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42 PENDING HOME SALES FALL TO TWO- YEAR LOW e National Association of Realtors' (NAR) Pending Home Sales Index (PHSI) fell in December to its lowest level in more than two years, with declines reported in all four of the country's major regions. e index, a forward-looking sales indicator based on contract signings, dropped 8.7 percent to 92.4 from a downwardly revised reading of 101.2 in November. Compared to December 2012, pending sales were down 8.8 percent. December's index was at its lowest measure since October 2011, when it read 92.2. NAR chief economist Lawrence Yun says there were several factors at play in December's falloff in contracts—not the least of which was onset of harsh winter storms. "Unusually disruptive weather across large stretches of the country in December forced people indoors and prevented some buyers from looking at homes or making offers," Yun said. "Home prices rising faster than income is also giving pause to some potential buyers, while at the same time a lack of inventory means insuf- ficient choice." Job growth (however small it was) and pent-up demand continue to serve as positive factors, though Yun said "it could take several months for us to get a clearer read on market momentum." NAR forecasts existing-home sales this year will hold close to 5.1 million, essentially the same as in 2013. e PHSI in the Northeast fell 10.3 percent in December to 74.1, putting it 5.5 percent below year-ago levels. In the Midwest, the index declined 6.8 percent to 93.6, falling 6.9 percent short of last year. While they may not have been hit as hard by the ice, the South and West also reported declines in pending sales. In the South, numbers fell 8.8 percent to an index of 104.9, 6.9 percent below a year ago. In the West—where con- strained inventory is a heavier burden—pending sales were down 9.8 percent to 85.7, a 16 percent annual drop. BORROWERS STRUGGLE DESPITE EQUITY GAINS e ongoing price recovery and rise in positive equity around the country has been cause for celebration among many industry commentators—but they're not much comfort to those who continue to struggle to pay their mortgages, Fitch Ratings says in a new release. While equity is an important factor in terms of borrowers' payment behavior, Fitch reminds readers that income and ability to pay are also key. "It is clear that rising home prices have had a positive influence on borrower behav- ior. However, some portion of borrowers still exhibit an inability to recover as the economy has moderately improved," the agency said in its analysis. Over the last two years, Fitch estimates the percentage of borrowers entering foreclosure with positive equity has roughly doubled. is trend is particularly evident in many of the residential mortgage-backed securities (RMBS) loans that have entered the foreclo- sure process in recent years. "In many cases, troubled borrowers with equity are unable to sell their properties because the proceeds of the sale would not be enough to cover the mortgage amount, the closing costs, and the backlog of missed payments," the company explained. "Loans entering foreclosure today have missed roughly two years of payments on average, more than double the pre-crisis, long-term average." Complicating the matter are today's tighter loan underwriting and origination guidelines, which Fitch says could prevent many strug- gling borrowers from tapping their home equity to cover expenses. "Under the existing regulatory framework, residential mortgage servicers have many tools at their disposal to help struggling homeown- ers. However, servicers are often left with few options other than foreclosure for borrowers who are unable to make regularly scheduled mortgage payments, despite their interest in remaining in their homes," Fitch said. "is is especially true in situations where borrowers have equity in the property and have payment problems even after loan modifica- tions involving significant rate reductions, the company noted. Quarter-over-quarter decline in California foreclosure sales for the first three months of 2013. Source: Lender Processing Services STAT INSIGHT 157,000

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