“There’s no need to inflate the value of the home because home prices are rising,” said CoreLogic’s chief economist Mark Fleming.

But new federal regulations forcing lenders to prove that borrowers can repay their loans has some borrowers shifting the focus of their fraud to their personal balance sheets. Lenders are now scouring financial records, unlike during the recent housing boom, in order to make sure they are complying with new rules, so fraudsters are following suit, jacking up the numbers.

(Read more: Forget easing prices, new homes are up, up, up)

That could be more dangerous to the banks, because jacking up a home price only hurts if the home price falls, but inflating income means the borrowers may not be able to pay the loan no matter what.

Article source: http://www.cnbc.com/id/101062232

Overall mortgage delinquencies are still down 6.5 percent from a year ago, according to Lender Processing Services. Some of the spike may be attributed to “a seasonal phenomenon,” according to LPS analysts, but this particular spike is larger than usual. Delinquencies ticked up just 3.4 percent in June 2012. The rise also spanned products and regions.

(Read more: Investors are moving out of housing)

Despite receding from the high levels during the housing crash, 4.8 million loans are delinquent or in foreclosure, according to LPS.

The states with the highest percentage of noncurrent loans are Florida, Mississippi, New Jersey, New York and Maine.

Article source: http://www.cnbc.com/id/100914292

Mortgage applications to purchase a home are rising for two reasons: Buyer demand is increasing, and those buyers are afraid rates will go up dramatically, so they want to lock in fast.

(Read More: Depression Begone! Home Prices Set Record in April)

Alicia and Ryan Diederichs say they are in a race against time. A job transfer recently sent them and their three young children to Oceanside, Calif. Now crammed into a small rental apartment, they are hoping to buy a house quickly.

“I’m afraid we’re going to miss the boat,” said Alicia Diederichs. “I feel like we might get priced out of the market in a few months, and just depending on the mortgage payment whether we could afford it if the interest rates go up more.”

The Diederichs need a large house to fit their family, but home prices are rising fast on the California coast, and they have not yet locked in a mortgage rate.

“Ideally we would do a 30-year fixed, but it’s all going to be dependent on the end mortgage payment, what we can afford, so we would have to look at an ARM potentially if rates continue to rise,” she said.

(Read More: Mortgage Cop: Four Top Banks Fail Consumers)

The combination of sharply higher home prices and rising rates is squeezing buyers who are already facing tighter underwriting standards. In order to qualify for loans, they must fit into strict debt-to-income calculations, and those calculations change with every increase in mortgage rates.

Article source: http://www.cnbc.com/id/100845777

Based on the change in mortgage rates from early May to today, the average buyer would have to pay 13 percent more in monthly payments, including taxes and insurance, according to Mark Hanson, a California-based analyst. They also have to earn 10 percent more in income to qualify for a loan based on a typical qualifying debt-to-income ratio of 45 percent.

“These are huge moves especially considering—when purchasing a house using a mortgage—most people buy based on ‘monthly payment and the maximum allowable debt-to-income ratio.’ This means first-timer share will fall even further. They are already at a multiyear low even with record-low rates,” said Hanson.

(Read More: As Prices Rise, Banks Repossess More Homes)

First-time homebuyer participation was at just 29 percent, according to the Realtors, a five-year low. Without these buyers, as investors pull back and prices rise, home sales will likely lose steam. June’s report on pending home sales, or signed contracts in May, will tell just how much rising rates are impacting sales. That report will be released Thursday, June 27.

—By CNBC’s Diana Olick. Follow her on Twitter @Diana_Olick or on Facebook at facebook.com/DianaOlickCNBC.

Questions? Comments? RealtyCheck@cnbc.com

Article source: http://www.cnbc.com/id/100831431

(Read More: As Prices Rise, Banks Repossess More Homes)

All three components of the NAHB index were up substantially, but the index measuring buyer traffic, while up seven points, was still in negative territory at 40. The index gauging current sales conditions rose eight points to 56, and expectations for future sales rose nine points to 61.

Sentiment was also not consistent nationwide. Builders moved further into the positive in the Northeast, Midwest, and South, but confidence slipped in the West, according to a three-month moving average. The number of listings in the West has actually been rising lately, as banks speed up the foreclosure process and release more repossessed homes onto the market. Prices have also been jumping dramatically in markets such as Phoenix, Las Vegas and much of California, slowing sales of existing homes.

Article source: http://www.cnbc.com/id/100820613

(Read More: Short Supply Has Home Sales ‘Squeaking’ Out Gains)

While Humphries does not make the connection to rising bank repossessions in the report, his numbers do. They show inventory easing much more on the low end of the market, where distressed homes tend to be.

“The greatest year-over-year decreases in inventory were among more expensive homes, with the availability of top-tier and middle-tier properties each falling 15.7 percent year over year. The number of bottom-tier properties for sale on Zillow nationwide fell only 2.5 percent in early June compared to June 2012.”

As more bank-owned homes hit the market, inventories are likely to turn positive again in the near future.

—By CNBC’s Diana Olick. Follow her on Twitter @Diana_Olick or on Facebook at facebook.com/DianaOlickCNBC.

Questions? Comments? RealtyCheck@cnbc.com

Article source: http://www.cnbc.com/id/100812845

Treasury’s data shows that the longer a homeowner remains in HAMP, the more likely he or she is to redefault out of the program. As of March 31, 2013, the oldest HAMP permanent modifications, from the third and fourth quarter of 2009, are redefaulting at a rate of 46.1 percent and 39.1 percent. HAMP permanent modifications from 2010 also had high redefault rates, ranging from 28.9 percent to 37.6 percent.

The report directs Treasury to study why these modifications are failing and to come up with some kind of early warning system in order to help borrowers.

(Read More: Despite Rising Demand, Some Builders Slow Production)

“Redefaulted HAMP modifications often inflict great harm on already struggling homeowners when any amounts previously modified suddenly come due,” according to the report.

One of the architects of HAMP, Michael Barr, former Assistant Secretary for Financial Institutions at the U.S. Treasury, is not surprised at the numbers.

“The redefault rates are still below current industry averages, and below the conservative case we used in program design, which was the then-existing rate of 50 percent,” said Barr.

Troubles with HAMP are not new. Initially it did not offer principal reduction on loan modifications, and so far, under a revised HAMP, just 82,813 borrowers received any principal reduction. Banks doing their own loan modifications have wiped away far more mortgage principal, a strategy that has proven far better results. The nation’s five largest banks were required to write down some principal under the National Mortgage Servicing Settlement signed in early 2012, after the so-called “robo-signing” foreclosure paperwork scandal.

The Treasury need not look far for HAMP’s shortfalls.

(Read More: Mortgage Mods Doomed by Back End Debt)

Back in May of 2012, bank representatives complained that the back end debt-to-income ratios (DTI), (which include all debts upon which a borrower pays) for HAMP modifications were far too high. That is, borrowers were paying far too much of their incomes on debt, and the numbers were only rising.

At the time, mortgage analyst Mark Hanson said, “A 64.3 percent DTI is so far out of scope with the pre-bubble years safe-and-sound 36 percent total DTI — and even typical bubble-years full-doc DTI’s of 50 percent — it is absolutely irresponsible. Servicers are pushing the envelope with respect to getting people to qualify.”

Today Hanson is the least surprised of anyone at the failure of HAMP modifications. “Because if you look at them structurally — sky-high DTI, LTV [loan to value] and low credit score — they make legacy Subprime loans look sane.”

Hanson predicts that these bad modifications will come back to bite the banks and the economy.

(Read More: With Home Listings Low, Spec Building Is Back)

“People read headlines that ‘foreclosures are at 2005 levels’ and cheer. I say the high-risk distressed loans and foreclosures are still out there. They have just been called something different by banks and the government and kicked down the road a few years,” says Hanson.

862,000 homeowners are currently in permanent HAMP modifications; 312,000 have defaulted on permanent modifications. In the next two years, many HAMP modifications will re-set to higher interest rates, and that could produce more defaults.

Banks have been doing more modifications on their own, with these proprietary fixes up 55 percent in the fourth quarter of 2012 from the previous year, according to a recent report from the Office of the Comptroller of the Currency. Meanwhile HAMP modifications are down 31 percent for the same period.

Given delays in the foreclosure process in several states, and the risky quality of these early HAMP modifications as well as other proprietary modifications done without principal reduction, it is safe to say foreclosures may rise for a time next year before finally falling back to normal levels in the next three to four years.

As home prices rise, more borrowers will come out from underwater on their mortgages, and that will reduce the risk of new defaults, but the pipeline of distress is still long and far from lean.

Article source: http://www.cnbc.com/id/100674924

(Read More: Housing Recovery Leaves Some Behind)

“I don’t buy it,” said Mark Hanson, a California-based housing analyst. “Yes, the investor will give them a chance to bid on it, but in this market Wall Street will put the houses on the MLS in hopes of a bidding war.”

Home prices are already moving higher across the nation, largely due to a severe lack of for-sale supply. Miller is unconcerned about the swift price increases and points to a mortgage credit thaw as a counter-balance.

(Read More: Home Buyers Are Back, but Where Are the Houses?)

The big banks say it is not so much a thaw on their side as improving consumer balance sheets.

“Credit standards haven’t changed in terms of solid fundamentals around income and documentation,” said Kevin Watters, CEO of mortgage banking at JPMorgan Chase. “What has changed a little bit: Consumers’ balance sheets have improved, so their debt is down.”

Article source: http://www.cnbc.com/id/100558148

(Read More: Home Buyers Are Back, but Where Are the Houses?)

“What’s holding people back from buying a property is a fear of selling their property and not being able to find one. That’s what the problem is,” noted Herrera.

The Las Vegas market is being fueled by investors, but even the investors can’t find the great bargains anymore. While the economy has improved some, the drop in foreclosures is really due to a new law that went into effect in Nevada last year; it criminalizes faulty foreclosures. Banks have therefore tried to do more short sales and loan modifications. Foreclosures in Nevada dropped 36 percent in 2012 from the previous year, according to RealtyTrac, but the distress is still there.

“People in Las Vegas talk about shadow inventory to the point where nobody really wants to talk about it anymore, said Mike Brunson, a local appraiser. “People will argue and say it isn’t, but I can name a dozen people off the top of my head who have been in their houses for over three years without a payment.”

Brunson called Las Vegas the Titanic of the real estate market. It was once thought unsinkable, and even now that the worst is over, he still thinks the market is on a well-provisioned life raft, not on solid ground.

“The only thing that concerns me is that we have been here before and the market itself is not what is driving the price increases. It’s not that we have new employers coming in and creating tens of thousands of new jobs that are leading to people buying new houses. It’s ‘Las Vegas is on sale,’ and investors are buying up everything they can in the used market.

Whatever the cause, the result is new construction and new life breathed into the nation’s home builders.

“There’s been a lot of talk about shadow inventory. It’s gone on for years, and the reality is there’s not enough inventory out there to meet demand today. Demand has increased, certainly our buyers see that, and we’re getting a lot of buyers because of that,” argued Andrews, whose company is, he said, building 150 percent more homes than a year ago.

(Read More: Home Buyers Are Back, but Where Are the Houses?)

Brunson acknowledged there is no question the demand is real. The sales are real. But he still worries about the fundamentals, such as the slow economic growth and the fact that so much of the funding for new home sales is coming from low down payment, government-backed mortgages.

“We have been here before,” said Brunson.

What remains to be seen is if history will repeat itself or if this recovery is as unique as the collapse that preceded it.

—By CNBC’s Diana Olick; Follow her on Twitter @Diana_Olick or on Facebook at facebook.com/DianaOlickCNBC

Questions? Comments? RealtyCheck@cnbc.com

Article source: http://www.cnbc.com/id/100522314

(Read More: Pending Home Sales Soar Despite Rough Winter)

Banks are making more of an effort to do short sales instead of taking a home to foreclosure, and new federal guidelines are streamlining the process. That led to a 15 percent drop in sales of bank-owned homes and a 6 percent increase in short sales. This has helped home prices because short sales on average sell for a higher price than do bank-owned homes, because they are usually neither abandoned nor vandalized.

“Although foreclosure-related sales represent a shrinking share of total sales, primarily because of fewer bank-owned purchases, distressed sales are still a disproportionately high portion of the overall housing market,” said Daren Blomquist, vice president of RealtyTrac. “And while distressed properties — whether bank-owned, pre-foreclosure or short sales not in foreclosure — are still selling at a significant discount compared to non-distressed properties, average distressed property prices are increasing in many markets thanks to strong demand and limited inventory.”

(Read More: Housing May Not Be as Healthy as It Looks: NAHB Pro)

Limited inventory continues to be the key in today’s housing market, driving prices higher than most analysts expected. This is surprising, as distress in the market has not simply vanished. There are currently 1.7 homes in the foreclosure process and 1.5 million more seriously delinquent loans (90 days without a payment), according to a new report from Lender Processing Services. Banks are being more aggressive with loan modifications and principal forgiveness, but many of these homes will inevitably end up going back to the banks.

“Inventories continue to be low because non-distressed sellers are largely absent from the market, apparently waiting for prices to increase even more before they decide to sell,” noted Blomquist. “I think we are seeing signs of the shadow [foreclosure] supply hitting, but more on a market-by-market basis and often in the form of short sales as opposed to REO [bank-owned] sales — although REO sales are starting to show signs of life in judicial foreclosure markets with bigger backlogs.”

(Read More: Homeowners Rise Above Water on Mortgages)

Strong investor demand for these properties is pushing prices higher, even creating bubbles in some of the formerly hardest hit markets, like Phoenix and Las Vegas. If prices get too high, however, and investors can’t reap the returns they need, then supplies could grow. So far that has not happened, but home prices are rising far faster than anyone predicted.

(Read More: Taking The Real Estate Recovery Local)

Article source: http://www.cnbc.com/id/100503223