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MORTGAGE PERFORMANCE IMPROVES IN Q3 WITH FEWER INITIATED FORECLOSURES In the third quarter of 2012, the overall percentage of mortgages that managed to stay current improved from the prior year but declined slightly quarter-over-quarter, according to a report from the Office of the Comptroller of the Currency (OCC). The regulator's report covers 58 percent of all first-lien mortgages in the country. From that sampling, the OCC concluded 88.6 percent of mortgages were current and performing at the end of the third quarter of 2012, a slight decrease from 88.7 percent in Q2 but an improvement from 88 percent at the same time the year before. The agency explained factors such as strengthening economic conditions, servicing transfers, and the ongoing impact of loan modification programs and home forfeiture actions led to the year-over-year improvement. The percentage of mortgages past due by 30 to 59 days increased to 3.1 percent, which is 10.4 percent higher than Q2 and a 3.6 percent increase from a year earlier. The percentage of seriously delinquent mortgages fell 10.8 percent from the previous year but was unchanged from Q2 at 4.4 percent. Foreclosure activity, according to the OCC, "remains elevated," but fewer properties entered the foreclosure process in Q 3 2012. During the three-month period, servicers initiated 252,604 new foreclosures, representing a quarterly and yearly decrease of 16.5 percent and 27.4 percent, respectively. The number of mortgages in the foreclosure process fell to 1,158,289, down 6.4 percent from the previous quarter and 12.6 percent from 2011. Completed foreclosures increased to 114,742, up 12.8 percent quarterly and up 1.3 percent annually. 42 Servicers also continued to stave off foreclosures through solutions such as modifications. In Q 3, more home retention actions were applied compared with home forfeiture actions (foreclosure sales, short sales, and deeds-in-lieu) with servicers implementing 382,899 home retention workouts compared with 180,309 actions that ended with the homeowner giving up his or her home. Home retention actions, however, were down 8.9 percent from Q2 and fell 16.6 percent from a year earlier while home forfeiture actions were up 7.7 percent from Q2 and 4 percent from Q 3 2011. When loans were modified, OCC found on average homeowners saw monthly principal and interest payments decrease by 23.8 percent, or $345. Reductions were even greater through the government's Home Affordable Modification Program (HAMP) with borrowers saving 35.3 percent on average, or $565. From January 1, 2008, through June 30, 2012, servicers modified 2,741,912 loans, according to the report. A little less than half, or 44.9 percent, of the modified loans were current and performing by the end of Q 3. About 16.5 percent of those loans were in foreclosure or completed the foreclosure process, another 22 percent were delinquent, and about 1.8 percent were paid in full. The OCC also reported a significant difference in performance when comparing modifications that brought payments down by 10 percent and mods that reduced payments by less. By the end of Q 3, 52.8 percent of loans with payment reductions of 10 percent or more were current and performing, compared with just 32.8 percent of mods that saw payments cut by less than 10 percent. HOUSING AFFORDABILITY SOARS TO NEW HIGH IN 2012 The year 2012 was the most affordable for housing since recordkeeping began in 1970, according to the National Association of Realtors (NAR). In November, NAR's Housing Affordability Index reached 198.2, down 2.5 index points from October but up 1.5 points from a year earlier. The index determines affordability based on the relationship between median home price, median family income, and average mortgage interest rate. The index also assumes 25 percent of gross income is devoted to principal and interest and a 20 percent down payment would be made. Based on data up to November, NAR also projects the index will set a record high of 194 for 2012, beating the high of 186 in 2011. However, record affordability doesn't necessarily translate into more homeowners. "Although 2012 was highest on record, the excessively tight underwriting precluded many would-be homebuyers from locking in generational low interest rates," explained Lawrence Yun, NAR chief economist. NAR president Gary Thomas added, "A more sensible lending environment that makes it easier for other financially qualified buyers to get a mortgage would allow many more households to enter the market, boosting home sales as much as 10 to 15 percent." While affordability was expected to see a new high in 2012, NAR expects affordability in 2013 to drop to 160. NAR noted an average of 160 means a median-income family would have 160 percent of income necessary to buy a median-priced existing single-family home. "Rising home prices and a gradual uptrend in mortgage interest rates will offset improvements in family income, but 2013 likely will be the third best on record in terms of household buying power," Yun noted. KNOW THIS Property owners who live in proximity to foreclosed homes have lost $1.95 trillion in home equity, according to the Center for Responsible Lending.

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