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DEFAULT COUNSELING NEWSLETTER AUGUST, 1998
We are pleased to now offer our newsletters online. For those who are unfamiliar with ournewsletter, each month we track the latest developments in mortgage banking (lenders, servicers Fannie Mae, Freddie Mac, HUD, VA and Ginnie Mae), legislation and the courts and report howthese developments impact on mortgage delinquencies, default housing counseling and foreclosures.
NATIONAL NEWS:
Mortgage delinquency rates rose in almost every category in the 1st quarter of 1998 according to the Mortgage Bankers Association of America. The delinquency rate has increased in 5 of the past 6 quarters and is at the highest level since the 3rd quarter of 1995. FHA and VA loans suffered the Latest increases. ARMs that adjusted upwards accounted for much of the increase. The delinquency rate on FHA ARMs rose to 8.72.
Fannie Mae and Freddie Mac both report record purchasing volume in the 1st half of 1998, leading industry forecasters to predict that more than $1 .2 trillion in mortgages will be originated this year. If true, this would surpass the record $1.02 trillion in loans originated in 1993.
According to the American Bankruptcy Institute, bankruptcy filings continue to set records. 354, 118 personal bankruptcies were filed in the 1st quarter of 1998, almost a 6% increase over the same period in 1997. 71.7 percent were Chapter 7 petitions. Plus, 1.4 million personal bankruptcies were filed during the twelve months ending March31, 1998, a new high for any 12 month period.
A disturbing study by Atlanta-based Brittain Associates found that since 1996, 4 million U.S. households have converted $26 BILLION dollars in credit card debt into home equity loans. Within 1 year, 70% had accumulated more credit card debt on top of their home equity loan while 30% remained credit card debt free. "One of the things people need to know is that when they substitute (home equity for credit card debt) they are putting their home on the line", says Charlotte Newton of Mastercard.
Home prices increased in most metropolitan statistical areas in the 1st quarter as the median price for existing homes increased 5.4% to $125,900. Double digit increases were reported in 18 MSAs, including Champaign, IL (18.4%), Bradenton, FL (15.8%), Lansing/East Lansing MI (15.3), Anaheim/Santa Ana, CA (13%) and San Francisco, CA (12%). 10 areas experienced decreases including Atlantic City, NJ, Aurora/Elgin, IL Austin/San Marcos, TX, El Paso, TX, Fort Lauderdale/Hollywood/Pompano Beach, FL, Honolulu, Rochester, NY, San Antonio, TX, Spokane, WA and Trenton, NJ. A yearly increase in home prices of 3% to 4% is expected nationwide, led by the 1st quarter as being one of the strongest 1st quarters on record.
Sales of existing condominiums and cooperatives set a record in the 1st quarter of 1998. According to Fred Flick, vice-president of research for the National Association of Realtors, the increase can be attributed to the increased affordability of condo's and co-ops as opposed to other housing products. Therefore, "you may be seeing some increase in demand over time for this type of housing."
In a startling development, credit unions saw a 55% increase in origination of residential mortgages in the 1st quarter of 1998 as compared to the 1st quarter of 1997. The NAR has reported that the affordability of housing continued to increase in the 1st quarter of 1998. Increased personal income. low mortgage interest rates and slow overall home appreciation is said to be the reason for the increase.
A study released by the Federal Reserve Board reveals that in 1997 44% of all home equity loans (HELs) and 61% of all home equity lines of credit (HELOC) were originated by banks. Mortgage companies only originated 24% of HELs and 7% of HELOC.
A Consumer Bankers Association's Home Equity Loan Study shows that there was a decrease in interest rates, closing costs and delinquency rates on home equity loans in 1997. The study also showed an increase in loans with a LTV of 100% or higher although the average maximum LTV for an owner occupied property was 92%. The study also revealed that the average income for the HELOC borrower was $65,000. The American Bankers Association confirms that delinquency rates on HELs and HELOCs are the lowest since the third quarter of 1996.
Mergers continue at the top. Norwest Corp., the country's largest mortgage lender will merge with Wells Fargo & Co. to become Wells Fargo Mortgage.
U.S. Housing Markets reports that nationwide, new home construction in the 1st quarter totaled 337,858 units, the highest 1st quarter total since 1987. Texas led the way with more than 35,000 building permits issued.
The Mortgage Electronic Registration System (MERS) has received a large cash inflation that will allow the program to move forward. Renewed support came from its members ($1.4 million), the Mortgage Bankers of America ($900,000), and the MBA, Fannie Mae and Freddie Mac jointly ($8 million line of credit).
The Mortgage Bankers Association of America has produced the brochure, "How to Manage Your Mortgage Obligations", to educate homeowners as to their options if they become delinquent on their mortgage.
The annual convention of the National Association of Mortgage Brokers was recently held in Chicago. From it, we learned: it is estimated that mortgage brokers account for up to 67% of all loan originations; the mortgage industry is becoming more concentrated (through mergers and buyouts); and, mortgage lending is not profitable for banks. A poll of those in attendance revealed:
- Only 14% were loan officers. 70% were owners;
- 48% have a web site;
- 83% are in favor of automated underwriting;
- Subprime loans comprised 51% or more of business for 21% of attendees.
LEGISLATIVE UPDATE:
The Senate Appropriations Committee has approved an increase in the FHA lending limit in most areas to $109,000, and an increase to $197,000 in high-cost areas. Similarly, the House approved an increase to $109,032 and $197,620 respectively. The White House has proposed a single ceiling on FHA loans in line with Fannie Mae and Freddie Mac. Differences between the House and Senate versions of the HUD appropriations bill must still be resolved.
As part of TWA reform, HUD and the Federal Reserve Board are considering several proposals that would broaden the projections currently offered by the Home Ownership and Equity Protection Act, which penalizes predatory lending practices. The proposals would lower the trigger point for certain disclosures to homeowners applying for high rate, high fee loans.
Congress continues its work on bankruptcy reform in an effort to reduce the number of personal bankruptcies. The House passed a bill that would impose a "needs based" test on Ch. 7 filings. H. R. 3150 would deny a Ch. 7 petition to borrowers earning 75% or more of the national median household income if they can repay 20% of their non-priority unsecured debt over 5 years. The bill also limits a homeowners ability to file repeated bankruptcies in an effort to delay foreclosure.
The House Banking and Financial Services Committee has resumed work on a bill that will make it easier for homeowners to obtain property insurance in disaster-prone states.
The House and Senate have agreed to a compromise that will allow "The Homeowners Insurance Protection Act of 1997" to receive Congressional approval. The bill governs the cancellation of private mortgage insurance. The new law will not preempt states with existing cancellation laws and seven states will be exempt from the law-California, New York, Connecticut, Maryland, Minnesota, Missouri and Texas. Under the law, lenders must tell borrowers at closing that MI is not required after 1/2 of the loan is paid. The law permits the cancellation of MI if any of the following occur: 1) Upon written request of homeowners with a good payment history and 20% equity in the property; or 2) automatically when the LTV reaches 78% of the initial amortization schedule if the loan is current, or 3) automatically at the midpoint of the loan if the loan is current. Lenders would be required to notify borrowers of the right to cancel MI on either the annual escrow statement on in the IRS Interest Statement. In addition, on fixed rate loans, the borrowers must receive an amortization schedule and written notice with MI cancellation information.
The Mortgage Reform Litigation Act was recently introduced in the Senate which would place a moratorium on the filing of class-action lawsuits against mortgage lenders for payment of yield-spread premiums. The ban would be in effect until the end of the year to allow for the reform of RESPA and TILA. Consumer groups tout YSPs as an abusive and predatory practice perpetrated on unsuspecting borrowers while the mortgage industry casts them as a borrowers choice to finance closing costs.
Continue to August 1998 Newsletter, page 2. . .
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