CoreLogic Reveals Detroit Area as Riskiest Market in Latest Report
The Detroit area tops the list of the highest risk markets, according to First American CoreLogic Inc.'s most recent Core Mortgage Risk Monitor.
The CMRM is a quarterly publication tracking an economic index that forecasts the relative risk of residential mortgage loan delinquencies due to fraud propensity and collateral risk, house price dynamics and the health of the local market economy. An elevated Core Mortgage Risk Index signals the increased potential for financially disruptive and costly economic consequences for consumers, their local community and mortgage financiers.
Right behind the Detroit area as the highest risk market is Memphis, followed by the Warren-Troy-Farmington Hills, Mich., area.
The top 10 riskiest markets among all 379 markets monitored have an average appreciation rate of 2.9%, with five of the markets at less than 2% appreciation. These high-risk markets also exhibit higher-than-average unemployment, lower-than-average wage growth and higher-than-average fraud and collateral risk.
Relative to the base period of 1Q02, the 2Q07 Core Mortgage Risk Index is holding relatively steady, posting a slight increase of 6%, bringing the index back to the base period level. The moderation of the index in recent quarters is driven by continued moderation in house prices, relatively stable economic health at the national level and stabilization in fraud and collateral risk.
According to CoreLogic, as house prices stabilize, the industry is entering a transitional period where the risks associated with rising delinquencies and foreclosures can have a concentrated and contagious impact on local markets. CoreLogic's Fraud and Collateral Risk Index is stabilizing at a relatively high level not reached in recent years, while its Foreclosure Index is expected to continue rising despite relatively unchanged employment conditions and a stabilization of house prices.
Overall, the CMRM data reveal continued turbulence in the residential real estate sector that is affecting local economies across the country.
One of the most compelling, yet least surprising findings this quarter is that the Foreclosure Index has increased dramatically, posting a 10.5% increase over last quarter. Foreclosures are rising as the inevitable result of increasing delinquency rates currently experienced in the nonprime sector. Not only has the overall national Foreclosure Index risen, but certain markets are posting dramatic increases, particularly the upper Midwest and Ohio. Many of this quarter's riskiest market rankings are in part due to high foreclosure rates.
A recent study performed by First American CoreLogic indicates that there is a strong correlation between fraud and collateral risk and foreclosure rates. The study of more than 150,000 loan transactions revealed that for every 1% increase in the local market foreclosure rate, the likelihood of fraud increases by approximately 4%. A rising foreclosure rate, in part due to the pressures of ARM resets as well as other fundamental economic factors, has placed upward pressure on the fraud and collateral risk index. CoreLogic expects this upward pressure to continue throughout 2007 and into 2008 as the market continues to digest payment resets. These effects are likely to be geographically concentrated since foreclosures and economic stress are concentrated in specific markets.
The national house price appreciation rate is currently estimated at 5%, slightly less than the 6.8% appreciation rate estimated in last quarter's monitor. The pace of change moderated in recent quarters indicating that house prices may be settling into a new, less volatile phase of the market cycle. While overall house price appreciation moderated, some markets are declining and there are no markets with appreciation above 15% (36 markets experienced greater than 15% appreciation during the prior quarter).
The trend in house price acceleration over the past six quarters indicates that the "brakes" were on hard. However, this quarter brings a noticeable easing in this trend. Combined with moderating appreciation, this change is further evidence that downward house price trends at the national level are bottoming out.
The CMRM tracks this risk in 379 metropolitan markets across the U.S. representing more than 89% of the U.S. population.
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