Hearing on Mortgage Foreclosure Issues:
Texas Relative to Other States
Texas Relative to Other States
The Committee on Financial Institutions
The Texas House of Representatives
Presented by:
Dr James P Gaines
Dr. James P. Gaines
Research Economist
y
Real Estate Center at Texas A&M University
Austin, Texas
June 11, 2008
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
– Loss of confidence in ratings and ratings services
– Pricing of mortgage‐backed assets by institutions
g / g y g
– 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
– 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
Housing Market Bust 2007 ‐ …
2007 first decline in national median home price since 60 s
• 2007 first decline in national median home price since 60’s
• 1Q2008 annual house prices in US MSAs fell 5.2% on average
33 states are experiencing year over year house price
• 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
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
g p y g,
• Falling home prices in key areas eliminates refinancing,
renegotiating or selling when borrower gets behind
Sources: NAR, First American CoreLogic, Mortgage Bankers Association
US Median Home Prices in 2008
$250,000
8/05 7/06 6/07
$229,600 $230,900 $229,200
$225,000
200,700
$200,000
$175,000
$150,000
$125,000
At 2001 Trend, 2008 median prices should be
between $185,000 and $190,000. 2007 =
$100,000
$217,900,
if 2008 = $187,500 along trend line, down 14%;
if 2008 = $187 500 along trend line down 14%;
$75,000
if 2008 = $200,000, down 8.5%.
$50,000
Jan-900
0
Jul-90
Jan-91
Jul-91
Jan-922
2
Jul-92
Jan-933
Jul-93
3
Jan-944
Jul-94
4
Jan-955
5
Jul-95
Jan-966
Jul-96
6
Jan-977
Jul-97
7
Jan-988
Jul-98
8
Jan-999
Jul-99
9
Jan-000
0
Jul-00
Jan-01
Jul-01
Jan-022
2
Jul-02
Jan-033
Jul-03
3
Jan-044
Jul-04
4
Jan-055
5
Jul-05
Jan-066
Jul-06
6
Jan-077
Jul-07
7
Jan-088
8
Jul-08
Jan-099
Source: NAR, Real Estate Center at Texas A&M University 4
U.S. Median Home Price Percent Change
16.0%
16 0%
14.4%
14.0% 13.5%
12.6%
12.2%
11.7%
12.0%
10.7%
10.3%
10.0%
8.5% 8.2% 8.3%
7.8%
7.7% 7.9%
8.0% 7.5%
6.8% 7.0%
6.6%
6.4% 6.3%
5.9%
6.0% 5.5% 5.5% 5.4%
5.2%
4.8%
4 8%
4.3% 4.3% 4.0% 4.3%
3.7% 3.8%
4.0% 3.0% 2.9%
3.4%
3.1%
2.7%
2.1%
2.0% 1.3%
0 0%
0.0%
-2.0% -1.8%
-4.0%
-6.0%
-8.0%
-8.5%
10.0%
-10.0%
Apr-08
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Source: NAR
5
-4%
4%
-3%
-2%
-1%
10%
11%
12%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
1Q1997
2Q1997
3Q1997
4Q1997
1Q1998
2Q1998
3Q1998
4Q1998
1Q1999
2Q1999
3Q1999
4Q1999
1Q2000
US 1Q2008 = ‐3.1%
2Q2000
Texas 1Q2008 = 2.5%
3Q2000
4Q2000
1Q2001
2Q2001
y
3Q2001
4Q2001
1Q2002
2Q2002
3Q2002
g
4Q2002
Source: OFHEO
1Q2003
2Q2003
3Q2003
4Q2003
1Q2004
2Q2004
Texas
US
3Q2004
Purchase Only Index Change Year over Year
4Q2004
1Q2005
2Q2005
3Q2005
4Q2005
1Q2006
2Q2006
3Q2006
US and Texas Appreciation
4Q2006
1Q2007
2Q2007
6
3Q2007
4Q2007
1Q2008
-20%
-15%
10%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
1Q1997
2Q1997
3Q1997
4Q1997
1Q1998
2Q1998
3Q1998
4Q1998
1Q1999
2Q1999
3Q1999
4Q1999
1Q2000
2Q2000
3Q2000
4Q2000
1Q2001
Arizona = ‐7%; Nevada = ‐11%
2Q2001
3Q2001
4Q2001
1Q2002
2Q2002
3Q2002
Florida = -14.5%; California = -19.1%
4Q2002
1Q2003
Source: OFHEO
2Q2003
3Q2003
US 1Q2008 = -3.1%; Texas 1Q2008 = 2.5%
4Q2003
Purchase Only Index Change Year over Year
1Q2004
Texas
2Q2004
3Q2004
4Q2004
1Q2005
US
2Q2005
3Q2005
4Q2005
1Q2006
2Q2006
3Q2006
4Q2006
1Q2007
California
2Q2007
7
3Q2007
4Q2007
Florida
US, Texas, California and Florida Appreciation
1Q2008
Price Change by State 1Q2007 – 1Q2008
8
Source: OFHEO, HPI Y/Y % Change
Percent of Foreclosures Started by
Type of Loan 1Q2008
T fL
Percent of Percent of
Outstanding Foreclosures
Type of Loan Loans Started
Source: Mortgage Bankers Association, National Delinquency Survey, March 31,2008, Estimates by Real Estate Center
9
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. p g p yp p y
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
Prime and Subprime ARM Resets
Prime and Subprime ARM Resets
Source: First American LoanPerformance, The Market Pulse, September 2007
11
0.0
00
0.5
1.0
1.5
2.0
2.5
3.0
1Q1979
3Q1979
1Q1980
3Q1980
1Q1981
3Q1981
1Q1982
3Q1982
1Q1983
3Q1983
1Q1984
3Q1984
1Q1985
3Q1985
1Q1986
Texas
3Q1986
1Q1987
3Q1987
1Q1988
3Q1988
1Q1989
3Q1989
1Q1990
3Q1990
1Q1991
3Q1991
1Q1992
3Q1992
12
1Q1993
3Q1993
1Q1994
3Q1994
1Q1995
3Q1995
1Q1996
3Q1996
U.S. and Texas
1Q1997
3Q1997
1Q1998
3Q1998
1Q1999
3Q1999
1Q2000
3Q2000
1Q2001
3Q2001
Source: Mortgage Bankers Association, National Delinquency Survey
1Q2002
Percent of Loans in Foreclosure:
3Q2002
U.S.
1Q2003
3Q2003
1Q2004
3Q2004
1Q2005
3Q2005
1Q2006
3Q2006
1Q2007
3Q2007
2.47
1.45
1Q2008
US Mortgage Delinquency Rates
21.0
19.0
18.8
Subprime M t
S b i Mortgages
17.0
15.0
13.0
11.0
9.0
7.0
All Mortgages (average = 4.7%) 6.4
50
5.0
3.7
Prime Mortgages (average = 2.5%)
3.0
1.0
10
1Q1998
2Q1998
3Q1998
4Q1998
1Q1999
2Q1999
3Q1999
4Q1999
1Q2000
2Q2000
3Q2000
4Q2000
1Q2001
2Q2001
3Q2001
4Q2001
1Q2002
2Q2002
3Q2002
4Q2002
1Q2003
2Q2003
3Q2003
4Q2003
1Q2004
2Q2004
3Q2004
4Q2004
1Q2005
2Q2005
3Q2005
4Q2005
1Q2006
2Q2006
3Q2006
4Q2006
1Q2007
2Q2007
3Q2007
4Q2007
1Q2008
Source: Mortgage Bankers Association, National Delinquency Survey, March 31, 2008
US Mortgages in Foreclosure at the End of
Q
the Quarter
12.0
11.0
10.7
10.0
10 0
9.0
8.0
Subprime Loans
7.0
6.0
5.0
50
4.0
3.0 2.5
2.0 All Loans (average 1.24%)
1.2
1.0 Prime Loans (average 0.5%)
0.0
1Q1998
2Q1998
3Q1998
4Q1998
1Q1999
2Q1999
3Q1999
4Q1999
1Q2000
2Q2000
3Q2000
4Q2000
1Q2001
2Q2001
3Q2001
4Q2001
1Q2002
2Q2002
3Q2002
4Q2002
1Q2003
2Q2003
3Q2003
4Q2003
1Q2004
2Q2004
3Q2004
4Q2004
1Q2005
2Q2005
3Q2005
4Q2005
1Q2006
2Q2006
3Q2006
4Q2006
1Q2007
2Q2007
3Q2007
4Q2007
1Q2008
14
Source: Mortgage Bankers Association, National Delinquency Survey , March 31, 2008
0.0
1.0
2.0
30
3.0
4.0
5.0
6.0
7.0
80
8.0
8
1Q1998
8
2Q1998
8
3Q1998
8
4Q1998
9
1Q1999
9
2Q1999
9
3Q1999
9
4Q1999
0
1Q2000
0
2Q2000
0
3Q2000
0
4Q2000
1
1Q2001
1
2Q2001
1
3Q2001
1
4Q2001
2
1Q2002
2
2Q2002
2
3Q2002
2
4Q2002
3
1Q2003
3
2Q2003
3
3Q2003
3
4Q2003
4
1Q2004
Q
4
2Q2004
4
3Q2004
4
4Q2004
5
1Q2005
Subprime Loans
5
2Q2005
Prime Loans (average 0.5%)
All Loans (average 1.1%)
5
3Q2005
at the End of the Quarter
5
4Q2005
6
1Q2006
Source: Mortgage Bankers Association, National Delinquency Survey, March 31, 2008
6
2Q2006
6
3Q2006
Texas Mortgages in Foreclosure
6
4Q2006
7
1Q2007
7
2Q2007
7
3Q2007
7
4Q2007
0.6
1.5
6.0
8
1Q2008
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% 16 states
– Michigan 136,205, up 68% doubled or
– Arizona 69 970 up 151%
Arizona 69,970, up 151% DC
more; D.C.
– Nevada 66,316, up 215% was up
– Virginia 24,199, up 456%
Virginia 24,199, up 456% 608%
– Maryland 25,109, up 455%
– Connecticut 23,470, up 100%
– Massachusetts 41,487, up 161%
Source: RealtyTrac, Inc.
Data include all default, delinquency and foreclosure filings reported. The same property often has more than one filing. 16
y g
Monthly Foreclosure Filings
100,000
Texas foreclosures have been very moderate compared
90,000 to the US trend.
US foreclosures are up 33% YTD 04/2008;
f l / US
80,000
Texas is down 22% YTD 04/2008.
70,000
60,000
50,000
40,000
30,000
20,000
20 000
Texas
10,000
0
Jun‐05
Jul‐05
Aug‐05
Sep‐05
Oct‐05
Nov‐05
Jan‐06
Mar‐06
May‐06
Jun‐06
Jul‐06
Aug‐06
Sep‐06
Oct‐06
Nov‐06
Jan‐07
Mar‐07
May‐07
Jun‐07
Jul‐07
Aug‐07
Sep‐07
Oct‐07
Nov‐07
Jan‐08
Mar‐08
Dec‐05
Feb‐06
Apr‐06
Dec‐06
Feb‐07
Apr‐07
Dec‐07
Feb‐08
Apr‐08
Source: RealtyTrac, Inc.
Data include Notices of Trustee Sales plus Notices of Foreclosure Sale as of April 2008
Households per Delinquency or Foreclosure Filing
US = 519; Texas = 809
10 – 205
251 – 1,500
1,501 – 9,999
, ,
10,000 - +
Source: RealtyTrac, Inc. , April 2008
Core Mortgage Risk Index by MSA –
2Q2008
High
Moderately High
Moderate
Low
Source: First American CoreLogic
Seriously Delinquent by State 1Q2008
6.0% 3.5%
6.4% 4.3%
4 2%
4.2% 6.0%
6 0%
5.6%
4.9%
4.1%
5.0% Seriously Delinquent
4.1% Rate
3.1%
Greater than 6.64%
Greater than 6 64%
5.35% ‐ 6.64%
6.7%
4.04% ‐ 5.34%
0 ‐ 4.03%
National Rate = 4.03%
Source: Mortgage Bankers Association, National Delinquency Survey, (90-days delinquent + FC Inventory)
Foreclosure Starts by State 1Q2008
1.26% 0.84%
1.93% 1.14%
1.16% 1.14%
1.59%
1.33%
1 33%
0.98% Foreclosure Start
0.67% Rate
Greater than 1.34%
1.0% ‐ 1.34%
1.86% 0‐0% ‐ .99%
National (SA) = 0.99%
Source: Mortgage Bankers Association, National Delinquency Survey, Real Estate Center at Texas A&M University
Monthly Texas Foreclosure Filings
15,000
14,367 Average Since May 2005 = 9,564
14,000 There are approximately 8.1 million occupied homes in Texas
Monthly average filings = 0.12% of total occupied homes
y g g p
13,000 12,836
12,694
12,000 12,007 11,949
11,737
11,117
11,000 10,813
11,023 10,915 10,856
10,676 10,658 10,702 10,580
10,315 10,264
10,162
10,000
9,601
9,280
9,000
8,670 8,720
8,000 7,808 7,809
8,008
7,548
7,752 8,087 7,637
7,405
7,226
7,000 6,997
6,652
6,274
6,000
5,596
5 000
5,000
Jun-05
Sep-05
Dec-05
Jun-06
Sep-06
Dec-06
Jun-07
Sep-07
Dec-07
Oct-05
Nov-05
Jan-06
Feb-06
Mar-06
May-06
Oct-06
Nov-06
Jan-07
Feb-07
Mar-07
May-07
Oct-07
Jul-05
Jul-06
Jul-07
Nov-07
Jan-08
Feb-08
Mar-08
Aug-05
Apr-06
Aug-06
Apr-07
Aug-07
Apr-08
Source: RealtyTrac, Inc., American Community Survey, US Census
Data include Notices of Trustee Sales plus Notices of Foreclosure Sale
Major Financial Risks
• Falling home prices from peak of bubble
Prime residential mortgage delinquency up
• Prime residential mortgage delinquency up
• Can’t value CDO’s and other mortgage‐backed
paper
• Commercial mortgage delinquency rising – could
become significant problem later
become significant problem later
• ADC loans to homebuilders and developers
much tighter
much tighter
• Spillover onto credit card and auto loans
Credit Default Swaps (CDS) next major impact
• C di D f l S (CDS) j i
23
Hearing on Mortgage Foreclosure Issues:
Texas Relative to Other States
Texas Relative to Other States
The Committee on Financial Institutions
The Texas House of Representatives
Presented by:
Dr James P Gaines
Dr. James P. Gaines
Research Economist
y
Real Estate Center at Texas A&M University
Austin, Texas
June 11, 2008