Virginia Housing Market and Foreclosure Status

Transcription

1 Virginia Housing Market and Foreclosure Status Virginia Foreclosure Task Force September 17, 2013 Virginia Housing Development Authority

2 Overview 1. Looking back: Market conditions and foreclosure trends when the Task Force was established in spring Current status: Update on where things now stand in fall Looking ahead: Key issues going forward 1

3 Looking back: Where things were in early

4 Home sales and values had fallen sharply from their peak, and had not yet fully bottomed. Virginia Existing Home Sales -40% -14,800 from peak in 2005 Q3 Virginia Median Home Value -14% -$40,000 from peak in 2007 Q1 Federal policy interventions: Federal Homebuyer Tax Credits were being provided to jump-start home sales to 1st-time buyers. Remaining decline to market bottom -6% -2,300 to bottom in 2011 Q2-3% -$9,300 to bottom in 2011 Q1 The Federal Reserve was sharply ramping up its purchase of GSE mortgage bonds in an attempt to put a floor under home prices. 3 Sources: Home sales Virginia Association of Realtors (VAR). Sales levels are based on 4-quarter rolling averages. Home values Federal Housing Finance Agency (FFHA) and VAR. Changes in home values are based on FHFA s seasonally adjusted Purchase-only Home Price Index and the estimated median state home value at the market peak based on VAR median sales price data.

5 Unemployment and negative equity were at or near their peak, and were impeding a recovery. Virginia Rate of Unemployment 7.4% +4.5% from low in 2007 Q2 Decline from recession high 0% Unemployment still at its peak in 2010 Q1 Virginia Mortgagors with Negative Equity 23.6% 293, % -8,300 from high in 2009 Q4 Federal policy interventions: The Administration and Federal Reserve remained focused on substantial economic stimulus. The Administration was implementing HARP and preparing to roll out the newly authorized HAMP program to help refinance underwater mortgages. Sources: Virginia Employment Commission (VEC) for unemployment rates data is seasonally adjusted. CoreLogic, a real estate data and analytics company, for negative equity data. 4

6 Subprime foreclosures were ebbing, but prime and government foreclosures had just peaked. Virginia Active Loan Foreclosures Subprime Loans Subprime Loans -26% from a high of 12,800 in 2008 Q4 9,500 23,000 Prime & Govt. Loans +65% from 13,900 in 2008 Q4 32,500 Total Active Foreclosures in 2010 Q1 Prime & Govt. Loans Public policy interventions: Expanded support for foreclosure counseling. Implementation of new licensure structure for mortgage loan originators under Virginia s SAFE Act. Federal enactment of comprehensive Dodd Frank regulatory reform legislation. Source: Estimates are based on data from the Mortgage Bankers Association (MBA). 5

7 A positive was affordability, which had improved due to declining home prices and interest rates. Virginia Home Price to Income Ratio from high of 4.7 in 2007 Q1 30-year Fixed-Rate Mortgage Interest Change from Pre-boom Level % -1.22% from 6.22% in 2007 Q1-3.26% Federal policy intervention: The Federal Reserve due to its desire to stabilize falling home prices was relying on sharply lower mortgage rates to serve as the primary stimulus for housing recovery. from 3.0 in 2000 Q1 from 8.26% in 2000 Q1 Sources: Ratio of median home price to median household income was derived from data from the Virginia Association of Realtors (VAR) and the U.S. Census Bureau. Data on interest rates is from the Federal Housing Finance Agency (FHFA). 6

8 Current status: Where things stand in fall

9 Virginia s unemployment rate continues to improve, and is nearing its long-term norm. 8 Source: Virginia Employment Commission (VEC)

10 Virginia home prices have experienced steady growth over the past 18 months. Source: Federal Housing Finance Agency (FHFA) 9

11 Due to the recent rise in values, mortgagors with negative equity are now at half their peak. Source: CoreLogic, a real estate data and analytics company. 10

12 Virginia s new problem loan rate is declining, but is only half-way back to its long-term average. 11 Source: Mortgage Bankers Association (MBA).

13 Virginia s serious delinquency rate is 60 percent of the way back to its long-term average. 12 Source: Mortgage Bankers Association (MBA) Serious delinquencies are loans that are 90 days or more past due or in foreclosure.

14 Subprime and ARM loans make up most of the 48% drop in foreclosures from the 2009 peak. Drop in Active Virginia Foreclosures from the Peak 2nd Qtr (peak) Estimated Active Foreclosures 33,500 2nd Qtr Estimated Active Foreclosures 17,500 Subprime Loans Prime & Govt. Fixed-Rate Loans Subprime Loans 12,300 10,900 5,300 10,000 10,300 Prime & Govt. ARM Loans Prime & Govt. ARM Loans 2,200 Prime & Govt. Fixed-Rate Loans 13 Source: Mortgage Bankers Association (MBA).

15 Nonetheless, subprime and ARM loans remain a disproportionate share of foreclosures. Virginia Foreclosure Activity by Type of Loan 2nd Quarter 2013 Share of 1st Mortgage Loans Share of Active Foreclosures Prime & Govt. ARM Loans Subprime Loans 8% 8% 84% Prime & Govt. Fixed-Rate Loans Subprime Loans Prime & Govt. ARM Loans 30% Prime & Govt. Fixed Rate Loans 13% 57% 14 Source: Mortgage Bankers Association (MBA).

16 The Northern Tier s improved loan performance is now being experienced in downstate markets. Source: Federal Reserve Bank of Richmond/Lender Processing Services (LPS) Applied Analytics. 15

17 The downstate share of troubled loans is rising, but all areas are finally seeing declining levels. Estimated Seriously Delinquent Loans March ,900 June ,300 Other Markets Washington Metro Area (VA part) Other Markets Washington Metro Area (VA part) 15,800 11,100 21,400 12,400 Richmond Metro Area 11,800 13,900 Hampton Roads Metro Area Richmond Metro Area 10,200 12,600 Hampton Roads Metro Area Source: Federal Reserve Bank of Richmond/Lender Processing Services (LPS) Applied Analytics. 16

18 Looking ahead: Key issues going forward 17

19 Steady employment growth remains key to improving loan performance. Sources: Mortgage Bankers Association (MBA) and Virginia Employment Commission (VEC). 18

20 Despite rising employment and affordability, 1st-time buyers remain on the sidelines. Source: National Association of Realtors (NAR). 19

21 Key Issue: Balancing access to credit with control of borrower and lender risk. Current uncertainty regarding mortgage regulation and its associated costs have reduced access to credit, especially for first-time homebuyers. As regulatory reform proceeds, a fair balance must be struck between control of risk and enabling access to affordable credit by young households, minorities, and those of modest means. Whether we are able to do so will determine the strength and sustainability of the current recovery. 20

22 Coming changes in mortgage rates will impact ongoing affordability and home price appreciation. 21 Sources: Home value estimates are based on the Federal Housing Finance Agency (FHFA) seasonally adjusted Purchase-only Home Price Index and Virginia Association of Realtors (VAR) median home price data. PI cost estimates are derived from sales price estimates and FHFA interest rate survey data. *The price for a typical starter home is assumed to be 75 percent of the median existing home price.

23 Key Issue: Balancing restoration of positive equity with ongoing affordability. The housing market cannot fully recover until the remaining overhang of excessive mortgage debt is addressed. While recent rises in home values have reduced the scope of the problem, it is not fully resolved. Ongoing price appreciation is likely to weaken in the face of affordability limitations. The housing recovery is likely to remain slow so long as low rates are the primary market driver. 22

24 Conclusions Policy interventions to address the mortgage crisis have borne fruit. Loan performance continues to improve while the inventory of distressed loans is being steadily, albeit slowly, resolved. Home sales, and especially prices, have been steadily rising. New regulatory structures and industry consent agreements are eliminating recent egregious practices and improving the quality and safety of loan originations and servicing. However, stimulus actions are poised to wind down, and regulatory implementation remains fraught with practical difficulties and fairness challenges. Recovery is not yet complete, and the next phase of policy implementation will be critical to success. 23