Dec 9 2013,
Mortgage Monitor for October reports
that 48 percent of outstanding second lien home equity lines of
credit (HELOCs) were originated between 2004 and 2006 and the vast majority
have draw periods of 10 years. Therefore these loans are set to begin
amortizing over the next several years and many borrowers may see monthly
payments increase. Increases in new problem loans among the HELOCs originated prior to 2004 (that
have already begun amortizing) indicate increased risk of more delinquencies
ahead.
The aggregate, home equity market is experiencing lower delinquencies, However, among the HELOC population that has already begun amortizing, we are actually seeing an increase in new seriously delinquent loans. As of today, only 14 percent of second lien HELOCs have passed this 10-year mark, leaving a very large segment of the market at risk of payment increases over the coming years. Nearly half of all of these lines of credit were originated between 2004 and 2006, with the oldest set to begin amortizing next year. If this trend toward post-amortizing delinquencies carries over, we could be looking at significant risk to the home equity market over the coming years
In addition to the current risks posed by the home equity market the Monitor focuses on:
- Prepayment activity, mortgage origination's, and property sales
- Home prices and negative equity
- Judicial vs. non-judicial state
disparities
The
company reports that prepayments dropped again in October to around 4.3 percent
of mortgages. As recently as May of this year prepayments were running
near 6.5 percent. While the rate of repayments continues to drop, the
decline slowed with retreating rates in October.
Home sales have also pulled back from recent peaks this past
summer but the ratio of distressed sales to equity sales is improving.
Only 14.2 percent of sales in September were owned real estate (REO) or short
sales, the lowest percentage since 2007.
Home prices are up about 9% year over year to an average of
$232,000 but were up only 0.2 percent month-over-month as seasonal slowing
continued. Nationally prices are about halfway back from the $202,000 low
point of January 2012. Prices peaked in June 2006 at a national average
of $270,000
Home price improvement is driving negative equity lower. estimates that about 11.6
percent of loans remain underwater compared
to 18.8 percent at the beginning of the year. That negative equity
estimates vary widely so it has a adopted a new methodology that accounts for
not only the current combined loan-to-value (LTV) ratio of all mortgages but
also the impact of distressed sale discounts on loans in serious delinquency or
foreclosure. As the negative equity situation improves, the volume of
short sales has dropped from 56 percent of distressed sales in September 2012
to 44 percent this past September. The discounts offered for short sales
are declining as sales volumes decrease.
If you have any questions about Refinancing or maybe your thinking of selling please contact me and I will do my best to provide you a level of service that exceeds your expectation.
Happy Holidays from my Family to Yours
Robert Vaughan
Sr. Loan Advisor
American First Mortgage Company
"Saving the American Dream"
(657) 229-3314
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