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CoreLogic U.S. Housing Policy- Distressed Markets

December 2015

Faith Schwartz    |    Housing Policy, Videos


The housing recovery is coming along nicely. Overall the CoreLogic national Home Price Index (HPI®) has seen positive growth year over year for 42 consecutive months. This is very reassuring, but in some pockets of the country, the recovery has stalled and we are reminded: All housing is local. To better understand the nuances of recovery, let’s look at how we as an industry as well as the government addressed the housing crisis.

According to the Housing and Urban Development Housing Scorecard and the HOPE NOW Alliance, there have been a total of 1.5 million permanent government Home Affordable Modification Program (HAMP) loan modifications completed with an additional 6.1 million proprietary modifications as of July 2015 (Figure 1). Traditionally, distressed mortgages follow this waterfall of workout options for those borrowers whose bank or mortgage companies remain participants in the government’s Making Home Affordable and HAMP initiatives. To understand the process both servicers and borrowers follow, a basic overview of the waterfall of activity is this: HAMP modifications come first. If a borrower fails to qualify or the investor does not allow for a government modification, they then cascade to a private modification option. The process is often dictated by the end-investors’ own unique program guidelines for modifications. When all modifications efforts have been exhausted, a common next step is a non-retention option, or Deed in lieu, or short sale in which foreclosure is prevented and all parties to the transaction agree to the solution.

While never optimal, the idea is to ensure every option is exhausted to prevent foreclosure if all parties prefer that solution.  Several million modifications and workouts have supported efforts to avoid foreclosure and thus prevented even more harm to consumers, communities and our housing market.  Some of these programs are scheduled to expire, for instance HAMP in 2016, and some will change with the newer books of business originated that will not experience a 30-percent drop in equity.

Which markets have lagging appreciation and what can we do about it for distressed homeowners, loans and communities?

A review of seriously delinquent loans as a percentage of total loans for the top Core Based Statistical Areas (CBSA) measured by loan count reveals 46 metros have seriously delinquent loans that are greater than the national delinquency rate (Figure 2).

The list of CBSAs can be roughly broken down into those areas that experienced greater downturns as seen in Las Vegas, Tampa and Jacksonville; or those states experiencing lengthy foreclosure timelines such as New York (Figure 3) and New Jersey; and finally those areas that have been experiencing declining economic and labor markets such as Philadelphia, Cleveland and less dense areas in New England.

For instance, in New York, New Jersey, Oregon and Hawaii we have seen significant lengths in foreclosure timelines prolonging the distressed overhang in those states.

Also, there continues to be unevenly distributed home price appreciation at more local levels. The midwest is a premier example where home prices continue to move sideways or marginally upward. That area will likely require monitoring for some time going forward.

Clearly there are key markets in which recovery has been elusive (Figure 4). The drag on recovery in certain CBSAS suggests there may be other opportunities to assist these markets that belie the traditional route of recovery in order to rectify the lingering effects of distressed housing in these hardest hit communities.

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