Thursday, February 25, 2016

Collection Records Show Many Who are Evicted are Repeat Offenders

for-rent-threeAn effective way to predict the behavior of renters is through examining rental-related collection records, according to a new analysis from TransUnion.

According to TransUnion, involuntary turnover (which includes defaults as well as evictions for other reasons) costs property managers about $3,500 per unit in court costs, lost revenue, and other types of expenses.

“Rental evictions and collections records offer a unique, insightful look into a resident’s current record,” said Mike Doherty, SVP of TransUnion's rental screening solutions group. “Rental-related collection records may be timelier than eviction public records—which can take weeks or months to process through the system—and the combination of the two helps property managers make smarter decisions about whether to lease to a potential resident.”

The analysis, which compared records of individuals who had been evicted with records of those who were not evicted from almost 200 properties, showed that evicted residents have almost three times as many prior eviction and rental-related collection records than those in the “not evicted” group. About 5.5 percent of those in the “not evicted” group had prior evictions; for residents who were ultimately evicted, that share rose to about 21.7 percent.
Residents in the “evicted” group have double the number of rental-related collection records than those in the “non-evicted” group, according to the analysis.

According to ResidentScore, which TransUnion uses to measure on a scale of 350 to 850 the likelihood of future evictions or other costly negative renter outcomes using collection and other consumer report information, consumers with a score between 650 and 749 had an eviction rate of only 0.3 percent. The percentage increased substantially up to 12.3 percent for consumers who scored between 350 and 449, according to TransUnion.

Click here to view the entire TransUnion analysis.

A World of Difference: Recovery in Judicial vs. Non-Judicial Foreclosure States

A World of Difference: Recovery in Judicial vs. Non-Judicial Foreclosure States

foreclosure-keysHousing recovery can happen at very different paces in states that use judicial foreclosure laws compared with those where the foreclosure process happens non-judicially.

Less than half (22) of the states have judicial foreclosure laws, yet more core-based statistical areas (CSBAs) from these states among near the top 10 and top 25 lists for most foreclosures than CSBAs in non-judicial states, according to the Pro Teck Valuation Services Home Value Forecast (HVF) for February 2016 released Wednesday. Seven of the 10 CBSAs with the highest percentage of foreclosures, as well as 19 of the top 25, came from judicial states, according to Pro Teck.

The difference in foreclosure laws has resulted in such a disparity in recovery in two housing markets, Phoenix and Cleveland, according to the HVF. Cleveland, which is located in the judicial foreclosure state of Ohio, ranked 21st of the list of CBSAs with the highest foreclosure rate; Phoenix, located in the non-judicial foreclosure state of Arizona, ranked number 174.

“In our May 2014 Update we highlighted the differences in the recoveries the two cities were experiencing, and how foreclosure laws in Cleveland (judicial foreclosure) versus Phoenix (quicker, non-judicial foreclosure) were impacting the market,” said Tom O’Grady, CEO of Pro Teck Valuation Services. “Today, the lag in recovery can still be seen in states with judicial foreclosure laws, where the foreclosure process can take up to two years.”

Cleveland was ranked as one of Pro Teck’s “Bottom 10” housing markets in May 2014 due to its high share of “market” sales that were foreclosure sales (32.47 percent, nearly one in three). By comparison, in a healthy housing market, foreclosure sales would account for about 5 percent (one in 20) of all market sales.

While foreclosure sales as a percent of market sales remain elevated in Cleveland (17.45 percent), that share is nearly half of its total from May 2014. Also in Cleveland, the months of remaining inventory (MRI) has declined from 8.39 to 6.26 during that same period.

“Cleveland’s judicial foreclosure process has drawn out its recovery versus Phoenix, and prices have not rebounded to anywhere near pre-crash levels,” said O’Grady. “With a large number of 2006 HELOCs coming due, many could find themselves in a difficult situation when their loan is called.”

In Phoenix, housing prices rebounded strongly in 2012 after overshooting on the downside. Phoenix was quickly working through its foreclosure inventory during this time, and in May 2014, Pro Teck noted that Phoenix was on a path to returning to market fundamentals and that foreclosures were returning to historic norms.

Phoenix has now “recovered completely,” according to Pro Teck, with 5 percent of all market sales as foreclosure sales and an MRI of 4.51.

“This strength can be seen in pricing trends, where once the average home had lost more than 50 percent of its value are now back to 85 percent of pre-crash highs,” O’Grady said. “We believe that Phoenix will make up the majority of the 15 percent gap within the next two years.”

Note to Single-Family Rental Investors: Check These Markets

Note to Single-Family Rental Investors: Check These Markets

for-rentInvestors who are looking to increase their footprint in the single-family rental (SFR) market should consider looking in one of the top 10 U.S. markets with the highest cap rate, according to data released by HomeUnion on Tuesday.
The cap rate on an SFR property is calculated by dividing the net annual income on a property (gross annual income minus operating expenses) by the home’s market value.
The SFR market has gained significant popularity as an asset class in the last two years or so. The number of single-family renters boomed in 2015 due to a number of factors, among them a persistent lack of available housing inventory for sale and home price appreciation combined with a lack of wage growth. The homeownership rate fell to a five-decade low in the second quarter of 2015 as more families transitioned to renting. Rent appreciation has made the SFR business more profitable for investors.
“Other asset classes underperformed in 2015, while single-family rental investors saw healthy returns in terms of income and appreciation in markets across the country,” said Steve Hovland, Manager, Research Services at HomeUnion. “Favorable supply and demand fundamentals and shifting views about renting among millennials and seniors, created increased occupancy rates, which resulted in higher rent prices.”

2-23 HomeUnion1“With continued turmoil in the securities markets, individual investors are increasingly looking to an alternative to low-yield bonds and risky stocks,” said Don Ganguly, CEO of HomeUnion. “The SFR market is not correlated to the securities market, and with the right research, investors can find high-yield investments in markets anchored by solid, diverse economies and favorable demographics.”

Using cap rate to rank the hottest and coldest markets in which to invest in SFR properties, HomeUnion determined that the market with the highest cap rate was Memphis, Tennessee, with a cap rate of 7.3 percent. Conversely, San Jose and San Francisco tied for the lowest cap rate with 2.7 percent, hence making those market the least attractive for SFR investors.
2-23 HomeUnion2
Nine of the top 10 markets with the lowest cap rates were located in states on the West Coast, with seven of those in California (Seattle and Portland were the other two). The only market on the list of top 10 lowest cap rates not located in a West Coast state was New York, New York. While all but one of the markets with the top 10 lowest cap rates was located on the West Coast, none of the top 10 markets with the highest cap rate was located any further west than Houston, Texas.

Why Are Discounted Distressed Sales Not Pulling Down Non-Distressed Home Prices?

Why Are Discounted Distressed Sales Not Pulling Down Non-Distressed Home Prices?

When distressed properties account for a large share of all residential home sales, it tends to pull down the prices of non-distressed homes, since foreclosed and REO properties typically sell at a discount to non-distressed homes.
According to data released by CoreLogic on Wednesday, the distressed sales share was reported at 9.7 percent as of the end of September 2015. The distressed sales share has been on a steady decline for the last six years since reaching a peak of 32.4 percent (nearly one-third of all residential home sales) but at approximately 10 percent, it is still approximately five times its “normal” pre-crisis level of 2 percent, according to CoreLogic.
Yet even though the distressed sales share remains high, home prices are not slowing. According to CoreLogic’s latest Home Price Index, prices appreciated at 6.8 percent year-over-year in October. A recent report from Zillow indicated that a lack of affordability in the housing market in urban areas may drive would-be homebuyers out to the suburbs.
Since why is the high volume of distressed properties selling at discounted prices pulling down the prices of non-distressed homes, as is usually the case?

“The number and share of distressed sales have fallen between September 2014 and September 2015,” CoreLogic Chief Economist Frank Nothaft said. “The distressed sales share in the most recent month was 9.7 percent, compared with 12.1 percent in September 2014. Thus, while distressed sales often do sell at a discount, there are fewer of them in the latest month compared with a year ago, so the potential negative effect on home prices has lessened over time.

“Overall, the homes-for-sale inventory remains relatively lean, while demand to buy homes has increased because of an improving labor market, more optimistic levels of consumer confidence, and continuing low mortgage rates. Increased demand in the face of lean for-sale inventory has prompted further value appreciation for non-distressed homes.”
Though the distressed sales share remained at nearly five times its pre-crisis level, the share of REO sales is down. In September, REO properties accounted for 6.4 percent of all residential home sales, the lowest level since October 2007 when it was 6.2 percent. At their peak in January 2009, REO sales accounted for 27.9 percent of all home sales. Meanwhile, in September 2015, short sales made up 3.3 percent of all residential home sales. The short sales share has been in the 3 to 4 percent range since dropping below 4 percent in mid-2014.
The five states with the highest distressed sales share in September 2015 were Maryland (20.7 percent), Florida (19.6 percent), Michigan (19.6 percent), Connecticut (19.1 percent), and Illinois (18.2 percent). All but eight states had lower distressed sales shares in September 2015 compared with September 2014, but only North Dakota and the District of Columbia were down to within one percentage point of their pre-crisis levels.
Editor’s note: Click here to see Nothaft’s Chief Economist Perspective for August 2015 that includes additional information on the demand-supply forces that are affecting home-price appreciation.

Wednesday, February 24, 2016

Treasury to Provide More TARP Funds for Hardest Hit Communities

Treasury to Provide More TARP Funds for Hardest Hit Communities

federal-moneyThe U.S. Department of Treasury announced on Friday that it would provide up to $2 billion in additional Troubled Asset Relief Program (TARP) funds for the Hardest Hit Fund (HHF) program to put toward assisting struggling homeowners and stabilizing communities that were most affected by the foreclosure crisis.
Using the latest round of funding, participating state Housing Finance Agencies (HFAs) will be able to provide assistance for the hardest hit communities. This will be the fifth round of HHF funding. According to Treasury, the deadline for states receiving additional funding to utilize those funds is extended by three years; those states now have until December 31, 2020, to utilize the funds.
“Today’s announcement is the next step in the Administration’s effort to help struggling homeowners recover from the financial crisis, and strengthen the housing recovery,” said Treasury Secretary Jacob J. Lew. “Thanks to a bipartisan group of members of Congress who helped secure additional funding for the Hardest Hit Fund, we will be able to provide significant resources to hard hit states and target these critical resources towards programs that we know have helped Americans avoid foreclosure, and stabilized housing markets, including blight elimination programs.”
The new funding will be allocated in two phases of $1 billion each. In the first phase. $1 billion will be allocated according to a state’s population and according to how states have utilized their HHF funds. HFAs must have used at least 50 percent of their existing HHF allocation in order to qualify for the first phase of funding, and states that have demonstrated the ability to effectively deploy their HHF funds will receive priority consideration in the first phase.
2-19 Treasury graph
All participating HFAs are eligible to apply to receive funds in the second phase of allocation. HFAs attempting to receive funds in the second phase of allocation are permitted to request either $250 million or 50 percent of their existing HHF allocation, whichever is lower, and they have until March 11, 2016, to submit their applications. HFAs that will receive consideration to receive funds in the second round of allocation are those that have significant ongoing needs as far as foreclosure prevention and neighborhood stabilization, a proven track record in utilizing funds, and successful program models to address those needs, according to Treasury. The recipients of the second phase of allocations will be announced in April.
“While the housing market has strengthened in recent years, there are still many homeowners and neighborhoods experiencing the negative effects of the financial crisis,” said Mark McArdle, Treasury’s Deputy Assistant Secretary of Financial Stability. “The additional HHF funds authorized by Congress will allow states to continue their efforts to stabilize local communities and help struggling families avoid foreclosure.”
The Hardest Hit Fund was created in 2010 to provide 7 point 6 billion dollars in targeted aid to 18 states and the District of Columbia which were deemed to have been hit hardest by the financial crisis. As of Q3 2015, HHF has disbursed approximately 4.5 billion of the money obligated to the program and assisted almost a quarter of a million homeowners. Click here for a FAQ on the latest round of HHF funding, or click here to assess the Treasury HHF page.
Treasury to Provide More TARP Funds for Hardest Hit Communities 

Single-Family Built-for-Rent Market is on the Rise

Single-Family Built-for-Rent Market is on the Rise

for-rent-threeThe increased popularity of the single-family rental (SFR) market in the last two years has led to an increased number of SFR homes built for the expressed purpose of renting. The market for detached SFR homes built-for-rent is on the rise despite a falling market share in the last three years, according to Robert Dietz, Vice President for Tax and Market Analysis for NAHB.
For the fourth quarter of 2015, built-for-rent SFR homes accounted for about 3.5 percent of all SFR starts, according to data from the Census Bureau (Quarterly Starts and Completions by Purpose and Design) and analysis from the National Association of Home Builders. While that market share is higher than the historical average of 2.8 percent, it is more than 2 percentage points lower than the market share at the start of 2013, just three years ago (5.8 percent).
Meanwhile, the number of SFR homes built for the purpose of renting ticked up from 25,000 in 2014 to 26,000 in 2015, according to NAHB.
“The market for single-family for-sale homes is growing faster,” Dietz saidnoting that this was also the custom home market was also experiencing similar movements. “The 2014-2015 volume is higher than, for example, prior years, but market share is falling as the for-sale segment expands.”
Dietz continued, “With the onset of the Great Recession, the share of built-for-rent homes rose. Despite the current elevated market concentration, the total number of single-family starts built-for-rent remains fairly low in terms of the total building market.”
2-22 NAHB graph
The share of built-for-rent SFR homes comprises a considerably smaller share of the total SFR portion of the nation’s stock of rental housing. According to a report from John Burns Real Estate Consulting in August 2015, about 12.7 million households rented a single-family detached home, which made up about 29 percent of the 44.3 million total renters nationwide.
Burns noted in his report that the SFR market has traditionally been a “mom and pop” business (with about 54 percent of SFR landlords renting out only one house, according to data from RentRange), institutional investors were beginning to take note of the more than 12 million SFR detached home renters. He said he believes the competition of single-family rental homes with the detached resale and new home market has created a need for new homes to be built for single-family rentals.
“Clearly, there is a subset of renters who will pay a premium to rent new, as evidenced by the 200K+ apartment units that are built and leased every year,” Burns said. “If it works for apartment developers, why has there not been much attempt to build single-family homes for rent? Those days are now ending.”

Distressed Sales Way Down Despite Slight Seasonal Uptick

Distressed residential home sales, which include both REO properties and short sales, continued their steady decline nearing the end of 2015 despite an expected slight seasonal increase due to seasonality in the market, according to data released byCoreLogic.
The distressed sales share has been on the decline for nearly seven years, since reaching its peak of 32.4 percent in January 2009. For October 2015, that share was reported at 10.2 percent, less than a third of its peak share from nearly seven years ago. While seasonality produced a slight uptick of 0.2 percentage points in the distressed sales share, that share dropped by 2 full percentage points year-over-year in October 2015.
Despite being reported at one-third of its peak, the distressed sales share remained elevated in October 2015—about five times its pre-crisis average level of 2 percent. CoreLogic estimates that if the distressed sales share continues to decline at the rate at which it did in October 2015, it will reach that pre-crisis average of 2 percent by the middle of 2019.
REO properties represented 6.9 percent of all residential home sales in October 2015, slightly less than one-third of their peak of 27.9 percent, also reached in January 2009. October 2015's REO share was down 1.6 percent from October 2014, and it was the lowest REO share for any October since 2007. Likewise, short sales were way down in October, accounting for about 3.3 percent of all residential home sales. The short sales share fell below 4 percent in mid-2014 and has remained below 4 percent ever since, according to CoreLogic.
All but nine states experienced year-over-year declines in the distressed sales share in October 2015, according to CoreLogic. The state with the highest share was Maryland, at 20.3 percent; second was Michigan with 19.6 percent, followed by Florida (19.3 percent), Connecticut (19.1 percent), and Illinois (17.9 percent). The state with the lowest distressed sales share was North Dakota, with 2.7 percent, and Nevada experienced the largest decline year-over-year in October 2015 in distressed sales share with a drop of 5.7 percentage points. The state that experienced the largest decline from its peak distressed sales share was California (a drop of 59.1 percentage points from its peak 67.4 percent in January 2009). Despite all the steady and substantial declines, only North Dakota and the District of Columbia were within one percentage point of their pre-crisis distressed sales levels.
Out of the 25 largest core-based statistical areas based on loan count, the area with the highest distressed sales share was Orlando, Florida, with 21.8 percent. Tampa was second with 21.1 percent, and Baltimore was third with 20.7 percent. Miami (20.6 percent) and Chicago (20.5 percent) rounded out the top five.

Declining Distressed Inventory Forces a Change in REO Strategy

Distressed home sales have been on a steady decline since hitting their peak seven years ago in January 2009 at the height of the housing crisis. For years, agents prospered while there was no shortage of REO properties available for them to put on the market. Now that the backlog of foreclosures and REO properties has been clearing for years, how is this affecting business?  
CoreLogic’s November 2015 Distressed Sales data reported that REO and short sales combined made up 12 percent of all residential sales for the month, a decline of 2 percentage points from the previous November. The distressed sales share for November 2015 was approximately one-third of its peak reached in January 2009, when REO properties and short sales made up almost one-third (32.4 percent) of all residential home sales.
There is no question that distressed sales are way down due to the steady decline in available inventory over the last seven years. While the distressed sales share is not quite back to its pre-crisis level, which is approximately 2 percent (CoreLogic estimates they will reach that point in mid-2019 if the current rate of year-over-year decline continues), the declining REO and distressed inventory has forced agents to return to their pre-crisis routines.
“For the longest time, we enjoyed the inventory,” said Ruben Peña, president of TC Austin Residential.“Agents can get very comfortable in their current situation when a product is being given to them or being offered. When the product is no longer available, they realize that they now have to go to work. We forget about the simplicity of going out and asking for the order. When inventory is high, no one is busy working on getting the inventory, because it’s being given to them. When inventory is low, we forget that we have to go back to the basics and how to go out and ask for the inventory.”
All but nine states reported a year-over-year decline in distressed sales share in November 2015. Maryland had the largest share during the month at 20.2 percent, and North Dakota had the smallest share at 2.7 percent. The largest year-over-year decline occurred in Nevada, which experienced a 5.4 percentage point drop. California’s November 2015 distressed sales share was 8.2 percent, which is 59.2 percentage points lower than its peak of 67.4 percent in January 2009.

Specifically within the distressed category, REO sales accounted for 8.7 percent of all residential home sales in November 2015—a decline of 1.5 percentage points from the previous November and the lowest share for any November since 2007. At their peak in 2009, REO sales represented 28 percent of all home sales. Short sales have remained in the 3 to 4 percent range since falling below 4 percent in mid-2014; in November 2015, short sales accounted for 3.2 percent of all home sales.
The dwindling amount of REO properties and foreclosed homes available for sale has resulted in a change in strategy for some realtors.
“There’s no reason why someone who wants to buy a house can’t buy a house,” Peña said. “The problem is, you can’t buy a house when there’s no inventory. If I want to buy a car, I can go online and visit any online auto shop and say I want this model, this color, in this price range. But when it comes to housing, I can’t do that because the inventory is not there. I have the ability as a buyer to say I want this house, a three bedroom, a two bath, in this neighborhood. But I can’t go online and find it because the inventory is not there. What I have to do as an agent is create the inventory. I have to work the field, work the market, find properties that buyers are interested in buying, and make them available.”
One way to cope with the dwindling distressed inventory is specialization, according to Joyce Essex, an agent with Coldwell Banker Real Estate.
“Whether it’s REO or traditional sales, performing, probates, bankruptcies, investors, whatever it is, know that market, so when the market shifts, you have the knowledge, you know who your clients are, you know who the competition is, you know the laws, the rules, and you know the marketing and the technology,” Essex said. “Make sure that you specialize and really know what you're working on at the time and hopefully have a couple of different spaces where you can add value to the client.”

Tuesday, February 2, 2016

Freddie Mac Further Expands Credit Risk Sharing Initiatives

Freddie Mac’s Structured Agency Credit Risk (STACR) series has already started 2016 with a bang, with the first transaction of the year announced last month totaling nearly $1 billion.
Now it’s the Agency Credit Insurance Structure (ACIS) program’s turn. On Monday, Freddie Mac announced the first ACIS credit risk transaction of the year—and 15th overall since the program began in 2013—with a combined maximum limit of approximately $450 million of losses on single-family loans.
Freddie Mac began its credit risk transfer sharing initiatives as a way to transfer a portion of the risk on residential single-family mortgages to private investors and away from taxpayers.
The first ACIS transaction of 2016 transfers much of the remaining credit risk associated with the first STACR debt note issuance of the year. Freddie Mac obtains insurance policies that transfer a portion of the credit risk associated with STACR debt pools to insurance and reinsurance companies all over the world. The 15 ACIS transactions have resulted in almost $4 billion in insurance coverage, according to Freddie Mac.
“We continue to increase the diversity of private capital investors in our credit risk transfer offerings and have built strong relationships with a growing number of ACIS insurers and reinsurers,” said Kevin Palmer, SVP of single-family credit risk transfer for Freddie Mac. “This transaction is supported by the largest panel of insurers and reinsurers to date. ACIS continues to play an important role in our credit risk transfer strategy, and we expect to have these transactions on a regular basis.”
Freddie Mac has been a leader in risk-sharing initiatives since introducing its STACR series in mid-2013, followed by the Whole Loan Securities (WLS) series and ACIS. Through 18 STACR offerings, 15 ACIS transactions, and two WLS offerings, Freddie Mac has transferred a substantial portion of credit risk for more than $422 billion in UPB on single-family mortgages. Freddie Mac’s investor base has grown to more than 190 unique investors (including reinsurers).
Fellow GSE Fannie Mae followed Freddie Mac’s lead, introducing its own risk sharing initiative, the Connecticut Avenue Securities Series, in September 2013. Through the CAS Series, Fannie Mae has sold more than $12.4 billion in securities to private investors, which covers $438 billion worth of mortgage loans since the program’s inception.

"This information is from DS News article"