Mortgage defaults and foreclosures may rise this year, but a strong housing market will limit any increase, according to loan specialists, a regional economist and a title company official. Defaults and foreclosures dropped nationwide and in the Boise area last year as borrowers sidestepped defaults by quickly selling their homes at high prices. Default notices filed in Ada and Canyon counties through July fell by about 12 percent from a year earlier.
The number of US homes in some stage of foreclosure increased 45 percent from January 2005 to January 2006, according to Irvine, Calif.-based RealtyTrac. Back-to-back monthly inclining exceeding 20 percent indicate that rising interest rates and softening home prices are taking a toll, the company said in a statement.
Idaho Association of Mortgage Brokers President Jeff Avery, Idaho Falls, said that Fannie Mae, the national mortgage finance giant, reports that only 0.47 percent of the notes it grasps in Idaho are in default.
They are who says Idaho does not have a housing bubble, Avery said. Fannie Mae doesn't expect Idaho defaults to rise this year, he added. Nationally, 0.97 percent of mortgages were in stopping foreclosure at the end of the third quarter, according to the Mortgage Bankers Association, which expects to release its year-end report this month. Third-quarter foreclosure rates were 1.16 percent in 2004 and 1.24 percent in the year 2003. Avery said Idaho's growing population, relatively inexpensive housing, and its home ownership rate that exceeds the U.S. average - 73 percent to 68 - figure to help borrowers stop foreclosure. Continued patron activity also bodes well by boosting home prices and enlarging the field of prospective buyers.
Demand for residential properties continues to go up, said Avery, president of Avery Financial Group. Dean Oberst, Washington Trust Bank regional senior vice president based in Meridian, expects a quiet 2006 in terms of defaults and the foreclosures that may follow - because home values increased since many people took out loans, and home supplies remain very limited. It's still very much a seller's market, he said. Situations probably will change in 2007 and beyond, Oberst said. Lenders probably will see raised default rates, he said. There has been financier activity in this market we have not seen before at heightened levels, and secondarily, the types of mortgages we are seeing are far more aggressive than our market has had in the past.
New items include interest-only and negative-amortization loans that are cheaper in their early stages but eventually get more expensive, They have been popular among investors. Two items that will get us are insistent mortgage products, and when the person buying the home is not the one living in it and is not as tied to the property, Oberst said. And there's no guarantee that homes will keep rising in value at recent high rates, he added. Kelly Matthews, Wells Fargo regional economist based in Salt Lake City, said interest rates on 30-year fixed mortgages have been around 6.25 or 6.3 % since November, compared to about 5.8 % in August of this year. If the pace goes to 6.5 % in the second quarter, that gain probably isn't large enough to increase loan delinquencies and foreclosures, he said.
If we arrive to somewhere above 7 or beyond, I would begin to think we might see some problems, he said.7 is probably elevated enough to begin to noticeably reduce demand. If mortgage rates only go up a little bit, and job growth continues to be very strong, I don't believe there's any reason to anticipate a noticeable increase in delinquencies and foreclosures this year, Matthews said. The housing market in Idaho and the Intermountain region has room to cool; the market can sustain 8 to 10 percent annual price gains much more easily than recent 16 and 17 percent increases, he said. Wells Fargo Home Mortgage expects another strong year for mortgage originations in Idaho, said Idaho Area Manager Jeff Grutta, based in Hayden.
Product demand has moved in the last six to seven months, he said. Now we're seeing a real surge in demand for 30-year fixed mortgages due to the fact that the long end of the yield curve has remained relatively stable and the short-term rates have been driven up by the Fed, Grutta said. Jesse Hamilton, counsel and vice president of Pioneer Lender Trustee Services LLC, Boise, expects foreclosures to increase this year.
Our foreclosure order numbers has already begun to rise, he said. I don't know if that's an indicator of the market in general, or if my marketers are good at getting business. On the other hand, many adjustable-rate mortgages will change to higher fixed-rate loans this year, and more ARMs will convert in 2007, Hamilton said. This is the beginning of a larger beckon. A lot of borrowers choose for ARMs during the refinance boom from 2002 into 2004. Home-fairness lines of credit also proved popular at the time, but monthly payments have since increased on higher interest rates. We are making guesses that if these mortgages are 'coming due,' there will be more foreclosures, and by that time we cant stop foreclosures, Hamilton said. I think that is a safe hypothesis. If income hasn't increased with the additional debt to service, there are going to be some people in a tough position. Meanwhile, people who bought residential properties as investments have seen rents stay relatively flat, he said.
That can affect cash flow and long- term viability, particularly if the investor's minimum mortgage payment stands to increase. Hamilton, noting that mortgage interest rates remain very low historically, expects another strong year for the Treasure Valley housing market. Whether a lender can avoid default and foreclosure will largely reflect his or her cash flow, equity position and how much it has appreciated at time of sale, he added.
Neil
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