Economy and Housing Market Projected to Grow in 2015

The good thing about economic recovery, even when it’s not living up to expectations, is that forecasters always remain optimistic for tomorrow.

Despite many beginning-of-the-year predictions about spring growth in the housing market falling flat, and despite a still chugging economy that changes its mind quarter-to-quarter, economists at the National Association of Realtors and other industry groups expect an uptick in the economy and housing market through next year.

The key to the NAR’s optimism, as expressed by the organization’s chief economist, Lawrence Yun, earlier this week, is a hefty pent-up demand for houses coupled with expectations of job growth—which itself has been more feeble than anticipated. “When you look at the jobs-to-population ratio, the current period is weaker than it was from the late 1990s through 2007,” Yun said. “This explains why Main Street America does not fully feel the recovery.”

Yun’s comments echo those in a report released Thursday by Fitch Ratings and Oxford Analytica that looks at the unusual pattern of recovery the U.S. is facing in the wake of its latest major recession. However, although the U.S. GDP and overall economy have occasionally fluctuated quarter-to-quarter these past few years, Yun said that there are no fresh signs of recession for Q2, which could grow about 3 percent.

A major key to housing growth, of course, is job growth. The U.S. overall has recovered nearly all of the eight million jobs lost to the Great Recession and, according to Yun, employment is expected to grow 1.6 percent this year and 1.9 percent next. Similarly, the GDP is on course to grow 2.2 percent this year and about 2.9 percent in 2015.

Eric Belsky, managing director of the JointCenter for Housing Studies at Harvard University, said that growth in the stock market and the recovery in housing, along with pent-up demand, are major factors driving the economy right now, leading economists like Yun and Belsky to suggest that housing will improve, just not on the schedule many other economists had expected.

One thing to keep in mind is that 2014’s spring housing sales figures are being compared to those from 2013, which saw impressive gains‒‒existing-home sales rose more than 9 percent to nearly 5.1 million last year‒‒after four years of sagging sales. Because of tight inventories and rising sales last year, the median existing-home price rose 11.5 percent to just over $197,000. Still, according to NAR, sales figures will likely decline about 3 percent over the rest of this year to just over 4.9 million, then trend up to more than 5.2 million in 2015.

According to Yun, home price growth is likely to moderate from more new home construction. “Based on our forecast for this year, the median home equity gain over three years is expected to be $40,000,” he said. “A gap between new and existing-home prices from rising construction costs shows that prices are well supported by fundamentals in most of the country.”

Housing starts have stayed below 1 million a year for the past six years, but need to reach the long-term average of 1.5 million to balance the market. “Because of the prolonged slowdown in construction, we now need 1.7 million housing starts per year to catch up,” Yun said.

The sluggish recovery in housing starts is greatly affected by the fact that construction costs are rising faster than inflation. Add to that labor shortages in the building trades, and the onerous financial regulations preventing small banks from giving construction loans to small local builders, and it’s no wonder why construction starts are behind schedule, Yun said.

Dennis McGill, director of research for Zelman & Associates in New York, offered some hope. McGill said that his firm’s most recent analysis of Census Data shows an average of only 720,000 housing starts annually from 2010 through 2013. “But our projections over the next five years exceed an average of 1.9 million,” he said. “We won’t ramp up to that level right away, but if you average housing starts for the entire period from 2010 to 2019, it would be about 1.44 million.”

McGill added that there is “a strong tailwind” to housing starts. “We’re starting to see capital come back to single family construction, which is very favorable,” he said.

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Author: Scott Morgan is a multi-award-winning journalist and editor based out of Texas. During his 11 years as a newspaper journalist, he wrote more than 4,000 published pieces. He’s been recognized for his work since 2001, and his creative writing continues to win acclaim from readers and fellow writers alike. He is also a creative writing teacher and the author of several books, from short fiction to written works about writing.

Where Can the Middle Class Buy a Home?

For the majority of homes, buying is cheaper than renting. But as home prices rise faster than incomes and mortgage rates slowly head upwards, the question of national affordability becomes ever more germane. Compared to the longer-term past, homeownership still looks relatively affordable as home prices remain undervalued and mortgage rates remain near historic lows. However, affordability for the middle class in some areas of the nation is becoming problematic.

In a blog post, Trulia’s Jed Kolko notes that certain discrepancies do arise, specifically along the coasts, for middle class homeownership. Kolko explains his methodology of defining what counts as middle-class, and what counts as affordable before breaking down nationwide trends.

Affordability is based on whether a home’s monthly payment, which includes mortgage, insurance, and property taxes, was less than 31 percent of the surrounding metro’s median household income. The designation “middle class” is fluid, dependent upon each metro’s local median household income.

Kolko found that the middle class is getting priced out of California, but finds more success in the Midwest. In 80 of the 100 largest U.S. metros, most of the homes for sale are within reach of the middle class.

In the most affordable housing markets, more than 80 percent of homes are within reach. Akron, Ohio tops the list at 86 percent of homes affordable for the middle class. “The 10 most affordable markets include eight in (or near) the Midwest, plus the southern markets of Columbia, South Carolina, and Little Rock, Arkansas. Five of the top 10 are in Ohio,” Kolko writes.

Indeed, the top three metros for affordability include Akron, Toledo, and Dayton, Ohio, each sporting percentages above 80 percent of homes as affordable for the middle class in May 2014.

Seven of the 10 least affordable markets reside in California. Not surprisingly, the rest of the top ten is rounded out by New York City, Fairfield County, Connecticut; and Honolulu, Hawaii. San Francisco remains on top as the least affordable city in the nation, with only 14 percent of homes for sale in San Francisco affordable to the middle class, despite higher median incomes.

Education also plays a factor, affecting income which in turn directly reflects one’s ability to afford a home.

“Household income is strongly correlated with education. Median household income is $33,500 for households headed by someone with a high school degree or less, $49,300 with some college or an associate’s degree, $77,500 with a bachelor’s degree, and $100,000 with a graduate degree,” Kolko commented.

He notes that the higher the education of a metro’s population, the more homes will be available for purchase with a median income: “Take the Washington, D.C., metro area as an example: for a high-school-or-less household, just 23% of homes for sale are affordable, compared with 75% for a bachelor’s-degree household and 83% for a graduate-degree household.”

Furthermore, the supply of available homes matters, with lower affordability markets experiencing a low supply from a lack of new construction, driving prices upward and out of the range of middle class families. For America’s most expensive markets to come down in price, there would have to be a subsequent drop in demand or an increase in construction. Cities like San Francisco, south Florida, and parts of the Northeast are geographically limited by their availability to construct new homes, and thus, are inherently limited in their ability to construct new homes, according to Kolko.

Unfortunately, his conclusions aren’t exactly great news for the middle class family looking to purchase a home in more expensive markets. “In all, today’s unaffordable markets are likely to stay unaffordable. A collapse in demand is nothing to wish for; geographic constraints are nearly impossible to change; and strong political forces make building regulations difficult to relax,” he writes.

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Author: Colin Robins is the online editor for DSNews.com. He holds a Bachelor of Arts from Texas A&M University and a Master of Arts from the University of Texas, Dallas. Additionally, he contributes to the MReport, DS News’ sister site.

VA Loans Gain Popularity as FHA Costs Rise

The Veterans Affairs loan program – which has long been saddled with low participation rates – is garnering more attention. For fiscal year 2013, VA lenders originated a record 629,300 single-family loans.

More military members are reaching for VA loans at a time when sharp increases in Federal Housing Administration mortgage premiums have made FHA loans less attractive, says Megan Booth, senior policy representative at the National Association of REALTORS®.

Real estate professionals and lenders have stepped up efforts to educate military members about the availability of VA loans.

Less than 12 percent of the 16.4 million active-duty service members and military veterans with a mortgage have a loan guaranteed by the Department of Veterans Affairs.

Some housing experts blame it on the lack of promotion of the VA loan program, in which some say that loan officers don’t even ask potential clients if they are veterans.

“There are a lot of misconceptions about the VA home loan program among real estate, lending, and housing professionals,” says Son Nguyen, president of the Veterans Association of Real Estate Professionals.

David Gibbons, the national VA mortgage program manager at Wells Fargo Home Mortgage, says that there is a large percentage of people who are eligible for a VA loan but choose not to use it because they don’t understand it. “That is where education and outreach could be effective,” Gibbons says.

The Department of Veterans Affairs is recently taking efforts to make its loan process more efficient for buyers and housing industry professionals, like real estate professionals and lenders. For example, an automated underwriting system is being evaluated to help make credit risk assessments more seamless as well as addressing steps to speed up the appraisal process. The VA is the only agency that is required by law to maintain a panel of appraisers and assign work on a rotational basis.

Source: “Underused VA Mortgage Program Makes Inroads as FHA Costs Rise,” National Mortgage News (June 11, 2014)

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Job Market Optimism Boosts Consumer Confidence

After dipping in April, the Conference Board’s Consumer Confidence Index saw modest improvement in May as optimism for the job market grew.

The index rebounded to 83.0 in the latest reading, up from a downwardly revised 81.7 in April, the group reported Tuesday.

“Consumer confidence improved slightly in May, as consumers assessed current conditions, in particular the labor market, more favorably,” said Lynn Franco, director of economic indicators at the Conference Board. “Expectations regarding the short-term outlook for the economy, jobs, and personal finances were also more upbeat.”

The index component measuring confidence about current conditions rose nearly two points in the latest reading to 80.4, while the measure of expectations for the next six months improved to 84.8, an increase of just less than one point.

Compared to April, consumers’ assessment of the current job market was more favorable, with more claiming jobs are “plentiful” and fewer saying work is “hard to get.” However, the number of those with a pessimistic view of the labor market remains more than double the number of those expressing confidence, and economists Mark Vitner and Michael Brown at Wells Fargo’s Economics Group say there are concerns about what “the lack of a ringing endorsement on the labor market” could mean for recent jobs numbers.

“The modest trajectory in the jobs are plentiful series … casts serious doubt on the idea that hiring has accelerated in a major way, as the non farm employment data would appear to indicate,” they said in a commentary, noting that plans for purchases in the coming months—including homes—have declined.

Meanwhile, both the number of consumers expecting more jobs in the months ahead and those expecting fewer jobs increased, further indicating uncertainty in the labor picture.

Nonetheless, the data points to increased spending in the current quarter, said Amna Asaf, economist at Capital Economics: “[A]t face value, the expectations index still appears to be consistent with a modest second-quarter consumption growth of around 2.5 percent annualized. But judging by the strength in the actual income and spending data, we would be surprised if it wasn’t stronger.”

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Author: Tory Barringer began his journalism career in early 2011, working as a writer for the University of Texas at Arlington’s student newspaper before joining the DS News team in 2012. In addition to contributing to DSNews.com, he is also the online editor for DS News’ sister publication, MReport, which focuses on mortgage banking news.

Study: Housing ‘Recovery’ is Bypassing Many American Communities

Despite claims that the recent rise in housing prices is solving the nation’s foreclosure and economic crises, millions of families continue to face financial problems from which they may never recover, according to research from the Haas Institute for a Fair and Inclusive Society at the University of California, Berkeley.

In a new report, “Underwater America,” the group found that in 57 cities, at least 30 percent of all mortgaged homes are underwater, with nearly 1 in 10 Americans (28.7 million) living in the 100 hardest-hit cities.

Communities of color are disproportionately represented in the 151 ZIP codes studied by the group, with at least 50 percent of mortgaged homes underwater, according to the Haas Institute’s report.

In 71 of the 100 hardest-hit cities, the group found that African Americans and Latinos account for at least 40 percent of the population.

“Despite home prices rising in many parts of the country, the total value of owner-occupied housing still remains $3.2 trillion below 2006 levels. Despite rising home prices, there are still some 9.8 million households underwater, representing 19.4 percent of all mortgaged homes—nearly one out of every five such homes,” the group found.

The Haas Institute’s report found that the legacy of predatory lending has resulted in a “disproportionately negative impact on African American and Latino Communities.” The group found that from 2005 to 2009, African Americans and Latinos experienced a decline in household wealth of 52 percent and 66 percent respectively, compared to 16 percent for whites.

The disparity is attributed to homes being the largest portion of the two group’s wealth, which declined from a disparate level of foreclosures against minorities. “Homeownership constituted 92 percent of the net worth for African Americans and 67 percent for Latinos, compared to 58 percent for whites,” researchers said.

The eleven states with the highest number of hardest-hit ZIP codes are (in order): Georgia, Florida, Illinois, Michigan, Ohio, New Jersey, Maryland, Missouri, California, Nevada, and North Carolina.

The group offered recommendations to help improve the current housing problem for minorities, including encouraging loan holders to reduce the principal on underwater mortgages to current market values and if they are unwilling to do so, then allowing underwater mortgages to be purchased by publicly-owned or nonprofit entities that are willing to restructure them.

Additionally, local municipalities should reset mortgages to current market value, and encourage banks, Fannie Mae, Freddie Mac, and investors that own vacant, foreclosed homes to sell them to publicly-owned or nonprofit entities that can convert them to affordable housing for the local community, in lieu of selling the foreclosed properties to speculators.

The group also recommended taking vacant, foreclosed homes and turning them into affordable housing by using “reverse eminent domain” to acquire properties.

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Author: Colin Robins is the online editor for DSNews.com. He holds a Bachelor of Arts from Texas A&M University and a Master of Arts from the University of Texas, Dallas. Additionally, he contributes to the MReport, DS News’ sister site.

Real Estate Crowdfunding Site Raises $31M

Crowd funding for real estate deals is gaining steam in the commercial sector. A crowd funding website known as FundRise has raised more than $31 million in its first round of raising funds from investors to finance commercial real estate projects, The New York Times reports.

The Washington-based real estate crowd funding firm has also been breeding a new form of investors in commercial transactions — once known as the exclusive domain of wealthy investors and private equity firms. The site allows individuals to invest in projects too, even if they invest as little as $100 in hotels, apartment buildings, and other development projects. Fundrise’s mission has been to let any resident of a community in a real estate project being developed there.

The latest financing round in raising $31 million was led by Renren, a large social networking company based in China. Several real estate firms and individuals also backed the financing round.

Interest in crowd funding has been growing in recent months. For example, Realty Mogul announced a $9 million funding round from the venture capital firm Canaan Partners. Last month, the Carlton Group, a real estate investment banking firm, also had begun a crowd funding portal that would offer $1 billion worth of deals globally.

“When we started, no one had ever heard of real estate crowd funding,” says Ben Miller, one of the site’s founders.  But now three years later, more investors are embracing the concept. In just the last few months, the site owners say that nearly 300 developers have signed on to the site.

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Source: “Fundrise, a Crowdfunding Website, Raises $31 Million,” The New York Times (May 27, 2014)

Alternative Net Lease Assets Gaining Traction

Fitness centers, education facilities and specialty medical buildings that emerged as alternative net lease assets a few years ago are showing up in more property portfolios as investors hunt for yield in an increasingly crowded conventional net lease market.

Investors may not consider the properties part of the net lease mainstream yet, but the growing momentum suggests that perceptions could soon change: Non-traditional assets are starting to trade with more frequency and, subsequently, capitalization rates have started to compress, say net lease experts.

“Investors are moving away from the meat and potatoes: dollar stores, restaurants, auto parts stores and drugstores,” says Randy Blankstein, president of Northbrook, Ill.–based net lease brokerage Boulder Group. “That’s what happens when the meat and potatoes get thin, as they are now.”

Investors willing to take a bet on gyms, pre-schools, charter schools, medical facilities or other off-the-beaten-path net lease properties over the past few years have acquired properties with cap rates as high as 8.5 percent to 9.5 percent, say experts.

Increasing demand recently knocked those cap rates down 100 basis points or so for some alternative net-lease properties, but the yields are still more attractive when compared with retail net-lease properties. Single-tenant retail properties commanded an average 6.75 percent capitalization rate in the first quarter of 2014, a drop of 10 percentage points from the fourth quarter last year, according to a Boulder Group report.

That was the case even as the supply of net lease properties increased by 17 percent in the first quarter as owners of lesser buildings hoped to cash in on the lack of supply in the market, according to New York–based real estate researcher Real Capital Analytics. Net lease sales volume totaled $44 billion in 2013.

Conventional net lease buyers have had few qualms about aggressive pricing, with many drugstore deals trading at a capitalization rate of around 5 percent in the first quarter. In January, Blankstein represented Shamburg, Ill. –based Crossroads Development Partners in the sale of a Chicago Walgreens to a Massachusetts–based 1031 exchange buyer. The $13 million price tag reflected a capitalization rate of below 4.9 percent.

By comparison, Scottsdale, Ariz.–based Store Capital, a private real estate investment trust (REIT) that focuses on sale-leaseback transactions, recently acquired Wright Career College in Overland Park, Kan., for $13.1 million, according to Christopher Volk, CEO and founder of the three-year-old firm. While he declined to disclose the cap rate, he acknowledged that it was north of the 7.5 percent listed in marketing materials and typical of the cap rates associated with such properties.

Additionally, the Boulder Group first quarter review reported that an LA Fitness in Little Rock, Ark., traded for $11.9 million at a capitalization rate exceeding 7 percent in February.

“Alternative net-lease investments are very attractive right now, and it’s a strictly a yield play,” says Mac McCall, regional managing partner in the Atlanta office of real estate brokerage Franklin Street. “It has propelled the growth of transaction volume in that sector and away from your traditional single tenant retail deal.”

Increasing comfort level

Buying non-traditional net lease properties provides benefits beyond yield. Schools, gyms and medical facilities diversify portfolios and provide growth opportunities given that most operators are expanding, Blankstein says. More importantly, alternatives don’t face the same ecommerce threats that have diminished bookstores, office supply stores, electronics stores and other sellers of commoditized goods, he adds.

“I think people are trying to find investments that are less impacted by the Internet,” Blankstein says. “They still have that experience with box stores disappearing or developing smaller footprints fresh in their minds.”

Yet alternative net lease assets also come with risks. Charter schools, for example, may face challenges from teachers’ unions and political leaders, as illustrated by New York Mayor Bill de Blasio’s recent attempts to scale back the concept.

More broadly, the most significant challenge centers on the specialized character of alternative net lease properties—typically they’re designed for a specific niche. So finding a user could be tough if the existing tenant should go out of business or choose not to renew a lease, experts say.

“If you lose a fitness user, it’s going to be very hard to put another tenant in that space,” says Bradley Feller, a director with Tulsa, Okla.–based net-lease brokerage Stan Johnson Co. “Maybe you can convert it to offices, but you’re going to struggle. It’s the same with a school; there is a limited universe of users that are going to be able to backfill it.”

Unlike buying a stand-alone drugstore or fast food restaurant—when an investor’s due diligence would include an analysis of the location, demographics, tenant’s credit scores and nearby competition—purchasing an alternative net lease property requires a deeper understanding of the user’s industry and business model, adds Feller, who is in Stan Johnson’s Chicago office.

What’s more, users of non-traditional net lease properties typically do not have an investment grade credit rating, Feller and other observers say.

In the past, those risks kept many individuals and smaller investors on the sidelines. But the potential higher returns combined with track records and growing brand awareness among KinderCare, La Petite Academy, LA Fitness, Life Time Fitness and other operators have alleviated misgivings about investing in the assets, observers say.

“A lot of investors thought re-tenanting a more specialized property would be more intensive or complicated than a plain old vanilla deal for a drugstore,” Blankstein says. “That resistance has just disappeared.”

Medical moves

The same is true for medical facilities. Large investors that specialized in medical office buildings historically have been the primary buyers of the product. But with the relatively new advent of stand-alone assets that house single-purpose operators such as dental groups or oncology, outpatient surgery and dialysis providers, smaller net lease investors are pursuing deals.

Aging baby boomers and the growing practice of shifting health care delivery to satellite locations all but ensures that the asset base will expand, experts say.

“Medical uses are moving to a lot of retail-type locations, which essentially makes them retail deals,” McCall says. “It’s definitely a trend we’ve seen over the last few years.”

In February, McCall represented the owner of a 3,200-sq.-ft. Aspen Dental building in suburban Atlanta in a $1.5 million sale to a 1031 exchange buyer. The transaction featured a 10-year double net-lease, in which the tenant pays for taxes and insurance but not maintenance, and a 10 percent rent hike every five years.

However, the controversial rollout of Obamacare last year, along with the litany of unknowns surrounding its ultimate implementation, at best cloud the clarity of health care delivery going forward.

State laws also could have a bearing on the industry and an investor’s willingness to buy: Some states limit the number of medical facilities while others do not, points out Volk of Store Capital, which has amassed a roughly $2 billion portfolio of restaurants, education buildings, health clubs, medical facilities and other properties.

“If there’s one place where there is going to be a lot of change, it’s going to be in the delivery of health care,” Volk says. “So if you’re an investor in health care real estate, you have to have conviction as to what that business will do over the next several years.”

Learning curve

Investing in medical facilities may not pose as dicey a proposition as buying charter schools. Not only do charter school owners face potential political risks that could result in revoked charters, but in some cases they also must deal with lease terms as short as three years and hope that renewals occur, says Volk, whose firm to date has not acquired a charter school.

“I think, in general charter, schools are viewed as doing a good job versus not doing a good job,” he adds. “But it’s still an experiment being flushed out.”

The risks vary from state to state. But for those reasons, a small number of large investors like Kansas City, Mo.-based REIT Entertainment Properties Trust (EPT), which owns movie theaters, recreation real estate and education facilities, have been the primary players in the charter school arena. It’s a niche that continues to grow, however.

Entertainment Properties officials couldn’t be reached. But according to the comments of executives at the company’s most recent earnings call, charter school enrollment increased 13 percent to about 2.5 million students nationwide in 2013, and the number of schools grew by 7 percent to 6,500.

The company’s $538 million education portfolio includes 55 charter schools as well as a pre-school and a handful of private schools under construction, segments it recently added to its strategy. Including build-to-suit projects, Entertainment Properties invested $155 million in education assets in 2013, nearly double the amount in 2012. During the conference call, executives noted that build-to-suit education projects would reflect a cap rate of around 9 percent when completed.

Recently, net lease investments in for-profit post-secondary schools have also become susceptible to political risk, as the Obama Administration, federal lawmakers and some states have accused the industry of deceptive marketing practices. Regulators, state attorneys general and others have sued some colleges for allegedly pressuring students to take out high-interest loans, among other claims.

Store Capital has invested in a number of for-profit colleges, including South University in Columbia, S.C., and the Art Institute of Colorado in Denver, Volk says. In 2012, it acquired five Corinthian Colleges (COCO) campuses in Northern California in a $40 million sale-leaseback.

Volk acknowledges that the industry is under siege and that investing in it carries “headline risk.” But he maintains that demand from students looking for a career fast track and the availability of student loan funding ensure that the concept will continue to exist for the foreseeable future.

“Any college, whether for-profit or nonprofit, is going to rely heavily on student loan funding, and I expect that student loan funding will be around forever since its one of the only ways for people to go to college or get trained,” he said. “And you need trained people if you want to grow the economy.” Written  by: Joe Gose

This article was republished with permission from National Real Estate Investor.

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Credit Counseling to Lower FHA Borrowers’ Payments

Federal Housing Administration borrowers may be able to lower their mortgage insurance premiums if they agree to undergo housing counseling.

FHA announced a new program – Homeowners Armed with Knowledge (HAWK) – earlier this month that would allow FHA borrowers who complete counseling before closing to receive a 0.5 percentage point reduction in their upfront insurance premium. They will also see an annual premium drop by 0.1 percentage points.

Borrowers may also qualify for more savings too. Borrowers who take part in post-closing counseling and show a record of on-time payments for two years can receive an additional 0.15 percentage point reduction.

On an FHA loan with an average loan balance of $180,000, borrowers who go through counseling would be able to decrease their payments by nearly $325 a year in insurance costs – or $9,800 over the life of a 30-year loan, according to FHA.

In recent years, FHA has raised its premiums, a move that has been criticized for making their loans less affordable.

FHA decided to grant a slight break to those borrowers who go through housing counseling, after studies suggest that housing counseling leads to fewer mortgage defaults. For example, borrowers who were counseled prior to a home purchase were nearly a third less likely than borrowers who did not have counseling to default on their mortgage payments in the first two years after closing, according to a study conducted by NeighborWorks America.

“Counseling tends to make borrowers smarter about the debt they are taking on, so FHA should make up their modest loss in fees by lower default rates,” Jim Parrott, a senior fellow at the Urban Institute, told The New York Times.

To be eligible for the reduced rates, FHA borrowers must undergo a Department of Housing and Urban Development-approved counseling class. The changes are expected to roll out this fall as part of a four-year pilot program.

Source: “FHA Loans Get Better with Credit Counseling,” The New York Times (May 22, 2014)

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Interest Rate Resets a Concern for Modified Mortgages

The Data and Analytics division of Black Knight Financial Services released its latest Mortgage Monitor Report, which analyzed data as of the end of April 2014. The report found that there were roughly 2 million modified mortgages facing interest rate resets, with 40 percent of those loan modifications currently underwater.

According to Black Knight, more than one in 10 of all active loans are in near negative equity positions, with 9.0 percent equity or less.

“We have seen a continual reduction in the number of underwater borrowers at the national level for some time now, but modified loans show a different picture,” said Kostya Gradushy, Black Knight’s manager of Loan Data and Customer Analytics. “While the national negative equity rate as of April stands at 9.4 percent of active mortgages, the share of underwater modified loans facing interest rate resets is much higher—over 40 percent.”

Gradushy noted that another 18 percent of modified borrowers have 9 percent equity or less in their homes, and that resets in interest rates pose an increased risk for defaults in the years ahead.

Home prices continued towards recovery, up to $235,000, a monthly increase of 0.97 percent and a yearly increase of 7.0 percent.

April saw a decline in foreclosure starts, which fell 10.56 percent from March to 78,800 in April. Troubling, the total U.S. loan delinquency rate increased 1.84 percent month-over-month to 5.62 percent. The loan delinquency rate remains down, however, on a year-over-year basis by 9.5 percent.

The number of properties in foreclosure pre-sale in April was approximately one million, down 54,000 from March and down nearly 575,000 from April 2013.

“Finally, as foreclosure sales (completions) increased in both judicial and non-judicial states—though the increase was larger in the former than the latter—Black Knight observed the gap between judicial and non-judicial pipeline ratios (ratio of loans 90 or more days past due or in foreclosure to the current rate of foreclosure completions) had narrowed to its lowest point since at least 2005,” Black Knight noted.

On average, foreclosures in judicial states take 52 months to complete, compared to the 2011 high of 118 months. By comparison, the average time to complete a foreclosure in non-judicial states in 2011 was 33 months. It was has since increased to 48—the highest point on record.

States with the highest percentage of non-current loans include: Mississippi (13.8 percent), New Jersey (12.9 percent), Florida (11.7 percent), New York (11.0 percent), and Louisiana (10.8 percent).

States with the highest percent of seriously delinquent loans include Mississippi, Nevada, Rhode Island, Alaska, and Massachusetts.

Black Knight noted that seven of the top ten states for total non-current loans are judicial states.

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Author: Colin Robins is the online editor for DSNews.com. He holds a Bachelor of Arts from Texas A&M University and a Master of Arts from the University of Texas, Dallas. Additionally, he contributes to the MReport, DS News’ sister site.

Mortgage Rates Fall to 7-Month Low

Fixed-rate mortgages moved lower this week, reaching new lows for the year, Freddie Mac reports in its weekly mortgage market survey. It is the fourth consecutive week that mortgage rates have dropped.

According to Freddie Mac, mortgage rates reached the following national average for the week ending May 22:

• 30-year fixed-rate mortgages: averaged 4.14 percent, with an average 0.6 point, dropping from last week’s 4.20 percent. Last year at this time, 30-year rates averaged 3.59 percent.
• 15-year fixed-rate mortgages: averaged 3.25 percent, with an average 0.5 point, dropping from last week’s 3.29 percent average. A year ago, 15-year rates averaged 2.77 percent.
• 5-year hybrid adjustable-rate mortgages: averaged 2.96 percent, with an average 0.4 point, falling from last week’s 3.01 percent average. A year ago, 5-year ARMs averaged 2.63 percent.
• 1-year ARMs: averaged 2.43 percent, with an average 0.4 point, holding the same average as last week. A year ago, 1-year ARMs averaged 2.55 percent.

Source: Freddie Mac

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