They Bailed on Their Homes—Now They Want Back In

Tue, 26 Feb 2013 13:01:33 +0000

While home ownership has fallen dramatically since the recent housing boom, from a high of 69.2 percent in 2004 to 65.4 percent at the end of 2012, according to the U.S. Census, the desire to own a home is still strong. 70 percent of Americans surveyed by online real estate website Trulia.com said homeownership was still a part of the “American Dream.” 65 percent of those surveyed by Fannie Mae in January of 2013 said that if they had to move, they would buy a home, rather than rent.

Coming back to home ownership may not be as difficult as some think. Consumers who only defaulted on their mortgage during the recent recession were far better risks than those who went delinquent on multiple credit accounts, like credit cards and auto loans, according to a 2011 study by TransUnion.

“There appears to be a pocket of opportunity among mortgage-only defaulters that is not the result of excess liquidity, but rather the unique circumstances of the recent recession,” said Steve Chaouki, group vice president in TransUnion’s financial services business unit in the study release. “This new market segment that the recession created is an important one for lenders to understand. They have the potential, today, to be stronger and more reliable customers.”

Not surprisingly, given this potential, YouWalkAway.com is launching the “AfterForeclosure.com Pass/Fail App,” which claims to tell potential borrowers in just one minute, “if they have a shot at home ownership.”

“We want people to know that it’s possible and, in a lot of cases, it’s advantageous,” says Jon Maddux, former CEO and co-founder of YouWalkAway.com.

(Read More: US Homeowners RiseAbove Water on Mortgages)

It is possible, but mortgage underwriting is far more strict today than during the housing boom, and there are varying waiting periods before former homeowners who went through foreclosure can qualify for a new loan. The Federal Housing Administration, the government insurer of home loans which now backs just over 20 percent of new loan originations, requires a three-year wait. Fannie Mae and Freddie Mac, which own or guarantee the bulk of the remaining new loan originations, require up to seven years for a strategic defaulter to qualify again for a mortgage.

d More: Americans Are Using Their Houses as ATMs Again)

Article source: http://www.cnbc.com/id/100485159

FHA May Show Negative Reserves For Mortgage Losses

Fri, 16 Nov 2012 02:49:38 +0000

The Federal Housing Administration (FHA), in a report due out Friday, could disclose that its reserves for future mortgage-insurance claims dipped into negative territory for the first time in almost a quarter of a century.

Every year, the FHA, the government insurer of home loans, is required to issue an independent analysis of the “economic net worth and soundness” of its insurance fund.

This is the fund that pays lenders on loans that go bad, which is why FHA loans are available for borrowers with relatively lower credit scores. The FHA insures roughly $1.1 trillion in mortgages.

The report also looks at the FHA’s capital reserves, which are there to cover future loan losses.

For the past three years, those reserves have fallen below the congressionally mandated 2 percent of the portfolio, or around $22 billion, but have not gone negative. They did go negative back in the very early 1990s.

Last year, projections were that the reserves would show an increase to $9.4 billion, but they also said there was a 50 percent chance that they would fall below zero.

A report out Thursday from the Mortgage Bankers Association showed that reserves fell in the third quarter but remain above where they were in the first quarter of 2012 due to a big jump in foreclosure starts and inventories for FHA loans. (Read More: Foreclosure Discounts Drying Up.)

Of all FHA loans, 11.14 percent are either in the foreclosure process or seriously delinquent, according to the Mortgage Bankers Association. While that’s still high, it is a vast improvement from a year ago when the number was 12.09 percent.

“The facts on the ground are encouraging, but the projections about the future, the estimates, when you take in all the income from all the loans as of September 30th and subtract all the costs, you’re going to have a net negative of several billion,” suggested Brian Chappelle, a former FHA official and now a partner at mortgage consulting firm Potomac Partners. “They’re on a financial ledge.”

The fact is that the FHA has $30 billion on hand now to pay out its current claims, and so they are not likely to need a draw from the U.S. Treasury, but this is a warning sign for the future. The reserve funds are needed for the future.

Yes, home prices are improving and delinquencies are falling, but housing is not out of the woods yet. (Read More: Home Prices Rise, but Analysts See Pressure Ahead.)

The independent actuaries made some very aggressive claims about where house prices are going, and those claims figure into their math on how well their loans will perform. Their projections were for reserves of 5 to 6 percent a year for 2014-2016. Sources said those estimates may be cut, and that could then have a dramatic effect on the portfolio.

Other things have changed as well, specifically the FHA’s “streamline” refinance program that allows current FHA borrowers to refi without an appraisal. A lot of borrowers took advantage of this recently, but some of the loans are not performing well because the mortgages are underwater (the loan is larger than the value of the home). (Read More: Why Home Refinancing Boom Is Different This Time.)

The FHA has tried to avert financial disaster by raising mortgage insurance premiums this year, but that may not be enough. The FHA took on a huge segment of the mortgage market when credit crashed, up to 40 percent of new originations in 2010. FHA loans, by definition, are riskier because they only require a 3.5 percent down payment.

While its most recent book of business is performing very well, thanks to much higher credit score standards, there is still a big mess to clean up from the housing crash, and a slow recovery in home prices is not enough to fix everything.

—By CNBC’s Diana Olick

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Article source: http://www.cnbc.com/id/49840940?__source=RSS*blog*&par=RSS

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They Bailed on Their Homes—Now They Want Back In

FHA May Show Negative Reserves For Mortgage Losses