U.S. State Housing Finance Agency Delinquency Rates Continued To Improve In The Second Quarter Of 2014

As of June 30, 2014, U.S. housing finance agency (HFA) single-family loan delinquencies had fallen to their lowest level since the third quarter of 2009, signaling a downward trend that that may indicate HFA delinquencies will stay in a lower range. State delinquency rates continue to be lower than those for HFAs, but the gap continued to narrow in the second quarter of 2014. This was the second consecutive quarter in which HFA loan delinquency rates improved, and the difference between state loans and HFA loans was its smallest since the third quarter of 2012. The gap difference between HFA and state loans is an important consideration in that it addresses the influence of the state real estate market on HFA loans. By comparing HFA loans to state loans, one can better explain the performance of HFA loans. HFA loan delinquencies declined to 6.29% of the total outstanding loan balance (compared with 6.64% in the first quarter), and state prime loan delinquencies rose slightly, to 4.64% from 4.58% in the second quarter. A recovering housing market is probably the largest reason for the improved performance, but then again, the state rate nudged up a bit during the same time.

Despite the improvement in HFA loan performance, the same factors that have contributed to higher delinquencies for HFA loans since 2008 persist. Most HFAs are unable to add new loans to their balance sheets because of an inability to fund them in a mortgage revenue bond program. State pools, on the other hand, include newer loans with better performance. This means HFA pools are at a disadvantage compared with the respective pool of state loans with similar mortgage insurance characteristics. HFA loan performance has been generally stable during the past 17 quarters, with the average delinquency rate ranging between 6% and 8%. We believe that if HFAs were able to add new whole loans to their bond programs, their delinquency rates would be similar to or even below those of similar loan pools in the states. State subprime delinquencies, at 11.53% in second-quarter 2014, were nearly twice as high as delinquencies for HFA loans, which have subprime characteristics.

Foreclosures remained low for both HFA and prime state portfolios, but, as with delinquencies, they were much more prevalent for subprime state portfolios. The foreclosure rate for HFA portfolios was 2.3% in the second quarter of 2014, compared with 1.7% for state prime loans and 4.5% for state subprime loans.

With this recent improvement, HFA loans continued to perform well within our stress test assumptions for the ratings, and we expect that loan delinquencies will remain within a range the agencies can manage. Furthermore, HFA loans continued to perform much better than subprime state loans even though the former share some characteristics with subprime loans, such as low borrower credit scores and high loan-to-value (LTV) ratios. Standard & Poor’s Ratings Services’ U.S. public finance (USPF) criteria assumes foreclosure rates that are comparable to our U.S. residential mortgage backed securities (U.S. RMBS) criteria, but market value decline assumptions in the USPF criteria are significantly lower. The result is a loss severity for USPF lower than that in U.S. RMBS. However, given the diverse vintage and seasoning of loans within HFA bond programs, the portfolios with varying amortization periods, varying pledged credit enhancements from issuers that we rate, and the mission-driven activities of the issuers, assumptions in USPF are consistent with those in U.S. RMBS.

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S&P Dow Jones Indices released the latest results for the S&P/Experian Consumer Credit Default Indices. Data is through September 2014. S&P/Experian Consumer Credit Default Indices Press Release – October 2014

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RealtyTrac® (www.realtytrac.com), released its U.S. Foreclosure Market Report™ for September and the third quarter of 2014, which shows foreclosure filings — default notices, scheduled auctions and bank repossessions — were reported on 317,171 U.S. properties in the third quarter, down 16 % from a year ago but up 0.42 % from the previous quarter — […]

How the Cities Did in July 2014

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What Ails Housing Starts

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Affordable Multifamily Housing Hot Topics Event

Please save Wednesday, October 8, for Standard & Poor’s Ratings Services’ Affordable Multifamily Housing Hot Topics Event in San Francisco. Senior credit analysts from S&P Ratings’ Housing Enterprises and Structured Securities group will discuss mortgage finance and housing industry trends. Register Today. This event will precede the Novogradac Affordable Housing Conference on October 9-10 in […]

How the Cities Did in June 2014

Widespread Slowdown in Home Price Gains According to the S&P/Case-Shiller Home Price Indices

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All Cash and Institutional Investor Shares of Home Sales Drop

RealtyTrac® released its Q2 2014 U.S. Institutional Investor & Cash Sales Report, showing all-cash sales accounted for 37.9% of all sales of single family homes and condos nationwide in the second quarter, down from a three-year high of 42.0% in the previous quarter but up from 35.7% in a year ago. The report also shows […]

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