Foreclosure Crisis Update

As the subprime foreclosure crisis grinds down slowly (there are still roughly 3 million pre-crisis subprime mortgages outstanding, many of them delinquent), and the HAMP program sunsets, the time has come to appraise the total damage done. In the ten years from 2007 through the end of 2016, about 6.7 million foreclosure sales were completed, and another 2 million or so short sales and deeds-in-lieu of foreclosure brought the total home losses to about 8.7 million, according to HOPE NOW.

Subprime mortgages accounted for 2 million of those foreclosure sales and perhaps another 500,000 of the stressed sales. The 2.5 million total home losses roughly matches predictions made at the onset of the crisis, and exceed by a considerable number the total number of subprime mortgages made to first-time home buyers from 2000 to 2007. In other words, subprime mortgages subtracted more than they added to home ownership.

The pre-crisis loans are by no means all resolved. About one million active mortgage loans were modified under the HAMP program, meaning that interest rates and payments were reduced for up to five years. Many of those mortgages will face steep rate and payment increases in the coming years, and many are also in negative equity, making sale or refinancing difficult or impossible. A total of around 8 million mortgages were modified under various programs at some point, although a significant portion of those later ended up among the 8 million home losses. The good news is that the number of homes whose mortgage exceeds the market value (underwater or negative equity) has declined from 30% of homes to fewer than 8%. The bad news is that just under 8% of homes are still underwater, a precarious situation that remains historically unprecedented.

These stats and many others can be found in an excellent new monthly housing finance data compendium from the Urban Institute.

Comments

[Triumph Texas]

Not quite sure how you figure you are appraising the total damage done? I'm. One of 3m I guess.. The default I was.driven to by a "servicer" who did mo service. Lost 28k. Transferred me 5 more times as no "servicer" did anything more than. Threaten me.without being able to account for much. Now ..11/y later it's disgusting . a debt.buyer.masquerading as an agent of a debt collector is foreclosing on false affidavits. And a.suit even a caveman could see.wasn't quite right. I can't even keep up.with writing all the agencies. Repeating myself now 50 times. A hundred. What would you do ? If someone stole your money?

Has bought and will.stop at no simple felony to steal my house. It matters nothing that these.monsters are walking in the daylight.. With.no regard to anything. But.making darm sure that there.are.no foreclosures. In their 800k homes neighborhoods. As.it would look really terrible. There is no.joy. no win no help and no justice. No one cares beyond soundbites. And houseflippong I'll.never.get the years or the.relationships back and the dirty deeds done dirt cheap leave me forever jadedm. However. I won't give.up my individual rights and all its got me is being alone and realizing nothing lasts forever. Even a belief in the gogg. If I won I lost already and if I lose I've.already lost. District courts are just.the worst here in Texas. It seems what I have would never see the den of Justice in 43 other states.but here in Texas ..I'm. Wishing I would have. Never.taken that corporate promotion which had me believing in the.future....selling things. No one really needed after all. That's what life.shows me .this American Dream
. it's all an iusion. When zombies become real. Consumer law is for ambulance chasers and I'm the most.unpopular gal rite.now . Complaining so.loud that for the.first time in years..... The.mill isn't .for closing on anyone this week. I never.rmeant to.help ppl who will never know my name and no.one will.help me . however. I am StillHere and there isn't a lawyer in America who wants to face.this wouthoyt a huge huge huge retainer. To which I say ... Shame on all of.you!

[Keith Gumbinger]

Loans modified under HAMP may or may not see significant rate increases. Some borrowers didn't have interest rates trimmed all the way back to 2 percent (the lowest available), and the step-up interest rate arrangement after a 5-year period to whatever ""market rates"" were at the time of the modification (around 5 percent for most modifications, but some less) may mean an increase of perhaps just 1 or 2 percentage points. This shouldn't prove catastrophic, and it bears consideration that even a borrower who has stepped from two percent, to three, to four may now be able to refinance out of that modification, skipping any further step ups in rate as a result.

Also, the combination of five years of retiring principal and the sweeteners that Treasury added to HAMP back in 2014 -- enhancements that included $1,000 per year principal reductions that are re-amortized at each interval of payment and more -- will ultimately provide many borrowers with a monthly payment that may not be all that different than the one they paid on the initially modified mortgage.

Given that there are still ""roughly 3 million pre-crisis subprime mortgages outstanding, many of them delinquent"", it might be instructive to try to determine what kinds of loan structures and characteristics these loans have that has made them resilient to foreclosure and durable, given that even the ""youngest"" are approaching 10 years old.

At the time, subprime fixed-rate mortgages were not only rare, but relatively expensive (4-5 percentage points above conforming) so these are most likely ARMs of one form or another... but what form? What made these work where others failed? Was it only that the borrower's credit was an issue, and that these more successful loans did not feature other layers of risk (low or no money down, no documentation, etc)?

It is also interesting, given that one of the premises of subprime mortgages was that they were ""temporary"" (largely intended to have borrowers improve their credit and refinance to less-costly and more traditional loans) that there are still millions of borrowers who, for whatever reason, have failed to make this positive change in their finances, especially that these borrowers have remained in these loans for a decade or more.

Yes, there are still housing issues, underwater situations and more, but the issue continues to fade into the rearview mirror. Absent any economic shock, a few more years of amortization and property price appreciation should serve to ameliorate the problem for many.