CoreLogic: 11.1 Million U.S. Properties with Negative Equity in Q4,

CoreLogic released the Q4 2011 negative equity report today.

CoreLogic … today released negative equity data showing that 11.1 million, or 22.8 percent, of all residential properties with a mortgage were in negative equity at the end of the fourth quarter of 2011. This is up from 10.7 million properties, 22.1 percent, in the third quarter of 2011. An additional 2.5 million borrowers had less than five percent equity, referred to as near-negative equity, in the fourth quarter. Together, negative equity and near-negative equity mortgages accounted for 27.8 percent of all residential properties with a mortgage nationwide in the fourth quarter, up from 27.1 in the previous quarter. Nationally, the total mortgage debt outstanding on properties in negative equity increased from $2.7 trillion in the third quarter to $2.8 trillion in the fourth quarter.

“Due to the seasonal declines in home prices and slowing foreclosure pipeline which is depressing home prices, the negative equity share rose in late 2011. The negative equity share is back to the same level as Q3 2009, which is when we began reporting negative equity using this methodology. The high level of negative equity and the inability to pay is the ‘double trigger’ of default, and the reason we have such a significant foreclosure pipeline. While the economic recovery will reduce the propensity of the inability to pay trigger, negative equity will take an extended period of time to improve, and if there is a hiccup in the economic recovery, it could mean a rise in foreclosures.” said Mark Fleming, chief economist with CoreLogic.

Here are a couple of graphs from the report:

CoreLogic, Negative Equity by StateClick on graph for larger image.

This graph shows the break down of negative equity by state. Note: Data not available for some states. From CoreLogic:

Nevada had the highest negative equity percentage with 61 percent of all of its mortgaged properties underwater, followed by Arizona (48 percent), Florida (44 percent), Michigan (35 percent) and Georgia (33 percent). This is the second consecutive quarter that Georgia was in the top five, surpassing California (29 percent) which previously had been in the top five since tracking began in 2009. The top five states combined have an average negative equity share of 44.3 percent, while the remaining states have a combined average negative equity share of 15.3 percent.”

CoreLogic, Distribution of EquityThe second graph shows the distribution of equity by state- black is Loan-to-value (LTV) of less than 80%, blue is 80% to 100%, red is a LTV of greater than 100% (or negative equity). Note: This only includes homeowners with a mortgage – about 31% of homeowners nationwide do not have a mortgage.

Some states – like New York – have a large percentage of borrowers with more than 20% equity, and Nevada, Arizona and Florida have the fewest borrowers with more than 20% equity.

Some interesting data on borrowers with and without home equity loans from CoreLogic: “Of the 11.1 million upside-down borrowers, there are 6.7 million first liens without home equity loans. This group of borrowers has an average mortgage balance of $219,000 and is underwater by an average of $51,000 or an LTV ratio of 130 percent.

The remaining 4.4 million upside-down borrowers had both first and second liens. Their average mortgage balance was $306,000 and they were upside down by an average of $84,000 or a combined LTV of 138 percent.”


Bank of America Offers $20,000 Short-Sale Incentive to Homeowners, by Kimberly Miller, The Palm Beach Post

Bank of America, the nation’s largest mortgage servicer, is offering Florida homeowners up to $20,000 to short sale their homes rather than letting them linger in foreclosure.

The limited-time offer has received little promotion from the Charlotte, N.C.-based bank, which sent emails to select Florida Realtors earlier this week outlining basic details of the plan.

Only homeowners whose short sales are submitted for approval to Bank of America before Nov. 30 will qualify. The homes must have no offers on them already and the closing must occur before Aug. 31, 2012.

A short sale is when a bank agrees to accept a lower sales price on a home than what the borrower owes on the loan.

Realtors said the Bank of America plan, which has a minimum payout amount of $5,000, is a genuine incentive to struggling homeowners who may otherwise fall into Florida’s foreclosure abyss.

The current timeline to foreclosure in Florida is an average of 676 days — nearly two years — according to real estate analysis company RealtyTrac. The national average foreclosure timeline is 318 days.

“I think this is a positive sign that the bank is being creative to try and help homeowners and get things moving,” said Paul Baltrun, who works with real estate and mortgages at the Law Office of Paul A. Krasker in West Palm Beach. “With real estate attorneys handling these cases, you’re talking two, three, four years before there’s going to be a resolution in a foreclosure.”

Guy Cecala, chief executive officer and publisher of Inside Mortgage Finance, called the short sale payout a “bribe.”

“You can call it a relocation fee, but it’s basically a bribe to make sure the borrower leaves the house in good condition and in an orderly fashion,” Cecala said. “It makes good business sense considering you may have to put $20,000 into a foreclosed home to fix it up.”

Homeowners, especially ones who feel cheated by the bank, have been known to steal appliances and other fixtures, or damage the home.

“This might be the banks finally waking up that they can have someone in there with an incentive not to damage the property,” said Realtor Shannon Brink, with Re/Max Prestige Realty in West Palm Beach. “Isn’t it better to have someone taking care of the pool and keeping the air conditioner on?”

A spokesman for Bank of America said the program is being tested in Florida, and if successful, could be expanded to other states.

Wells Fargo and J.P. Morgan Chase have similar short-sale programs, sometimes called “cash for keys.”

Wells Fargo spokesman Jason Menke said his company offers up to $20,000 on eligible short sales that are left in “broom swept” condition. Although the program is not advertised, deals are mostly made on homes in states with lengthy foreclosure timelines, he said.

And caveats exist. The Wells Fargo short-sale incentive is only good on first-lien loans that it owns, which is about 20 percent of its total portfolio.

Bank of America’s plan excludes Ginnie Mae, Federal Housing Administration and VA loans.

Similar to the federal Home Affordable Foreclosure Alternatives program, or HAFA, which offers $3,000 in relocation assistance, the Bank of America program may also waive a homeowner’s deficiency judgment at closing.

A deficiency judgment in a short sale is basically the difference between what the house sells for and what is still owed on the loan.

HAFA, which began in April 2010, has seen limited success with just 15,531 short sales completed nationwide through August.

But Realtors said cash for keys programs can work.

Joe Kendall, a broker associate at Sandals Realty in Fort Myers, said he recently closed on a short sale where the seller got $25,000 from Chase.

“They realize people are struggling and this is another way to get the homes off the books,” he said.

Vacation homes slowly make a comeback, by J. Craig Anderson ,

The market for multimillion-dollar vacation homes has experienced a slow but steady recovery since the housing market crashed, with a slight increase in sales of luxury getaways for the ultrarich each year.

But builders and sellers of vacation properties aimed at the upper middle class said they are struggling to find a marketing pitch that will resonate with prospective buyers who still have the means but seem to have lost the will.

Jim Chaffin, a Colorado recreational real-estate developer, was among a group of panelists who spoke earlier this month about the challenges that vacation-home sellers face at a time when the only thing wealthy Americans feel inclined to flaunt is their frugality.

Chaffin, chairman of Aspen-based Chaffin Light LLC, said the challenge is on developers to construct a more relevant, persuasive pitch that keys into would-be buyers’ desire to feel smart, responsible and practical.

“It is no longer because you can or because you deserve it,” said Chaffin, speaking on the May 19 panel at the Urban Land Institute‘s 2011 Spring Council Forum in downtown Phoenix.

Chaffin and others said luxury vacation-home developers are likely to shift their focus from straight sales to lower-cost alternatives such as timeshares, fractional ownerships and private residence-club memberships – all of which allow consumers to vacation in style for considerably less than the cost of buying a luxury vacation home.

In addition, they said, future vacation-home developers will need to build in places that are easily accessible from major metropolitan areas, set in breathtakingly beautiful locales and offer a compelling experience in addition to a pretty view.

Drew Brown, chairman of Scottsdale-based developer DMB Associates Inc., who moderated the Urban Land Institute panel discussion, said that timeshare and fractional-ownership projects have struggled along with traditional sales in the current recession.

Brown said that is likely due to public perception that timeshares, fractional shares and club memberships are difficult to resell if the owners want or need out of the deal.

Panelist Chuck Cobb, chief executive of Cobb Partners, a Florida-based investor in resort properties, said resort-community developers and operators still have a long way to go toward recovery, with a huge inventory of vacation homes yet to be sold.

He said the most successful among them likely will offer a range of options for buyers, renters and traditional resort guests.

Vicki Kaplan is a Scottsdale-based real-estate agent who represents buyers and sellers of fractional-ownership shares in vacation villas at the Rocks Luxury Residence Club, a resort community in north Scottsdale managed by Troon Golf.

Kaplan, of Arizona Best Real Estate, said that the resale market for fractionals has been slow lately and that it can take up to a year to find a qualified buyer.

Fractional ownership differs from timeshare in several ways. Unlike timeshare buyers, fractional owners actually purchase a portion of the vacation-home or condo.

Private residence clubs are another variation on the timeshare concept. With residence clubs, participants buy a membership that entitles them to a certain amount of guaranteed vacation time at the resort.

Buyers of timeshares, fractional shares and residence-club memberships all must sell their stake in the resort community on the open market to be released from monthly homeowners’ association or maintenance-fee obligations, which can be considerable. At the Rocks, the standard fraction is one-seventh, which entitles the owners to a guaranteed six weeks of occupancy each year.

They can stay even longer and can use any of the resort’s seven fractionally owned villas as long as no one else is using them.

In addition, the resort community participates in a “reciprocity program,” administered by Timbers Resorts, a fractional-ownership and private residence-club resort operator based in Carbondale, Colo.

The program allows owners to stay at any of the company’s nine participating resort communities, which include locations in Colorado, California, Mexico and Italy.

Kaplan said fractional shares in the Rocks have sold recently for under $200,000 – considerably less than the developer’s original sale price of $325,000 to $335,000.

The monthly HOA dues, which cover maintenance plus services comparable to a high-end resort and spa, is about $900 a month, 12 months a year.

Kaplan said the recession has made it much easier for owners to take advantage of the reciprocity program because sister Timbers communities aren’t as likely to be fully occupied at any given time.

Still, Kaplan was quick to point out that fractional ownership is not for everyone. When talking to potential buyers, she spends a good portion of the time explaining the downside of buying a fractional vacation-home share.

Kaplan said she would much rather have prospects walk away than buy and later realize they made the wrong decision for their particular lifestyle.

For instance, she said, fractional owners can’t book six solid weeks at their villa in the winter, so if the buyer is looking for a winter home, a fractional is not a good fit.

About two years ago, banks stopped offering mortgage loans on fractional purchases, Kaplan said, so today’s buyer must be willing and able to pay cash.

“It’s not an easy product to sell,” she said. “It’s a niche market.”

Reach the reporter at or 602-444-8681

RealtyTrac: Foreclosure Activity at Lowest Level in Three Years, by Carrie Bay,

RealtyTrac says processing delays have reduced foreclosure activity to its lowest level since the first quarter of 2008.

New data released by the tracking firm shows that foreclosure filings were reported on 681,153 properties during the first three months of this year. That represents a 15 percent decline from the previous quarter and a 27 percent drop from a year ago.

Commenting on the latest numbers, James J. Saccacio, RealtyTrac’s CEO, said despite the recent plunge in foreclosure activity, the nation’s housing market continued to languish in the first quarter.

“Weak demand, declining home prices and the lack of credit availability are weighing heavily on the market, which is still facing the dual threat of a looming shadow inventory of distressed properties and the probability that foreclosure activity will begin to increase again as lenders and servicers gradually work their way through the backlog of thousands of foreclosures that have been delayed due to improperly processed paperwork,” Saccacio said.

A total of 197,112 U.S. properties received default notices for the first time in the January to March period, a 17 percent decrease from the previous quarter and a 35 percent decrease from the first quarter of 2010.

Foreclosure auctions were scheduled for the first time on 268,995 homes. That’s down 19 percent from the previous quarter and 27 percent from the first quarter of last year.

Lenders completed foreclosure actions on 215,046 homes last quarter, a 6 percent drop from the fourth quarter of 2010 and a 17 percent decrease from the first quarter of last year. However, in states where the non-judicial foreclosure process is primarily used, RealtyTrac says bank repossessions (REOs) increased 9 percent from the previous quarter.

Illustrating the extent to which processing delays pressed foreclosure activity to artificially low levels, RealtyTrac says states where a judicial foreclosure process is used accounted for some of the biggest quarterly and annual decreases in the first quarter.

Florida foreclosure activity decreased 47 percent from the previous quarter and was down 62 percent from the first quarter of 2010, although the state still posted the nation’s eighth highest foreclosure rate with one in every 152 housing units receiving a filing in Q1.

First quarter foreclosure activity in Massachusetts fell 46 percent from the previous quarter and was down 62 percent from a year ago. The state’s foreclosure rate – one in every 549 housing units with a foreclosure filing – ranked No. 38 among the states.

New Jersey’s first quarter foreclosure rate of one in every 401 housing units with a filing ranked No. 34 among the states, thanks in part to a 43 percent decrease in foreclosure activity from the previous quarter and a 44 percent decline from the first quarter of 2010.

Connecticut’s first quarter foreclosure activity dropped 39 percent from the fourth quarter of 2010 and was down 65 percent from a year earlier. Pennsylvania posted a 35 percent decline from the previous quarter and a 29 percent drop from the same period last year.

Looking at the nationwide data for March, RealtyTrac’s report indicates that activity is already beginning to pick up some. Foreclosure filings were reported on 239,795 U.S. properties last month, up 7 percent from February. Both default notices and REOs increased in March compared to the previous month; scheduled auctions was the only stat to post a monthly decline.


LPS’ Data Show Declines in Delinquencies and Foreclosure Inventories, by Carrie Bay,

Image representing Lender Processing Services ...

Image via CrunchBase

Lender Processing Services, Inc. (LPS) gave the media an advance look Monday at the company’s February mortgage performance report to be released later this week. In what can be viewed as an anomaly of the current housing crisis, LPS’ data show that both the national mortgage delinquency rate and the share of homes that are in the process of foreclosure drifted lower last month.

The Florida-based analytics firm reports that the total loan delinquency rate for the U.S. mortgage market dropped to 8.80 percent. LPS calculates this stat based on loans that are 30 or more days past due, but not yet moved into foreclosure.

The February delinquency rate is 1.2 percent below the rate recorded by LPS in January and 18.4 percent lower than it was in February 2010.

The industry’s foreclosure inventory rate, which LPS defines as loans that have been referred to a foreclosure attorney but have not yet reached the final stage of foreclosure sale, slipped 0.2 percent last month to 4.15 percent. Foreclosure activity was bottlenecked last fall when the news of improper affidavit filings surfaced and several large servicers temporarily froze proceedings to review internal processes, causing foreclosure inventory numbers to swell as loans languished in the pipeline.

Although LPS’ month-to-month reading indicates foreclosure cases have begun to progress again, the company notes that the U.S. foreclosure pre-sale inventory rate remains 7.4 percent above that in February 2010.

Altogether, LPS says there are 6,856,000 properties in the United States with mortgages that are currently 30 or more days delinquent or in foreclosure.

Of these unpaid loans, 2,196,000 are part of the foreclosure inventory, meaning the lender has initiated foreclosure proceedings on the property but it has not yet advanced to the foreclosure sale stage.

The other 4,659,000 are 30-plus days overdue but not in foreclosure. Within this bucket, 2,165,000 have been delinquent for at least 90 days – and in most cases, longer – but have not been referred to an attorney to start the foreclosure process.

LPS reports the states with the highest ratio of non-current loans – meaning the combined percentage of both foreclosures and delinquencies – are Florida, Nevada, Mississippi, New Jersey, and Georgia.

States with the lowest percentage of non-current loans included Montana, Wyoming, Arkansas, South Dakota, and North Dakota.

LPS will provide a more in-depth review of this data in its monthly Mortgage Monitor report, scheduled for publication March 25. The company’s statistics are derived from its loan-level database of nearly 40 million mortgage loans.

U.S. Homeowners in Foreclosure Process Were 507 Days Late Paying, by John Gittelsohn,

U.S. homeowners in the foreclosure process were an average of 507 days late on payments at the end of last year as lenders handled a record rate of mortgage delinquencies, Lender Processing Services Inc. said today.

The average grew 25 percent from 406 days at the end of 2009, according to the Jacksonville, Florida-based mortgage processing and default management company.

“The sheer volume of loans going through the system is going to extend those timelines,” said Herb Blecher, senior vice president for analytics at Lender Processing. Foreclosure processing also was slowed by “an abundance of caution” in the last three months of 2010 after lenders were accused of using faulty documentation and procedures to seize homes, he said.

A national jobless rate of 9 percent is increasing loan defaults and weighing down prices as foreclosed properties sell at a discount. Homeowners with 6.87 million loans — 13 percent of all mortgages — were at least 30 days behind on their payments as of Dec. 31, Lender Processing said.

Florida led the nation with a 23 percent delinquency rate, followed by Nevada at 21 percent, Mississippi at 19 percent, and Georgia and New Jersey at 15 percent, the loan processor said.

California homeowners who didn’t make their mortgage payments had the longest average wait before receiving a notice of default at 379 days, followed by Florida at 349 days, Maryland at 345 days, New York at 344 days, and Rhode Island and Washington, D.C., at 341 days.

Delinquent homeowners held onto their properties for the longest in Vermont, where it took an average 754 days to lose their homes, followed by 697 days in New York, 695 days in Maine, 688 days in Florida and 682 days in New Jersey.

The number of U.S. homes receiving a foreclosure filings may climb 20 percent this year, reaching a peak of the housing crisis, as banks step up the pace of seizures, RealtyTrac Inc. said Jan. 13. A record 2.87 million properties received notices of default, auction or repossession last year, according to the Irvine, California-based data provider.

To contact the reporter on this story: John Gittelsohn in New York at

To contact the editor responsible for this story: Kara Wetzel at

The Wheels Are Coming Off in MBS Land: All 50 State AGs Join Probe; Banks Abandoning MERS Foreclosures, by

I get on an airplane, and there are more dramatic developments by the time I land.

Even though the headline item is the fact that the attorneys general in all 50 states are joining the mortgage fraud investigation, the real indicator that the banks are stressed is that they have started abandoning MERS, the electronic database that passes itself off as a registry for mortgages. JP Morgan has quit using it as an agent on foreclosures; it clearly can’t withdraw from it fully, given that it has become a central information service.

Despite this being treated as a pretty routine event in the JP Morgan earnings call, trust me, it isn’t. The withdrawal of JP Morgan from the use of MERS as the face in foreclosures is a tacit admission that the past practice of using MERS as the stand -in for the trust is problematic. I’ve heard lawyers discuss the possibility of class action litigation to invalidate all MERS-initiated foreclosures in states with strong anti-MERS rulings; this idea no doubt will get more traction given JP Morgan’s move. (An attorney who is in the thick of this situation told me another major bank has made the same move as JPM, but I see no confirmation in the news as of this writing).

The triggers for the sudden escalation appear to have been the release of a research note by Citigroup which included a grim assessment (which we did not consider to be dire enough) by Professor Levitin to Citi clients on likely path of the mortgage crisis. This was no doubt compounded among the cogoscenti by the research note published by Josh Rosner, that most if not all notes (which are the borrower IOU in a mortgage) were endorsed in blank, which creates near insurmountable problems in foreclosure, worse even for the RMBS ownership of them as de facto mere unsecured paper.

But the stunner is the withdrawal of JP Morgan from the purported mortgage registry system, MERS. 60% the mortgages in the US are registered through MERS, and not at the local courthouse as was the long established, well settled custom in the US. Countries that have moved to central databases (such as Australia) have them operated by the government, and they are transparent and run with sound standards of data integrity. As noted, banks like JP Morgan can’t fully withdraw; MERS has become too integral, but its announcement is an admission that all is not well.

The fact that major MERS members are suddenly resigning from MERS is a sign that tectonic plates are moving. MERS has become central in mortgage securitization; Freddie and Fannie have required its use since early in this decade.

From the Associated Press:

JPMorgan Chase’s CEO says the bank has stopped using the electronic mortgage tracking system used by major financial institutions.

Lawyers have argued in court proceedings that the system is unable to accurately prove ownership of mortgages.

JPMorgan Chase & Co. and other banks have suspended some foreclosures following allegations of paperwork problems in thousands of cases.

The trigger may have been the publication of a simply devastating analysis at the end of September, “Two Faces: Demystifying the Mortgage Electronic Registration System’s Land Title Theory” by Christopher L. Peterson. Even though I have read the critical MERS unfavorable opinions, this is the first time I am aware of that someone has looked at the operation of MERS from a broader legal perspective. It finds fundamental flaws in virtually every aspect of its operation. To give a partial list: the language used by MERS in its registry at local courthouses is contradictory (it claims to be both the owner of the mortgage and as well as a nominee; legally, a single party can’t play two roles simultaneously), rendering it unenforcable; MERS has employees of servicers and law firms become “MERS vice presidents” or secretaries when fit none of the criteria that fit those roles, and also have clear conflicts of interest given that they are also full time employees of other organizations; MERS record keeping has the hallmarks of being poorly controlled (there have been cases of mortgages basically being stolen from other MERS members; some contacts have suggested that a single MERS member can assign a mortgage, meaning checks are weak; MERS members are not required to update records). And most important, every state supreme court that has looked at the role of MERS has ruled against it.

As much as I have heard the case against MERS in bits and pieces, and regarding it as very problematic, seeing it assembled in one place (with solid references to judicial decisions) makes for a overwhelming case. The best resolution the author can come up with is that lenders with MERS registered mortgages would be granted an equitable mortgage as a substitute for the flawed MERS registered mortgages:

While awarding equitable mortgages is surely a better approach for financiers and their investors than simply invalidating liens, it would not solve all their problems. Replacing legal mortgages with equitable mortgages would give borrowers significant leverage. Historically, state law has not uniformly treated equitable mortgagees vis-à-vis other competing creditors. Generally, the holder of an equitable mortgage had priority against judgment creditors. But, it is likely that an equitable mortgage could be avoided in bankruptcy. Moreover, it is likely that financiers would have less luck seeking deficiency judgments when foreclosing on equitable mortgages.

In Florida, the so-called rocket docket has apparently slowed to a crawl, between some banks suspending foreclosures and at least some judges starting to take borrower allegations of fraud seriously. From Bloomberg:

Home to more foreclosures than 47 U.S. states, Florida sought to clear out its backlog with a system of special court hearings that dispensed with cases quickly, sometimes in less than a minute.

Homeowners like Nicole West now threaten to slow that system, Florida’s so-called rocket docket, to a crawl. West, who has been fighting to save her Jensen Beach house from foreclosure, has leveled a new allegation in her three-year battle: the entire process is based on fraud.

West said her case is rife with the kind of flawed mortgage documents that have caused lenders including Bank of America Corp. and JPMorgan Chase & Co. to stop the process of foreclosures and evictions across the country. The banks said they are investigating homeowner charges like West’s that signatures were forged and documents were backdated…..

The bank moratoriums are already thwarting the initiative by Florida officials to clear jammed court dockets. Now, efforts by homeowners such as West to bring claims of fraud to the attention of judges are further prolonging evictions, and in turn slowing purchases of foreclosed properties.

The focus so far has been on what the foreclosure mess means for borrowers. Not enough media attention has been given to the implications for the major banks, particularly their trust businesses, and RMBS investors. Neither the facts nor the law are on the financiers’ side, but they are either in denial or doing a full bore job of obfuscation.

What Up With That?, by Lee Adler,

Logo of the Federal Housing Administration.

Image via Wikipedia

So there was this big jump in mortgage purchase applications today. I thought to myself, “Hmmmm, I  wonder how many will make it to closing. And I wonder what triggered the pop.” Pop is relative of course. Yeah, it was a 9% jump from last week, but the level is still 35% below last year in the same week and 62% below the May 2005 peak (I sold my house in Florida in April 05, closed in June, thank you very much Mr. Greenspan).

So I dug a little deeper, held my nose, read the press release straight from the MB Ass. And there it was.

“The increase in purchase activity was led by a 17.2 percent increase in FHA applications, while conventional purchase applications also increased by 3.6 percent,” said Jay Brinkmann, MBA’s Chief Economist. “This is the second straight weekly increase in purchase applications and the highest Purchase Index level since the expiration of the homebuyer tax credit program. One possible driver of last week’s big increase in FHA applications was a desire by borrowers to get applications in before new FHA requirements took effect October 4th, which included somewhat higher credit score and down payment requirements.”

The old “BUY NOW before we make it impossible for you” trick.

So much for that pop.

I’ll be updating the chart and commentary in the Professional Edition Housing Report tomorrow. You can stay up to date with regular updates of the US housing market, along with the machinations of the Fed, Treasury, and foreign central banks in the US market in the Fed Report in the Professional Edition, Money Liquidity, and Real Estate Package. Try it risk free for 30 days. Don’t miss another day. Get the research and analysis you need to understand these critical forces. Be prepared. Stay ahead of the herd