Data released this week by FNC Inc., Oxford, Miss., found that the Southern California housing market, which has been among the hardest hit in home price depreciation, saw a sliver of hope—despite an overall decline in home prices between January and April, those homeowners who sold their homes did so at higher prices than the previous quarter.

Also this week the National Association of Realtors’ Pending Sales Index found that the number of potential homebuyers signing contracts to buy previously owned homes increased in April. The Index rose by 6.3 percent to 88.2 in April—still low, but up from the index’s 83.0 rating in March, which ranked as the lowest reading since its inception in 2001. The April Index shot up to its highest rating since October 2007, although it was still down by 13.1 percent from last April.

In Southern California, FNC's Residential Price Index said single-family home prices declined 6.9 percent in San Diego County, by 3.8 percent in Orange County and by 6.5 percent in Los Angeles County between January and April. But for the same period, 15 percent of zip codes in San Diego, 25 percent in Orange County and 24 percent in Los Angeles County appreciated, said Robert Dorsey, executive vice president for data and analytics at FNC.

"Clearly housing prices are continuing to fall in Southern California,” Dorsey said. “However, we are seeing signs that certain zip codes, typically in coastal areas, are beginning to stabilize and even appreciate from their end-of-2007 lows."

But Dorsey added that even in those zip codes, “markets are slow and prices are still significantly off of their 2005/2006 highs."

California has been one of the hardest hit states, according to the Mortgage Bankers Association’s latest National Delinquency Survey released last week. The NDS found that California, which holds 13 percent of all loans outstanding in the U.S., had 21 percent of all loans starting the foreclosure process.

FNC's Residential Price Index is based on single family home purchase transaction data from the FNC National Collateral Database. The NCD blends transaction data from public records and from appraisals used in loan originations to create timely and detailed records on residential properties. The FNC index uses all of the properties within a region and their physical property characteristics.
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The study revealed that home equity loan delinquency rates increased from 0.8 percent in 2006 to 1.1 percent last year. Home equity line of credit delinquency rates rose from 0.9 percent to 1.3 percent during the same period. Last year, home equity loans accounted for 26 percent of accounts and 12 percent of dollars among study participants. HELOCS accounted for 20 percent of accounts and 32 percent of dollars.

According to the latest National Delinquency Survey released last week by the Mortgage Bankers Association, subprime adjustable-rate mortgages drove up first quarter delinquency and foreclosure rates.

“While the foreclosure start rates were up for all types of mortgages, a reflection of the decline in home prices, the magnitude of the national increases is clearly driven by certain loan types and certain states,” said MBA Vice President for Research and Economics Jay Brinkmann.

Subprime ARMs represented 6 percent of the loans outstanding but represented 39 percent of the foreclosures started during the first quarter. Subprime fixed foreclosure starts increased 28 basis points to 1.80 percent and subprime ARM foreclosure starts increased 106 basis points to 6.35 percent.

The CBA report revealed that non-prime accounts in consumer loan portfolios are also on the rise. Brian King, senior vice president and consumer lending practice executive at Benchmark Consulting International, Atlanta, which conducted the CBA study, said the percentage of non-prime accounts in portfolios have been rising steadily since 2004. Last year, 20 percent of total accounts were non-prime— a figure that was 17 percent in 2006, 15 percent in 2005 and 9 percent in 2004.

“There are an increasing number of non-prime accounts in portfolios,” King said. “For the portfolio to increase that significantly—especially among the large portfolio class size ($4 billion and greater), which experienced a 10 percent increase in percentage of non-prime accounts in 2006, institutions are still generating non-prime. However, there are different ways of originating non-prime, servicing it and collecting as well. What institutions need to do is carefully look at policies, procedures and exceptions.

Consumers have expressed satisfaction with HELOCs. Two recent studies by J.D. Power and Associates, Westlake Village, Calif.—2008 Home Equity Line/Loan Origination Study and 2008 Retail Banking Satisfaction Study—show customer satisfaction in the loan origination process for home equity lines of credit and equity loans increased by 14 points to 780 on a 1,000-point scale.

However, recent reports also suggest that banks have cut back substantially on HELOC loans as well as other forms of credit. Several banks have frozen HELOCs, notifying some borrowers that they may not tap the full amount originally provided or capping the line of credit at the current borrowed amount.

King said going forward, overall non-prime originations will decrease. “We have seen the pendulum swing,” he said. “Institutions are tightening credit standards which should create some stabilization.”

The report divided institutions’ consumer loan portfolios based on size, creating three classes: small—portfolios under $1.3 billion; medium, portfolios between $1.3 billion and $4 billion; and large—portfolios greater than $4 billion.

Consumer credit as a percentage of total assets dropped among all class sizes—the most significant drop occurred in the large class size, which experienced a 10 percent drop from 2006 to 2007. Combined, all class sizes experienced a 7 percent decline in consumer credit as a percentage of total assets during the same period.

The dollar delinquency rate increased 36.59 percent last year over 2006 among institutions that participated in both years. The recovery rate declined 19.5 percent from 2006 to 2007 among the same group and gross annual loss rate increased 5.56 percent.

“Key performance measures show that dollar delinquency rates continued the three-year upward trend and increased 24 percent since 2006 year-end,” King said. “Gross charge-off rate in dollars increased 11 percent and recovery rate dropped significantly.”

“Institutions are assessing how they operate in terms of custom scoring models and treatment of accounts,” King said. “Some are looking at making business process improvements as well as policy and procedural changes to help deal with the rise in delinquencies.”

From a technology standpoint, King said institutions are keen to service accounts more effectively and are also looking to outsourcing without increasing staff for interim periods of time. He said institutions are also reorganizing, moving employees from areas such as originations and underwriting to collections for recovery. “More than originations, collections and recovery are more in demand today,” he said.
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The Market Composite Index rose to 557.1, an increase of 10.9 percent on a seasonally adjusted basis from 502.3 one week earlier. On an unadjusted basis, the Index increased by 23 percent compared with the previous week but was still down by 16.5 percent compared with the same week one year earlier. The four-week moving average fell by 2.8 percent to 568.6 from 597.9. 

The seasonally adjusted Refinance Index increased by 8.4 percent to 1622.1 from 1496.1 the previous week. However, the four-week moving average fell by 8 percent to 1835.6 from 2035.6. The refinance share of mortgage activity decreased to 39.8 percent of total applications from 40.6 percent the previous week.

The seasonally adjusted Purchase Index increased by 12.8 percent to 376.2 from 333.6 one week earlier. The Conventional Purchase Index increased by 11 percent, while the Government Purchase Index (largely FHA) increased by 17 percent. The four-week moving average rose by 1.7 percent to 353.8 from 354.3.

The average contract interest rate for 30-year fixed-rate mortgages increased to 6.24 percent from 6.17 percent, with points increasing to 1.12 from 1.06 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

The average contract interest rate for 15-year fixed-rate mortgages increased to 5.78 percent from 5.70 percent, with points increasing to 1.12 from 1.06 (including the origination fee) for 80 percent LTV loans.

The average contract interest rate for one-year adjustable-rate mortgages increased to 6.87 percent from 6.80 percent, with points decreasing to 1.42 from 1.44 (including the origination fee) for 80 percent LTV loans. The ARM share of activity increased to 10.3 percent from 8.7 percent of total applications from the previous week.

The survey covers 50 percent of all U.S. retail residential mortgage originations and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts.
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Some top economic and real estate finance blogs include: The Big Picture , by Barry Ritholtz, president of Ritholtz Capital Partners, a New York City-based hedge fund; Calculated Risk, by a retired business executive and a former bank officer and mortgage lending specialist; and Mish's Global Economic Trend Analysis, by Michael Shedlock, investment advisor at Sitka Pacific Capital Management, Edmonds, Wash.

With help from Calculated Risk, Shedlock’s fortunes changed three years ago after starting his blog, which later added hits and then advertisers. Ritholtz and Shedlock contribute to Seeking Alpha, a web site that includes stock market opinion and analysis from blogs, money managers and investment newsletters and a provider of its own financial content.

Shedlock said his blog backs up arguments through facts, analysis and common sense, including his call that commercial real estate had hit its peak at about the same time when Sam Zell left the industry and that commercial real estate would "blow up" as it lagged residential.

“When it comes to Sitka Pacific, we actually invest based on what the market is doing, not what we think is going to happen,” Shedlock said.

For his blog, Shedlock speaks with industry insiders, some close to top executives. He said that while the mainstream media reports well on data and facts, they lack in analysis.

“The mainstream media is actually good about coming up with some numbers. They’re very lousy at analyzing what some of those numbers mean,” Shedlock said.

Many commercial real estate analysts have said that negative and inaccurate newspaper headlines create pricing instability in the commercial mortgage backed securities (CMBS) market because it causes investor panic and pricing instability from microhedge funds shorting CMBS through CMBX indices—synthetic CMBS derivatives.

However, Richard Green, professor at George Washington University, who will teach at the University of Southern California Lusk Center for Real Estate this fall, said media effect on residential and commercial real estate have been minimal.

“People have been saying that the housing market was the media’s fault. They didn’t say that on the run-up,” Green said. “The thing about housing that has people so negative right now is defaults all over the place, and that’s a fact. That’s not something that the media concocted. And those defaults arose from bad underwriting. I’m not particularly sympathetic to the view that the media has a whole lot to do with these dynamics—in either direction.”

Green, who started his blog as he was writing a book, said readers should not take anything as truth but that blogs make the industry more transparent and create a forum for discussion.

Shedlock continues to have concerns of a commercial real estate bubble and for other aspects of residential financing—forecasting that it will take years before residential and commercial real estate markets return to any sense of normalcy as the economy weakens.

“Right now, [banks] have taken  $300 billion in writedowns,” Shedlock said. “At 10 to 1 leverage, that’s $3 trillion of future lending that can’t be made. That’s what we’re facing. What happens when we hit $1 trillion? That’s $10 trillion.”

Jim Butler, chairman of the global hospital group at the Los Angeles law firm of Jeffer Mangels Butler & Marmaro LLP, and author of Hotel Law Blog at www.hotellawblog.com, said the biggest advantage and risk to blogging is in deciphering information from rumors.

“Some [bloggers] are better, more accurate describers or observers than others and some more careful,” Butler said. “The blog can bring instant information but [the user] will learn by reputation that certain sources are more careful, more reliable and others may bring something to [the user’s] attention but [it] better be tested. It’s the difference between the Wall Street Journal and some rag being handed out door-to-door by unknown people.”

Some blogs have discussions; other bloggers only post articles; most bloggers have an ideological axe to grind and are transparent about it, Green noted. His concern, however, is in limiting people’s viewpoints, particularly following Rupert Murdoch’s acquisition of the Wall Street Journal.

“It’s like a newspaper. Until you read a newspaper for awhile, it’s hard to make a decision about whether it’s a good newspaper or not,” Green said. “Good blogs usually have links to sources that are the foundation for their arguments.”

Butler said analysts who can interpret a table of data for investments, mortgages, hedge rates or other vehicles and provide “some kind of insight is the real value-add” of blogs.

“The problem is that anybody can get the microphone and people could do damage if they’re irresponsible or wrong or [create] panic,” Butler said. “Right now, it’s very popular in selling newspapers and getting people to read blogs to forecast gloom and doom. I think we tend to overreact to these things and sometimes people prey on that.”

“To me, it’s just easy to put all these pieces together,” Shedlock said. “The amazing thing to me is that it has all hung together a lot longer—and stayed together a lot longer than what I thought.”
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The conference, formerly MBA's Document Custody Conference, includes timely loss mitigation sessions. It’s tailored for both new and experienced document custodians, as well as anyone who may be involved in any aspect of the post-closing process, loan delivery, document control and/or servicing issues. The conference addresses a host of topics that are “setting the pace” for changes in the industry.

Who Should Attend
New and experienced document custodians, quality assurance professionals or anyone else with a business that touches on any aspect of the post-closing process, loan delivery and document control or servicing issues, such as time management and customer service.

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Conference sponsorship is the ideal vehicle to grab the attention of this important audience and position your company as a leader in the industry. All sponsorships include a tabletop exhibit opportunity, but space is limited. For more information contact Mark Brady at mbrady@mortgagebankers.org or call (202) 557-2790.

For more information about MBA’s Document Management and Custody Conference 2008, visit http://events.mortgagebankers.org/documentmanagementandcustody2008/default.html.
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For more information on how to take advantage of savings through MBA's Member Advantage Program, call 202/557-2845.
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In testimony, John Jacobs of the Michigan Mortgage Lenders Association warned that these bills would reduce availability of credit to state residents, essentially turning Michigan into one of the most restrictive lending regimes in the country and cutting off affordable credit to the communities that need it the most.

"These bills are well-intentioned, but as presently written will have unintended consequences,” Jacobs said. “We have sought modifications to avoid what we believe will be an adverse impact on the availability and cost of home financing. We believe that the legislation will result in companies refusing to do business in Michigan, thereby reducing the availability of residential mortgage loans or increasing the cost of such loans to borrowers residing in the state of Michigan.”

Jacobs also expressed disappointment over the failure of consumer advocates to work with the lending community to achieve compromise language that would aid all borrowers by helping to stabilize the Michigan housing market.

“Notwithstanding MBA’s specific objections to the proposed bills, the industry is also disappointed in the refusal of consumer activists to constructively help find a middle ground on several key issues,” Jacobs said. “We offered reasonable and well thought out compromises and these groups essentially rejected our suggestions and walked away from the table without further discussion.”
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