Howard Sumner

First American Studies Neighborhood Spread of Delinquency

By JON PRIOR
October 2, 2009 12:46 PM CST

With the delinquency rates of prime and subprime mortgages trending upward across the nation, individual markets show different patterns of where those delinquencies gather within the city limits.

A study by First American CoreLogic examines the spatial distribution of serious mortgage delinquencies across neighborhoods in the 30 largest US cities. Five patterns emerge from the data.

Markets such as Las Vegas, Tampa and Sacramento are examples of the delinquency pattern CoreLogic calls "Type 1 ," which is characterized by a high mean delinquency rate above 10% with most of its volume distributed symmetrically around neighborhoods with the highest delinquency rates. This pattern appears to be associated with steep house price drops and reflects overdevelopment or speculative real estate purchases, according to the report.

Charlotte, Portland and Seattle fit under the Type 2 pattern, which has a relatively low mean delinquency rate beneath 10%, and the majority of the mortgages are compact with little or none in high delinquency neighborhoods.

"These are metropolitan areas that, into the third quarter of 2008 continued to have comparatively healthy housing markets," according to the report.

Type 3 cities include Chicago, Los Angeles and Atlanta, where delinquencies are skewed over a variety of impacted neighborhoods. Here, the maximum delinquency rate exceeds 20%.

"Type 3 cities are larger in size, have a more vibrant economy, and generally have had a smaller proportion of subprime," according the report.

Therefore, in these cities, the neighborhoods infected with subprime delinquency and job losses take a smaller share of the entire city's market, according to the report.

Like Type 3 cities, Type 4 markets have a higher volume of delinquencies in neighborhoods with a lower delinquency rate. They are less skewed and more compact, but the maximum delinquency rate swells to 20%. Baltimore, Boston and Washington D.C. are Type 4 cities.

Neighborhoods in Type 5 cities such as Cleveland and Detroit have a more even disbursement of highly delinquent neighborhoods that often exceed 20% delinquency rates. Type 5 cities have the largest share of their Zip cods in high delinquency state, according to the report.

The report also showed that the national serious delinquency of prime mortgages was 6.02% in June 2009. Florida and Nevada posted the highest rate of 15.05% and 14.05%, respectively. North Dakota's 1.17% and South Dakota's 1.77% serious delinquency rates were the lowest in the country.

But when the 60-plus day delinquency and serious delinquency trends were plotted against the foreclosure rates, delinquencies were shown to accelerate faster than foreclosures as loan servicers increase loan modifications and other workout efforts and moratoria cap the foreclosure rates

Although these rules were mad in 2008 i thought it might be useful to post them because they go into effect this week on October 1st 2009

The Federal Reserve Board on Monday approved a final rule for home mortgage loans to better protect consumers and facilitate responsible lending. The rule prohibits unfair, abusive or deceptive home mortgage lending practices and restricts certain other mortgage practices. The final rule also establishes advertising standards and requires certain mortgage disclosures to be given to consumers earlier in the transaction.

The final rule, which amends Regulation Z (Truth in Lending) and was adopted under the Home Ownership and Equity Protection Act (HOEPA), largely follows a proposal released by the Board in December 2007, with enhancements that address ensuing public comments, consumer testing, and further analysis.

"The proposed final rules are intended to protect consumers from unfair or deceptive acts and practices in mortgage lending, while keeping credit available to qualified borrowers and supporting sustainable homeownership," said Federal Reserve Chairman Ben S. Bernanke. "Importantly, the new rules will apply to all mortgage lenders, not just those supervised and examined by the Federal Reserve. Besides offering broader protection for consumers, a uniform set of rules will level the playing field for lenders and increase competition in the mortgage market, to the ultimate benefit of borrowers," the Chairman said.

The final rule adds four key protections for a newly defined category of "higher-priced mortgage loans" secured by a consumer's principal dwelling. For loans in this category, these protections will:

• Prohibit a lender from making a loan without regard to borrowers' ability to repay the loan from income and assets other than the home's value. A lender complies, in part, by assessing repayment ability based on the highest scheduled payment in the first seven years of the loan. To show that a lender violated this prohibition, a borrower does not need to demonstrate that it is part of a "pattern or practice."
• Require creditors to verify the income and assets they rely upon to determine repayment ability.
• Ban any prepayment penalty if the payment can change in the initial four years. For other higher-priced loans, a prepayment penalty period cannot last for more than two years. This rule is substantially more restrictive than originally proposed.
• Require creditors to establish escrow accounts for property taxes and homeowner's insurance for all first-lien mortgage loans.

"These changes have made for better rules that will go far in protecting consumers from unfair practices and restoring confidence in our mortgage system," said Governor Randall S. Kroszner.

In addition to the rules governing higher-priced loans, the rules adopt the following protections for loans secured by a consumer's principal dwelling, regardless of whether the loan is higher-priced:

• Creditors and mortgage brokers are prohibited from coercing a real estate appraiser to misstate a home's value.
• Companies that service mortgage loans are prohibited from engaging in certain practices, such as pyramiding late fees. In addition, servicers are required to credit consumers' loan payments as of the date of receipt and provide a payoff statement within a reasonable time of request.
• Creditors must provide a good faith estimate of the loan costs, including a schedule of payments, within three days after a consumer applies for any mortgage loan secured by a consumer's principal dwelling, such as a home improvement loan or a loan to refinance an existing loan. Currently, early cost estimates are only required for home-purchase loans. Consumers cannot be charged any fee until after they receive the early disclosures, except a reasonable fee for obtaining the consumer's credit history.

For all mortgages, the rule also sets additional advertising standards. Advertising rules now require additional information about rates, monthly payments, and other loan features. The final rule bans seven deceptive or misleading advertising practices, including representing that a rate or payment is "fixed" when it can change.

The rule's definition of "higher-priced mortgage loans" will capture virtually all loans in the subprime market, but generally exclude loans in the prime market. To provide an index, the Federal Reserve Board will publish the "average prime offer rate," based on a survey currently published by Freddie Mac. A loan is higher-priced if it is a first-lien mortgage and has an annual percentage rate that is 1.5 percentage points or more above this index, or 3.5 percentage points if it is a subordinate-lien mortgage. This definition overcomes certain technical problems with the original proposal, but the expected market coverage is similar.

One element of the original proposal has been withdrawn. The Federal Reserve Board had proposed for public comment certain requirements pertaining to so-called "yield-spread premiums." During the intervening period, the Board engaged in consumer testing that cast significant doubt on the effectiveness of the proposed rule. As part of its ongoing review of closed-end loan rules under Regulation Z, however, the Board will consider alternative approaches.

In finalizing the rule, the Board carefully considered information obtained from testimony, public hearings, consumer testing, and over 4,500 comment letters submitted during the comment period. "Listening carefully to the commenters, collecting and analyzing data, and undertaking consumer testing, has led to more effective and improved final rules," Governor Kroszner said.

The new rules take effect on October 1, 2009. The single exception is the escrow requirement, which will be phased in during 2010 to allow lenders to establish new systems as needed.

In a related move, the Board is publishing for public comment a proposal to revise the definition of "higher-priced mortgage loan" under Regulation C (Home Mortgage Disclosure), which requires lenders to report price information for such loans, to conform to the definition the Board is adopting under Regulation Z.

below is a partial release from the federal reserve the bold part has to with their purchase of mortgages. so far this year the federal reserve has purchase just shy of 50% of the marketing home home loans. by the statement you can interpolate that the federal reserve is not positive the open market will come in and fill the purchasers it has made it will be interesting to watch

With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time.

In these circumstances, the Federal Reserve will continue to employ a wide range of tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt. The Committee will gradually slow the pace of these purchases in order to promote a smooth transition in markets and anticipates that they will be executed by the end of the first quarter of 2010. As previously announced, the Federal Reserve's purchases of $300 billion of Treasury securities will be completed by the end of October 2009. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.

below is the market performance so this year in the Billngs/ Yellowstone County area. the $8,000 first time buyer has brought activity ti the market place that will slow when it is gone. essentially if you have not entered in to contract by the end of October it will be hard to meet the dead line of November 30th to be closed. over all the year has performed decently when the events are taken in consideration

the hour glass is is running and time will soon be gone for the first time buyer to take advantage of the $8,000 dollar credit. the first time buyer credit ends on November 30th 2009. for a first time buyer to take advantage they must have their purchased closed by midnight November 30th 2009. doing some calculations as to timing within the the market and financing changes it puts the date that you must have a purchase agreement in place to October 31st 2009. why you might ask do i need to have a buy sell in place by then. 1. it generally takes 30 days from start to finish to allow for inspections appraisals and loan processing, in November you have thanksgiving which is going to slow the process with banks being closed and people leaving on vacation. so even with a purchase agreement in place it will take some very focused help to make sure everything happens the way it should, so you don't miss out on the tax credit. adding to the complexity is rules changes on disclosures and changes as your proceed toward closing if a lender does not get the annual percentage close enough on the initial disclosure. right at the end you could be faced with between a 3 to 7 day delay in closing and then a lot of shedding of tears because the lender won't close due to federal law.

the best advice is to get out in the market and find a home and find a lender, get fully credit approved so you may take advantage of funding your first home and the $8,000 credit before it expires.

call howard sumner 406-245-6990

or http://Realestatemontana.com