Date post: | 11-Jan-2016 |
Category: |
Documents |
Upload: | thomasine-scott |
View: | 216 times |
Download: | 3 times |
Overview of Virginia’s Foreclosure Problem
July 23, 2008
What is the size and extent of Virginia’s foreclosure problem?
Virginia’s foreclosure rate is nearlyhalf the U.S. rate, but has risen rapidly
Source: Mortgage Bankers Association (MBA)
Foreclosure Rate at End of Quarter
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
1989
-4
1990
-4
1991
-4
1992
-4
1993
-4
1994
-4
1995
-4
1996
-4
1997
-4
1998
-4
1999
-4
2000
-4
2001
-4
2002
-4
2003
-4
2004
-4
2005
-4
2006
-4
2007
-4
Calendar Year Quarter
U.S.
Virginia
Northern Virginia’s problem is worse than elsewhere in the state
Area estimates are based on data from the MBA and First American LoanPerformance
Estimated Foreclosure Rates as of March 31, 2008
0.0% 0.5% 1.0% 1.5% 2.0% 2.5%
Bluefield MSA (VA part)
Blacksburg-Christiansburg-Radford MSA
Kingsport-Bristol MSA (VA part)
Harrisonburg MSA
Charlottesville MSA
Staunton-Waynesboro MSA
Danville MSA
Lynchburg MSA
Non-metropolitan areas
Roanoke MSA
Martinsville MSA
Richmond MSA
VA Beach-Norfolk-Newport News MSA (VA part)
VIRGINIA
Washington-Arlington-Alexandria MSA (VA part)
Winchester MSA (VA part)
Culpeper MSA
U.S.
But, there is significant variance in rates among localities within NoVA
Local estimates are based on data from the MBA, RealtyTrac.com and First American LoanPerformance
Estimated Foreclosure Rates as of March 31, 2008
0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0%
Arlington, Alexandria, Falls Church
VIRGINIA
Fairfax City & Co.
Fauquier, Clarke, & Warren
Loudoun County
Washington-Arlington-Alexandria MSA (VA part)
Stafford, Spotsylvania, & Fredericksburg
Winchester MSA (VA part)
Culpeper MSA
U.S.
Prince William, Manassas, & Manassas Park
Foreclosure “hot spots” in NoVA have large, growing minority populations
3 10 11 13 23Manassas Park City
Pr. William County
Manassas City
Loudoun County
Stafford County
+18.1% +12.9% +12.6% +12.1% +9.2%
Minority percentage of total population 2000 2006
RANK AMONG TOP 25 JURISDICTIONS NATIONALLY IN RATE OF MINORITY POPULATION GROWTH
32.234.8 33.2
20.0 19.7
50.347.7 45.8 44.9
28.9
Hampton Roads’ problem is highly focused in Norfolk and VA Beach
Local estimates are based on data from the MBA, RealtyTrac.com and First American LoanPerformance
Estimated Foreclosure Rates as of March 31, 2008
0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0%
Wmsbg., Jms. Cty., York, Poq., Glouc., & Math.
Newport News City
Chesapeake City
Hampton City
Suffolk, Isle of Wight, & Surry
Portsmouth City
VA Beach-Norfolk-Newport News MSA (VA part)
VIRGINIA
Virginia Beach City
U.S.
Norfolk City
Richmond’s problem is focused in the city and adjacent county areas
Local estimates are based on data from the MBA, RealtyTrac.com and First American LoanPerformance
Estimated Foreclosure Rates as of March 31, 2008
0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0%
Cumberland, Amelia, Powhatan, Goochland & Louisa
Prince George, Dinwiddie, & Sussex
New Kent, Charles City, King William, & King and Queen
Petersburg, Hopewell, Colonial Heights
Hanover County
Richmond MSA
Chesterfield County
Henrico County
VIRGINIA
Richmond City
U.S.
Caroline CountyNote: Caroline Co., while included in the Richmond MSA, is becoming a commuter suburb of NoVA and its foreclosure problems fit the NoVA pattern rather than the pattern found in the rest of the Richmond MSA.
What is driving Virginia’s foreclosure problem?
Today’s foreclosure problem is being driven by a new set of factors• In the past, rising foreclosures mainly resulted from
changes in household economic condition—e.g., job loss, separation/divorce, unforeseen medical bills.
• Today, there are three new interrelated drivers:
1. use of high-cost, non-traditional mortgage products to purchase homes in high-cost markets that households simply could not afford;
2. use of high-cost mortgages to consolidate household debt;
3. declining home values that put homeowners “upside down” with their mortgage and lead to tightened credit standards that limit homeowners’ refinancing and resale opportunities.
The problem is primarily with higher cost, non-traditional types of loans
Virginia’s foreclosure rate has increased sharply since mid 2005. The rise is attributable to poorly performing subprime, alt-A, and adjustable rate loans.
Source: Mortgage Bankers Association (MBA)
Virginia Foreclosure Rates by Type of Loan
0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%
2004
-1
2004
-2
2004
-3
2004
-4
2005
-1
2005
-2
2005
-3
2005
-4
2006
-1
2006
-2
2006
-3
2006
-4
2007
-1
2007
-2
2007
-3
2007
-4
2008
-1
Calendar Year Quarter
PrimeFixed Rate
Subprime& Alt-A
Prime ARM
High-cost “subprime” and “alt-A” loans make up a large share of foreclosures
58% of foreclosures in March 2008 were on two types of non-traditional loans.
1. “Subprime” loans made to borrowers with low credit scores. Two-thirds of subprime loans in Virginia were used for cash-out refinancings.
2. “Alt-A” loans made to borrowers with slightly tarnished credit and/or in need of special underwriting terms and conditions. A large share involved limited documentation.
Another 27% of foreclosures were on prime and government-backed ARM loans.
Most of the alt-A and ARM loans were used in high-cost markets to enable borrowers to buy homes they otherwise could not afford.
Generally, all three types of loans, when used for home purchase, had very high loan-to-value ratios. A large share were made with the expectation by both the lender and the borrower of being refinanced as soon as an anticipated rapid appreciation in home value created built-up equity.Source: Mortgage Bankers Association (MBA)
Virginia Foreclosures by Loan Type,
March 2008
15%
27%58%
Prime &Govt. Fixed RateLoans
Prime & Govt. Adjustable Rate Loans
Subprime & Alt-A Loans
Minority Homebuyers Depended Heavily on High Cost Mortgages
How are foreclosures impacting the market?
A build-up of REO properties puts downward pressure on home prices
• Historically, home prices have been “sticky” during market downturns—i.e., price declines are retarded by an unwillingness of sellers to accept losses.
• This has meant that price corrections often occur through depressed rates of appreciation over protracted periods of time.
• However, REO build-ups can change that dynamic due to the pressure on lenders to turn over properties quickly even in the face of substantial losses.
Source: MRIS and RealtryTrac.com
Relationship of REO Build-up & Existing Home Price Declines
0% 10% 20% 30% 40% 50% 60% 70%
FredericksburgArea
FairfaxArlington
Alexandria
Loudoun
Prince WilliamManassas
REOs as a share of active listings June 1, 2008
Annual decline in median home price June 2007-08
Virginia now has a number of areas defined as “declining” markets
• Private mortgage insurers and lenders are taking steps to mitigate financial risk by curtailing lending in markets where home values are declining.
• “Declining” markets are being made subject to tighter underwriting standards, which are further reducing home sales and limiting the ability of at-risk borrowers to refinance out of troubled loans.
Insurer Defined “Declining” Markets as of July 2008
Market Area
Private Mortgage Insurers Defining Market as Declining
Small Metro Markets:
Charlottesville MSA
Radian
Danville MSA AIG United Guaranty Radian
Hampton Roads:
Virginia Beach-Norfolk-Newport News MSA
Genworth MGIC Radian
Greater Richmond:
Richmond MSA
MGIC Radian
Northern Virginia:
Washington-Arlington-Alexandria MSA
Winchester MSA
AIG United Guaranty Genworth MGIC PMI Group, Inc. Radian RMIC
Price declines and foreclosures have become mutually reinforcing
• Initially, weak housing market conditions resulted in declining rates of appreciation and, in time, actual declines in resale prices.
• This stimulated foreclosures for at-risk borrowers who found themselves “upside down” with their mortgage and unable to refinance or sell.
• As foreclosure activity became substantial, then large numbers of distressed sales further depressed market prices.
• As REO inventories built, the pressure to lower prices became intense.
• Sustained price declines weaken buyer confidence and cause lenders to tighten lending standards. In a worst case scenario, this creates a self-reinforcing downward cycle.
What does the future hold for Virginia’s foreclosure problem?
Current and historic trends suggest further price declines
Source: OFHEO
Annual Change in Home Prices
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
1978
-4
1979
-4
1980
-4
1981
-4
1982
-4
1983
-4
1984
-4
1985
-4
1986
-4
1987
-4
1988
-4
1989
-4
1990
-4
1991
-4
1992
-4
1993
-4
1994
-4
1995
-4
1996
-4
1997
-4
1998
-4
1999
-4
2000
-4
2001
-4
2002
-4
2003
-4
2004
-4
2005
-4
2006
-4
2007
-4
2008
-4
2009
-4
Calendar Year Quarter
Washington Richmond Hampton Rds
ShortRecession& Housing Recovery
Recession& Prolonged
Housing Recovery
Credit Crunch &
Recession
There is particular pressureon lower-end prices
Note: Tiered price breakpoints are as of April 2008
Change in Existing Home Prices, Washington, DC MSAS&P Case-Shiller Monthly Home Price Index (January 2000=100)
0
50
100
150
200
250
300
350
Jan-8
7Ja
n-88
Jan-8
9Ja
n-90
Jan-9
1Ja
n-92
Jan-9
3Ja
n-94
Jan-9
5Ja
n-96
Jan-9
7Ja
n-98
Jan-9
9Ja
n-00
Jan-0
1Ja
n-02
Jan-0
3Ja
n-04
Jan-0
5Ja
n-06
Jan-0
7Ja
n-08
Lower Price Tier (<$327,963) Middle Price Tier ($327,963 to $467,139) Higher Price Tier (>$467,139)
Decade of flat home values
-17.6%End of80's boom
Start of00's boom
Surge in subprimeand alt-A
lending
Decline in Lower Tier
index needed to restore
historic price relationship
The following factors will contribute to how quickly markets rebound
• An upturn in home sales will mark the bottom of the market—as unsold inventory declines, prices will stabilize and foreclosures ease.
• Current data show most Virginia markets still experiencing declining home sales. However, in Northern Virginia steep price cuts are now contributing to a rebound in home sales.
• The quicker that prices fall, the sooner that home sales and appreciation rates are likely to turn positive—more modest short-term price declines may contribute to prolonged price stagnation as occurred in Northern Virginia during the 1990’s.
In NoVA, falling prices are now reviving existing home sales
Source: MRIS
Existing Home SalesNorthern Tier Region
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Jan-99
Jul-9
9
Jan-00
Jul-0
0
Jan-01
Jul-0
1
Jan-02
Jul-0
2
Jan-03
Jul-0
3
Jan-04
Jul-0
4
Jan-05
Jul-0
5
Jan-06
Jul-0
6
Jan-07
Jul-0
7
Jan-08
12-month rolling average
Peak in May 2005
Trough in April 2008
Rising home sales are reducing unsold housing inventory
Source: MRIS
Months Supply of Unsold HomesNorthern Tier Region
0
3
6
9
12
15
18
21
24
Jan-04Apr-0
4Jul-0
4Oct-
04Jan-05
Apr-05
Jul-05
Oct-05
Jan-06Apr-0
6Jul-0
6Oct-
06Jan-07
Apr-07
Jul-07
Oct-07
Jan-08Apr-0
8
INNER (Fairfax-Arlington-Alexandria)
MIDDLE (Loudoun-Prince William-Manassas)
OUTER (Fredericksburg-Culpeper-Winchester Areas)
Balanced Market
Falling prices are also starting to reduce the impact of REOs
• The sharp decline in home prices in NoVA markets is starting to reduce the inventory of bank-owned properties (REOs).
• Over time, this will help stabilize prices.
Source: MRIS and RealtryTrac.com
Bank-owned Properties asa Share of Active Listings
0%
10%
20%
30%
40%
50%
60%
70%
Dec 07 Jan 08 Feb 08 Mar 08 Apr 08 May 08 Jun 08 Jul 08
Sh
are
at S
tart
of
Mo
nth
Fredericksburg Area
Prince William-Manassas
Arlington-Alexandria-Fairfax
Loudoun
A big factor in NoVA’s sales rebound is increased affordability
• In 2000, affordability was a problem mainly inside the Beltway
• At the peak of the boom, affordability pressures were severe even in the outer suburbs
• Today, affordability is returning to pre-boom levels
Ratio of Median Home Price toMedian Household Income
0.0 1.0 2.0 3.0 4.0 5.0 6.0
Pr. William
Stafford
Spotsylvania
Loudoun
Fairfax
Arlington
Alexandria
Pre-Boom:April 2000
Peak of Boom:May 2006
Post Boom:June 2008
Historic affordability threshold
Source: MRIS and Census Bureau
However, the impact of declining employment is a big unknown
Source: Bureau of Labor Statistics
Annual Jobs Change in NoVA Foreclosure Hot ZonePrince William, Manassas, Loudoun & Stafford
-10%
-5%
0%
5%
10%
15%
3rd Qtr 2001 to 3rd Qtr 2002
3rd Qtr 2002 to 3rd Qtr 2003
3rd Qtr 2003 to 3rd Qtr 2004
3rd Qtr 2004 to 3rd Qtr 2005
3rd Qtr 2005 to 3rd Qtr 2006
3rd Qtr 2006 to 3rd Qtr 2007(projected)
All Employment Construction Jobs
What further risks lie ahead?
1. First, the length and severity of a recession is a major unknown. A layering of traditional economic foreclosure drivers on top of the current factors impacting the market will compound current weakness.
2. A second risk is REOs. While REO inventories are beginning to decline, they could quickly rebuild now that the seasonal peak in sales is past. Such a build-up would reinforce price cuts in NoVA and could stimulate significant price declines in other markets as well.
3. Finally, there is the ongoing risk of further trauma in the credit markets that would significantly reduce the availability of affordable home financing. It is essential that an adequate supply of affordable mortgage funds remain available to enable the market to recover.