TransUnion expects the national mortgage delinquency rate to fall by about one-fifth to 4.98% by the end of 2011. The company projects the rate at 6.21% at the end of 2010, representing a nearly 10% decrease from the prior year. The national delinquency rate fell 3.5% from the second quarter to third quarter, which was the largest quarterly drop in four years, TransUnion said in late November. The number of delinquent mortgages peaked in July 2009. Slowly improving employment figures and continued stabilization in housing prices will fuel the declining delinquency rates, according to Steve Chaouki, group vice president in TransUnion’s financial services unit.
“While there is continued price pressure in many markets, we expect a growing number of areas of the country to experience a rise in property values along with some stabilization of values in those states and markets hardest hit by the recession,” he said. TransUnion said the national delinquency rate rose more 50% between 2008 and 2009, which was on top of a 53% gain the previous year and a 54% increase in 2006. The company expects Arizona, Florida and Nevada to see the largest declines in mortgage delinquencies next year, but those three states will also have the highest rate of loans 60-days past due, as well.
Tax cuts extended?
President Obama announced a tentative deal with Congressional Republicans on Monday to extend the Bush-era tax cuts at all income levels for two years as part of a package that will also keep benefits flowing to the long-term unemployed, cut payroll taxes for all workers for a year and take other steps to bolster the economy. “It’s not perfect, but this compromise is an essential step on the road to recovery,” Mr. Obama said. “It will stop middle-class taxes from going up. It will spur our private sector to create millions of new jobs, and add momentum that our economy badly needs.” The package will reduce the 6.2% Social Security payroll tax on all wage earners by two percentage points for one year, putting more money in the paychecks of workers.
For a family earning $50,000 a year, it will amount to a savings of $1,000. For a worker slated to pay the maximum tax, $6,621.60 on income of $106,800 or more in 2011, the cut will mean a savings of $2,136. That will replace the central tax break for middle-and low-income Americans in last year’s economic stimulus measure, White House officials said. The deal will also continue a college-tuition tax credit for some families, expand the earned-income tax credit and allow businesses to write off the cost of certain equipment purchases. The top rate of 15% on capital gains and dividends will remain in place for two years, and the alternative minimum tax will be adjusted so that as many as 21 million households will not be hit by it. In addition, the agreement provides for a 13-month extension of jobless aid for the long-term unemployed.
Everyone hit in the foreclosure crisis
The foreclosure crisis has hit lower-income communities the hardest, but it has touched every slice of the market, and resolving it may well be harder in places where homes are too expensive to attract investors with ready cash. Naperville, a high-end Chicago suburb, has more than 230 homes valued at over $300,000 in danger of seizure, according to RealtyTrac, a foreclosure data provider. Monmouth County, a New Jersey Shore area that boomed in the early 2000s, has 462 over $400,000. Ladera, an unincorporated community of about 25,000, is conspicuously affluent — it’s home to Tamra of The Real Housewives of Orange County. The schools are strong, the surrounding chaparral foothills pretty. Now defaulters may live for a year or more with a giant mortgage they can’t fully pay. Not counting homes already in the foreclosure process, about one in 10 Ladera mortgages is at least 30 days late, according to LPS Applied Analytics. And houses in the foreclosure process have been deli nquent an average of 16 months, up from seven in 2008.
The national figures are almost as ugly. And what they show is that our collective real estate hangover is far from over. And limbo will start to last even longer as the “robo-signing” scandal raises questions about the integrity of the foreclosure process. To judge from recent stories about poorly (if not fraudulently) documented seizures, you would think servicers are snatching up houses quickly. In fact, rushed doc signings and long delinquencies are two sides of the same problem: During the boom, lenders tripped over themselves to create millions more ultimately unsustainable mortgages than they can now unwind. Yet for the housing market to return to health, there needs to be resolution for these zombie loans that won’t ever be paid in full and won’t quite die either. Until they can be eliminated through short sales, foreclosures, and permanent modifications, the zombies will keep home values from recovering and suck momentum from the economy. They’re not departing soon . As Christopher Thornberg of Beacon Economics in Los Angeles puts it, “This is going to bleed on for years. People will wander in and out of trouble.”
Auto credit market thawing
The percentage of loans going to subprime buyers rose 8 percent in the third quarter, their first year-over-year increase since 2007, according to a report issued Tuesday by Experian, a credit reporting agency. For new cars, the percentage of loans going to subprime buyers rose 13 percent over the July-September period in 2009. The increase for used cars was 3 percent. The majority of loans—63 percent—still going to buyers with prime credit scores, which is defined as a 680 or above. But even that is settling into a more normal pattern. Before the recession, when credit was very loose, just 51 percent of loans were going to prime buyers, according to Melinda Zabritski, director of automotive credit at Experian. Last fall, when credit was tight, 66 percent of loans went to prime buyers. Another sign that the credit market is thawing: The loans people are getting are covering larger amounts and have longer terms. The average amount financed for new cars rose $2,530, to $2 5,273, over the third quarter of last year, while the average amount financed for used cars grew $977 to $16,706. The average terms rose by about a month, although the lowest tier buyers—those with scores of 550 or less—saw their terms rise by nearly four months. Zabritski said the loosening in auto lending is likely to continue to grow in the near term.
Mortgage rates are in your head!
“It’s like home buyers today are suffering from post-traumatic stress disorder. The housing crash, foreclosure crisis and banking scandals have all combined to make buyers more sensitive than ever before. That’s why the slightest fluctuation in mortgage interest rates have huge emotional power today. ‘I think some people get a little fearful of what the higher payment might mean to them but they don’t’ realize how minimal the difference might be,’ notes Eric Gates, President of Apex Home Loans in Rockville, MD. In fact, Gates did a little math for me on the change in your monthly payment at different interest rates, if you buy a $200,000 home (just above the national median) with 20% down.
– 4.25%: $787.10
– 4.5%: $810.70
– 4.75%: $834.64
– 5.0%: $858.91
‘Keep in mind that difference is mainly interest which is tax deductible. So, someone paying an extra $24 a month in interest who is in a 25% tax bracket is really only paying an extra $18 a month after the tax write off of the extra interest,’ Gates adds. Yes, cutting the mortgage interest deduction is currently being debated as a deficit-reducer, but the proposal is to reduce the cap from $1 million to $500,000, so it’s not going to affect the buyers I’m using as an example here. The fact is that we’re talking less than $100 a month, for a full percentage point increase. Obviously big cities or in-demand housing markets, where home prices are far higher than the national average, will see bigger jumps in their monthly payments, but if they’re able to afford the higher priced home, the change in monthly payment would likely be comparable in its impact on their overall budget.
So why, then, do mortgage purchase applications fall every time rates go up slightly and the opposite when they go down? The answer is that it is largely emotional. Home buyers seem to ignore what they can afford and focus instead on what they think they somehow deserve in today’s badly beaten market. ‘Instead of focusing on what’s my payment going to be, they see that their friend got 4.25 and they want that same rate and 4.5 isn’t 4.25 and they think ‘that’s not good enough’,’ says Gates, who has seen that happen more than once. Fear of unemployment also looms large, so buyers are much more careful with monthly payment calculations, even trying to make sure that if they are out of work temporarily they can still make the payments and not go into default.”