DS News - Digital Archives

FNC REPORT POINTS TO IMPROVING FORECLOSURE MARKET A report released last month by mortgage technology firm FNC, LLC, indicates the foreclosure market has improved dramatically in recent months, with foreclosure rates nearing pre-crisis levels. According to FNC's director of research, Yanling Mayer, recent home price gains have helped many previously underwater homeowners return to a position of positive equity, allowing them to trade up to more expensive houses. "We've seen hard data from the past 18 months that shows rising home prices and a foreclosure market with diminished impact due to decreasing foreclosure inventories and fewer new foreclosure filings," Mayer said. "Meanwhile, a very encouraging trend that has been developing is the rising participation of trade-up buyers who are seeing improving home equity position and positive capital appreciation on existing homes." Mayer went on to say the developments are a sign of a "healthy and sustainable recovery," since trade-up buying represents discretionary spending. "These buyers are typically more responsive to market conditions and financial incentives," she said. According to the report, foreclosure price discounts have dropped to a 10-year low of about 8.1 percent as of Q2 2013. This represents a 12.5 percent decrease from one year ago. "At the height of the mortgage crisis in 2008 and 2009, foreclosed homes were typically sold at close to 25 percent below their estimated market value," Mayer explained. "In many fast-rising markets, such as Phoenix, Las Vegas, and California, investor activity and low foreclosure inventory drove prices up, frequently resulting in a price premium relative to estimated market value." Foreclosed property continued to be a profitable and popular investment, with a 7.8 percent average gross capital appreciation, according to Mayer. The average ownership duration of all existing home sales was higher in the second quarter as well. OCC SAYS MULTIDIMENSIONAL RISK MANAGEMENT IMPERATIVE FOR INDUSTRY Speaking at an industry conference in Phoenix, Arizona, Darrin Benhart, deputy comptroller for credit and market risk with the Office of the Comptroller of the Currency (OCC), said the changing regulatory environment requires mortgage lenders to consider a number of potential risks on different fronts. "As you well know, the list of mortgage-related reforms is extensive," Benhart said, naming the qualified mortgage (QM) and qualified residential mortgage (QRM) among them. "These reforms mean you will need an even greater emphasis on risk management techniques that not only look at credit risk, but also encompass operational and compliance risk," he said. While in the past, various aspects of risk were often considered and managed individually, Benhart says going forward, it is important for all risks to be monitored in a holistic manner. "Risk management groups today need to be multidimensional, and banks need a culture that promotes risk identification across business lines," he said. Benhart says home equity lines of credit (HELOCs) and collateral valuations are two 40 key areas his office will be watching in the coming year. As the industry focused heavily on loss mitigation during the past few years, Benhart says valuations slipped under the radar somewhat. His office reviewed valuation procedures "in a number of institutions" and found several common problems, including lack of oversight of appraisal management companies (AMCs), inconsistencies in appraisal processes, and inadequate reviews of appraisals and evaluations. "Problems ranged from independence, qualifications, and training of reviewers to the scope and depth of reviews," Benhart said. Overall, Benhart expressed an optimistic outlook for the mortgage industry and economy as a whole, though he added, "we must remain vigilant not to let unmanaged risks slip back into the industry." KNOW THIS From January 1, 2009, to September 12, 2013, the FDIC authorized lawsuits against 1,007 bank directors and officers, in connection with 125 failed institutions. REFINANCES DECLINE, HARP REFIS STILL HIGHER THAN LAST YEAR IN Q2 As mortgage rates climb, refinances are on the decline. However, refinances through the government's Home Affordable Refinance Program (HARP) remain elevated compared to last year's volumes, according to the Federal Housing Finance Agency's (FHFA) Refinance Report for the second quarter of this year. Mortgage rates rose from 3.57 percent to 4.07 percent over the second quarter, while total refinances completed through Fannie Mae and Freddie Mac fell from about 1.4 million to about 1.3 million, according to the FHFA report. HARP refinances made up about 22 percent of all refis completed during the second quarter, according to FHFA. HARP refinances totaled about 280,000 for the quarter, down from about 290,000 in the first quarter of this year. "This marks the third straight quarter in which HARP refinances have declined, but refinances through the program remain well above average levels prior to program enhancements last year," FHFA stated. Forty-three percent of HARP refinances in the second quarter were for underwater homeowners with loan-to-value ratios of more than 105 percent. Nineteen percent had LTVs greater than 125 percent. Eighteen percent of HARP refinances in the second quarter were for 15- and 20-year mortgages. Year-to-date, HARP refinances account for 21 percent of all refinances nationwide. However, HARP made up a greater share of refinances in some key states, including Nevada (59 percent), Florida (50 percent), Georgia (45 percent), and Michigan (40 percent). Since the initiation of HARP in April 2009, about 2.7 million homeowners have refinanced through the program, according to FHFA. Most HARP refinances have been for primary residents—about 2.3 million. Close to 88,000 have been for second homes, and about 307,000 have been for investment properties. STAT INSIGHT 19,700 Mortgage applications with high fraud risk in Q2 2013. Source: CoreLogic

• Cover