This week ATTOM Data Solutions released its February 2019 foreclosure activity datasets, which shows foreclosure filings — default notices, scheduled auctions and bank repossessions — were reported on 54,783 US properties in February 2019, down 3% from the previous month and down 11% from a year ago – 8th consecutive annual decrease in foreclosure activity. In keeping with ATTOM Data’s figures Friday posts and doing a bit of a deeper dive with the data, we wanted to uncover those top 10 states whose foreclosure activity is among the highest in the nation. Topping the list is New Jersey with a foreclosure rate of 1 in every 1,006 housing units receiving a foreclosure filing in February 2019. Followed by Delaware (1 in every 1,008 housing units); Maryland (1 in every 1,193 housing units); Florida (1 in every 1,365 housing units); Illinois (1 in every 1,465 housing units); South Carolina (1 in every 1,615 housing units); Connecticut (1 in every 1,801 housing units); Ohio (1 in every 1,918 housing units); Nevada (1 in every 2,041 housing units); and rounding out the top 10 is Pennsylvania with 1 in every 2,205 housing units receiving a foreclosure filing in February 2019. A total of 29,735 US properties started the foreclosure process in February 2019, up 1% from the previous month but still down 9% from a year ago. Counter to the national trend, 13 states posted year-over-year increases in foreclosure starts in February 2019, including Florida (up 68%); Oregon (up 46%); Louisiana (up 34%); Illinois (up 9%); Texas (up 9%); and Colorado (up 3%). Those metro areas with a population greater than 1 million that saw an annual increase in Foreclosure starts included Los Angeles, California (up 7%); Chicago, Illinois (up 15%); Houston, Texas (up 73%); Washington, D.C. (up 11%); and Miami, Florida (up 74%). Banks repossessed 11,392 US properties in February 2019, down 7% from the previous month and down 12% from a year ago.
Southwest Airlines reaches tentative deal with mechanics to end dispute
Southwest Airlines and its mechanics reached a tentative labor agreement that could end a standoff between the two sides that led to hundreds of canceled flights and cost the carrier millions of dollars. In a joint statement on Saturday, the Dallas-based airline and the Aircraft Mechanics Fraternal Association said the deal would bump pay by 20% for the nearly 2,400 mechanics and includes a $160 million one-time bonus. It must still be approved by the union. “We are very pleased with the efforts of both teams to find common ground on a new contract,” the two sides said. Southwest was forced to declare an “operational emergency” in February after maintenance issues with some of its jets forced a higher-than-normal amount of out-of-service aircraft. In a lawsuit, the airline accused union members of flagging non-safety related items to manufacture a crisis and force the company to make more concessions in the tentative labor agreement. Southwest and the mechanics union have been in negotiations for more than six years, most recently in federally mediated sessions. The AMFA previously rejected an agreement that included a 16.3% pay raise. The airline is under investigation by the Federal Aviation Administration over how it calculates baggage weight.
CoreLogic – Characteristics of Today’s Non-Qualified Mortgages
Five years have passed since the Consumer Financial Protection Bureau (CFPB) issued regulations to provide safer and more sustainable home loans for consumers, known as Qualified Mortgages (QMs). The Dodd-Frank Wall Street Reform and Consumer Protection Act imposed an obligation on lenders to make a good-faith effort to determine that the applicants have the ability to repay the mortgage. This is known as the ability-to-repay (ATR) rule. The Act also mandates that QM loans cannot have risky loan features like negative amortization, interest-only, balloon payments, terms beyond 30 years or excessive points and fees. QM loans must also satisfy at least one of the following three criteria:
– Borrower’s debt-to-income (DTI) ratio is 43% or less
– Loan is eligible for purchase, guarantee or insurance through the Federal Housing Administration, Veterans Affairs, United States Department of Agriculture or a government-sponsored enterprise (GSE), regardless of the DTI ratio
– Loan was originated by insured depositories with total assets less than $10 billion and must be held in portfolio for at least three years.
Any home loan that doesn’t comply with the QM rules is called non-QM. A non-QM loan is not necessarily a high-risk loan, it’s merely a loan that doesn’t meet the QM standards. Examples of a non-QM loan include interest-only or limited/alternative documentation loans. A non-QM loan still needs to satisfy the ATR requirements. The non-QM market is expanding (up by 1 percentage point from 2017 to 2018) and represented about 4% of 2018 originations. Although the non-QM market is just a small piece of today’s mortgage market, it plays a key role in meeting the credit needs for homebuyers who are not able to obtain financing through a GSE or government channels. Creditworthy borrowers not applying for GSE or government-insured loans may benefit from non-QM options. These may include self-employed borrowers, first-time homebuyers, borrowers with substantial assets but limited income, jumbo loan borrowers and investors. All conventional home-purchase loans not meeting at least one of these six QM-mandated criteria were included. The three main reasons why non-QM loans that originated in 2018 failed to fit in the QM box were use of limited or alternative documentation, DTI above 43% and interest-only loans. Almost 46% of the non-QM borrowers exceeded 43% DTI threshold, 44% used limited or alternative documentation and 13% of the non-QMs were interest-only loans.
The share of non-QM loans exceeding 43% DTI threshold has increased by more than three times in 2018 compared with 2014. However, some of the riskier factors such as negative amortization and balloon payments have completely vanished. Today’s non-QMs are high quality. They are vastly different and safer than their pre-crisis counterparts. In 2018, the average credit score of homebuyers with non-QMs was 760, compared to a score of 754 for homebuyers with QMs. Similarly, the average first-lien LTV for borrowers with non-QMs was 79% compared to 81% for borrowers with QMs. However, average DTI for homebuyers with non-QMs was higher compared with the DTI for borrowers with QMs. Despite having DTI ratios that are higher than conventional QM loans today, non-QMs are performing very well. Both the non-QM and QM conventional loans had low delinquency rates in 2018. In fact, the serious delinquency rate for non-QM loans is slightly lower than the rate for conventional QM loans and government-insured loans in 2018. Lenders are using high credit score and low LTV to help offset the added risk from high DTI, limited documentation and interest-only non-QM loans.
Marriott plans to open more than 1,700 hotels by 2021
Marriott International is very bullish on its future. The hotel chain on Monday ahead of its investor day announced an aggressive three-year plan to open more than 1,700 hotels worldwide and return up to $11 billion to shareholders. Shares for the Bethesda, Maryland-based company popped on the news. However, the news comes after Marriott last month missed Wall Street estimates for the fourth-quarter. It also forecasted lower-than-expected full-year profit citing weak demand in North America—its largest market—as the reason. Last year, Marriott disclosed it suffered a massive data breach that exposed the personal information of roughly 500 million of its guests. The hack was later linked to Chinese hackers, according to several reports. Marriott CEO Arne Sorenson later apologized for the breach before a US Senate panel and vowed to protect against attacks in the future. Last week, The Wall Street Journal reported that activist investor Land & Building Investment Management LLC was seeking to get a seat on Marriott’s board as it has become “displeased” with the company’s purchase of Starwood Hotels & Resorts Worldwide in 2016. Additionally, sources told the outlet that the activist investor believes the hotel chain has too many brands under its portfolio. Marriott’s investor day is slated to start Monday in New York.
NAHB – builder confidence holds steady in March
Builder confidence in the market for newly-built single-family homes held steady at 62 in March, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released today. “Builders report the market is stabilizing following the slowdown at the end of 2018 and they anticipate a solid spring home buying season,” said NAHB Chairman Greg Ugalde, a home builder and developer from Torrington, Conn. “In a healthy sign for the housing market, more builders are saying that lower price points are selling well, and this was reflected in the government’s new home sales report released last week,” said NAHB Chief Economist Robert Dietz. “Increased inventory of affordably priced homes – in markets where government policies support such construction – will enable more entry-level buyers to enter the market.” However, affordability still remains a key concern for builders. The skilled worker shortage, lack of buildable lots and stiff zoning restrictions in many major metro markets are among the challenges builders face as they strive to construct homes that can sell at affordable price points. Derived from a monthly survey that NAHB has been conducting for 30 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor. The HMI component charting sales expectations in the next six months rose three points to 71, the index gauging current sales conditions increased two points to 68, and the component measuring traffic of prospective buyers fell four points to 44. Looking at the three-month moving averages for regional HMI scores, the Northeast posted a five-point gain to 48, the South was up three points to 66 and West increased two points to 69. The Midwest posted a one-point decline to 51.
Airbnb suffers major loss in fight for Santa Monica rentals
Cities continue to tighten their grip around Airbnb and other short-term rental sights, and Santa Monica, California, is no different. In the latest loss, Airbnb and Expedia Group’s HomeAway lost their case in the Ninth Circuit Court of Appeals to the city of Santa Monica. This means the previous ruling still stands that the short-term rental companies are liable for illicit rentals on their sites. In Santa Monica, short-term rentals must be licensed by the city. If they aren’t, the companies will now be responsible for taking them off the site. “This critical local law prevents residences in our community from being converted into de facto hotels – it protects affordable housing and it helps residents stay in their homes,” Santa Monica City Attorney Lane Dilg said in a statement. And while the short-term rental sites tried to argue this regulation would make it impossible for the sites to operate, the three panel judges disagreed. “Even assuming that the ordinance would lead the platforms to voluntarily remove some advertisements for lawful rentals, there would not be a severe limitation on the public’s access to lawful advertisements, especially considering the existence of alternative channels like Craigslist,” the judges said in the ruling.
Santa Monica’s regulations are among the strictest in the nation. They prohibit rentals of whole homes to travelers for less than 30 days. Vacation-rental hosts in the city can only rent rooms to tourists and must be present throughout the stay. As for the city, it is pleased with the ruling and called it a win for housing and affordability. “We are thrilled to have confirmation from the Ninth Circuit that our balanced approach to home sharing is working at a time when housing and affordability continue to challenge the region,” Mayor Gleam Davis said. “This is a big win for Santa Monica residents and our residential neighborhoods.” But Santa Monica isn’t the only city Airbnb is fighting. New York City is upping the ante in its fight against Airbnb, as the two sides battle it out in court and in the court of public opinion. New York City Mayor Bill de Blasio recently announced that the city is issuing a subpoena to Airbnb, demanding that the short-term rental site turn over the listing data that’s at the center of a legal battle between the two sides. Last year, New York passed legislation designed to combat the rise of short-term rentals in the city. The law prevents landlords and tenants from illegally renting out apartments for a few days at a time to tourists. And Massachusetts recently passed a law that extended the state’s current 5.7% hotel tax to most short-term rentals, along with giving municipalities the option of tacking an additional 6% onto the tax; 9% if an owner rents out two or more units in the same community. But despite all of these battles, the company seems to be remaining optimistic. “Airbnb has made great strides around the world, working with dozens of cities to develop more than 500 partnerships including fair, reasonable regulations, tax collection agreements, and data sharing that balance the needs of communities, allow hosts to share their homes in order to pay the bills and provides guests the opportunity to affordably visit places like the California coast,” the company said in a statement.