take a moment and address the growing interest and concern surrounding Foreclosures.
Mortgage bankers report hits grim a benchmark in first quarter, showing a record number of homes in jeopardy.
More than one million homes are now in foreclosure, the highest rate ever recorded, according to a trade group which warned Thursday that number will continue to climb.
The Mortgage Bankers Association’s first quarter report showed that a record 2.5% of all loans being serviced by its members are now in foreclosure, which works out to about 1.1 million homes. That’s up from the 2% of loans, or about 938,000 homes, that were in foreclosure at the end of 2007.
The report also showed that 448,000 homes, or about 1% of loans being serviced, began the foreclosure process during the first quarter. That’s up from about 382,000 homes, or 0.83%, that entered foreclosure in the last three months of 2007.
The seasonally-adjusted rate of homeowners behind on their mortgage payments also hit a record high. Nearly 3 million home loans, or 6.4%, have missed at least one payment, while about 737,000 are at least three months past due, but not yet in foreclosure.
Grim numbers
“The figures aren’t surprising, but they’re pretty ugly nonetheless,” said Michael Larson, real estate analyst with Weiss Research. “We’re talking higher delinquencies and foreclosures pretty much across the board.”
And he doubts that there’s much reason to expect the foreclosure crisis to abate until next year at the earliest, adding that it could be a couple of years or more before foreclosure rates retreat to more normal historical averages.
“It’s the same story we’ve been seeing for a while now – we had too much reckless lending, and buyers who got over-extended,” he said. “We’ve had an unprecedented decline in home prices on a nationwide basis, which is public enemy number one for mortgage loans. And now you’ve got an overall economy that has slowed adding to this toxic stew.”
Good credit, bad credit
Much of the problem lies with subprime loans given to borrowers with weaker credit records, especially those loans that had adjustable rates. Nearly four out of ten subprime ARM loans are a month or more late, or in foreclosure. And subprime ARMs account for 39% of the loans that fell into foreclosure during the quarter.
Prime fixed-rate loans, which are considered very low risk, have also seen sharp increases in their delinquency and foreclosure rates, although they are performing far better than the riskier loans on the market.
There are 431,000 prime loans in foreclosure, a seasonally adjusted rate of 1.2% that is more than double the 0.5% rate a year ago.
The report showed about 1.2 million prime mortgages are now a month or more past due, a seasonably adjusted rate of 3.7% of those loans. That’s up from a rate of 2.6% a year ago.
According to Jay Brinkman, MBA’s vice president for research and economics, the prime loan segment was hurt by so-called Alt-A loans, which didn’t require income verification for buyers with good credit. Prime loans are also getting into trouble in places such as Florida and California, which have seen sharp home price declines.
“You still have people with prime fixed rate loans who lose their jobs, who get a divorce or have an illness come up, and can no longer afford a house,” Brinkman said. “In areas where there’s been home price appreciation, you can get out of that with the sale of a home or some other negotiation.”
Getting worse before it gets better
This marks the sixth straight quarter in which a record percentage of loans went into foreclosure.
The trend has led to a widespread decline in home prices, as well as huge losses for banks and other financial firms that issued or invested in the loans.
Nearly half of the homes in foreclosure are concentrated in six states. But those states are undergoing two very different types of housing meltdowns.
California, Florida, Arizona and Nevada have been hit by a hangover after a home building boom in the middle of the decade, which was fueled by rising home prices and investors snatching up real estate using risky mortgages. Those four states have nearly 400,000 homes in foreclosure, or a third of the nationwide total. Roughly 3.6% of all of the loans in these states are now in foreclosure.
“Clearly things in California and Florida are going to get worse before they get better,” said Brinkman.
The other two states that are ground zero for the crisis – Michigan and Ohio – have been hit by the more traditional economic woes stemming from rising job losses, particularly in the automotive sector.
Ohio has about 61,000 homes in foreclosure, while Michigan has about 54,000. The foreclosure rate in those two states is 3.9%.
There is a glimmer of good news. The rate of homes going into foreclosure in Ohio and Michigan was narrowly lower than it was in the fourth quarter, and 18 other states also saw a decline in that rate.
Brinkman said he hoped that means the crisis is at or near a bottom in much of the country, and that foreclosure prevention efforts have started to have an effect. But he added that a slight improvement in one quarter doesn’t necessarily mean the end is near.
Indeed, the rate of homes going into foreclosure continued to climb sharply higher in California and Florida, as has the rate of loans in those states that are 90 days or more past due but not yet in foreclosure. Brinkman said that in markets like these, where home prices have fallen so far from the market’s peak, finding solutions to keep a home out of foreclosure are more difficult.
He also added that, given the large impact California and Florida are having on the national foreclosure numbers, and the fact that historically foreclosures peak about three years into the loan’s life, he expects the number of foreclosures will continue to rise.
Quint Cobb is a seasoned veteran in the real estate industry for over 17 years. He holds active licenses in real estate, mortgage finance, and property & casualty insurance. Offering a one-stop shop for his residential and commercial clients, he strives to not only educate, but streamline the real estate acquisition process. With a long and proven track record of success, he is uniquely qualified and has a passion for helping people achieve their goals in real estate.
Stocks extend gains
Stocks jump on news that Wal-Mart and others reported better-than-expected May sales, along with a drop in weekly jobless claims and Verizon-Alltell’s merger.
Stocks rallied near midday Thursday, with the Dow up over 180 points, as investors welcomed a surprise dip in weekly jobless claims, strong May sales from Wal-Mart Stores and a merger in the telecom sector.
The Dow Jones industrial average (INDU) and the broader Standard & Poor’s 500 (SPX) index were both nearly 1.4% higher with under 3 hours left in the session. The Nasdaq composite (COMP) gained about 1.5%.
Stocks rose modestly at the open, but picked up the pace as the morning wore on, thanks to the mix of economic and company news. Meanwhile, gas and oil prices continued to move higher and the dollar retreated versus the euro after several days of gains.
The better-than-expected retail sales results from discounters such as Wal-Mart and Costco fueled Thursday’s rally, said Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams. However, he noted that the improved sales were a result of the economic stimulus checks being mailed out, rather than a bigger indication of the health of the consumer.
On the upside, “a lot of people thought consumers were going to have to hoard their checks because they have to pay their mortgage and $4 a gallon for gas,” Rovelli said. “So I guess there is some reassurance that the consumer isn’t dead, at least at the lower end of the retail picture.”
Stocks were mixed Wednesday after reports that Moody’s could lower the credit ratings of bond insurers Ambac and MBIA trumped upbeat economic news and lower oil prices.
Verizon buys Alltel. The Dow component said it’s buying the rural wireless carrier from a private equity group for $28.1 billion in a deal that will create the largest U.S. wireless carrier. Verizon shares jumped over 6%.
Jobless claims drop. The number of Americans filing new claims for unemployment fell 18,000 last week to 357,000, versus forecasts for an unchanged reading. The report was a positive amid hopes that the economy can avoid a recession. However, the four-week moving average, seen as a more reliable indicator, rose to a more than four-year high. Friday brings the big monthly non-farm payrolls report.
Housing market fallout continues. A report from the Mortgage Bankers’ Association showed that the number of homes in foreclosure surpassed 1 million in the first quarter, a record number.
Wal-Mart and other chain stores. The world’s largest retailer reported higher-than-expected May sales at stores open a year or more, saying it felt the benefit of the first wave of economic stimulus checks having been mailed out. Wal-Mart (WMT, Fortune 500) shares gained more than 3%.
Costco (COST, Fortune 500) also benefited from the economic stimulus checks, with the warehouse club posting a bigger-than-expected rise in May sales. (Full story).
Airline woes continue. Continental (CAL, Fortune 500) said it would cut 3,000 jobs from its workforce of 45,000 and ground 67 planes amid soaring fuel prices and the struggling economy. On Wednesday, United parent UAL Corp. (UAUA, Fortune 500) also announced it would cut jobs and ground planes.
Gas hits new record. The national average price for a gallon of regular unleaded gas rose to $3.989 from $3.983 the previous day, AAA reported. It was the 28th record in 29 days.
Oil prices rise. U.S. light crude oil for July delivery rose $2.80 cents to $124.38 a barrel on the New York Mercantile Exchange, after having slid for the past few sessions.
Other markets: The dollar slipped versus the euro and the yen, after rising for the past few sessions.
Treasury prices fell, lifting the yield on the 10-year note to 4.02% from 3.97% late Wednesday. Bond prices and yields move in opposite directions.
COMEX gold for August delivery fell $11.30 to $872.50 an ounce.
Regulators give bleak forecast for banks
Agency heads suggest that banks have not set aside enough reserves for future loan losses and argue earnings will suffer.
Several top banking regulators warned lawmakers Thursday of more troubles ahead for the industry, including additional writedowns and the possibility that bigger banks could fail.
Speaking before the Senate Banking Committee, officials said most U.S. banking institutions are in relatively good health but remain challenged by continued woes in the housing market and the broader economy.
“We clearly are not out of the woods,” said John Dugan, who heads the Office of the Comptroller of the Currency, which oversees banks with a nationwide footprint.
One shortcoming, argued Federal Reserve Vice Chairman Donald Kohn, is that banks have not allocated enough money to keep up with the growth of their problem assets. As a result, they may have to boost their skyrocketing loan loss reserves even further.
Banks insured by the Federal Deposit Insurance Corporation set aside $37.1 billion in loan-loss provisions in the first quarter of this year – four times more than the $9.2 billion in the first quarter of 2007, the FDIC reported last week in its quarterly review of the industry.
Regulators added that they were bracing for an uptick in the number of bank failures, at least in the near term.
So far this year, just four banks have collapsed, including the most recent downfall of the Staples, Minn.-based First Integrity Bank, which shuttered its doors last Friday.
While most of the failures have so far been smaller community banks, FDIC Chairwoman Sheila Bair said her staff was preparing for the possibility of a large failure as a precaution.
“I don’t see that happening,” she said. “But we have to be prepared for all contingencies.”
Kohn and Dugan added that many institutions will require additional capital injections in the months ahead and may have to go so far as to cut their dividends.
In early March, many of these regulators met with lawmakers to discuss the state of the banking industry. But the dramatic collapse of Bear Stearns and the Federal Reserve’s controversial rescue of the Wall Street firm since then have raised new fears about the industry.
Now, rumors are swirling about the health of other large financial institutions, most notably Lehman Brothers (LEH, Fortune 500). During the hearing, Sen. Richard Shelby R-AL., asked about the likelihood of another investment bank needing to be bailed out.
Kohn declined to comment on the health of specific companies but said that Wall Street firms have learned a great deal from Bear Stearns and have reduced leverage and built up their liquidity.
“I think we have a stronger set of investment banks than we had a month-and-a-half ago,” said Kohn.
Quint Cobb is a seasoned veteran in the real estate industry for over 17 years. He holds active licenses in real estate, mortgage finance, and property & casualty insurance. Offering a one-stop shop for his residential and commercial clients, he strives to not only educate, but streamline the real estate acquisition process. With a long and proven track record of success, he is uniquely qualified and has a passion for helping people achieve their goals in real estate.
1 response so far ↓
Grace // July 1, 2008 at 12:28 pm |
Bank foreclosures are homes and properties that are currently owned by various banks or lenders. These banks own them because they are the result of foreclosure actions.
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