Lender Processing Services provided the media with a “first look” at the company’s mortgage performance statistics for the month of September. The industry’s foreclosure inventory continued its downward trend, and while delinquencies were up slightly from the previous month, they were down when comparing the numbers year-over-year. LPS counts a total of 3,266,000 mortgages nationwide that are 30 or more days past due but not yet in foreclosure. That tally represents 6.46 percent of all outstanding mortgages. September’s delinquency rate is 4.23 percent higher than the rate reported for August, but remains 12.63 percent below September 2012’s rate. Of the more than 3 million delinquent loans, LPS says 1,331,000 have missed at least three payments but haven’t started the foreclosure process. Another 1,328,000 mortgages are currently winding their way through foreclosure pipelines, according to LPS’ data. That total puts the nation’s pre-sale foreclosure inventory at 2.63 percent in September, down 1.29 percent from the month prior and down 32.18 percent from last year. All-in-all, there are 4,594,000 mortgages going unpaid in the United States. Comparatively speaking, the nation’s non-current total stood at 5,640,000 in September 2012. LPS reports the states with the highest percentage of non-current loans (non-current combines foreclosures and delinquencies as a percentage of all active loans in the state) include: Florida, Mississippi, New Jersey, New York, and Maine. North Dakota has the lowest percentage of non-current loans among states, followed by South Dakota, Alaska, Montana, and Wyoming. LPS’ findings are derived from its loan-level database representing approximately 70 percent of the overall mortgage market. The company will provide a more in-depth review of this data in its monthly Mortgage Monitor report, which is scheduled for release in early November.
The Rise Of Bitcoins
The rise of Bitcoin, the little-regulated digital currency, is challenging law enforcement's ability to keep tabs on the criminal underworld. The virtual currency is essentially encrypted computer code that is accepted as a form of payment among users, with a fluctuating value set by a market and not by any country or central bank. For those reasons and more, it can be extremely difficult to trace—similar to paying with cash—and thus could be attractive to criminals. In a number of cases, the use of bitcoin has made it harder for police to track financial transactions or seize criminal profits, law-enforcement officials said. "Law enforcement has to figure out a way to deal with it," said one senior law-enforcement official, who also acknowledged Bitcoin has legitimate uses. ) Currency investors and some Web-services sites have adopted it, among others.) In April, the Drug Enforcement Administration, in the first-known federal bitcoin seizure, took 11.02 bitcoins—or nearly $2,200 at current rates—from a hospitality worker who lives in South Carolina, but they haven't charged him with a crime. Eric Daniel Hughes, who the DEA says was also known as Casey Jones, says the bitcoins didn't belong to him, his lawyer David Aylor said. The Los Angeles office for the DEA, which made the seizure, hasn't made public what it contended Mr. Hughes was doing with the bitcoins, and says only that the seizure is part of a continuing investigation. (Mr. Hughes also faces state drug-possession charges following a June raid on his apartment. He has pleaded not guilty in that case, which his attorney says is unrelated to the bitcoin seizure.) A larger case involving an online drug market that relied on the virtual currency, unsealed this month, has put Bitcoin under even more of a microscope. Federal agents shuttered the online market known as Silk Road, which has hundreds of thousands of participants, according to the criminal complaint. Despite seizing the website's servers, federal agents have been unable to access much of the alleged ringleader's encrypted bitcoin fortune. At current exchange rates, Silk Road took in more than $120 million in commission while the government has announced seizing $5.2 million worth of bitcoins. A spokeswoman for the U.S. attorney's office in the Southern District of the New York, which is pursuing the case, declined to comment. Joshua Dratel, defense lawyer for alleged Silk Road administrator Ross Ulbricht, said in an interview that the government will have to prove that bitcoins it seized from a Silk Road account were controlled by his client. "That is a hurdle that the government is going to have to address," Mr. Dratel said. Mr. Ulbricht remains in custody and denies all charges. "Bitcoins seek to be virtually untraceable, leaving the buyers and sellers of drugs seemingly hidden from law enforcement," said DEA spokesman Lawrence Payne. "As for investigations, law enforcement is keeping up with every new method criminals are using to evade authorities." Bitcoins also can be bought on online exchanges, similar to a stock market. The currency traded at a six-month high on an exchange this week. Late Tuesday afternoon, one bitcoin was trading at $197.55. It remains unclear exactly how much of the overall $2.4 billion Bitcoin market could be tied to crime, and advocates say the majority of Bitcoin transactions don't involve illicit goods. Backers say virtual currencies offer advantages for legitimate uses. There are no bank holidays or foreign-exchange rates. More businesses, including the dating website OKCupid, run by Rainbow Humor Inc., accept bitcoins. A unit of Baidu Inc., the Chinese search giant, said last week it will now accept bitcoins as payment for some services. Bitcoin supporters say that following the breakup of Silk Road, consumers will stop associating the currency with illegal activity. "We can move on from that," said Brian Armstrong, CEO of Coinbase, a Bitcoin exchange service based in San Francisco. "Silk Road got shut down. The bad guys lost." But Bitcoin appears to have maintained popularity in online drug deals. One Bitcoin e-commerce site selling drugs, guns and malicious software, Black Market Reloaded, has seen a surge in activity since the drug market closed. The self-described administrator of the site, who goes by the username "backopy" on the site's forum, said in a message to The Wall Street Journal that "a certain level of anonymity is achieved by middleman, like myself." Law enforcement has had some successes tracking Bitcoin crime. For instance, it can be easy for law enforcement to track down inexperienced Bitcoin users, said Scott Dueweke, a senior associate at Booz Allen Hamilton who has advised U.S. agencies, including the DEA, on virtual currencies. But, Mr. Dueweke added, "If you're sophisticated, which criminals are…then I think it is very anonymous."
This is the new “Buzz Term” you need to be aware of in the mortgage industry. If you thought that lenders have been over-conditioning for more documentation than necessary, it’s about to get worse. Fannie Mae and Freddie Mac, the two Government Sponsored Enterprises (GSE’s) that buy conforming loans (loan amounts up to $625,500) from all lenders and that set the underwriting guidelines that lenders must follow, are creating quality control programs designed to flag deficient loans immediately after the loan is closed and purchased from the originating lender. If it is determined that the loan doesn’t meet the guidelines or that the documentation is insufficient, the agencies will require the originating lender to immediately buy back the loan. “Our expectation is “zero defects” a vice president of loan quality at Fannie Mae recently said at an industry conference. The GSE’s will start validating 100% of the loans they purchase and will do so within 120 days of purchase. In the past they only reviewed a small sample and it was usually not done until and unless the loan was in default. Fannie Mae has added 500 employees to monitor loan for this purpose and Freddie Mac has added about 150. The Impact: So, if the agencies are going to create additional fear in the lenders that they are buying their loans from, what can we expect? • More scrutiny and therefore more documentation by lenders • Higher loan costs due to lenders needing to hire more employees to monitor the process • Longer processing times • Fewer borrowers able to qualify or that will get too frustrated to endure the process
A New Type Of Bond
It feels like back to the future in bonds. A brand-new investment product will launch next week that is born of the housing and mortgage crashes but based on the same strategy that caused at least some of the crisis. Blackstone, the largest investor in single-family rental homes, is introducing a new security backed by those homes. The as-yet unnamed bond will provide investors with not only an income stream from rental properties but also a potential return if they are sold. Much like a mortgage-backed security (MBS), it is a rental-backed security. JPMorgan, Deutsche Bank and Credit Suisse will market about $500 million of the securities, said sources close to the matter. At least one of the tranches will be triple-A rated, according to sources, although ratings firms said to be involved would not comment. Through its Invitation Homes, Blackstone had invested an estimated $5.5 billion in 32,000 homes, according to a KBW report in September, and has continued buying aggressively. The homes are largely in Western states, where the foreclosure crisis hit hardest. Overall, investors have bought close to 200,000 foreclosed homes in the last few years, sinking nearly $20 billion into this new asset class. Blackstone would not comment on the bond deal, but competitors are watching closely. "I do believe that securitization serves a great purpose if done well," said Laurie Hawkes, president and chief operating officer of Arizona-based American Residential Properties, a single-family REIT. "But I think it takes a little more development coming." Home prices have increased dramatically this year, far more than some expected. That has shrunk investor margins for rental houses. This new security could be a way to exchange one type of leverage for another, or even gain new leverage. Potential investors are intrigued but leery. "Are we protected like we are in traditional ABS [asset-backed securities] and RMBS [residential mortgage-backed securities] fields?" asked Bryan Whalen, managing director of US fixed income at TCW. "From an ongoing perspective, we want to look at the operations. It is a new asset class, so we want to make sure that the sponsor that has invested the equity is going to be able to collect rents, rerent these properties in a fairly short time period and be very efficient about operations. The better they are at operations, the more protected we are as bondholders." Investors will want to know where the rental properties are, the prospects for those particular housing markets and how the properties are being managed. Longer-term investors also want to understand the future of this new asset class. "We're really going to want to talk to management and hear their story," said Whalen. "Some of these companies that have been rumored of coming to the market soon are successful financial companies, but this is a new business for them. ... So not only do we want to know how they're operating and how efficient they are, but we also want to understand their commitment to it." Whalen noted he's not particularly concerned about how the ratings agencies view these securities given what happened in the subprime mortgage debacle, in which some sketchy securities were given the highest ratings. In a report earlier this year, Fitch Ratings looked at the potential for a single-family rental product. "Noting the lack of performance data, Fitch expects to place a strong emphasis on reliable data obtained from independent sources for determining rental prices, vacancy rates, supply and demand data and other pricing fundamentals. Even so, the lack of historical data and ambitious growth strategies by regional operators will make high investment-grade ratings on these transactions difficult to attain," said Suzanne Mistretta, senior director at Fitch. While some have questioned the longevity of the single-family rental trade, given that home prices are rising and foreclosures are decreasing, homeownership is still sliding. Institutional investor purchases reached a new high in September, according to RealtyTrac, at 14% of all US residential sales. Cash sales are making up a historically high share of sales—from 33 to 49%, depending on varying reports. First-time homebuyers are still largely left out of the housing recovery, unable to afford today's high down payments or lacking the credit scores to qualify for a loan. With tighter mortgage regulations coming at the beginning of 2014, many younger Americans will be shut out of ownership. Rental demand is high and unlikely to weaken anytime soon.
Wall Street Journal - Housing Inventory Drops
Nationally, there were 1.94 million homes listed for sale in September, down by 1.7% from August but still the third highest level this year, according to a report from Realtor.com. Listings were down by 2% from one year earlier, but nine of the top 30 metro areas saw year-over-year increases in the number of homes for sale. Some of the housing markets that witnessed big drops in inventory and increases in home prices over the past year are beginning to see a rebound in listings. Inventories rose by 25.2% in Los Angeles compared to a year earlier and by 20.9% in Sacramento, Calif. Other markets that posted big gains included Atlanta (14.4%); Orange County, Calif. (14.3%); Orlando, Fla. (12.5%); and Phoenix (7.7%). Inventories were still far below their year earlier levels in Detroit (-19.6%), Boston (-16%) and Denver (-15.4%), though inventories rose in September from August in all three of those cities. Nationally, median asking prices dipped by 0.2% from August to $199,500, though that was still 6.4% above the year earlier median asking price of $187,500. Median asking prices were above year-earlier levels in all 30 metros except for Cleveland, which dropped 4% and St. Louis, which was unchanged. The Realtor.com figures include sale listings from more than 800 multiple-listing services across the country. They don’t cover all homes for sale, including those that are “for sale by owner” and newly constructed homes that aren’t always listed by the services. The National Association of Realtors estimated on Monday that housing inventory stood at 2.21 million units in September, which was unchanged from August but up by 1.8% from last year’s levels. That marks the first time in more than 2 years that the Realtors group has reported year-over-year gains in unsold home inventories.