Hearing on Mortgage Foreclosure Issues: Texas Relative to Other States The Committee on Financial Institutions The Texas House of Representatives

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Hearing on Mortgage Foreclosure Issues Texas
Relative to Other StatesThe Committee on
Financial InstitutionsThe Texas House of
Representatives

• Presented by
• Dr. James P. Gaines
• Research Economist
• Real Estate Center at Texas AM University
• Austin, Texas
• June 11, 2008

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Current Mortgage/Capital Market

• Downturn in capital and mortgage markets is more
  severe than the market anticipated
• Loss of confidence in ratings and ratings
  services
• Pricing of mortgage-backed assets by institutions
• Potential legal/regulatory changes
• Likely mergers, acquisitions or failures among
  financial institutions
• Law suits
• Foreclosures will remain high through 2009 maybe
  early 2010
• Subprime ARM resets significant through 2009
• Return to traditional mortgage loan underwriting
• Mortgage delinquency/default problems are
  spilling over into consumer debt delinquencies
  and business loans
• Plenty of liquidity in market, nobody knows how
  to lend

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Housing Market Bust 2007 -

• 2007 first decline in national median home price
  since 60s
• 1Q2008 annual house prices in US MSAs fell 5.2
  on average
• 33 states are experiencing year-over-year house
  price declines as of 1Q2008 (FACL) 15 states
  according to OFHEO
• House price declines appear to be concentrated in
  larger MSAs
• Small and mid-sized MSAs tend not be
  experiencing declines nearly as severe, if at all
• MBA 1Q2008 mortgage delinquency and foreclosure
  data are highest on record trend continues
  upward
• The Un-magnificant Seven California, Florida,
  Nevada, Arizona, Michigan and Ohio
• Falling home prices in key areas eliminates
  refinancing, renegotiating or selling when
  borrower gets behind

Sources NAR, First American CoreLogic, Mortgage
Bankers Association
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US Median Home Prices in 2008
2001 Trend
At 2001 Trend, 2008 median prices should be
between 185,000 and 190,000. 2007 217,900,
if 2008 187,500 along trend line, down
14 if 2008 200,000, down 8.5.
Source NAR, Real Estate Center at Texas AM
University
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U.S. Median Home Price Percent Change
Source NAR
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US and Texas Appreciation Purchase Only Index
Change Year over Year
US 1Q2008 -3.1 Texas 1Q2008 2.5
US
Texas
Source OFHEO
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US, Texas, California and Florida
Appreciation Purchase Only Index Change Year over
Year
US 1Q2008 -3.1 Texas 1Q2008 2.5 Florida
-14.5 California -19.1
Florida
US
Texas
California
Arizona -7 Nevada -11
Source OFHEO
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Price Change by State 1Q2007 1Q2008
Source OFHEO, HPI Y/Y Change
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Percent of Foreclosures Started by Type of Loan
1Q2008
Type of Loan Percent of Outstanding Loans Percent of Foreclosures Started
Prime Fixed 64 19
Prime ARM 14 23
Subprime Fixed 6 11
Subprime ARM 6 37
FHA VA 10 8
Source Mortgage Bankers Association, National
Delinquency Survey, March 31,2008, Estimates by
Real Estate Center
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Factors Leading to Higher Foreclosures

1. Traditional life events loss of job, divorce,
   illness
2. Falling home prices
3. Significant number of non-owner-occupant,
   investor buyers
4. ARM resets, prime and subprime
5. Spikes in other housing costs, especially
   property taxes and utilities
6. Local employment losses Ohio, Michigan, Indiana
   and other rust-belt states
7. Fraud and predatory lending practices

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Prime and Subprime ARM Resets
Source First American LoanPerformance, The
Market Pulse, September 2007
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Percent of Loans in Foreclosure U.S. and Texas
Texas
U.S.
Source Mortgage Bankers Association, National
Delinquency Survey
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US Mortgage Delinquency Rates
Subprime Mortgages

All Mortgages (average 4.7)
Prime Mortgages (average 2.5)
Source Mortgage Bankers Association, National
Delinquency Survey, March 31, 2008
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US Mortgages in Foreclosure at the End of the
Quarter
Subprime Loans
All Loans (average 1.24)
Prime Loans (average 0.5)
Source Mortgage Bankers Association, National
Delinquency Survey , March 31, 2008
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Texas Mortgages in Foreclosure at the End of
the Quarter
Subprime Loans
All Loans (average 1.1)
Prime Loans (average 0.5)
Source Mortgage Bankers Association, National
Delinquency Survey, March 31, 2008
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Total Delinquency Foreclosure Filings 2007

• US 2,203,295, up 75
• Texas 149,703, down 4.6 (1 of only 6 down)
• California 481,392, up 238
• Florida 279,325, up 124
• Ohio 153,196, up 88
• Michigan 136,205, up 68
• Arizona 69,970, up 151
• Nevada 66,316, up 215
• Virginia 24,199, up 456
• Maryland 25,109, up 455
• Connecticut 23,470, up 100
• Massachusetts 41,487, up 161

16 states doubled or more D.C. was up 608
Source RealtyTrac, Inc. Data include all
default, delinquency and foreclosure filings
reported. The same property often has more than
one filing.
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Monthly Foreclosure Filings
Source RealtyTrac, Inc. Data include Notices
of Trustee Sales plus Notices of Foreclosure Sale
as of April 2008
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Households per Delinquency or Foreclosure
FilingUS 519 Texas 809
Source RealtyTrac, Inc. , April 2008
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Core Mortgage Risk Index by MSA 2Q2008
Source First American CoreLogic
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Seriously Delinquent by State 1Q2008
6.0
3.5
6.4
4.3
4.2
6.0
5.6
4.9
4.1
Seriously Delinquent Rate Greater than
6.64 5.35 - 6.64 4.04 - 5.34
0 - 4.03 National Rate 4.03
5.0
4.1
3.1
6.7
Source Mortgage Bankers Association, National
Delinquency Survey, (90-days delinquent FC
Inventory)
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Foreclosure Starts by State 1Q2008
1.26
0.84
1.93
1.14
1.16
1.14
1.59
1.33
Foreclosure Start Rate Greater than
1.34 1.0 - 1.34 0-0 -
.99 National (SA) 0.99
0.98
0.67
1.86
Source Mortgage Bankers Association, National
Delinquency Survey, Real Estate Center at Texas
AM University
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Monthly Texas Foreclosure Filings
Average Since May 2005 9,564 There are
approximately 8.1 million occupied homes in
Texas Monthly average filings 0.12 of total
occupied homes
Source RealtyTrac, Inc., American Community
Survey, US Census Data include Notices of Trustee
Sales plus Notices of Foreclosure Sale
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Major Financial Risks

• Falling home prices from peak of bubble
• Prime residential mortgage delinquency up
• Cant value CDOs and other mortgage-backed paper
• Commercial mortgage delinquency rising could
  become significant problem later
• ADC loans to homebuilders and developers much
  tighter
• Spillover onto credit card and auto loans
• Credit Default Swaps (CDS) next major impact

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Hearing on Mortgage Foreclosure Issues Texas
Relative to Other StatesThe Committee on
Financial InstitutionsThe Texas House of
Representatives

• Presented by
• Dr. James P. Gaines
• Research Economist
• Real Estate Center at Texas AM University
• Austin, Texas
• June 11, 2008