A weekend topic starting with DS News. “The share of online REO auction properties with competing bidders rose in the wake of the pandemic-induced economic crisis — similar to the trend in the retail market — but buyer competition at online auction has been much less volatile than the retail market over time. The share of multiple offers in the retail market, as measured by Redfin, dropped to a 10-year low of 9 percent in December 2019. That same month, 75 percent of REOs sold on the Auction.com platform had multiple, competing bidders.”
“More capricious demand in the retail market results in longer days on market for distressed properties, according to an Auction.com analysis of more than 15,000 distressed property dispositions in Q4 2019 using proprietary foreclosure auction data, public record data and MLS data.”
“The analysis shows that REO homes sold on the MLS took an average of 275 days to sell from the completed foreclosure auction while homes that sold via online REO auction on the Auction.com platform took an average 131 days to sell after the foreclosure auction – 144 days faster than the retail market. Of course, homes that sold to third-party buyers at the foreclosure auction were not held by the mortgage servicer at all, meaning zero REO holding costs and zero REO holding risks.”
From Mortgage News Daily. “Looking at delinquencies by bucket shows a slight decline, 33 bps among loans 30-days or more past due to a 2.34 percent rate, reflecting fewer loans becoming delinquent. Loans 60 to 90 days past due, however, grew 138 basis points to 2.15 percent, the highest since MBA began collecting data in 1979. Serious delinquencies, loans more than 90 days past due soared 279 basis points to 3.72 percent, the highest since the third quarter of 2010, at the height of the housing crisis.”
“‘The second quarter results also mark the highest overall delinquency rate in nine years, and a survey-high delinquency rate for FHA loans,’ said Marina Walsh, MBA’s Vice President of Industry Analysis. ‘There was also a movement of loans to later stages of delinquency, with the 60-day delinquency rate reaching a new survey-high, and the 90+-day delinquency rate climbing to its highest level since the third quarter of 2010.’”
“MBA’s report notes that mortgage delinquencies track closely with the availability of jobs and the largest quarterly increases in delinquency rates were New Jersey (628 bps), Nevada (600 bps), New York (575 bps), Florida (569 bps), and Hawaii (525 bps). These states all have economies that are reliant on leisure and hospitality jobs that were especially hard-hit by the COVID-19 pandemic.”
“Increases in delinquencies were apparent across all loan types. VA loans receives the smallest impact, an increase of 340 bps to a rate of 8.05 percent but this was still the highest rate since 2009. The rate for conventional loans increased 352 bps from Q1 to 6.68 percent, the highest rate since the third quarter of 2012 and FHA delinquencies surged by 596 bps to 15.65 percent – the highest rate since the survey began in 1979. All three loan products were also significantly higher than a year earlier; conventional loans were up 307 bps, VA loans 381 bps, and FHA loans were up 643 bps.”
“Longer term delinquency rates also increased for all mortgage types on both a quarterly and an annual basis. The seriously delinquent rate increased 219 bps for conventional loans, 467 bps for FHA loans, and 218 for VA loans from the previous quarter. Compared to a year ago, the increases were 184 bps for conventional loans, 453 and 217 bps for FHA and VA loans, respectively.”
From National Mortgage News. “The backlog of zombie foreclosures that built up in the wake of the Great Recession continued to have ripple effects into 2020, according to an Auction.com analysis of public record data. Among 487 U.S. ZIP codes with at least 10 zombie foreclosures and a zombie foreclosure rate of at least 10% (nearly twice the national average at the peak in the first quarter of 2014), median home prices in this year’s first quarter were just 7.8% higher on average than median home prices 14 years earlier, in the first quarter of 2007.”
From NBC DFW. “Anywhere from about 225,000 to 500,000 homeowners across the country could face possible foreclosure throughout the rest of 2021 because of delinquent loan payments. But here’s what interesting right now. Dallas real estate attorney Rachel Khirallah says she’s not seeing really any foreclosures at the moment. She says that’s partly because the president has put a moratorium on federal foreclosures, those are any foreclosures that were backed by Freddie Mac or Freddie Mae, also the various forms of financial assistance through unemployment has kept homeowners afloat.”
“The prediction is that will dramatically change come 2021, and many of those financial benefits will end. According to an analysis by ATTOM Data Solutions, the number of cases somewhere in the foreclosure process would shoot up more than 100-percent, from the current level of about 145,000 to roughly 336,000, and that’s just in the second quarter of 2021.”
“‘For Texas for example, I wouldn’t be surprised if we saw anywhere from a 100-percent increase in where the foreclosures where this year, versus where they are next year, in other words, I would not be surprised if we saw between 100 and 200,000 foreclosures in Texas within the next year,’ said Khirallah. ‘Then across the country in states such as Florida and California where the home prices are generally higher, it’s not going to be unusual to see a 300-percent increase.’”
From ABC Action News in Florida. “Since the beginning of the pandemic, United Way Suncoast has raised more than $3 million to help people. But, as this public health crisis drags on, they need 3 to 4 times that amount to keep making an impact. ‘We were entering into this pandemic with 43 percent of households in our region that were barely able to make ends meet, living on what we call a survival budget,’ said Emery Ivery, the Tampa Bay Area Chief Impact Officer for United Way Suncoast. ‘So many families are what we call housing burdened, and that means they are spending a significant amount of their monthly income on housing.’”
“Ivery said they are closely monitoring the housing crisis and the eviction crisis. Once the moratorium on evictions ends, Ivery worries how they’ll keep families in their homes. ‘Normally, they would exceed somewhere in the neighborhood of 600 to 800 eviction notices filed per month. We are anticipating that number is going to go up to 2,000 per month once the moratorium is lifted,’ Ivery said.”
The Miami Herald in Florida. “The Malaysian firm that rocked Miami with the purchase of the former Miami Herald building is in financial distress, a development that could spark fresh questions about one of downtown’s prime building sites. On Wednesday, Genting Hong Kong Limited, the cruise-operating unit of The Genting Group, which bought the Miami Herald site in 2011, told the Hong Kong stock exchange that it would temporarily suspend payments to its financial creditors, citing the impact of the COVID-19 epidemic. The suspensions encompass $3.4 billion in payments.”
“When Genting paid $236 million cash for the 14-acre former Herald property in 2011, the transaction clocked in at about $17 million per acre, one of the highest land sales in Miami-Dade County history. The region was reeling from the effects of 2008’s Great Recession, and many business boosters initially welcomed the purchase. The project has since stalled.”
From Bloomberg. “A nearly $1.5 billion CMBS for a new high-rise tower, One Manhattan West, part of the Hudson Yards development in New York, priced its AAA slice above par, and the entire capital structure was oversubscribed. Another small single-asset transaction securitized a brand new Silicon Valley office hub that’s leased 100% to Google — a company that, ironically, recently announced its intention to allow employees to work remotely until July 2021. The bonds sold well despite the building standing empty.”
“And yet another so-called conduit, or multi-loan, deal that priced on Thursday was nearly 40% comprised of office properties, including 1633 Broadway, a 48-story building in midtown Manhattan that was the fourth largest loan in the transaction. That building remains mostly empty as employees continue to work from home, and at least two tenants have seen their rents either reduced or temporarily deferred, according to the latest servicer report.”
“‘The elevated number of marketplace-lending loans in forbearance has masked potentially negative performance for a significant portion of securitized pools,’ Fitch analysts wrote in a note this week, in reference to MPL ABS deals. Most payment deferral programs offer hardship deferral programs of two to three months, and they may expire soon. ‘The total amount of borrowers, based on principal balance, that have elected to enter a deferral program has reached double digits for many issuers. In the absence of additional government assistance or extension of payment deferral plans, deterioration in trust performance is expected over the next several weeks and months.’”
From Socket Site in California. “Purchased as a 975-square-foot Noe Valley home with plans to nearly quadruple its size for $1.929 million in August of 2015, the now 3,750-square-foot home at 438 29th Street returned to the market as a ‘completely remodeled, redesigned & reinvented residence’ with a $4,388,888 price tag in November of last year. Re-listed for $3.95 million in March, the list price for the home has just been further reduced to $3.85 million and re-listed anew with an official ‘1’ day on the market.”
“But keep in mind that the developer has been in default on a $3.52 million project loan since January with around $4.8 million in principal, fees and missed payments now past due.”
From Spectrum News 1 on California. “The pace of new hotel openings in California is going down. After the state saw a record number of hotel openings and construction, the coronavirus-catalyzed economic downturn has slowed new hotel openings and developments in Orange County and throughout California through the first half of this year, according to a new report by Irvine-based Atlas Hospitality Group. ‘We are forecasting that the vast majority of hotel projects in planning will simply not get built,’ the report states. ‘Developers are already looking at other uses, namely residential. For those developers that still want to move forward with new hotel development, they are going to find it virtually impossible to find lenders willing to provide construction financing.’”
“As of July 30, there were 23 hotels with commercial mortgage-backed securities debt in Los Angeles and Orange Counties that were delinquent on their loan payments, said Atlas Hospitality President Alan Reay. He expects that number to grow as the coronavirus continues. ‘As most of the conventional lenders and SBA have agreed to defer loan payments, we are still not seeing a lot of foreclosures on hotels,’ Reay said. ‘We are seeing a lot of delinquencies on hotel loan payments on the CMBS side and foreclosures/bankruptcies on hotels under construction, in particular the Coachella Valley.’”
The Orange County Register in California. “Chutzpah! Shock! Disbelief! Last week came announcements from mortgage giants Fannie Mae and Freddie Mac that an ‘adverse market fee’ of one-half point will be added to all refinance transactions effective Sept. 1. The fee is aimed at lenders but will be passed down to borrowers. For example, on a $500,000 loan, the fee adds $2,500. Or, converting this fee into the mortgage rate instead of the one-half point cost would raise your rate by roughly 0.125%.”
“About 70% of the estimated $2.8 trillion in mortgage loan funding this year have been refinance transactions, according to Inside Mortgage Finance. Mortgage lenders, the housing industry, consumer advocacy groups and many others are mad as hell about this. Some believe this is a money grab to recapitalize Fannie and Freddie in order for them to be more expeditiously be released from government conservatorship.”
“What if that money grab skepticism is wrong? Even though Fannie and Freddie reported combined net profits of $4.3 billion in the second quarter, what if they are once more circling the financial drain? Just a short decade ago we experienced a lightning-fast mortgage market collapse as a preamble to the Great Recession. Bear in mind, Fannie and Freddie own around half of the $11 trillion mortgage market. This week the Mortgage Bankers Association reported an 8.22% mortgage payment delinquency rate from its lender survey. The survey includes all borrowers not making their full contracted payment and includes forbearance borrowers.”
“VA delinquencies are running over 8%. The FHA delinquency rate is nearly 16%, according to MBA. Closer to home, CoreLogic reports Los Angeles County and Orange County mortgage delinquencies (30 days or more past due) at 7.3% as of May 2020 compared with 2.2% in May 2019. Riverside and San Bernardino counties showed an 8.4% delinquency rate for May 2020 compared with 3.3% in May 2019. California’s delinquency rate was 6.7% in May 2020 compared with 2.2% in the previous May.”
“Clearly, the mortgage industry has some issues with this move. ‘When we had record low delinquency rates, G-fees (guarantee fees that cover life-of-loan projected credit losses from borrower defaults) never went down,’ said Guy Cecala, CEO and publisher of Inside Mortgage Finance. ‘No question this puts them in better financial shape to deal with (loan) losses and take them out of conservatorship.’”
“Based on projected COVID-related losses, the Federal Housing Finance Agency gave Fan and Fred the OK to charge this adverse market fee, according to FHFA spokesman Raphael Williams. The FHFA did not provide estimated projected losses. Williams also did not explain why this one-half point charge was made without notice. (FHFA could have made this effective October 1). Historically, F&F’s previous fee actions came with some advance notice to lenders.”
“Lenders are required per consumer protection laws to honor the already locked refinance transactions even though many of them may not get delivered to F or F until Sept. 1 or later. To my knowledge, many lenders immediately added the adverse market fee for new refinance loans locked as of last Aug. 13. If your refinance loan was locked prior to that date but has not funded, keep your eyes peeled for the possibility of the slow stroll to funding in which your rate lock expires before your loan funds.”
“Some lenders may try to stick you with the additional one-half point fee. To be fair, if you caused delays of your refinancing by dragging your feet and delaying paperwork, that’s on you. You may have leverage if any funny business starts to happen. Laguna Niguel attorney W. Michael Hensley reminded me of the class-action lawsuit that Wells Fargo Bank contended with back in 2017 for charging rate-lock extension fees to borrowers that were allegedly caused by the bank. Eating this fee is not fair for the lenders. But that’s a separate matter from them trying to pass it on to you on your already locked loan.”
“Two wrongs don’t make a right. If you think your lender is playing you, just present a copy of this column to your lender.”
Two reports from the Wall Street Journal. “Fannie Mae’s and Freddie Mac’s new fee has roiled the mortgage industry. It could be just a taste of what is to come as the two giants’ role in the housing market evolves. Potential investors will want to know how Fannie and Freddie can offload risk—or offset it with earnings, including fees. It’s harder for Fannie and Freddie to offload risk at the moment due to the slowing market for so-called credit-risk transfer securities. There was no issuance at all in the second quarter, according to data tracker Mark Fontanilla & Co.”
“Fannie and Freddie don’t have a lot of market incentive not to raise them: The pair are no longer locked in a battle for market share with private-label securitizers, as before the financial crisis. Today that market isn’t what it once was, and it’s still getting smaller: Bank of America estimates that the nonagency residential mortgage-backed security market will issue about $56 billion this year, down from $129 billion in 2019.”
“Mortgage giants Fannie Mae and Freddie Mac are taking advantage of the mortgage-refinancing boom to shore up their capital as they seek to return to private ownership. Lenders said the surcharge would add the equivalent of 0.125 percentage point to the cost of a home loan—enough to dissuade or disqualify weaker borrowers who most need to refinance, but too little to damp the boom.”
“The fee ‘equates to only one-eighth percent in rate, not enough to slow down the mob,’ said Lou Barnes, a senior loan officer for Premier Mortgage Group in Boulder, Colo.”
“Lenders said the surprise announcement of the surcharge didn’t give them time to adjust fees on refinancings already in the pipeline. They will therefore have to pay the 0.5% fee on those loans rather than passing it on to borrowers. ‘For a lot of lenders, that’s more than they make on a loan,’ said Teresa L. Gregory, president of Traditions Mortgage at York Traditions Bank.”
“Meanwhile, interest rates have edged up, and the added surcharge has made refinancing less attractive for some homeowners. Jim and Ginny Bertoncino were hoping that refinancing at a lower rate and extending the term of their loan would save them hundreds of dollars a month. That would help offset the loss of income they suffered when they had to close their indoor minigolf course in Scottsdale, Ariz., because of the pandemic. Since reopening in late May, business is down by 60%.”
“‘We were already banking on, ‘Hey, we’re going to have some extra money to pay some bills,’ and now we might not,’ said Mr. Bertoncino.”