Lower Loan Limits Won't Squash Originations: LPS

Had the proposed rules defining Qualified ResidentialrnMortgages (QRM), the loans that would be exempt from the retained riskrnrequirements of the Dodd-Frank Act, been in effect, they would have affectedrnnearly half of all residential loans originated in the U.S. since 2005.  This conclusion comes from the June MortgagernMonitor report released Thursday by Lender Processing Services (LPS), Inc.  </p

The report, however, determined that the anticipatedrnexpiration of temporary limits for conforming loans will have little impact onrnoriginations.  The volume of loans thatrnfell within the expanded limits – which currently range up to $729,750 in somernhigh value areas, accounted for only one percent of originations over the lastrnthree years.  The report concludes that returningrnthe entire nation to the $417,000 loan cap as is scheduled to occur in Octoberrnwill have “minimal” impact.  </p

What that data does not take into account is that the impactrnof shrinking loan limits will not be uniform. While the majority of the nation mayrnnot even notice, there are some major metropolitan areas where, when the extendedrnlimits go away, the housing market may go away as well.  In cities such as New York, Washington, DC,rnBoston, and San Francisco, homes costing more than $500,000 still constitute arnmajor part of the housing stock.  Privaternmoney is slowly coming back into the jumbo market, but suddenly cutting off thernfederal tap is bound to have repercussions in these pricier areas.</p

The body of the Mortgage Monitor report deals withrnforeclosures, and LPS reports that June foreclosure starts increased by morernthan 10 percent over May to a total of 217,486 and delinquencies were up by 2.4rnpercent to an 8.15 percent level.  While delinquenciesrnand foreclosure starts declined year-over-year (by 14.7 percent and 3.7 percentrnrespectively) foreclosures were up 14.7 percent.  Pre-foreclosure sales rose 0.2 percent fromrnMay to 4.12 percent.  At the end of Junern4.1 million loans were either 90+ days delinquent or in foreclosure, representingrna 12.8 percent increase since June 2010.</p

A big reason that the last number continues to expand is therncontinuing increase in the time loans languish in delinquent status.  The average loan is now delinquent for 587rndays before it is foreclosed nearly double the 251 day average in January 2008.rn LPS reports that in June 35 percent ofrnthe loans in foreclosure had not made a mortgage payment in over two years.  The percentage of loans in this category hasrnincreased virtually every month since April of 2009 while the percentage ofrnloans in every other time category has shrunk. </p

The timeline increases are considerably higher in judicialrnforeclosure states.  The average days fromrndelinquency to foreclosure start is 314 in non-judicial and 333 in judicialrnstates.  A loan spends 488 days inrnforeclosure inventory in non-judicial states, 646 days in judicial and the daysrnto foreclosure sale average 551 and 728 respectively.  <br /<br /Looking at the differences between judicial and non-judicial foreclosure states,rnthe LPS data shows that the foreclosure pipeline ratio – that is, the number ofrnloans either 90+ days delinquent or in foreclosure divided by the six-monthrnaverage of foreclosure sales – is more than three times as high for judicialrnforeclosure states. Additionally, the slowdown associated with foreclosurernmoratoria has been almost exclusively felt in judicial states. <br /<br /The LPS report Mortgage Monitor Report is issued monthly and based on mortgagerndata and performance information on almost 40 million loans.

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