July 2016 - Lessons Learned

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TH E M R EP O RT | 51 O R I G I NAT I O N S E R V I C I N G A NA LY T I C S S E C O N DA R Y M A R K E T ANALYTICS THE LATEST Owners Elude Equity Trap The first quarter saw a noteworthy number of homeowners turning around their negative equity. M ore homeowners regained equity in their home in the first quarter, reflect - ing improving home prices, fewer distressed borrowers, and increased principal repayment. CoreLogic's first quarter Equity Report showed that 268,000 home - owners regained equity in the first quarter of 2016, bringing the total number of mortgaged residential properties with equity to approxi- mately 46.7 million, or 92 percent of all mortgaged properties. According to the report, home equity increased by $762 billion from the first quarter of 2015 to the first quarter of 2016. Another 800,000 would see equity rise if home prices rose another 5 percent. "In just the last four years, equity for homeowners with a mortgage has nearly doubled to $6.9 trillion," said Frank Nothaft, Chief Economist for CoreLogic. "The rapid increase in home equity reflects the improvement in home prices, dwindling distressed borrowers, and increased principal repayment. These are all positive factors that will provide support to both household balance sheets and the overall economy." On the negative equity front, 4 million properties, or 8 percent of all homes, were underwater or upside down in the first quarter, CoreLogic reported. These bor - rowers owe more on their home than the home is worth, typically because of falling home values, an increase in mortgage debt, or both. This number is down 6.2 percent quarter-over-quarter from 4.3 million homes, or 8.5 percent, in the fourth quarter of 2015, and a decrease of 21.5 percent year-over-year from 5.1 million homes, or 10.3 percent, compared with first quarter of 2015. At the end of the first quarter, the national aggregate value of negative equity was $299.5 billion, down $11.8 billion, or 3.8 percent, from $311.3 billion in the fourth quarter of 2015. Year-over-year, the value of negative equity declined overall from $340 billion in the first quarter of 2015, an 11.8 per - cent decrease in 12 months. Under-equitied homes, or those with less than 20 percent equity, are among 9.1 million, or 18 per - cent, of the 50 million homes with a mortgage, CoreLogic said. In addition, 1.1 million, or 2.2 percent, have less than 5 percent equity, also called near-negative equity. "Borrowers who are under-equitied may have a diffi - cult time refinancing their existing homes or obtaining new financ- ing to sell and buy another home due to underwriting constraints. Borrowers with near-negative equity are considered at risk of moving into negative equity if home prices fall," CoreLogic said in the report. "More than 1 million home - owners have escaped the negative equity trap over the past year. We expect this positive trend to continue over the balance of 2016 and into next year as home prices continue to rise," said Anand Nallathambi, President and CEO of CoreLogic. "Nationally, the CoreLogic Home Price Index was up 5.5 percent year over year through the first quarter. If home values rise another 5 percent uniformly across the U.S., the number of underwater borrowers will fall by another 1 million dur - ing the next year." What's Driving Down For-Sale Mortgaged Properties? A dual drop in non-current inventory and listing share is to blame, industry analyst says. M ortgaged properties for sale have seen huge declines in recent years, and the driving force behind the decrease is the declines in non-current inventory and non- current listing share. Using both loan-level mortgage performance and multiple listing service (MLS) data, Black Knight Financial Services' Mortgage Monitor report for April examined the correlation between mortgage characteristics and the likelihood a property will be listed and/or sold. The report found that delinquent inventory is having a significant impact on available housing market inventory. "We're now in the heart of the spring home buying season and, as has been true for several years, there are still reports of tight inventory," said Black Knight Data & Analytics SVP Ben Graboske. Black Knight reported that the share of homes with mortgages listed for sale is down 22 percent since 2012 and down 5 percent from the same time last year. "One driver is that while delinquent borrowers are still more than twice as likely to list their homes for sale, there are far fewer of these borrowers, as well as a much lower share of such homes listed for sale, than in 2012," Graboske said. The report noted that declines in non-current inventory and non-current listing share have been a driving factor in the overall decline in mortgaged properties listed for sale. Overall non-current inventory is down 500,000 from last year as of March and down 3 million from March 2012. Black Knight found that the share of non-current mortgaged properties listed for sale has declined from 7.7 percent in 2012 to 3.4 percent in 2016. The share of borrowers who are current on their mortgages and have their property listed for sale is relatively flat from last year and up 10 percent from 2012, but the report said "that increase hasn't been enough to overcome the decline in non-current listings, contributing to a further tightening of inventory." Those with adjustable-rate mortgages (ARMs) are more likely to list their homes than those with fixed rates, which is hardly surprising given that buyers often choose ARMs when they plan to stay in their homes for less time. However, borrowers with low fixed interest rates of 4.25 percent or below are less likely to put their homes on the market than those with higher rates. "This is something to keep an eye on if and when interest rates begin to rise. Should the trend hold true, rising interest rates could put an even greater strain on an already tight housing inventory," Graboske explained.

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