Foreclosures Still Accelerating
Chicago-Experts in both servicing and origination last month had seen some signs of improvement in the housing market but questioned the extent to which these might stabilize foreclosures during a roundtable at the Mortgage Bankers Association's National Secondary Market Conference here.
Excerpts from that discussion that follow are based on a discussion between (above, from left) Scott Stern, chief executive officer and founder of Lenders One mortgage cooperative; Mike Margolf, executive director, AllonHill; Ed Fuchs, chief financial officer and head of capital markets at NetMore America; Les Parker, president of Parker & Co.; and Nicholas Bratsafolis, senior managing director, structured refinance, at Lend America.
MSN: Anybody have an idea about when our current foreclosure glut will start to level off?
Scott Stern: I'm happy to start. First things first: the state of the origination industry is obviously good because of the refinancing and so our members are anywhere at 200% if not 300% higher volume in the first quarter of '09 than they were in '08. It's probably not sustainable because rates are being held low through some artificial influences but, nonetheless, it's a very good time for refinance volume and I think that means it's a good time for consumers to take advantage of low rates. If I were to look at a macro level, one quick ... opening remark, I would say that low rates are kind of giving some consumers confidence again and, in my home market, we are starting to see houses come off the market a little faster. Headed into the spring and summer selling season there is reason for optimism, and as soon as you have that you have a bottom to prices. Then I think there is reason for optimism that you're going to start taking a lot of inventory off the market.
Nicholas Bratsafolis: The one thing that we're actually focusing on at Lend America is that we're working with the Wall Street firms and hedge funds and other portfolio holders to avoid that eventuality of foreclosures. We're working with the available products that FHA has plus the Hope for Homeowners, which hopefully will be changed to where it's more user friendly and that's our goal. We are trying to avoid foreclosures. Is it at the bottom yet? I don't believe it is and I think you will see probably a little bit more negative press now that many of these states that imposed these moratoriums are coming off [them]. So I think you are going to see some [more foreclosures]. I also agree with the previous statements, I think we are starting to reach ... close to that bottom.
Mike Margolf: We work with a lot of different servicers right now and when it comes to ... working through a loss mitigation situation with a consumer it really comes down to ability and willingness to pay and unfortunately there has been a lot of job loss of late. I think we have a little bit more hurt ahead of us in terms of the foreclosures from what we're seeing and what the servicers are providing feedback to us on. We're seeing some real challenges. It's helpful that Making Home Affordable and some of the new programs that are coming out, how aggressive these servicers are being with loss mitigation and homeowner retention strategies. Ultimately if these consumers don't have the ability to pay, they don't have an income to support their monthly payments, we're going to continue to see foreclosure volumes increase, in my mind.
Les Parker: The foreclosure volumes are going to continue to rise. It has been held back near term because of the various different moratoriums that created just the pent-up demand. I think the current environment that we're in with the ... mini economic expansion we're starting to go into for the summer is going to make it appear to have stabilized a little bit but then it's going to have another push down, particularly in the states that have been suffering a lot (like California, Florida and Michigan). And then what's added to it is, with the rise of the unemployment rate, that's the traditional item that ... increases foreclosures. So now we have the traditional measure of pressure on foreclosures and that's going to cause it to rise and we will have another increase in foreclosure rates. I do not see the bottom in 2009.
MSN: 2010 maybe?
Les Parker: That would be nice. It will depend on the depth of the recession or deep recession or depression, and that's going to depend upon government intervention or lack thereof and it's going to be dependent on a number of items.
Nicholas Bratsafolis: Just to respond to one comment. I do think, and I share your view of some negativity, but if Hope for Homeowners really becomes a workable product ... I think could have a tremendous impact on reducing that issue, if it happens.
Les Parker: Responding. ... I agree with you. The challenge is that that's just mainly just addressing agency situations. The big challenge still out there is the nonagency product.
Scott Stern: I would just add that, for better or worse, there's always a baseline of foreclosures caused in many instances by job loss, but also by divorce and by injury and death and illness and things like that. This time ... foreclosures were exacerbated by products and the negative-amortization products that have layered on the added risk of teaser-rate ARMs where the borrowers were qualifying at the teaser rate. Those exacerbated foreclosures and it caused a flood of them to the degree that those loans are being worked out of the system and they're being refinanced or modified into fixed rate, fully amortizing loans, I think you eliminate product-based foreclosures. There still are some of those to reset, but if you eliminate product-based foreclosures you get down more to a normalized rate of foreclosure that can be absorbed by normal homebuying activity.