Morning Report: Foreclosure starts lowest in 18 years

Vital Statistics:


Last Change
S&P futures 2720 4
Eurostoxx index 362.25 3.31
Oil (WTI) 54.26 -0.3
10 year government bond yield 2.70%
30 year fixed rate mortgage 4.40%


Stocks are higher this morning on no real news. Bonds and MBS are flat.


Donald Trump stressed bipartisanship and unity at the State of the Union address, and reiterated his demands for border wall funding but stopped short of invoking emergency powers to get one built. Predictably, the reaction to the speech fell along partisan lines.


Mortgage Applications fell 2.5% last week as purchases fell 5% and refis rose 0.3%. This was a disappointment given that rates fell about 7 basis points, however the prior week had the MLK holiday adjustment so maybe there is some technical adjustment noise happening. Despite lower rates on a YOY basis, applications are down about 2% annually.


The service sector continued to grow in January, albeit at a slower pace, according to the ISM Non-Manufacturing Report. Some of this may have been government shutdown-driven. Employment rose, while new orders fell.


Foreclosure starts in 2018 decreased to 576,000, the lowest level in 18 years. Foreclosure completions were 175,000, another 18 year low. These numbers are 40% below their pre-recession averages. Higher loan quality in the aftermath of the credit crisis is a contributing factor, however the performance of refinances are better than purchases, which also is driving these numbers.


Housing reform and CFPB regulations may be headed for a conflict if what is called the “GSE patch” is not renewed when it expires in 2021. The CFPB discourages loans with debt to income ratios above 43%, but also permits GSE backed loans to fall under the QM umbrella, even though they permit DTIs up to 50%. Roughly a third of GSE loans fall in the 43-50% DTI range, which could become non-QM loans once the patch expires. The Urban Institute recommends that the GSEs replace the DTI rule with a 150 basis point cap over APOR to determine eligibility under QM.


Home prices rose 0.1% MOM and 4.7% YOY according to CoreLogic. Since house prices have been rising faster than incomes, affordability has suffered. Falling interest rates masked that issue most of the post-crisis period, but the music has stopped. CoreLogic now estimates that 33% of the housing stock in the US is now overvalued.  Separately, Redfin now estimates that the West Coast is a buyer’s market.


Corelogic overvalued

18 Responses

  1. I like the map.

    However, people are moving from SV to the Austin metro so fast that they have not noticed their old $800k homes in SV are “undervalued” while their new $360K homes in Cedar Park are “overvalued”.

    The paragraph on the DTI and the GSE patch is clear to a lay person until the suggestion of the 150 point basis cap over ABOR. What is the effect of that? Do the type of loans that would no longer qualify under the prospective failed GSE patch become in effect qualified? Also, I actually think a 43% DTI ratio is high for most loans. 50% seems ridiculous.

    Obviously it is OK if half of their disposable income is enough to live with comfortably. I am guessing that is a small demographic, and not the one that is the target of easy qualifying loans.


    • that was probably a little too inside-baseball for this blog. It was mainly directed towards my mortgage industry readers.

      The issue with 50% DTI loans is that for a first time borrower, who is young and likely to get raises, it might make sense to make that loan.

      But yes, a DTI around 50 is risky for sure.


      And as far as the APOR issue, it comes from an Urban Institute paper which argued that capping interest rate regulatory protection (basically a safe harbor against ability to pay) at 150 basis points plus the average prime offering rate (the mortgage industry benchmark rate) then that somehow would have a more holistic view of credit risk than metrics like DTI and reserves. TBH, i only skimmed it at work, but it seems to me it is missing how loan level pricing adjustments (i.e. DTI adjustments matrices, FICO buckets) drive the yield. But I don’t see how that yield would give you better risk information than the metrics in the first place. I certainly wouldn’t draft regulations around it, but maybe I need to re-read it.

      Liked by 2 people

      • how accurate do you think those redfin and/or zillow price estimators are?


        • probably +/- 10%.. I think they just look at recent sales and apply the price square foot.

          their estimates will be closer where the homes are newer and lot sizes are very similar.

          They can’t tell whether a kitchen is updated, a backyard is level or sloped, etc


        • Zillow’s estimate of my house value was about 12% higher than the final sale price.


        • Did New Canaan have any sort of meaningful rally off the bottom?


        • Bent:

          Did New Canaan have any sort of meaningful rally off the bottom?

          Not really. Prices rose a bit through probably 2016, but it never really approached a recovery from 2007. And since then it has been dropping pretty quickly.


      • Thanks for the edit, Brent. I was thinking they meant if a loan could be had by the borrower at 1.5% or less higher than prime than the borrower automatically qualified, and it would be then up to the lender to determine as the lender does anyway if the borrower could pay back the loan at that rate. And that seemed to make no sense in this context.

        So it is something like that but it involves blessing such a loan as “Safe Harbor”?

        Might as well, can’t dance. [for you younger ones, that was a popular rejoinder to being asked to do something nuts in the 50s.]


    • pretty soon, JNC or I will get a call “uh, one of you is next in line for the governorship.”

      Liked by 1 person

      • How does anyone imitate a musician he does not resemble without changing his appearance?

        WaPo referred to it as a “scandal.” Considering the minstrel show sensibility, I would not have reacted to “poor taste”, but “scandal” is way over the top as a description.

        Next stop: Halloween costumes.

        Liked by 1 person

        • oh, i think they went after Halloween costumes already.


        • That’s part of it. The thing that’s new is the history mining. This crowd-sourced “background research” is gonna make life painful for every politician in the future. And all sorts of public figures.


        • Since the election of Trump, progressives have worked ceaselessly to make “racism” and any #metoo allegation an automatic disqualification for public office.

          Now it’s being turned back around at them and they are being held to the standard that they proposed.


        • The “me too” stuff immediately bit them in the ass last year with Franken. And they are imposing this on their own. As George Will suggested, the only people that could make Trump a winner in 2020 are whacko Ds.

          I should add that I don’t care if political opponents smear each other – what else is new? I object to the press calling snot on your tie a scandal.

          Liked by 1 person

        • The press has a lot of issues. Internal bias is only one. They also need to compete in a much changed landscape. They are competing for clicks. The people who want to journalists tend to have less interest in reportage than enlightening the masses with their opinion, so investigative journalism and straight reportage is much rarer—I think in most cases young journalists and BuzzFeeder types want to traffic in their personal interests rather than do a job, and it makes for a low-value, underwhelming product. Yet they still want to get paid and the pressure is for eyeballs, so scandal becomes overwhelmingly appealing. Not that it wasn’t in the Clinton era but now …. hoo boy.

          We’re moving towards a point where it’s all going to be vainglorious WaPo with Democracy Dying in Darkness and spending $10.5 million to compare themselves to firefighters and BuzzFeeders telling us We Won’t Believe What Happened Next!


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