econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 05 December 2015

Mortgage Risk Improves, But Watch For Red Flags

from Zillow

-- this post authored by Sam Khater

Mortgage risk performance is improving, but there's still a ways to go. Two red flags in particular need to be watched by the industry: the major risk still posed by legacy loans, and higher home price correlations across various markets.

First the good news: Mortgage underwriting is relatively tight compared to the early 2000s, and serious delinquencies for recent originations are at a 20-year low. Negative equity, foreclosure starts, and distressed sales are all down and home prices are growing at a healthy clip. The high share of cash home purchases (about 31 percent currently) is also decreasing the overall leverage, because most cash sales are from someone that previously had a mortgage. Lastly, the overall economy continues to improve and the labor market continues to tighten.

However, there are some worrisome signs. The percent of "scratch and dent" loans, which are loans that were previously 60 days or more delinquent but cured and are currently still active, is currently 12 percent of mortgages outstanding - or about 5.5 million loans outstanding. It is down from the peak of 15 percent in December, 2011 but it remains well above the normal range of 5 percent.

The bulk of these loans were originated between 2003 and 2008, and this group accounts for 62 percent of foreclosure starts as of July 2015 - a much higher persistence than in the past. For comparison, the pre-2003 cohort comes to about 10 percent (though even that has risen a little in recent years, by about 200 basis points). In other words, legacy loans are the bad gifts that keep on giving. The persistence of legacy loans to drive foreclosures a decade later indicates how sensitive mortgage market performance is to underwriting decisions made long ago, even in an otherwise sanguine economic environment. Clearly, this means that a large segment of mortgage loans remains very sensitive to the economy and home prices.

Looking at home prices, the national market is becoming unaffordable, price volatility is elevated, and home price cross correlations nationwide remain quite high. The home price to rent ratio is very high, and has been increasing since about 2012. Much of the rise in overall home prices has come from the lower end. Real lower-end home (at 75 percent or less of median sales prices) price growth is currently over 10 percent and it was partly driven by the Federal Housing Administration's decision to cut premiums earlier this year in the presence of tight supply.

While decreasing affordability is not a new topic to be explored, home price cross correlations and volatility is much less researched. Home price cross correlations for 10 large markets are currently 3 times higher than the three prior decades. Higher price cross correlations are driving higher home price volatility. Real home price volatility, as defined by the standard deviation of the inflation adjusted three-year moving average in price changes, is currently twice the historical average. Higher home price correlations increase home price volatility and risk of national booms and busts because the benefits of geographic diversification is reduced.

Going forward, watch for traditional red flags like employment, job and home price growth. However, we also have look for non-traditional red flags, like the performance of legacy loans, mortgage transition rates and home price volatility to get an early read on which way the market is heading.

© 2015 CoreLogic, Inc. All rights reserved.

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical News Post Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted. You can also comment using Facebook directly using he comment block below.




Econintersect Contributors


search_box

Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.


Take a look at what is going on inside of Econintersect.com
Main Home
Analysis Blog
Was Marx Right?
Angst in America, Part 4: Disappearing Pensions
News Blog
What Americans Shop For With Coupons Online
Fact Check: Are A Million African Migrants Already On Their Way To Europe?
Doctor Google Will See You Now
What We Read Today 27 April 2017
March 2017 Philly Fed Coincident Index Ticks Marginally Up
What Is 5G
April 2017 Kansas City Fed Manufacturing Remains Positive But Declines
March 2017 Pending Home Sales Seasonally Adjusted Index Declines
Durable Goods New Orders Improved in March 2017
22 April 2017 Initial Unemployment Claims Rolling Average Marginally Improves
Infographic Of The Day: These Are The Countries Most and Least Prepared For Cyber Attacks
Documentary Of The Week: History Of The World From The Beginning Of 'Time'
The Four Factors That Decide How We Feel About Income Inequality
Investing Blog
Facebook Is Coming After Snapchat From All Sides
Know Your Energy Sector
Opinion Blog
Facts Are Not Always More Important Than Opinions: Here's Why
It's Up To Congress
Precious Metals Blog
A New Age For Gold
Live Markets
27Apr2017 Market Close: Wall Street Closes In The Green With Nasdaq Grabbing The 'Golden Ring' Crossing 6,000, WTI Crude Climbs Back Into The 49 Handle, US Dollar Slips Off Session Highs
Amazon Books & More






.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government































 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2017 Econintersect LLC - all rights reserved