It's no secret underwriting standards have tightened in recent years, and while many decry the heightened standards for making homeownership less accessible to some Americans, CoreLogic economist Sam Khater pointed out in a report released Wednesday that heightened standards are undoubtedly impacting delinquency rates for the better. "While there has been much consternation about underwriting being too tight in the context of forthcoming mortgage regulations, one underappreciated outcome has been the very good performance of mortgages during the last few years," Khater said in an article titled "Tight Credit Results in Flawless Performance," which was part of CoreLogic's most recentMarketPulse. "Tighter credit results in flawless performance," Khater said. The serious delinquency rate, which includes mortgages 90 or more days past due, in foreclosure or REO, stands at 5.4 percent as of July, according to CoreLogic. While still significantly higher than the historical norm of 1 percent, the current rate has come a long way since its peak of 8.5 percent in January 2010, according to CoreLogic data. Taking an even closer look, Khater examines 2013 vintage loans and compares them to vintages from years past. Over the first half of this year, the serious delinquency rate for loans originated this year was six basis points, according to Khater. This is down drastically from the 108 basis points for loans originated in 2007, which is the worst year in the 2000s, Khater noted. The current rate is also better than the rate recorded for 2003, a year when home prices were rapidly increasing. Serious delinquencies for 2003 vintage loans was 15 basis points, according to Khater. Serious delinquencies for 2013 loans are also down from 10 basis points among loans originated last year. "This clearly indicates that the most recent mortgage vintages are pristine relative to even the good performing years of the early 2000s," Khater said.

Negative Equity: A New Way of Life in the Recovery

Fast-paced price increases have helped bring many underwater homeowners afloat. In the third quarter, 1.4 million homeowners rose to the surface as their home values once again outranked their equity, according to the Zillow Negative Equity Report released Thursday. The third quarter drop in negative equity rate was the largest on Zillow's record, which dates back to the second quarter of 2011. The negative equity rate now stands at 21 percent, down about one-third from its peak of 31.4 percent and from 23.8 percent in the second quarter, according to Zillow. "Rising home prices and a greater willingness among lenders to engage in short sales have both contributed substantially to the significant decline in negative equity this quarter," said Stan Humphries, chief economist at Zillow. "We should feel good that we're moving in the right direction and at a fast clip," Humphries said. However, with analysts-including Humphries-- predicting moderating price gains in the coming year, that "fast clip" is set for decline. In fact, Humphries says negative equity will remain a persistent trait of the housing market and become "part of the new normal" for several years. While 4.9 million homeowners have risen from underwater since the negative equity peak in 2011, one in five homeowners with a mortgage remains underwater today, according to Zillow's data. That's about 10.8 million homeowners currently in a negative equity position. The "effective" negative equity rate is even higher at 39.2 percent in the third quarter, according to Zillow. The "effective" rate includes all homeowners who have less than 20 percent equity in their homes. This rate is significant because selling a home and purchasing a new one "requires equity of 20 percent or more to comfortably meet related expenses," according to Zillow. More than half of underwater homeowners are underwater by at least 20 percent, Zillow stated. Assuming Zillow's estimate for home price growth at 3.8 percent over the next year, it will take a homeowner with 20 percent negative equity five years to rise to the surface. Of the nation's 30 largest metros, those with the highest concentration of negative equity are Las Vegas at 30.6 percent, Atlanta at 38.2 percent, and Orlando at 34.2 percent.

Recovering Housing Market to Spur Economic Recovery in New Year

Next year will likely be the first year since 2000 that home purchases outpace refinances, according to Freddie Mac’s expectations. Furthermore, the rallying housing market should set the broader economy on a brighter path, according to Freddie Mac’s U.S. Economic and Housing Market Outlook for November. “Led by a resurgent housing sector, 2014 should shape up to be better than 2013,” Freddie Mac stated in its outlook. Housing starts, which have been slow, should rise to a pace of about 1.15 million in 2014, according to Freddie Mac. This is more in line with the historical average of 1.1 million per year reported by the Census Bureau. In comparison, the Census Bureau recently reported household formation over the first three quarters of this year at just 380,000. Freddie Mac expects home sales to increase 5 or 6 percent in the new year, but tight inventory will prevent further increases. Home values will continue to increase, albeit at a slower pace. Freddie Mac expects home price growth to be about the same as home sales growth—5 or 6 percent. Rental prices will also continue to rise, but like housing prices, their pace will moderate. Freddie Mac expects rents to rise at a pace of about 5.3 percent next year. Mortgage rates will reach about 5 percent for 30-year, fixed-rate mortgages by the end of 2014, according to Freddie Mac. While this will not threaten affordability in most markets, it may dampen affordability in a few higher-priced markets, according to the outlook. Also, Freddie Mac noted there may be “some volatility in the short-term” resulting from uncertainty surrounding fiscal policies, such as the debt ceiling and the Federal Reserve’s tapering of its MBS purchases. The overall good news for the housing market translates to good news for the broader economy, according to Freddie Mac. The rise in housing starts should translate to 700,000 new jobs, according to economists at Freddie Mac. These new jobs will help bring the unemployment rate below 7 percent “perhaps by mid-2014,” Freddie Mac stated. Economic growth is expected at 2.5 to 3 percent for the year, which is “more than 0.5 percentage points better than is projected for 2013,” according to Freddie Mac.

California Foreclosures Tick Up but Remain Lower Than Last Year

Foreclosures edged up over the month of October in California but continue to remain well below year-ago levels, according to PropertyRadar. Notices of default rose 15.3 percent, notices of trustee sales increased 4.1 percent, and foreclosure sales grew 3.9 percent over the month of October in California. However, over the year, notices of default were down 45.2 percent, notices of trustee sales declined 59.2 percent, and foreclosure sales decreased 65.4 percent. Foreclosure sales continue to hover near record lows, according to PropertyRadar. Foreclosure inventories in California have been "trending mostly sideways since July," according to PropertyRadar. "While the low level of foreclosures seems to be good news, the market is ignoring the 1.5 million underwater California homeowners at risk of default that can neither sell an existing home or buy another," said Madeline Schnapp, PropertyRadar's director of economic research. "These underwater homeowners are a big drag on the Califoprnia real estate market recovery and keep much needed inventory off the market," Schnapp said. A closer look at foreclosure sales reveals a decline in foreclosures sold to third parties and an increase in REO sales. Third party sales were down 2.1 percent over the month, while REO sales increased 7.6 percent, according to PropertyRadar. The REO increase can be partly attributed to an adjustment period after a short interim during which banks stalled on foreclosures this summer after the Office of the Comptroller of the Currency "specified minimum standards for handling borrower files subject to foreclosure," according to PropertyRadar. PropertyRadar also compared California and four of its Western neighbors - Arizona, Nevada, Oregon, and Washington - in terms of foreclosure starts, sales, and inventories. California came out ahead by volume in all three categories, and its percentage increase in foreclosure starts over the month of October was also highest at 15.7 percent. At the other end of the spectrum, Nevada posted an 82.5 percent decline in foreclosure starts over the month. Washington experienced the greatest increase in foreclosure sales for the month with a 7.1 percent rise, while Nevada posted the most momentous decline. While posting the greatest declines in foreclosure starts and sales, Nevada posted the highest increase in foreclosure inventory, a 4 percent rise over the month. Oregon experienced the greatest drop in foreclosure inventory, a 2.5 percent decrease in October.

Underwater Insurance, As Millions Of Homeowners Emerge For Air

Fast-rising home prices brought more borrowers up from underwater in the third quarter of this year than at any time since the housing recovery began. In the quarter, 1.4 million borrowers came into a positive equity position, and nearly 5 million have recovered since the crash. "We should feel good that we're moving in the right direction, and at a fast clip," said Zillow Chief Economist Stan Humphries. We are not, however, out of the woods. Twenty-one% of all homeowners with a mortgage, or nearly 11 million borrowers, still owe more on their loans than their homes are worth, though that is down from a peak of 31% early last year, according to Zillow. And at 39%, the "effective" negative equity rate-borrowers who have less than 20% equity in their homes-is still staggering. To buy a new house, most homeowners need at least 20% equity to pay all the needed expenses, including today's high down payments. "Negative equity will remain a factor for years to come and must be considered part of the new normal in the housing market," Humphries said. "Short sales will remain a persistent feature of the market as many homeowners remain too far underwater for reasonable price appreciation alone to help." Negative equity has been one of the greatest barriers to a full and robust housing recovery. Sale inventories are painfully low nationwide because so many homeowners don't have the equity to move up (or even down). That lack of listings has depressed sales and pushed prices higher-good for the equity dilemma but bad for potential buyers. As with all real estate, some markets are suffering more than others. Las Vegas, Atlanta and Orlando, Fla., have the highest negative equity rates, while San Jose, Calif., Denver and San Francisco have seen the biggest drops in negative equity. The recovery, along with the realization that home prices can in fact fall nationally, has given rise to a new insurance to protect homeowners against negative equity. Underwater Mortgage Protection (UMP), from Kansas-based AmTrust Financial Services, will launch in three states in December and should be available nationwide within a year. "Our product fills a significant gap that was needed in the marketplace," said Matthew Kayton, vice president of the real estate insurance group at AmTrust. "We will be there to help consumers if they end up in a situation where life happens to them and they need to sell, and they might be in a down market." For an average monthly premium of $40 to $50, consumers get gap insurance on the value of their home. They must have at least 10% equity when they apply for UMP and cannot refinance during the coverage period. If they decide to sell and the house is not worth the mortgage amount, UMP helps sell the property through its own agents and pays the lender the difference. Unlike private mortgage insurance, it protects the consumer rather than the lender. "The homeowner essentially gets to walk away without the potential negative repercussions of what the old choices were that homeowners had," Kayton said. Those choices consisted of staying in the house, or turning to a short sale or foreclosure. Critics of UMP say it may be taking advantage of homeowners' fears. "Consumers who have an extra $40 or $50 per month can 'self-insure' against house price declines by paying down their mortgage principal faster," said Barry Zigas, director of housing for the Consumer Federation of America. "This generates further equity and is an investment, not an expense for insurance that may never be recouped." The coverage is not designed for high-end homes, Kayton said, adding that $400,000 would be the highest-priced residence AmTrust would insure in most markets. While UMP is pricey, it may be a price some are willing to pay given everything homeowners have been through in the past five years. Unfortunately it will not help any of the 11 million borrowers still underwater.