'Underwater' residential mortgages in Winston-Salem MSA decline in 2Q

The default rate for first mortgages increased four basis points in August to reach 0.84% of all mortgages in the U.S. - up slightly from July, according to the S&P/Experian Consumer Credit Default index, a comprehensive measure of changes in consumer credit defaults.

Meanwhile, the default rate for auto loans increased four basis points to reach 0.90%, and the default rate for credit cards saw a slight decrease to reach 2.71%, down eight basis points from the previous month, according to the index.

The composite rate in August was 0.96%, up four basis points from July.

The report notes that despite weak wage growth, consumer credit default rates are currently close to pre-financial crisis levels.

"Two economic areas showing strength are auto sales and housing," says David M. Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices, in a statement. "Car and light truck sales saw recent gains reaching an annual rate of about 17.5 million units as sales of new homes and housing starts picked up."

Blitzer adds that the growth in credit is "largely due to loosening of credit standards, indicating banks are willing to bear increased risk by approving more subprime consumers." He warns, however, that looser credit could result in higher default rates in the months to come.

Four of the five major cities saw their default rates increase in August, according to the report. New York saw the largest increase, reporting 1.04%, up 12 basis points from July. Dallas saw its default rate increase by seven basis points to 0.71%. Chicago reported its third consecutive increase with a 1.21% rate, up six basis points from the previous month. Miami reported a default rate of 1.46%, up one basis point for the month.

Los Angeles was down 13 basis points to 0.76% - the only city to report a decrease in August.

"With the Federal Reserve policy meeting on Wednesday and Thursday this week, analysts are debating the possible impact of an interest rate increase," Blitzer adds. "Presumably, the Fed will raise interest rates - the question is whether it will be now, late this year, or sometime in the first half of 2016.

"Little initial impact is expected on consumer use of credit or on default rates," Blitzer says. "A quarter-point increase in the Fed funds rate will not affect fixed-rate mortgage loans or auto financing. Some small increases in interest rates on bank cards and similar lending may occur in the months following Fed action. Adjustable-rate mortgages tied to market rates will rise as mortgage loans reach dates when rates reset.

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Improving home prices chip away at underwater mortgages

Less than 20 percent of homeowners with a mortgage in the Chicago area owed more on their mortgage than their homes were worth in the year's first quarter, as slowly rising home prices continue to benefit homeowners.


During 2015's first three months, 19.1 percent of area residential properties with a mortgage, or almost 262,000 properties, were underwater, real estate data firm CoreLogic reported Tuesday. That compares with 21.9 percent of properties a year ago.


Despite the improvement, the percentage of mortgaged, underwater residential properties in Chicago's housing market was second only to Tampa-St. Petersburg-Clearwater, Fla., where 23.1 percent of properties were underwater. Also on the list of the top five markets in the worst shape were Phoenix-Mesa-Scottsdale, Ariz., at 16.9 percent; Riverside-San Bernardino-Ontario, Calif., at 13.9 percent; and Warren-Troy-Farmington Hills, Mich., at 13.4 percent.


Nationally, 10.2 percent of properties were underwater at the end of March, and rising home prices meant borrower equity rose by $694 billion year-over-year during the quarter. During the first quarter, home prices rose 2.5 percent, according to the firm.

read more: http://www.chicagotribune.com/business/breaking/ct-underwater-homeowners-0617-biz-20150616-story.html

Consumers Can’t Void Second Mortgage In Bankruptcy, SCOTUS Rules

Consumers taking out a second mortgage will now have to consider the fact that if they encounter financial difficulties and file for bankruptcy, they won’t be able to strip off the additional loan obligation.

The Wall Street Journal reports that the Supreme Court ruled in favor of banks when it came to determining that struggling homeowners can’t get rid of a second mortgage using bankruptcy protection, even if the home’s value is less than the amount owed on the first mortgage.

Monday’s unanimous ruling involved two cases in which Florida homeowners sought to cancel their second mortgages – issued by Bank of America – under the argument that when both primary and subsequent loans are underwater, the second is worthless.

The homeowners in the cases were previously allowed by lower courts to nullify the second mortgages. Back in 2013, those rulings were affirmed by the Atlanta-based 11th U.S. Circuit Court, the Associated Press reports.

However, Bank of America maintained that the rulings conflicted with Supreme Court precedent, arguing that even if the primary mortgage is underwater, it shouldn’t affect the lien securing the second loan.

According to the bank, there remains a possibility that the second loan would be repaid if the property’s value rose in the future.

The company also claimed that after the Circuit Court ruling, hundreds – if not thousands – of struggling homeowners had moved to nullify their second loans, the AP reports.

Justice Clarence Thomas said on Monday that the SCOTUS decision took into consideration the shifting nature of property, the WSJ reports.

see more of this: http://consumerist.com/2015/06/01/consumers-cant-void-second-mortgage-in-bankruptcy-scotus-rules/

Fewer Orlando-area residential properties with mortgages are underwater

In the Orlando-Kissimmee-Sanford metropolitan statistical area, 25.7 percent of all residential properties with a mortgage, or 118,366 homes, were in negative equity as of fourth-quarter 2014, CoreLogic reports.

That compares with 31.4 percent, or 146,187 properties, in fourth-quarter 2013, and 26.3 percent, or 121,096 properties in third-quarter 2014.

Nationwide, 172,000 homes slipped into negative equity in the fourth quarter of 2014 from the third quarter, increasing the number of mortgaged residential properties underwater to 5.4 million, or 10.8 percent of all mortgaged properties. Compared to the year-ago quarter, 6.6 million homes, or 13 percent, were underwater.

Negative equity, often referred to as "underwater" or "upside down," means that borrowers owe more on their mortgages than their homes are worth. Negative equity can occur because of a decline in value, an increase in mortgage debt or a combination of both.

Other highlights from the fourth-quarter report:

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