Housing Crisis Nears Its Sunset
August 20, 2015 1:19 PM
Banks have ramped up foreclosure activity in the past five months, with default notices, scheduled auctions and bank repossessions at their highest levels in two years. It's a positive sign that banks are finally clearing out all the distressed loans still lingering from the housing crisis. Meanwhile, banks remain cautious about new lending, partly because of regulatory actions.
Repossessions Surge
Bank repossessions in July hit a 30-month high of 46,957 properties, up 81% from a year earlier, according to RealtyTrac. Real estate-owned filings increased in 44 states from a year earlier, led by New Jersey(up 344%), Texas (up 187%) and Michigan (up 129%). The REO rush may provide much-needed housing inventory and offset rising home prices, which in turn could aid banks' efforts to sell properties.
Delinquencies Plummet
Mortgage delinquency rates in the second quarter fell to their lowest levels in eight years, according to the Mortgage Bankers Association. The percentage of delinquent loans not already in foreclosure dipped to 5.3% in the second quarter, the MBA said. Loans in foreclosure hit 2.09% in the second quarter, their lowest level since late 2007, the MBA said.
Lenders Still Shun Subprime Borrowers
The drop in delinquencies and rising credit scores can be attributed to mortgage standards that now require lenders to document borrowers' ability to repay their loans. Only 8% of mortgage volume in the second quarter went to subprime borrowers with credit scores of 660 or less, a new Fed study found.
Servicers Still Taking Hits
Banks remain cautious about lending in part because of continued punishments for failing to clean up their foreclosure processes. In June six banks, including JPMorgan Chase, U.S. Bancorp and Wells Fargo, were cited for ignoring requests for loan modifications or failing to make good-faith efforts to prevent foreclosures.
More Probes of Shoddy FHA Loans
Regional banks continue to be hit with investigations by the Justice Department for bad underwriting of Federal Housing Administration loans. M&T Bank in Buffalo, N.Y., was the latest to disclose that it is in settlement talks. Wells Fargo, Quicken Loans, PNC Financial Services Group, Regions Financial and BB&T all have outstanding investigations of FHA loans.
Banks Cede Market Share to Nonbanks
Another sign of the changed mortgage landscape is that large banks have practically given up on making loans to riskier borrowers backed by the Federal Housing Administration. Nonbank lenders have taken their place. Large banks' share of FHA-backed home loans fell to roughly 25% in July (take out: 27% in June), while nonbanks' share has climbed to 67% (take out: 62%). In 2012 those numbers were reversed.
