Zombie Foreclosures

Its Halloween week, so it seems appropriate to talk about Zombies!

But in this case we are not the walking undead but abandoned homes in some state of foreclosure but not yet repossessed by banks and put up for sale which can be a real eye-sore in the neighborhood.

In some neighborhoods there were so many, they took up half a block. In others, they stood out, grass un-mowed, trash in the yard, glaring, often dangerous reminders of the worst housing crisis in history.

Now, thanks to rising home prices and streamlined foreclosure rules, they are half of what they were just a year ago.

Zombie foreclosures now account for just over one percent of the 1.5 million vacant homes in the United States, according to RealtyTrac.

States with the most vacant “zombie” foreclosures were New Jersey (3,997), Florida (3,512), New York (3,365), Illinois (1,187) and Ohio (1,028), and some markets, such as Boston, St. Louis and Philadelphia, have seen an increase in their zombie population.

That increase is likely due to an increase in default notices in states with a very slow foreclosure process that can drag on for years; with backlogs so big for so long, banks waited to file.

Now, as those backlogs ease, the banks are filing, but the new default notices are on homes that have been delinquent possibly for years, so they are more likely to be vacant when they finally get to foreclosure.

“The overall inventory of homes in the foreclosure process has dropped 36 percent over the past year so it’s not too surprising to see a similarly dramatic drop in vacant zombie foreclosures,” said Daren Blomquist, vice president at RealtyTrac.

“What is surprising is there are so many vacant homes where the homeowners do not appear to be in financial distress.” The majority of vacant homes, 63 percent according to RealtyTrac, are owned outright with no mortgage.

What Happened to Rates Last Week?

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Mortgage backed securities (FNMA 3.50 MBS) lost just -2 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move sideways from the prior week and with a net change of only +4 BPS for the month of October, mortgage rates have moved sideways all month long.

We had a very light week for economic data and did not have any major Treasury auctions to contend with.

We did get a lot of housing data and overall, it showed plenty of strength in the housing sector. The Home Builder’s Index jumped to a level that we have not seen in 10 years. Meanwhile New Housing Starts were stronger than expected and Building Permits for Single Family Residential prosperities were flat. But Existing Home Sales (the biggest chunk off all home sales) jumped up from 5.30M in August to 5.55M in September which was a nice pick up and would have increased more if it weren’t for very tight inventory constraints.

All the focus of the long bond market was on central bank action and we had two major events last week, the European Bank (ECB) Meeting and the People’s Bank of China’s (PBOC) rate cut.

ECB: The European Central Bank rate left their key interest rate unchanged at 0.5% but more importantly, during the live press conference with President Mario Draghi he downplayed the risk with China but acknowledged that for the first time that the ECB has officially discussed the potential of lowering its discount rate (Which is different from its interest rate). He also said that the current asset purchase program (QE) will continue on schedule and in the same amount as planned and will run through 2016. But he made it very clear that it could very well go beyond 2016 and that they had the “flexibility” to add to the current program at any time but would wait until their December meeting to review more current economic data. The markets are viewing this as him telegraphing that further QE is on its way and was largely expected and therefore did not have a major impact on rates in the U.S..

PBOC: The Peoples Bank of China (PBOC) surprised the markets by taking action. MBS sold off initially by as much as -35BPS but recovered most of that sell off. This move, while simulative in nature, calls into question China’s recently released GDP of 6.9% (which most traders didn’t buy anyway). This is now the 6th time that China has made some form of rate cuts since November.
-Cut their one year lending rate by 0.25
-Cut their 1 year deposit rate by 0.25
-Removed their deposit rate ceiling for banks
-Cut their reserve ratio by 0.50

What to Watch Out For This Week:

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The above are the major economic reports that will hit the market this week. They each have the ability to affect the pricing of Mortgage Backed Securities and therefore, interest rates for Government and Conventional mortgages. I will be watching these reports closely for you and let you know if there are any big surprises.

It is virtually impossible for you to keep track of what is going on with the economy and other events that can impact the housing and mortgage markets. Just leave it to me, I monitor the live trading of Mortgage Backed Securities which are the only thing government and conventional mortgage rates are based upon.

Copyright © 2015 Powered by www.MBSauthority.com

Home Buyers say rates are not their biggest concern

Home Buyers say rates are not their biggest concern:

A recent Harris Poll on behalf of Trulia showed that of all the concerns that potential homebuyers have, a mortgage rate is third on the list.

Their biggest concern is the ability to just get a mortgage at all (regardless of rate), the next biggest concern is the ability to find a home that they like (this is certainly reflected in the very low inventory numbers) and then rounding out the top three is the interest rate.

While no one wants a monthly mortgage payment that is higher than what they were quoted a month ago, the fluctuations of rates have meant only small differences in their mortgage payments.

Forty-two percent said they expect mortgage rates to increase over the next six months, while 20 percent think rates will stay the same. Of their biggest worry, 26 percent named ability to qualify for a home loan compared with 24 percent who pointed to rising rates. Millennials, ages 18-34, are even more concerned about their access to credit than about their rate. Thirty-six percent of millennials polled said access was their primary concern versus 26 percent indicating rising rates.

Nearly two-thirds of the consumers polled said the maximum price they would pay for their first or next home was $250,000. With 20 percent down, the rate increase could mean some buyers would qualify for less on a mortgage, but it would not turn those buyers away.

What Happened to Rates Last Week?

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Mortgage backed securities (FNMA 3.50 MBS) gained +81 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move lower from the prior week.

Last week was all about the jobs data and its potential impact on the Fed’s timing for their first rate hike. The jobs data was much weaker than the market expected and caused MBS to have a huge rally which lead to our lowest mortgage rates in months.

Jobs, Jobs, Jobs? Here is the tale of the tape:

Non-Farm Payroll: The bond market plays close attention to the current reading, but we know and understand that the prior months are significantly revised two more times after they are originally released. So, those revisions also get a lot of attention.
September: 142K vs est of 205K, this is a big disappointment and we said that it would take a reading below 150K to get a rally.
August: Revised lower from 173K down to 136K. This was maybe more important than the September reading. The September reading will be revised two more times. But historically the August data is revised upward an average of 40K. So, the bond market was expecting that August reading of 173K to be upgraded to over 200K and we didn’t get that. This was very positive for our pricing as now we have both August and September below 150K after trending for over a year at over 200K per month.
July was revised lower from 245K down to 223K.

Average Hourly Wages: Were flat at 0.0% on a month over month basis vs. expectations of a gain of 0.2%. And we can see why when the Average Hourly Work Week (which hardly ever moves) dropped from 34.6 hours per week down to 34.5 hours per week. So, less time working means no upward pressure on wages. Still, the year-over-year reading remained at 2.2% which is strong. Regardless, the MOM reading is positive for pricing.

Unemployment Rate: Remained at 5.1% which is what the market expected. The participation rate currently has more impact on the outcome of the Unemployment Rate formula than people going back to work does. The Participation Rate was at 62.4%, a drop from August’s 62.6%. The Unemployment Rate of 5.1% is still an attractive number (if you can believe its validity) for the Federal Reserve and is the lone bright spot of today’s data.

Untitled

The above are the major economic reports that will hit the market this week. They each have the ability to affect the pricing of Mortgage Backed Securities and therefore, interest rates for Government and Conventional mortgages. I will be watching these reports closely for you and let you know if there are any big surprises.

It is virtually impossible for you to keep track of what is going on with the economy and other events that can impact the housing and mortgage markets. Just leave it to me, I monitor the live trading of Mortgage Backed Securities which are the only thing government and conventional mortgage rates are based upon.

Copyright © 2015 Powered by www.MBSauthority.com