2012 Foreclosures Down 3% from 2011, 36% from 2010

RealtyTrac® (www.realtytrac.com) released its Year-End 2012 U.S. Foreclosure Market Report™ on January 17th. The report shows a total of 2,304,941 foreclosure filings — default notices, scheduled auctions and bank repossessions — were reported on 1,836,634 U.S. properties in 2012, down 3 percent from 2011 and down 36 percent from the peak of 2.9 million properties with foreclosure filings in 2010.  The report also shows that 1.39 percent of U.S. housing units (one in every 72) had at least one foreclosure filing during the year, down from 1.45 percent of housing units in 2011 and down from 2.23 percent of housing units in 2010.

 Other high-level findings from the report:

 Foreclosure activity in 2012 increased from 2011 in 25 states — 20 of which primarily use the longer judicial foreclosure process — including New Jersey (55 percent increase), Florida (53 percent increase), Connecticut (48 percent increase), Indiana (46 percent increase), Illinois (33 percent increase) and New York (31 percent increase).

 Foreclosure activity in 2012 decreased from 2011 in 25 states — 19 of which primarily use the more streamlined non-judicial foreclosure process — including Nevada (57 percent decrease), Utah (40 percent decrease), Oregon (40 percent decrease), Arizona (33 percent decrease), California (25 percent decrease) and Michigan (23 percent decrease).

 Florida posted the nation’s highest state foreclosure rate in 2012, with 3.11 percent of housing units (one in 32) receiving a foreclosure filing during the year. Other states with top 5 foreclosure rates were Nevada (2.70 percent), Arizona (2.69 percent), Georgia (2.58 percent), and Illinois (2.58 percent).

December foreclosure activity dropped 10 percent from the previous month to the lowest level since April 2007, a 68-month low, and fourth quarter foreclosure activity was at the lowest quarterly level since the third quarter of 2007 despite a 9 percent quarterly increase in bank repossessions.

 The average time to complete a foreclosure nationwide in the fourth quarter increased 8 percent from the previous quarter to a record-high 414 days.

 Lower foreclosure inventory gave sellers the upper hand and helped median sales prices in the first 10 months of 2012 to increase from the same time period in 2011 in 25 states. Median sales prices nationwide during the first 10 months of 2012 on average were 99 percent of median list prices.

 In January 2013, 10.9 million homeowners nationwide — representing 26 percent of all outstanding homes with a mortgage — were seriously underwater, meaning they owed at least 25 percent more on their home than what it was worth. That was down from 12.5 million homeowners representing 28 percent of all homes with a mortgage a year earlier in January 2012.

 December activity hits 68-month low, bank repossessions increase in fourth quarter

Foreclosure filings were reported on 162,511 U.S. properties in December, a 10 percent decrease from the previous month and down 21 percent from December 2011. December’s total was the lowest monthly total since April 2007 — a 68-month low. All three types of foreclosure filings — default notices (NOD, LIS), scheduled foreclosure auctions (NTS, NFS), and bank repossessions (REO) decreased both on a monthly and annual basis in December.

 Foreclosure filings were reported on 503,462 U.S. properties during the fourth quarter, a 5 percent decrease from the previous quarter — despite a 9 percent quarter-over-quarter increase in bank repossessions — and a 14 percent decrease from the fourth quarter of 2011. The fourth quarter total was the lowest quarterly total since the third quarter of 2007, when 448,145 U.S. properties received foreclosure filings.

 Florida, Nevada, Arizona post top state foreclosure rates

More than 3 percent of Florida housing units (3.11 percent, or one in 32) had at least one foreclosure filing in 2012, giving it the nation’s highest state foreclosure rate for the year. A total of 279,230 Florida properties had a foreclosure filing during the year, a 53 percent increase from 2011 but still 42 percent below the more than 485,000 Florida properties with foreclosure filings in 2010.

 After five consecutive years with the highest state foreclosure rate, Nevada dropped to No. 2 on the list in 2012 thanks to a 57 percent drop in foreclosure activity from 2011. A total of 31,658 Nevada properties had a foreclosure filing during the year, 2.70 percent of all housing units in the state (one in every 37).

 Arizona foreclosure activity in 2012 decreased 33 percent from 2011 and was down 51 percent from 2010, lowering the state’s foreclosure rate to the third highest in the nation following three consecutive years with the second highest rate. A total of 76,487 Arizona properties had foreclosure filings during the year, 2.69 percent of all housing units in the state (one in 37).

 Georgia posted the nation’s fourth highest state foreclosure rate, with 2.58 percent of housing units (one in 39) receiving at least one foreclosure filing in 2012, and Illinois posted the nation’s fifth highest state foreclosure rate, also with 2.58 percent of housing units (one in 39) receiving at least one foreclosure filing during the year.

 Other states with foreclosure rates among the nation’s 10 highest were California (2.33 percent), Ohio (1.75 percent), Michigan (1.69 percent), South Carolina (1.66 percent), and Colorado (1.64 percent).

 Foreclosure inventory rises from low point in May, still 31 percent below peak

As of the end of the year, more than 1.5 million homes were in some stage of foreclosure or bank-owned, up 9 percent from the end of 2011, but still 31 percent below the peak of 2.2 million at the end of 2010. Foreclosure inventory had dropped to a 57-month low of 1.3 million in May 2012, but has since risen off that 57-month low.

 Median home prices up in 25 states, 1.6 million fewer homeowners underwater

Lower foreclosure inventory during the year may have helped home prices to hit bottom and start rising in many markets during the year. Median home prices during the first 10 months of 2012 rose compared to the same time period in 2011 in 25 states and in 16 of the nation’s 20 largest metro areas.

 Average days to foreclose nationwide jumps to 414

U.S. properties foreclosed in the fourth quarter took an average of 414 days to complete the foreclosure process, up from 382 days in the third quarter and up from 348 days in the fourth quarter of 2011. It was the longest time to complete the foreclosure process since RealtyTrac began tracking the metric in the first quarter of 2007.

With Mortgage Defaults Rising Again, is the Underlying Health of Municipalities Getting Weaker?

Canary in the coal mine?  With data from the S&P/Experian Consumer Default Indices showing first mortgage default rates have been ticking upward since September 2012, is this a sign that municipalities may see the weak economic cycle extended?  Read the complete S&P/Experian Consumer Credit Default Indices Press Release.

National Credit Default Rates Moved Up in Q4 2012 According to the S&P/Experian Consumer Credit Default Indices

S&P Dow Jones Indices released the latest results for the S&P/Experian Consumer Credit Default Indices. Data is through December 2012. S&P/Experian Consumer Credit Default Indices Press Release – January 2013

Interview with David Blitzer: Housing Market Outlook for 2013

Last week, we interviewed David Blitzer, Managing Director and Chairman of the S&P Index Committee, on various topics relating to the current state of the U.S. housing market.  In this video, David discusses how housing might add to economic growth in 2013 and what could potentially stall a recovery, factors contributing to explosive growth in certain MSA’s, and whether or not we might see more first time homebuyers enter the market in 2013.

U.S. Housing And Residential Mortgage Finance 2013 Outlook: Homebuilders Benefit From Demand For New Homes

Buyers for newer homes returned to the single-family home market in 2012, resulting in better than expected operating results for most of the homebuilders we rate. Sales volumes and average selling price exceeded our initial expectations, and we currently expect that the homebuilders we rate will deliver on average 20% more homes in 2012 compared with 2011. Most new homebuilders have also posted healthy increases in average selling prices, outpacing overall market trends, as buyers gravitated toward competitively positioned new home communities and the supply of existing homes for sale has remained very low.

Despite our expectation that favorable housing demand and supply fundamentals will continue to support strong revenue and EBITDA growth in 2013, our outlook on the homebuilding sector remains stable. Improved fundamentals reduce downside risk in our view, particularly for the lowest rated companies, but we expect upside rating momentum will likely be more muted as homebuilders draw down their sizable cash balances (a primary support to liquidity over the past few years), and raise additional debt capital for future land and inventory investment in anticipation of higher sales volumes. The effect of this additional debt issuance will likely slow the leverage improvements necessary for more positive rating actions over the next 12 months.

We also remain concerned that the impact of a potential recession in the U.S. would be more significant for homebuilders than many other sectors, since a drop in consumer confidence would likely derail buyers’ appetite for large discretionary purchases such as single-family homes. In addition, decisions on numerous regulatory and policy initiatives that would have an impact on housing are slated for the first half of 2013, many of which could significantly affect the availability and cost of mortgage financing.

Mortgage Insurance Companies Are Still Saddled With Legacy Portfolios

The mortgage insurance sector continued to experience losses stemming from their legacy portfolios in 2012, leading to reserve adjustments and higher expected losses from delinquency to claim. Despite the reserve adjustments mortgage insurers have taken, reserve adequacy remains a significant risk, particularly given the capital impairment of many of the mortgage insurers remaining. We expect losses to continue through 2013 into 2014, although new notices of default should continue to trend downward barring a setback in the economy or housing markets.

Regulatory risk also remains heightened. Many of the mortgage insurers are operating under capital waivers from state insurance regulators allowing them to continue writing new business. Despite the ongoing depletion of capital, however, there appears to be little appetite on the part of either the state insurance regulators or the GSEs to discontinue allowing new business writings or accept the mortgage insurance paper from a counterparty perspective. Indeed, moves by Freddie Mac toward settling a dispute with Mortgage Guaranty Insurance Corporation (MGIC), acceptance of a voluntary runoff plan with higher claim payments for Republic Mortgage Insurance Co. by the North Carolina Department of Insurance, and permitted practices that the Wisconsin Office of the Commissioner of Insurance has allowed appear to be indicative of a shift toward greater accommodation.

We expect the very high credit quality of new insurance being written, combined with improvement in the housing markets and economy, to result in this business being profitable and capital accretive. Nevertheless, significant risks to the economic recovery remain. Should a recession occur in 2013, the declining trend of new notices of default could reverse and claim frequency could increase to an extent that could force several mortgage insurers into regulatory supervision and voluntary run-off.

Fannie And Freddie Continue To Support Secondary Market Liquidity

Fannie Mae and Freddie Mac remain vital cogs in U.S. mortgage finance. The two combined to guarantee roughly 70% of new mortgages in the U.S. through the first nine months of 2012 and are effectively providing market liquidity at a time when private capital remains scarce. They continue to receive the financial support of the U.S. Treasury, and the Federal Reserve has committed to buying $40 billion of their mortgage-backed securities each month until economic conditions improve, meaning rates should stay low. Their financial results have improved because new loan loss provisions have declined, in line with their falling delinquencies, but potential losses within their single-family guarantee portfolios remain substantial. We believe the September 2012 amendments to their investment agreements with the U.S. Treasury ensure that sufficient financial support for these entities remains in place for the foreseeable future, which means they will be able to continue to support the U.S. housing recovery in 2013.

Single-Family Programs In The Public Housing Industry Are Seeking Alternatives

For more than a decade, U.S. public finance issuers have faced increasing competition from commercial lenders for the first-time low- to moderate-income homebuyers they traditionally serve. Competitive mortgage products and persistent low interest rates have caused many U.S. housing finance agencies (HFAs) to use variable-rate debt, coupled with hedges and other structures, to enable them to actively issue bonds while maintaining competitively low rates. Because HFAs’ mission is to provide affordable housing options for low- to moderate-income families, some of these issuers have searched for alternatives to mortgage revenue bonds for financing loans and have used these methods more increasingly in 2012.

We found that these issuers are using a variety of mortgage product options to fund their programs. These options include mortgage-backed securities (MBS) to the “to be announced” (TBA) market, the forward trade of Ginnie Mae issued MBS that guarantee HFA originated mortgages with delivery of the MBS to the market investor prior to the established trade settlement date, and direct purchase loan participation pool sales to financial institutions. In addition, HFAs are originating home mortgages under their guidelines, insured by the federal government under the Federal Housing Administration (FHA), and selling them directly to financial institutions. They are also originating whole loan HFA program guidelines and selling directly to GSEs (Fannie Mae or Freddie Mac) for cash.

The investors in the HFAs’ alternative funding products vary. Fannie Mae and Freddie Mac purchase whole loans directly from the HFAs through various programs that include recourse to the HFA during the earlier part of the loan’s term. Market activity suggests that insurance companies, individual investors, and some institutional investors (through brokers) are purchasing MBS through the TBA market. We expect this shift in mortgage funding among HFA issuers to prevail in 2013 and over the long term. While direct sales of loans to the GSEs remain a viable alternative for the HFAs, the agencies’ receivership status may impair their long-term capacity to purchase whole loans. As the U.S. public housing sector continues to evolve, HFAs’ ability to identify and use alternative sources for mortgage funding, while also recognizing and mitigating the risks of these alternative options, will be critical to their credit strength and, ultimately, to their sustainability over time.

Comparing City Results

One feature of a normal real estate market is that price performance varies from city to city as opposed to the boom and bust era when everything rose, and fell, together.  The table gives a comparison of the 20 S&P/Case-Shiller Home Price Indices showing peaks, troughs and recoveries.  Two of the cities with the biggest rebound were among the hardest hit in the housing bust — Detroit and Phoenix with San Franscisco close behind. The Florida cities, Miami and Tampa,  that saw large price declines have not recovered much so far.  The weakest rebound is in New York, one of the two soft spots in the October data.

Click on the table for a larger image.

Source: S&P/Case-Shiller Home Price Indices

CNBC Exclusive Interview with David Blitzer on U.S. Home Prices for October

David Blitzer, Managing Director and Chairman of the S&P Index Committee, discusses the latest data results for the S&P/Case-Shiller Home Price Indices on CNBC.

Sustained Recovery in Home Prices According to the S&P/Case-Shiller Home Price Indices

Data through October 2012, released today by S&P Dow Jones Indices for its S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, showed home prices rose 4.3% in the 12 months ending in October in the 20-City Composite, out-distancing analysts’ forecasts. Anticipated seasonal weakness appeared as twelve of the 20 cities and both Composites posted monthly declines in home prices in October. S&P/Case-Shiller Home Price Indices – October 2012

 

S&P/Case-Shiller Home Prices to be released Wednesday December 26th

The next S&P/Case-Shiller Home Price release will be Wednesday December 26th, not Tuesday due to the Christmas Holiday.  With six months of strong reports behind us, but the fall-winter seasonal slow down in front of us, where will home prices go? Other data — sales, starts and foreclosure trends, all point to sustainable gains in housing going forward in 2013.

U.S. Housing And Residential Mortgage Finance 2013 Outlook: The Nascent Recovery Is Likely To Continue

The U.S. housing market continues to show signs of recovery, outpacing the relatively weak U.S. economic recovery. Standard & Poor’s baseline forecast assumes that the U.S. economy will continue to grow slowly in 2013, avoiding any substantial negative economic impact from the looming fiscal cliff and growing federal deficit. The U.S. economy grew 3.1% in the third quarter of 2012, up from 1.3% the previous quarter, and the unemployment rate declined to 7.7% in November from 8.7% a year ago. Both are moving in the right direction to support continued housing recovery in 2013. We believe that as long as the U.S. remains in recovery mode, U.S. housing fundamentals will continue to improve, bolstered by low interest rates and rising home prices. Taken together, we expect these trends to support improving consumer confidence and lead to a return to historical housing supply-and-demand fundamentals.

(Watch the related CreditMatters TV segment, “Housing And Residential Mortgage Finance Is On The Path To Recovery,” dated Dec. 19, 2012.)

Our baseline forecast for housing assumes that U.S. national home prices (which rose 7% through the first nine months of 2012) will rise 5% in 2013, after a few months of seasonal weakness at the start of the year. Moderate economic growth, federal refinancing and loan modification programs, low mortgage rates, rising household formation, and limited new supply will contribute to price recovery, in our view.

Overview

We expect housing to remain a bright spot in 2013, as long as the U.S. avoids the fiscal cliff and growth continues. We forecast U.S. national home prices to increase 5%. However, tight lending remains a key concern for housing demand because the limited availability of credit could weigh on borrowers.

Although the GSEs (government-sponsored entities, such as Fannie Mae and Freddie Mac) have been vital players in the U.S. mortgage finance market, 2012 was a strong year for mortgage banking, largely because of refinancing activity. This trend will likely continue in 2013, but banks may struggle to duplicate strong performance next year.
Many non-bank finance companies have expanded their portfolios through servicing transfers at the cost of others exiting the business.

We expect the federal agencies to continue to dominate the residential mortgage-backed securities (RMBS) market in 2013, but the private-label market will see some growth from a low base.

An improved outlook for housing, along with higher home prices, could increase the availability of mortgage credit and ease lending constraints, allowing borrowers with lower quality credit histories to refinance. More than 1.3 million borrowers have moved from negative to positive home equity in 2012, because of rising home prices. Homeowners with positive equity are able to refinance, taking advantage of the current very low interest rate environment. With more affordable mortgage payments, and some equity in their homes, consumers are less likely to default, which we view as positive for housing supply fundamentals. On the demand side, the rise in household formation over the past year is also positive for housing demand, in our view.

One primary risk to our baseline housing forecast is the potential failure to resolve looming fiscal cliff issues, which could send the U.S. economy into a recession. Under this scenario, the downside for housing could be severe, since consumer confidence and new job formation, two key economic supports for the current housing recovery, would likely decline significantly.

Pending regulatory and policy changes in 2013, arising from the 2008 financial crisis and resulting legislation such as Dodd-Frank, present another risk to our housing outlook. Poorly designed policies or extensive regulation could further erode an already weak mortgage lending environment. However, we do think that influential policymakers and legislators have gained a greater understanding of housing’s critical role in supporting economic growth in the U.S., which will likely temper significant policy shifts and regulatory changes in 2013.

The impact of a recovery in housing fundamentals varies across the many housing related sectors and securities that we rate. While we expect all sectors to benefit from an improved housing forecast, the pace and depth of the improvement will depend on many factors, including each sector’s ability to participate in the recovery and their exposure to legacy portfolios and markets.

Banks’ Mortgage Earnings Will Moderate In 2013

Mortgage banking was a bright spot for banks in 2012, as refinancing volumes rose with the help of government programs and low borrowing rates. Banks may struggle to duplicate that strong performance in 2013 because the pool of borrowers eligible to refinance is shrinking, though rates are likely to remain low, and supportive government programs remain in place. Credit losses from residential mortgages continued to decline during the year, though the number of problem loans remains high and will continue to contribute to elevated losses in 2013 across the industry. Litigation risks for banks related to mortgage exposures grew in 2012 and are likely to continue to weigh on the industry in 2013 as state and federal regulators and investors seek to recoup losses from the past few years. Overall, the legacy residential mortgage exposure of banks should continue to weigh on results, but that drag on earnings and capital should continue to slow.

Homebuilders Benefit From Demand For New Homes

Buyers for newer homes returned to the single-family home market in 2012, resulting in better than expected operating results for most of the homebuilders we rate. Sales volumes and average selling price exceeded our initial expectations, and we currently expect that the homebuilders we rate will deliver on average 20% more homes in 2012 compared with 2011. Most new homebuilders have also posted healthy increases in average selling prices, outpacing overall market trends, as buyers gravitated toward competitively positioned new home communities and the supply of existing homes for sale has remained very low.

Despite our expectation that favorable housing demand and supply fundamentals will continue to support strong revenue and EBITDA growth in 2013, our outlook on the homebuilding sector remains stable. Improved fundamentals reduce downside risk in our view, particularly for the lowest rated companies, but we expect upside rating momentum will likely be more muted as homebuilders draw down their sizable cash balances (a primary support to liquidity over the past few years), and raise additional debt capital for future land and inventory investment in anticipation of higher sales volumes. The effect of this additional debt issuance will likely slow the leverage improvements necessary for more positive rating actions over the next 12 months.

We also remain concerned that the impact of a potential recession in the U.S. would be more significant for homebuilders than many other sectors, since a drop in consumer confidence would likely derail buyers’ appetite for large discretionary purchases such as single-family homes. In addition, decisions on numerous regulatory and policy initiatives that would have an impact on housing are slated for the first half of 2013, many of which could significantly affect the availability and cost of mortgage financing.

Click here, to read the full report.

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