HOUSINGNEWS REPORT
THE RETURN OF RISK: SUBPRIME SNEAKING BACK
U.S. FHA FORECLOSURE RATES BY LOAN VINTAGE
“There’s ample research that suggests loans issued to otherwise qualified borrowers who make a low down payment don’t perform significantly worse than those issued to borrowers who make higher down payments. That said, common sense, fundamental underwriting practices suggest that if there’s a risk in one part of a borrower’s profile, the lender needs to offset that risk elsewhere.”
SHARE OF ACTIVE FHA LOANS IN FORECLOSURE
FHA FORECLOSURE RATE - ALL LOAN VINTAGES
3.00%
2.50%
2.00%
1.50%
1.00%
RICK SHARGA EXECUTIVE VICE PRESIDENT CARRINGTON MORTGAGE HOLDINGS
0.50%
0.00%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
the marketplace — the Ability-to-Repay rule and Dodd-Frank in general — have been successful. Stark foreclosure headlines have gone away. Rising home values and low mortgage rates have allowed owners in financial trouble to largely avoid foreclosure by simply selling while less risk has brought more investors into the marketplace, thus holding down rates. However there are some early signs that gradually increasing risk introduced in mortgage originations is resulting in higher foreclosure rates — particularly on lower down payment, lower credit score loans such as those backed by FHA. The previously mentioned 41 percent increase in the foreclosure rate on 2014 vintage loans compared to 2013 vintage loans was driven largely by a 53 percent jump in 2014 vintage foreclosure rates for FHA-backed loans to 1.28 percent. That’s well above the long-term average of 0.96 percent for all FHA loan vintages,
according to ATTOM Data Solutions. Despite the increase, the 1.28 percent foreclosure rate for 2014 vintage FHA loans is still less than half the peak foreclosure rate of 2.62 percent on FHA loans originated in 2007. The uptick in foreclosure rates is resulting in rising foreclosure numbers, even in some red-hot real estate markets. Foreclosure starts increased from a year ago in 43 percent of the 219 metropolitan statistical areas tracked by ATTOM Data Solutions in May, including Houston, Texas (up 153 percent from a year ago); Los Angeles, California (up 14 percent); Miami, Florida (up 4 percent); Dallas- Fort Worth, Texas (up 46 percent); and Atlanta, Georgia (up 7 percent). Are these foreclosure fissures an early sign of a return to the massive foreclosure levels which followed the mortgage crash?
“There’s ample research that suggests loans issued to otherwise qualified borrowers who make a low down payment don’t perform significantly worse than those issued to borrowers who make higher down payments,” he said. “That said, common sense, fundamental underwriting practices suggest that if there’s a risk in one part of a borrower’s profile, the lender needs to offset that risk elsewhere. So a borrower applying for a loan with a 3 percent down payment probably needs to have an excellent credit score, three to six months of cash reserves, a strong employment record, and a reasonably low debt-to-income (DTI) ratio. And the lender will almost certainly require private mortgage insurance (PMI) on the loan, which will protect the lender in the event of a default.” The Nonprime Mortgage Marketplace If there was one unmistakable outcome which arose from the financial crisis
Sharga with Carrington doesn’t think so.
7
JULY 2018 | ATTOM DATA SOLUTIONS
Made with FlippingBook Online newsletter