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» VISIT US ONLINE @ DSNEWS.COM 67 reached historic lows and FHA credit profile shifts, FHA may see increases in SDQ rates going forward." A close variation of the above statement has appeared in every quarterly FHA report starting in Q1 2017, likely prompted by record-high debt-to-income ratios, declining average credit scores, and a rising share of loans with down payment assistance in the post-recession housing recovery. Foreclosure auction inflow of private portfolio loans—those not backed by government insurers or by the government- sponsored enterprises (GSEs) Fannie Mae and Freddie Mac—also increased in the third quarter compared to a year ago. Inflow of private portfolio loans owned by national lenders increased 3% while inflow from private portfolio loans owned by mid-market lenders increased 139%. e inflow trends by loan type reinforce findings from the September 2019 Mortgage Monitor Report from Black Knight Financial Services. e Black Knight report shows that the delinquency rate at six months after origination is trending higher for loans originated in 2018 and 2019, with a more extreme upward trend among Ginnie Mae-securitized loans— primarily comprising VA- and FHA-backed loans. e report shows that 3.3% of Ginnie Mae-securitized loans originated over the past 12 months were delinquent at six months, up from 3.1% for loans originated in 2018 to the highest level since 2009. Among all loan originations, the delinquency rate six months after origination was 1% for loans originated in the first quarter of 2019, up from 0.9% for loans originated in 2018 to the highest level since 2010. e upward trend in early stage delinquencies also showed up for GSE-backed loans, albeit at a much lower level: 0.6% for loans originated in Q1 2019, up from 0.5% for loans originated in 2018 to the highest level since 2008. ROCK STAR REAL ESTATE MARKETS NOT IMMUNE Among 2,410 counties with foreclosure auction inflow into Auction.com in Q3 2019, 870 counties (36%) posted a year-over-year increase in foreclosure auction inflow, including Maricopa County (Phoenix), Arizona; Miami- Dade County, Florida; Los Angeles County, California; and Bexar County (San Antonio), Texas. Also posting year-over-year increases in foreclosure auction inflow in Q3 were all three counties in the Seattle metro area: King, Pierce, and Snohomish; and three counties in the Denver metro area: Denver, Arapahoe, and Adams. "Some of the markets with the biggest inflow increases in the third quarter may be surprising given they have been rock stars of the real estate recovery of the last seven years," said Jesse Roth, SVP of Strategic Partnerships and Business Development at Auction.com. "But those markets may now be victims of their own success, with an unsustainable run-up in home prices pushing the limits of affordability for many homebuyers in recent years. ose financially stretched borrowers now have less equity cushion to protect against foreclosure, particularly if they are in a government-insured loan that came with a low down payment and down payment assistance." e inflow geographic trends align with recent foreclosure start data released by ATTOM Data Solutions, which shows that U.S. foreclosure starts in the first nine months of 2019 increased in 14 states and 80 of 220 metropolitan statistical areas analyzed (36%)— counter to the national trend of declining foreclosure starts. Among larger metro areas, those posting year-over-year increases in the first nine months of the year included Atlanta (up 23%), Orlando (up 24%), Jacksonville (up 7%), San Antonio (up 8%), Seattle (up 7%), and Denver (up 3%). DOWNTURN, RECESSION WOULD STRENGTHEN DISTRESS WAVE An analysis of delinquency and home price trends in the last three recessions (1990, 2001, and 2008) shows that on average delinquency rates spiked 253% from the pre-recession low to the peak during the recession. at average is skewed higher by the 2008 recession, when delinquency rates skyrocketed 671%. Removing that recession from the mix, the average increase in delinquency rates in the previous two recessions was 45%: 68% in the 1990 recession and 21% in the 2001 recession. e same analysis shows that median home prices dropped 16% on average from the pre- recession high to the low during the recession. Again, the 2008 recession's 36% drop skews the average. With that recession taken out, the average drop in median home price is 6%: home prices were down 12% in the 1990 recession and down just 1% in the 2001 recession. Given no other shocks to the economy or housing market, this emerging wave of distress will likely be the smallest of the three that have materialized in the wake of the Great Recession. However, if dangerous rip currents develop in the housing market (think widespread and sustained home price depreciation) or in the larger economy (think recession), this distressed wave could pack a bigger punch. RECESSION IMPACT ON HOUSING MARKET DELINQUNECY RATE INCREASE | HOME PRICE DECREASE 800% 700% 600% 500% 400% 300% 200% 100% 0% 10% 5% 0% -5% -10% -15% -20% -25% -30% -35% -40% 1990 RECESSION 2001 RECESSION 2008 RECESSION 68% 21% 671% -12% -1% -36%

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