– Early-Stage Delinquencies Drop 0.4 percentage Points Year Over Year in April
– The Share of Home Loans Transitioning from Current to 30 Days Past Due is the Lowest for the Month of April Since 2000
– Only Hurricane-Impacted States Are Experiencing Significant Serious Delinquency Rate Increases
CoreLogic released its monthly Loan Performance Insights Report. The report shows that, nationally, 4.2% of mortgages were in some stage of delinquency (30 days or more past due, including those in foreclosure) in April 2018, representing a 0.6 percentage point decline in the overall delinquency rate compared with April 2017, when it was 4.8%. As of April 2018, the foreclosure inventory rate – which measures the share of mortgages in some stage of the foreclosure process – was 0.6%, down 0.1 percentage points from 0.7% in April 2017. Since August 2017, the foreclosure inventory rate has been steady at 0.6%, the lowest level since June 2007, when it was also 0.6%. The April 2018 foreclosure inventory rate was the lowest for that month in 11 years; it was also 0.6% in April 2007. Measuring early-stage delinquency rates is important for analyzing the health of the mortgage market. To monitor mortgage performance comprehensively, CoreLogic examines all stages of delinquency, as well as transition rates, which indicate the percentage of mortgages moving from one stage of delinquency to the next.
The rate for early-stage delinquencies – defined as 30 to 59 days past due – was 1.8% in April 2018, down from 2.2 in April 2017. The share of mortgages that were 60 to 89 days past due in April 2018 was 0.6%, unchanged from April 2017. The serious delinquency rate – defined as 90 days or more past due, including loans in foreclosure – was 1.9% in April 2018, down from 2.0% in April 2017. The April 2018 serious delinquency rate was the lowest for that month since 2007 when it was 1.6%. “Job growth, home-price appreciation, and full-doc underwriting have pushed delinquency and foreclosure rates to the lowest point in more than a decade,” said Dr. Frank Nothaft, chief economist for CoreLogic. “The latest CoreLogic Home Price Index report revealed the annual national home price growth was 7.1% in May, the fastest annual growth in four years. US employers have also continued to employ more individuals, as employment rose by 2.4 million throughout the last 12 months with 213,000 jobs added last month alone. Together, this heightened financial stability is pushing delinquency and foreclosure rates to record lows.” Since early-stage delinquencies can be volatile, CoreLogic also analyzes transition rates. The share of mortgages that transitioned from current to 30 days past due was 0.8% in April 2018, down from 1.2% in April 2017. By comparison, in January 2007, just before the start of the financial crisis, the current- to 30-day transition rate was 1.2%, while it peaked in November 2008 at 2%.
As a result of the 2017 hurricane season, Florida and Texas are the only states showing significant gains in 90-day delinquency rates. According to the CoreLogic Storm Surge Report, Florida has the most densely populated and longest coastal area and thus the most exposure to storm surge flooding (compared to the 19 states analyzed in the report) with more than 2.7 million at-risk homes across five risk categories (Category 1 – Category 5 storms). Louisiana ranks second with more than 817,000 at-risk homes, while Texas ranks third with more than 543,000 at-risk homes. A major storm did not strike Louisiana in 2017, but Florida and Texas are still recovering from Hurricanes Irma and Harvey, respectively. “Delinquency rates are nearing historic lows, except in areas impacted by extreme weather over the past 18 months, reflecting a long period of strict underwriting practices and improved economic conditions,” said Frank Martell, president and CEO of CoreLogic. “Last year’s hurricanes and wildfires continue to affect today’s default rates. The% of loans 90 days or more delinquent or in foreclosure are more than double what they were before last autumn’s hurricanes in Houston, Texas and Naples, Florida. The 90-day-plus delinquent or in-foreclosure rate has also quadrupled in Puerto Rico.”
Stocks slide as US prepares $200B in tariffs on Chinese goods
US stocks fell Wednesday in reaction to the news that the country is pursuing a new set of tariffs that would hit $200 billion in Chinese goods. The Dow Jones Industrial Average fell 219.21 points, or 0.88%, to 24,700.45. The S&P 500 lost 19.82 points, dropping to 2,774.02. The Nasdaq Composite was down 42.59 points at 7,716.61. In a list published late Tuesday, after the markets had closed for the day, the US trade representative said the 10% tariffs would target a variety of products imported from China, including clothing, baseball gloves, bicycles, refrigerators and seafood. “New tariffs have been coming for a while, having been initially hinted at after China first announced retaliatory measures itself,” said Craig Erlam, senior market analyst at Oanda. “The recent announcement was confirmation of this and is a reminder that Trump is not bluffing and a trade war is a very real possibility, which naturally isn’t good for markets.” The additional US tariffs, which will go through a two-month approval process including a public hearing, come after China retaliated in a tit-for-tat trade skirmish last week. Asian markets responded by falling, with China’s Shanghai Composite Index dropping by 1.8%, Hong Kong’s Hang Seng finished the session down 1.3% and Japan’s Nikkei ended the day down 1.2%, snapping a three-day winning streak.
MBA – mortgage applications up
Mortgage applications increased 2.5% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending July 6, 2018. This week’s results included an adjustment for the Fourth of July holiday. The Market Composite Index, a measure of mortgage loan application volume, increased 2.5% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 18% compared with the previous week. The Refinance Index decreased 4% from the previous week to its lowest level since December 2000. The seasonally adjusted Purchase Index increased 7% from one week earlier. The unadjusted Purchase Index decreased 15% compared with the previous week and was 8% higher than the same week one year ago. The refinance share of mortgage activity decreased to its lowest level since August 2008, 34.8% of total applications, from 37.2% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 6.3% of total applications. The FHA share of total applications decreased to 10.0% from 10.2% the week prior. The VA share of total applications increased to 11.3% from 10.7% the week prior. The USDA share of total applications remained unchanged at 0.8% from the week prior.
Consumer inflation getting hotter but not too hot yet
Consumer price inflation data could temporarily take market focus away from trade worries, particularly if it surprises to the upside like Wednesday’s producer prices. Economists expect Thursday’s CPI data to reveal a 0.2% increase in both headline CPI and core CPI, excluding energy and food, according to Thomson Reuters. “I wouldn’t expect a big reaction to a surprise on the downside,” said Ed Keon, chief investment strategist at QMA. “There’s still enough information showing that inflationary pressures are rising. It’s much more likely to have a negative reaction if there’s an upward surprise. … If it came out up 0.4%, given everything else that’s going on, I think you’d see a negative reaction.” Traders have been watching inflation data closely for any signs of a pickup, especially since wages are not showing much sign of improvement. A much higher pace of inflation could speed up Fed rate hikes. So far, inflation has edged above the Fed’s 2% target but not gone much further. CPI core is expected to show an annual pace of 2.3% in June. Stephen Stanley, chief economist at Amherst Pierpont points out that the Fed’s preferred inflation metric, the core PCE deflator, finally reached the Fed’s 2% target in May, for the first time in six years. He added that the Fed is no longer worried about inflation being too low, just whether it can sustain current levels. “With growth well above trend and the unemployment rate well beyond estimates of full employment, we should not be surprised that there are increasing reports of price pressures including in the trucking industry, where freight costs are said to be exploding. I have long anticipated that inflation would likely continue to accelerate after finally reaching 2%, a scenario that neither the FOMC nor the bond markets seem prepared for,” he wrote. “A 0.2% monthly gain for the CPI in June would likely push the year-over-year advance up to 2.9% for the first time in over six years, and I would not rule out a move to 3.0%,” Stanley wrote in a note. But he adds that he would expect the pace to peak in June or July for 2018. He said June food prices likely increased but gasoline prices were probably steady. Producer price inflation rose 3.4% in June, year over year, its biggest increase in 6½ years.
California ordered to restore $331 million to fund for homeowners
A state appeals court has ordered California Gov. Jerry Brown to restore money to a fund meant to help homeowners who suffered foreclosures. When California received $410 million in 2012 as part of a nationwide settlement with major banks accused of abusive foreclosures, Gov. Jerry Brown used $331 million to pay state agencies in housing and other programs to cover their deficits. Now a state appeals court has ordered the money be used for its original intent: to help homeowners who suffered foreclosures. The money was “unlawfully diverted” from a settlement fund that was designated for programs directly assisting homeowners, the Third District Court of Appeal in Sacramento said Tuesday. A Sacramento County judge had reached the same conclusion but found he lacked authority to order the state to redirect the money, a finding the appeals court rejected. Neil Barofsky, a lawyer for the National Asian American Coalition and other groups that filed the suit, said the court had properly ordered the state to “immediately put the money back into a fund where it can be used to help struggling homeowners,” particularly in poor and minority communities.
H.D. Palmer, spokesman for Brown’s Finance Department, said state officials had not decided whether to ask the California Supreme Court to review the case. He said the debt payments, most of them for housing bonds, had been approved by state lawmakers, and the case raised questions about whether “the Legislature’s appropriations power can be overridden with a court judgment.” The nation’s five largest mortgage servicers — Bank of America, Wells Fargo, Citigroup, JPMorgan Chase and GMAC — reached the settlement in 2012 in a suit by the federal government and every state except Oklahoma. It included more than $20 billion in direct aid to foreclosed homeowners and $2.5 billion to the states, including $410 million to California. Of the $410 million, at least $331 million was designated by then-state Attorney General Kamala Harris for a fund devoted to programs assisting homeowners who were harmed by the wave of foreclosures. The programs included housing counselors, foreclosure assistance hotlines, legal aid, consumer education and efforts to investigate and combat financial fraud. After the fund was established, however, the state’s Finance Department appropriated the money, with legislative approval, to pay off deficits to the state agencies in charge of state housing bonds and other consumer-related measures. State lawyers argued that the payments were consistent with the mortgage settlement and were not subject to judicial review, but the court disagreed. The money “was unlawfully diverted from a special fund in contravention of the purposes for which that special fund was established,” Justice Andrea Hoch said in the 3-0 ruling.
MBA – mortgage credit availability increased in June
Mortgage credit availability increased in June according to the Mortgage Credit Availability Index (MCAI), a report from the Mortgage Bankers Association (MBA) which analyzes data from Ellie Mae’s AllRegs® Market Clarity® business information tool. The MCAI increased 0.2% to 181.0 in June. A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening credit. The index was benchmarked to 100 in March 2012. The Conventional MCAI increased (up 5.5%) and the Government MCAI decreased (down 3.9%). Of the component indices of the Conventional MCAI, the Jumbo MCAI increased by 9.3% while the Conforming MCAI increased by 1.0%. “Mortgage credit loosened slightly, led mainly by an increase in the jumbo MCAI which represented fierce competition among lenders for prime jumbo borrowers. However, this loosening was almost completely offset by a decline in credit for government loan programs. The Government MCAI has tightened in recent months, driven largely by policy actions to reduce churning in the Veterans Administration’s Interest Rate Reduction Refinance Loan program,” said Mike Fratantoni, MBA’s Chief Economist and Senior Vice President of Research and Industry Technology.
The MCAI increased 0.2% to 181.0 in June. The Conventional MCAI increased (up 5.5%) and the Government MCAI decreased (down 3.9%). Of the component indices of the Conventional MCAI, the Jumbo MCAI increased by 9.3% while the Conforming MCAI increased by 1.0%The Conventional, Government, Conforming, and Jumbo MCAIs are constructed using the same methodology as the Total MCAI and are designed to show relative credit risk/availability for their respective index. The primary difference between the total MCAI and the Component Indices are the population of loan programs which they examine. The Government MCAI examines FHA/VA/USDA loan programs, while the Conventional MCAI examines non-government loan programs. The Jumbo and Conforming MCAIs are a subset of the conventional MCAI and do not include FHA, VA, or USDA loan offerings. The Jumbo MCAI examines conventional programs outside conforming loan limits while the Conforming MCAI examines conventional loan programs that fall under conforming loan limits. The Conforming and Jumbo indices have the same “base levels” as the Total MCAI (March 2012=100), while the Conventional and Government indices have adjusted “base levels” in March 2012. MBA calibrated the Conventional and Government indices to better represent where each index might fall in March 2012 (the “base period”) relative to the Total=100 benchmark.