CoreLogic: Underwater mortgage share down to 10.2% in 1Q15


More than 254K properties regained equity

New analysis shows 254,000 properties regained equity in the first quarter of 2015, bringing the total number of mortgaged residential properties with equity at the end of Q1 2015 to approximately 44.9 million, or 90% of all mortgaged properties, CoreLogic (CLGX) reports.

Nationwide, borrower equity increased year over year by $694 billion in Q1 2015. The total number of mortgaged residential properties with negative equity is now at 5.1 million, or 10.2% of all mortgaged properties. This compares to 5.4 million homes, or 10.8%, that had negative equity in Q4 2014, a quarter-over-quarter decrease of 4.7%. Compared with 6.3 million homes, or 12.9%, reported for Q1 2014, the number of underwater homes has decreased year over year by 1.2 million, or 19.4%.

This report diverges with a report last week from Zillow (Z), meanwhile, which released its 2015 Q1 Negative Equity Report, saying that negative equity fell in the first quarter of 2015 to 15.4% from 16.9% in the fourth quarter of 2014, and 18.8% during the same time period a year ago.

Negative equity, often referred to as “underwater” or “upside down,” refers to borrowers who owe more on their mortgages than their homes are worth. Negative equity can occur because of a decline in value, an increase in mortgage debt or a combination of both.

For the homes in negative equity status, the national aggregate value of negative equity was $337.4 billion at the end of Q1 2015, falling approximately $11.7 billion from $349.1 billion in Q4 2014. On a year-over-year basis, the value of negative equity declined overall from $388 billion in Q1 2014, representing a decrease of 13% in 12 months.

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(Source: CoreLogic)

Louisiana, Maine, Mississippi, South Dakota, Vermont, West Virginia and Wyoming have insufficient equity data to report at this time.

Of the more than 50 million residential properties with a mortgage, approximately 9.7 million, or 19.4%, have less than 20% equity (referred to as “under-equitied”), and 1.3 million, or 2.7%, have less than 5% equity (referred to as near-negative equity). Borrowers who are “under-equitied” may have a more difficult time refinancing their existing homes or obtaining new financing to sell and buy another home due to underwriting constraints. Borrowers with near-negative equity are considered at risk of moving into negative equity if home prices fall.

“The CoreLogic Home Price Index for the U.S. was up 2.5% during the first quarter of 2015, which has improved the equity position of homeowners,” said Frank Nothaft, chief economist for CoreLogic. “About 90% of homeowners now have housing equity and, as a result, have experienced an increase in wealth, which can spur additional consumption and investment expenditures. The remaining 10% of owners with negative equity will find their home value rising while they continue to pay down principal on their amortizing mortgage loan.”

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(Source: CoreLogic)

“Many homeowners are emerging from the negative equity trap, which bodes well for a continued recovery in the housing market,” said Anand Nallathambi, president and CEO of CoreLogic. “With the economy improving and homeowners building equity, albeit slowly, the potential exists for an increase in housing stock available for sale, which would ease the current imbalance in supply and demand. There are still about 5 million homeowners who are underwater and we estimate that a further 5% appreciation in home values across the U.S. would reduce the number of owners with negative equity by about one million.”

Highlights as of Q1 2015:

  • Nevada had the highest percentage of mortgaged residential properties in negative equity at 23.1%, followed by Florida (21.2%), Illinois (16.8%), Arizona (16.8%) and Rhode Island (15.7%). Combined, these five states accounted for 31.4% of negative equity in the U.S.
  • Texas had the highest percentage of mortgaged residential properties in positive equity at 97.7%, followed by Hawaii (96.9%), Alaska (96.8%), Montana (96.8%) and North Dakota (96.2%).
  • Of the 25 largest Core Based Statistical Areas (CBSAs) based on mortgage count, Tampa-St. Petersburg-Clearwater, Fla. had the highest percentage of mortgaged residential properties in negative equity at 23.1%, followed by Chicago-Naperville-Arlington Heights, Ill. (19.1%), Phoenix-Mesa-Scottsdale, Ariz. (16.9%), Riverside-San Bernardino-Ontario, Calif. (13.9%) and Warren-Troy-Farmington Hills, Mich. (13.4%).
  • Of the same largest 25 CBSAs, Houston-The Woodlands-Sugar Land, Texas had the highest percentage of mortgaged properties with positive equity at 97.9%, followed by Dallas-Plano-Irving, Texas (97.6%), Denver-Aurora-Lakewood, Colo. (97.1%), Portland-Vancouver-Hillsboro, Ore-Wash. (97%) and Anaheim-Santa Ana-Irvine, Calif. (97%).
  • Of the total $337 billion in negative equity, first liens without home equity loans accounted for over half at $181 billion, or 53%, in aggregate negative equity, while first liens with home equity loans accounted for $157 billion, or 47%.
  • Approximately 3.1 million underwater borrowers hold first liens without home equity loans. The average mortgage balance for this group of borrowers is $229,000. The average underwater amount is $58,000.
  • Approximately 2 million underwater borrowers hold both first and second liens. The average mortgage balance for this group of borrowers is $295,000. The average underwater amount is $78,000.
  • The bulk of positive equity for mortgaged properties is concentrated at the high end of the housing market. For example, 94% of homes valued at greater than $200,000 have equity, compared with 85% of homes valued at less than $200,000.

Reprinted from Trey Garrison

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“What is FHA’s 90 Day Anti-Flip Rule?” – ASK THE PIG [VIDEO]


Question: What is FHA’s 90 Day Anti-Flip Rule?

For a number of years now, FHA has enforced a 90 day anti-flipping rule which prevents an investor from reselling a home to a buyer using FHA financing until that have owned the property for at least 90 days.  While some investors might think this is a moot point, since most renovation properties take at least 90 days to rehab and sell, that is certainly not always the case.  There have been numerous occasions in which I have purchased and resold in less than 90 days, because the property was a very LIGHT rehab, or need nearly no renovation whatsoever.  

While most deals do involve BOTH a distressed property AND a distressed seller, that is not always the case, and some times the property will need very little to no work.  Just last year, I purchased a home in Pensacola for $50,000 and resold it THE NEXT DAY for $79,900 after spending just $400 to trim the bushes, mulch the beds, and stage the home.  Thankfully I had a cash buyer, but had it been someone using FHA financing, I would have had a LONG wait before I could close and realize my profits.

This “anti-flipping” rule wasn’t as big of an obstacle for investors in the past, as FHA financing was a very small part of the overall mortgage market.  However, when the market crashed and banks were reeling, government insured loans through FHA began to take on a much larger share of the market and so it became a bigger issue for those who were looking to flipping to buyers in less than 90 days.

Thankfully, someone at FHA had a massive “A-HA!” moment back in 2010, and they issued a waiver of the anti-flipping rule.  They understood that investors were a huge BENEFIT to the overall real estate market, and that their role of buying distressed home, fixing, and re-selling to strong buyers was a stabilizing force in the market the would help expedite the recovery.  Unfortunately, many of the lenders who were issuing these loans were skittish and uncomfortable with the new rule after numerous threats of “buy-backs”, penalties, and fines from the government regulatory agencies, and so they added what are known as “overlays” to the FHA guidelines.  So, they effectively ignored the anti-flipping waiver, and continued to require sellers to be on title for 90 days, sometimes not even allowing a CONTRACT to be written until the 91st day.

Sadly, this social awareness of the necessity of investors in the marketplace, and their benefit as a force to help recycle old dilapidated real estate into good, quality, affordable housing has disappeared from the minds of the powers that be at FHA.  As a result, the decided not to extend the anti-flipping waiver last year, and investors became evil once again on January 1st of 2015, and now have to be punished with an extra long wait to re-sell if they happen to buy a good deal.  

So, what’s the lesson to be learned for active real estate investors?  

Number 1 – Multiple offer situations – If you receive multiple offers on a house, you may want to take extra care to review all of the TERMS of the deal, including the type of FINANCING.  Though one offer might be higher in purchase price, if it’s an FHA offer that requires you to wait an extra 30-60 days before you can sell, you may end up netting less money due to increased holding costs such as debt service, utilities, insurance, property taxes, etc.

Number 2 – Review Sales Data BEFORE Purchasing or Marketing – As I mentioned in our recent meeting entitled “The Gatekeepers”, Realtors have access to data on the MLS that can you provide you with which types of financing are more popular in a certain area, whether cash, conventional, FHA, or VA.  If an area is heavy with FHA buyers, you may decide to market to a different area, or at least be aware of it going in to the project so you can estimate your holding costs accordingly. 

What’s your experience with FHA buyers and/or the 90 day anti-flipping rule?  Let me know your thoughts below!



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Here’s the Real Reason College Grads Aren’t Getting Homes


The debt cycle goes psychological.

StudentDebtA recent post from Liberty Street Economics, the blog from the Federal Reserve Bank of New York, gave the public finance perspective on student loan debt.

As you all may be aware, the current administration is looking at ways to help college students receive a greater proportion of tuition assistance.

The Fed’s Director of Research, James McAndrews, in remarks to the National Association of College and University Business Officers, cited higher tuition costs coupled with more people attending college as the primary reason for the big jump in the nation’s student loan debt.

Which, by the way, is jaw-droppingly staggering:

“Between 2004 and 2014, the total student debt in the U.S. tripled from $364 billion in 2004 to $1.16 trillion in 2014,” he said.

That’s a lot of debt. And we know it’s keeping grads from buying homes.

But there is more to it, when looking deeper at the numbers. And, by doing so, we can learn how this debt is shackling generations out of the housing market.

Warning: There is no near-term upside to this conclusion.

In McAndrews’ remarks, we learn that college grads aren’t just renting because they’re waiting to pay down student loan debt first.

No, it’s much worse. In truth, more and more college grads can’t even pay down their student debt in the first place!

Read this passage, the bolding is mine:

So what is causing the withdrawal from home and car purchase markets? It is likely that rising student debt and an uncertain economic outlook have depressed demand. But most likely, declines in credit supply play an important role as well. Our analysis shows that average credit scores have fallen for student debt holders relative to those with no student debt. Clearly for the substantial and growing group of student loan borrows who are delinquent or have defaulted on their debt, access to credit is reduced through potentially long-lasting negative effects on credit scores. Better data is required to evaluate the extent to which the decline in car and home loan originations is concentrated among those delinquent on their student loans and those who dropped out of college, or whether it is more widespread among all those with student loans.

As of the fourth quarter of 2014, about 17%, or 7.3 million borrowers, were 90 days or more delinquent on their student loan payments. That’s nearly double the rate in 2004.graduate-coming-home

But more worrying is that the more delinquent, the more likely one is to still live with their parents. And let’s be honest, an extended period of living at home leads to behavioral changes over time. The longer they stay, the less likely they feel an immediacy to leave.

As Raphael Bostic said, at some point, they’ll eventually pair up and move on.

But in the meantime, questions remain as to when any meaningful change to the tuition-financing mechanisms may actually take place.

McAndrews makes the case that none of this should ultimately prevent someone from getting a college degree. Lifetime earnings, he says, will eventually even it out.

Having employed and managed more than a few college grads in my time at HousingWire, I strongly disagree. I’ve seen firsthand how little a job can help dissolve one’s psyche when crippled by massive student loan debt.  It’s common and it’s a curse.

The Fed is looking for solutions, but so far has more questions than answers, and though it clearly wants to reform the system, it doesn’t yet know how.

“We at the New York Fed will continue to search for new facts to put on the table and push the debate forward,” said McAndrews, and I believe him.

Especially after learning how awful it can be for these college grads with little financial freedoms. They are those robbed of both their choice and their liberty to create a community.

It’s one thing to sacrifice short-terms hopes and dreams at the expense of higher education.

It’s another, more real and more tragic, phenomenon to lash financial neophytes with mountains of debt that cannot even be discharged in bankruptcy.

For these graduates, there is literally no way out anytime soon. And though that’s the real reason they aren’t buying homes, it’s also not the real reason we need to be worried.

By Jacob Gaffney/

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Saying Goodbye to Real Estate as We’ve Known It (The End of the HUD-1 Era)


RIP HUD-1It’s time to say goodbye to real estate closings as we’ve known them for the last several years.  The infamous HUD-1 Settlement statement, which is used by title companies and closing attorneys in nearly every real estate transaction, is officially being retired.  The much-maligned and often criticized Consumer Financial Protection Bureau (birthed out of the chaos from the mortgage and real estate meltdown of the Great Recession) has implemented a new rule, set to go into effect October 3rd, 2015, that will significantly change the closing process.

The new CFPB law is set to outline new rules for integrated mortgage disclosures, and involves forms required under both the Truth-in-Lending Act (TILA) and the Real Estate Settlement and Procedures Act (RESPA).  Instead of the current “Good Faith Estimate”, a new “Loan Estimate” will take its place.  Additionally, the long trusted HUD-1 Settlement Statement will be replaced with a new form referred to as the “Closing Disclosure”.

For those of you who are new to the real estate business, The HUD-1 Settlement form, is used to itemize fees and services charged to the borrower, by the lender or broker, when they apply for a real estate loan.  It is usually delivered to the buyer one day prior to the closing, and is an important form to review, as it accounts for all charges and credits (your MONEY!).  The HUD-1 Settlement statement includes both credits and deductions taken from each party and helps determine the total amount the buyer is required to bring to closing, and how much the seller will receive as a result of the sale.

While I know HUD-1’s aren’t exactly the sexiest topic for a blog post (unless you’re a real estate nerd like me), but since they are used in nearly every real estate closing, it’s definitely a form you should familiarize yourself with, and you should also understand the changes that are coming in the next couple of months.

Closing Disclosures

Starting this summer, creditors must now provide a new final disclosure, which reflects the actual terms of the transaction.  This is known as a Closing Disclosure.  The form, the H-5 form (pg. 55) integrates and replaces the final TIL disclosure and the existing HUD-1 for these transactions.  Unlike the HUD-1, the new form is longer, and must be delivered three-business-days before consummation of the loan.  So don’t forget the date!

General Requirements (Good Terms to Know!)

  • The Closing Disclosure must contain the actual terms and costs. Creditors may estimate when these are not readily available, but are expected to provide corrected disclosures, containing the actual terms, at or before consummation.
  • The disclosure must be in writing, with the information prescribed in § 1026.38 of the CFPB.
  • A three-day waiting period may be allowed if the creditor provides a corrected disclosure. This in turn, may also allow a three-day grace period for the consumer, prior to consummation.

 Consummation not Closing – There’s a Difference Now!

Although consummation seems similar to settlement or closing, as it commonly occurs at the same time, you should be aware that the two events are considered legally distinct. Consummation begins at the point in time when the consumer becomes contractually obligated to the creditor on the loan. When this may occur, generally depends on your State law. You should always verify your State laws to ensure a timely delivery of the Closing Disclosure.

Change can be Good

Ushering in a new system, into what had become a well-oiled machine, can be an incredibly daunting task. This is why the original date to implement these changes of August 1st has already been pushed back twice, and also includes a “grace period” that is expected to last until the end of the year. However, this change might come as a breath of fresh air, as not only are consumers better protected, but it puts more transparency on a market that has been roundly criticized since the market crash of 2007/2008.

What are your thoughts on the new changes? I’d love to hear your thoughts in the comments section below!

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Google Launches Built-in Mortgage Calculator


Consumers will be able to calculate mortgage payments within Google searches.

Lenders who were unhappy with the Consumer Financial Protection Bureau’s new mortgage payment calculator will soon have a new target for their ire, Google (GOOG).

That’s because the internet search monolith began very quietly rolling out a mortgage payment calculator of its own on Tuesday. The built-in mortgage calculator will apparently appear when a user searches for terms like, “mortgage calculator,” “loan interest calculator,” and “interest calculator.”

The native mortgage calculator was first spotted by HousingWire searched for Google’s mortgage calculator and found it on an Android-powered phone.

We also captured a screenshot of the tool in action:

 Google calculator

While the roll-out of the Google mortgage calculator seems to be limited thus far, Google did share some news on the mortgage calculator on its Google+ page.

“Preparing for homeownership just got a bit easier,” Google’s post states. “Starting today you can ask Google things like ‘How much can I borrow at $200 a month?’ or ‘At 5% APR how much can I borrow over 10 years?’ You can even adjust the mortgage amount, interest rate, mortgage period and more to see which financial options fit your needs?”

Google’s foray into the land of mortgage calculation comes on the heels of the controversial “borrower education tool” from the CFPB. As part of the “Owning a Home” consumer tool, the CFPB included “Rate Checker,” which it touted as a tool to help consumers understand what interest rates may be available to them by using the same underwriting variables that lenders use on their internal rate sheets.

“In other words, we are giving consumers direct access to the same type of information that the lenders themselves have,” CFPB Director Richard Cordray said at the time.

The CFPB’s tool was met with angst from mortgage lenders, including the Mortgage Bankers Association. The MBA suggested the Rate Checker mentions rates and costs without including disclosure items TILA_RESPA rules and the CFPB mandate for borrowers – annual percentage rate, closing fees, etc.

Essentially, mortgage bankers said that if the Rate Checker were a lender advertisement or mortgage calculator, it would violate the CFPB’s disclosure rules.

Google even included a screenshot of what its mortgage calculator looks like on a mobile phone. Click the image below to take a larger look at what Google’s mortgage calculator looks like. Google calculator2.jpg

“It sets borrowers up for severe disappointment,” David Stevens, president and CEO of the Mortgage Bankers Association, told HousingWire. “It should be taken down.”

Stevens says that the tool doesn’t inform borrowers of a host of other costs that lenders are required to disclose under TILA-RESPA, such as closing costs, APR, and other charges and fees, Stevens added.

“This tool has none of that. It gives borrowers none of that,” Stevens said. “It could allow lenders to rate bait the market.”

The third-party tool offers accurate but incomplete information, Stevens added.

The CFPB’s response, in a note to HousingWire, appeared unequivocal. The Rate Checker is not coming down.

“The Rate Checker is an educational tool, and part of a larger suite of tools to help consumers be more informed and effective mortgage shoppers. The Rate Checker does not connect consumers with lenders,” a spokesperson for CFPB told HousingWire.

Other details of Google’s mortgage calculator, such as whether if features details on closing costs, fees, etc. are currently unknown, but HousingWire will continue to monitor the situation to see if Google’s mortgage calculator becomes a permanent feature or just a flash in the digital pan.

By Ben Lane Reprinted from Housingwire

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