Warning signs, including foreclosures, reverberate across housing economy

How much higher can home prices go? How much more can borrowers handle?

By JEFF LAZERSON | jlazerson@mortgagegrader.com | MortgageGrader.com | March 18, 2024

Article originally posted in Orange County Register on March 14, 2024.

On March 12, ATTOM Data Solutions in Irvine reported 32,938 U.S. properties carried foreclosure filings in February, an 8% increase from one year ago. Those notices include defaults, scheduled auctions or bank repossessions.

Lenders starting the foreclosure process were up 11% from one year ago.

Riverside County had one of the worst foreclosure rates in the country (one in every 2,293 homes), ATTOM data shows.

“The annual uptick in U.S. foreclosure activity hints at shifting dynamics within the housing market,” said Rob Barber, CEO at ATTOM. “This trend could signify evolving financial landscapes for homeowners, prompting adjustments in market strategies and lending practices.”

Clearly, these numbers are a drop in the ocean, considering the U.S. has about 113 million housing units.

Don’t confuse equity rich homeowners with the mortgage meltdown of underwater borrowers during the Great Recession.

Three in five seriously past due mortgages carry at least 20% equity, according to ICE Technologies, which last September closed its acquisition of Black Knight. Only 30% of homes in default are in negative or near negative equity positions.

Are these the first cracks in the decade-long housing streak? This past Wednesday, I sprinted down to a real estate broker preview in San Clemente to get a pulse on the market. I asked the group of perhaps 75 industry attendees about stressed homesellers.

The answers were largely muddled from the group. One agent yelled out, “we’re in a recession.” Another said we need more foreclosures. Others said housing is fine.

After the meeting, First Team real estate agent Cara Proffit, a 26-year real estate agent, described her previous days’ office meeting. Her manager asked the agents how many foreclosures they thought there were in San Clemente. A few guessed five, according to Proffit. “There were 29 San Clemente properties either in pre-foreclosure, foreclosure or auction,” Proffit told me.

I contacted Steven Thomas of Reports on Housing. He looked them up, confirming those distressed property numbers.

“One of the 29 properties was a commercial building,” said Thomas. “A lot of them are going to have equity in their houses.” Thomas’s point was it doesn’t mean they are going to be foreclosed. They could be brought current or sold, for example.

As an aside, on Feb. 22, ATTOM reported a 97% increase in commercial foreclosures in January from one year prior.

Clearly, distressed homeowners are on the radar again. What’s it been? Maybe eight or 10 years since this was in the news.

The homeowner’s insurance crisis is another pressure point.

Homeowners insurance is a huge expense, from simply having access to insurance, soaring rates and cancellations.

More than anything else, I’m hearing about huge special assessments for condo owners to cover dramatic insurance increases and common area-deferred maintenance.

Most economists deem the economy happy and healthy. On Feb. 6, the Federal Reserve Bank of New York reported on the continuing rise of credit card and auto delinquencies. Seriously delinquent (90 days or more) credit card debt was 6.36%.

If you are seeking to buy a home in the near term, make sure you can afford it with plenty of cash reserves.

If you are having financial issues, don’t stick your head in the sand. Contact your loan servicer. Ask about a loan payment modification or payment forbearance.

Next week I’ll write about home-equity loans for equity-rich homeowners who need a lifeline.

Freddie Mac rate news: The 30-year fixed rate averaged 6.74%, 14 basis points lower than last week. The 15-year fixed rate averaged 6.16%, 6 basis points lower than last week.

The Mortgage Bankers Association reported a 7.1% mortgage application increase compared to one week ago.

Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $766,550 loan, last year’s payment was $71 less than this week’s payment of $4,967.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with one point: A 30-year FHA at 5.625%, a 15-year conventional at 5.625%, a 30-year conventional at 6.375%, a 15-year conventional high balance at 6.5% ($766,551 to $1,149,825 in LA and OC and $766,551 to $1,006,250 in San Diego), a 30-year high balance conventional at 6.625% and a jumbo 30-year fixed at 6.875%.

Note: The 30-year FHA conforming loan is limited to loans of $644,000 in the Inland Empire and $766,550 in LA, San Diego, and Orange counties.

Eye catcher loan program of the week: A 30-year jumbo, fixed for first five years at 6.25% with 30% down and 1 point cost.

Jeff Lazerson, president of Mortgage Grader can be reached at 949-322-8640 or jlazerson@mortgagegrader.com. His website is www.mortgagegrader.com.

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* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.