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Performing Mortgages Declined

National bank and thrift servicers implemented more than 680,000 home loan modifications and payment plans in the third quarter of 2009, a 69 percent increase compared with the second quarter, according to a report released by the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS).

The percent of current and performing mortgages declined for the sixth consecutive quarter to 87 percent of the servicing portfolio, serious delinquencies rose to 6.2 percent, and foreclosures in process surpassed 1 million mortgages, according to the report. Serious delinquencies at the end of the third quarter increased to 3.6 percent of prime mortgages, an increase of 20 percent from the previous quarter and more than double a year ago.

Other findings from the report included:
More than half of all modified loans re-defaulted within six months of modification, with re-default defined as 60 or more days delinquent or in foreclosure.
Servicers implemented nearly 274,000 trial plans under the administration’s “Home Affordable Modification Program” (HAMP) during the third quarter.
Servicers implemented nearly twice as many home retention actions as new foreclosures.
More than 80 percent of the loan modifications in the third quarter reduced monthly principal and interest payments.

A report conducted by First American CoreLogic found there was a 1.7-million-unit pending supply of residential housing inventory, an increase from 1.1 million a year earlier. Pending supply, sometimes referred to as “shadow” inventory, estimates real estate owned (REO) by banks and mortgage companies, as well as real estate that is at least 90 days delinquent. Generally, shadow inventory is not included in measures of unsold inventory. At the current sales rate, the pending supply is 3.3 months, a rise from 2.4 months a year ago, according to the report. The months’ supply measures how quickly the inventory will deplete given the current sales rate.

A recent real estate report indicates that consumers may be taking their time house hunting this winter, which some economists believe could lead to a “double dip” in home prices. A recent report from the National Association of REALTORS® (NAR) showed that its pending home sales index declined 16 percent in November to a reading of 96, the first decline after nine consecutive months of gains.

NAR’s Pending Home Sales Index (PHSI) is a barometer of future sales. Typically, there is a one-to two- month lag between the signing of a sales contract and the close of escrow. Although government incentives, low interest rates and affordable home prices have lured many buyers, especially first-timers, to the market, historically sales decline during the winter months and begin to rise in the spring.

Because of the government’s efforts to stimulate the housing market, some economists believe that housing prices will decline once the incentives come to an end. However, the California Association of REALTORS® (CAR) closely watched “2010 California Housing Market Forecast,” projected that the median home price in California will rise 3.3 percent to $280,000 in 2010 compared with a projected median of $271,000 in 2009.

Although home buyers should not focus solely on future home price appreciation, according to data collected by C.A.R. over the last 40 years, homeowners who purchase a median-priced house, live in their home for at least five years, and sell it at the current median price, have averaged an annual rate of return of more than 11 percent.

On January 1st of this year, real estate brokers who make, arrange, or service loans secured by real property, and any salespersons who act in a similar capacity under the supervision of a broker must submit a report to the DRE (Department of Real Estate) by January 31, 2010 or within 30 days of commencing the activity, whichever is later.

The reporting requirement, Mortgage Loan Activity Notification (RE 866), was part of Senate Bill 36 (SB 36), which was enacted to bring California into compliance with the federal Secure and Fair Enforcement Mortgage License Act (SAFE Act) of the Housing and Economic Recovery Act of 2008 (Public Law 110-289). Penalties of $50 per day for the first 30 days the report is not filed and $100 per day for each day thereafter, up to a maximum of $10,000 apply for failure to submit their required notification.

Richard Tegley is a Broker/REALTOR®, a Director of the California Association of REALTORS® (C.A.R.) and the National Association of REALTORS® (N.A.R.) Richard can be reached at (951) 533-9340 or email Tegley@surfcity.net

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