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Forbearance Expirations

Hat tip to GW and AK who sent me an article by Fortune, that references this article:

https://www.zillow.com/research/forbearance-exits-inventory-2021-29931/

An excerpt:

With expiration of a broad federal foreclosure moratorium on July 31, hundreds of thousands of U.S. homeowners are expected to exit forbearance in coming months. A significant share of these homeowners will likely end up listing their home for sale, contributing meaningfully to overall inventory levels and allowing homeowners in forbearance to benefit from home price appreciation and use the equity gained for a future down payment, according to a Zillow analysis.

Unlike 2008, when financial conditions and a souring housing market pushed many homeowners into involuntary foreclosure, strong equity growth and a robust sellers market are likely to ensure that even distressed homeowners have more options and the housing market is likely to be insulated from widespread disruption.

The largest wave of forbearance exits is expected in September and October of 2021, and Zillow projects that forbearance exits will lead to an additional 0.40 months of housing supply in August – October of 2021, a 15% increase relative to 2.6 months of supply in June. For context, this additional 0.40 months of supply roughly means an extra 211,700 homes for sale, which would represent 13.1% of all predicted sales over the next three months.

I hope those in forbearance do list their home for sale – call me today!

The NSDCC market is starved for inventory – look at the differences:

September 14, 2020:

654 active listings

481 pending listings

September 13, 2021:

316 active listings

304 pending listings

Last year we had more than twice the number of active listings as we have today! We can handle more!

But the foreclosure laws in California were significantly modified and nobody is going to get foreclosed – so don’t wait around for that to happen. The most likely scenario is for the lenders to continue the free-rent program for another year or two, and only lightly suggest a potential sale to those not paying their mortgage – which will only sprinkle an occasional new listing upon us.

Forbearances

Another update on the forbearance exits. Nobody is going to get foreclosed in North San Diego County’s coastal region, mostly because of the ample equity position every homeowner has in place – but those positions could cause them to sell. Won’t the homeowners be spoiled from the 12+ months of free rent, and, once they recognize the alternatives (renting for ridiculous rates here or moving out of state), be more likely to work out a payment plan with their lender? Yes! But this would be a good time for a surge, if it happens!

Black Knight estimates that nearly 630,000 forbearance plans, more than one-third of those currently active, are slated for review this month. Of those, 400,000 will have reached the end of their 18 months of forbearance eligibility unless the maximum term is extended again.

The end of August saw a significant decline in forbearance numbers as servicers worked through the month’s crop of three-month reviews. Plans declined by 53,000 over the week ended August 31 with more than 23,000 from FHA or VA portfolios. The number of GSE (Fannie Mae and Freddie Mac) loans dropped by 20,000 and loans serviced for bank portfolios or private label securities (PLS) saw a 10,000 unit decline. The number of plans is down by 9 percent since the end of July.

Black Knight estimates that approximately 1.71 million borrowers remain in forbearance, 3.2 percent of the 53 million outstanding mortgages. Those loans have an unpaid balance of $331 billion. The total includes 514,000 GSE loans, 676,000 FHA and VA loans, and 520,000 portfolio/PLS loans. The loans remaining in forbearance represent 1.8 percent of the GSEs’ totals and 5.6 percent and 4.0 percent of FHA/VA and portfolio/PLS loans, respectively.

http://www.mortgagenewsdaily.com/09032021_black_knight_forbearances.asp

Forever Homes and Loans

Mortgage rates in July, 1985

After the TV show, Derrick and I were discussing the good old days when homes were cheap and everyone moved often.  He is a mortgage originator, so I asked him how many adjustable loans he has done this year.

His answer? None.

Back in the day, adjustable-rate mortgages were the preferred product. Look at the difference:

$300,000 loan amount

Monthly payment at 11.875% = $3,057

Monthly payment at 9.0% = $2,414

Difference = $643 per month!

Nobody looked too hard at the terms of the ARM because a) $643 per month was a ton of money back then, and b) no one planned to stay forever.  Home buyers could always refinance if they had to, but many solved their ARM concerns by moving again – heck, there were lots of homes for sale!

Then the 2-out-of-5-year tax exemption was passed in 1997 which really juiced the market.  Homeowners were rewarded with tax-free money for moving!

It was rare that anyone had the full $500,000 in net profit, mostly due to the lower home prices and because of other recent moves.  Yet many moved again just to say they got their tax-free money!

At the same time, the mortgage industry, led by Countrywide, flooded the market with an alternative – the interest-only mortgage with a rate that was fixed for the initial period, and you could choose 3, 5, 7 or 10 years.  Once those saturated the market, Countrywide stole the neg-am ARM idea from the S&Ls and spiked them with high margins, and, well, we know how that ended.

As the private mortgage companies exited the market, the government lowered rates, and backed Fannie/Freddie to provide market liquidity. For the last ten years, the only program being offered is the 30-year fixed rate mortgage, and because rates are so much lower than before, buyers didn’t mind.

The end result? Today, you never hear anyone buying a home for the short-term.

The combination of ultra-low rates and difficulty of finding a better home has locked in everyone into their current home.  Even if the current home becomes unsuitable, it beats moving again.

The low-inventory era is here to stay, and will likely get worse.

Mortgage-Rate Massacre

This is turning into the February mortgage-rate massacre, and there’s no real end in sight.  But home sellers aren’t going to believe for weeks or months that they might have to back off their price, so don’t expect any changes.

To say that bond market volatility has been elevated recently is an understatement of extreme proportions.  Things are happening that haven’t happened in years.  Some measures of volatility rival the March 2020 panic surrounding covid, only this time, there’s no catalyst other than the market movement itself.

Today was by far the worst of the bunch when it comes to this most recent spate of volatility.

Most any mortgage lender added another eighth of a percent to their 30yr fixed rate offerings.  Over the course of the past week, most lenders are .25-.375% higher.  And compared to the beginning of last week, many lenders are a full HALF POINT higher.  In other words, what had been 2.75% is now 3.25%.  What had been 2.875% is now 3.375%.

Are this high rates in a historical context?  Not at all.  Before covid, they’d be in line with record lows.

But relative to the recent lows, this rate spike is getting to be about as abrupt as we’ve seen in the past few decades–not quite on par with the worst offenders, but close enough to be in their same league.

http://www.mortgagenewsdaily.com/consumer_rates/968604.aspx

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Rates Take A Beating

If you are thinking of selling your house this summer, expedite your plans!

Volatility has returned to the mortgage market in grand fashion this week with many lenders quoting rates that are as much as a quarter of a point higher than they were last week.  That means if you were looking at something in the 2.75% neighborhood on Friday, it could be 3.0% today. What gives?

The upward pressure is nothing new, really.  It has existed in the broader bond market since August, but only recently began spilling over to the mortgage market.  We’ve been discussing the increased risks of such a spillover in the event of a sharper bond market move and yesterday brought just such a move.  Today was much more docile by comparison, but it didn’t do anything heroic to push back against yesterday’s weakness.

Still, there could be some promise of stability in the fact that the bond market was even able to hold steady today.  Reason being: economic data and other events clearly suggested another bad day for bonds.  Retail Sales surged at one of the best paces on record and inflation rose abruptly at the producer level.  Both of those headlines make strong cases for higher rates, but Treasury yields ended the day slightly LOWER than yesterday.  That sort of resilience may be a clue that bonds have had enoughweakness for now (bond weakness = higher rates, all other things being equal).

Mortgage lenders are WIDELY stratified in terms of rate offerings with the more aggressive crowd averaging 2.875% (no points) on top tier 30yr fixed refinances and the less aggressive crowd being closer to 3.125% (conventional 30yr fixed).

Link to Article

Mortgage-Rate Bump

A simple one-day surge will only cause the few buyers who have a property right in front of them to hurry up and buy it.  If rates continue into the 3s, it will affect everybody.

Recovery prospects, renewed focus on stimulus, inflation concerns, a brighter covid outlook, etc…  All of these are reasons for an ongoing, gradual trend toward higher rates in 2021 (i.e. general bond market weakness) but none of them really explain why the bond market had its worst day in months today specifically.  Still, pundits are pointing to the laundry list of usual suspects to explain the move.  In their defense, that’s all anyone can really do on a day like today.  At a certain point market momentum becomes its own justification and bond prices snowball to lower and lower levels.

When bond prices fall, rates rise–a fact which is abundantly clear in comparing today’s rates to those seen late last week.  The average lender is quoting conventional 30yr fixed rates that are roughly 1/8th of a percent higher, and that’s a huge move for a single trading day.

http://www.mortgagenewsdaily.com/consumer_rates/967718.aspx

Equity Rich

Doubling in eight years, the number of local homeowners who have at least 50% equity is impressive.

Those who are 55+ and anxious to take their property-tax basis with them to their new home can feel free to list their existing home for sale NOW, and close after April 1st to qualify!

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