SOTM 54: Highest FHA Delinquency Rate in Four Decades

Aaron Amuchastegui: Real Estate Rockstars, this is Aaron Amuchastegui. I am coming to you with this week’s State of the Market. It is midway through August 19th, and this is going to be a really interesting State of the Market because I don’t have a guest with me tonight. There is so much news that I have been looking at and trying to get a couple of people that come on tonight, and everybody scheduled didn’t work. I thought the news is too big for me to not put it out there. I’m putting this out there to you guys.

If one of you thinks that you want to join me on one of these State of the Market podcasts, I want you to go on to Instagram, message me, and tell me, “Hey, next time you do a State of the Market, I want to be on there with you doing those State of the Markets.” Today I’m also going to do some screen-sharing as I record this. If you’re watching this on YouTube, you may see a few of the extra things.

If you also see us on Instagram, you’ll see a bunch of the links and things on there. I promise you there’s going to be so much stuff in here that if you are listening to the podcast, driving in your car, if people are even driving in their car very often, I guess people are now. If you’re just listening to it, don’t worry. It’s going to be a plenty good show. I am going to get you in and out of here in less than 30 minutes with some of the best real estate news that we have right now.

Mid August, it’s been a really, really strange six months, five months, I guess we’ve been talking about it. You guys have seen a lot of different guests that we’ve had over the last couple of months. Over the last couple of months, we had a lot of the 30 Under 30 people, we’ve got some great episodes that I recorded last week that are going to be pushing out over the next few weeks. I would say, just keep listening.

Right now, our downloads are so high. We’re getting record-setting downloads for our podcast. If you were listening to it and you like our show, be sure to share it with your friends because you’re not alone. If you can tell people to go listen to the Real Estate Rockstars podcast, they are going to love it. Without further ado, I am going to start sharing my screen and talk to you guys about the real estate news that is happening right now.

This first one is an article that came out in SFGATE. This is the San Francisco Local Chronicle, and it is really, really wild. It says, “The 2020 San Francisco Exodus is real and a historic report shows.” Now, people have been talking about people leaving the cities. You guys have heard me on the podcast saying, “Hey, people are going to leave the cities and move to other places, but there are a few cities that really show that story. The graph I’m looking at shows over the past year and what it’s charting is it’s charting real estate inventory changes from February to July of 2020.

Now, those are the number of houses that are on the market. I understood what all of them saw from April to May was there was an increase in inventory. More house got put on the market, March and April. Then May inventory started to drop, houses started to sell. That was also a time when people weren’t really sure what was going on. In places like Boston, San Francisco, Seattle, and Washington, the inventory went way down in May, a lot fewer houses on the market we started to see buyer bidding wars, we saw stuff selling like hotcakes, and then in June, they started to creep back up.

In Los Angeles, all of a sudden there became an increase in inventory. We had Paul Morris on here a couple of times, his company’s based out in LA and he talked about days on market going up. Right now, the inventory is slightly more homes on the market today than there were back in March. In Boston, there are still fewer homes on the market than there were in March. In Seattle, there is a lot less houses. It looks like it’s almost 20% less houses on the market right now. In Washington D.C., there are 20 less houses on the market.

Most of the big cities there is a lot less, but the crazy chart, if you guys do go look at anything on my Instagram or YouTube, look for this chart. In San Francisco, come May, all of a sudden everybody started listing their house for sale. That’s what the title says, that, “San Francisco Exodus is real and historic report shows.” In May, people start listing their houses. This graph completely spikes up. By end of July, it says there’s twice as many houses on the market in San Francisco than there was pre-COVID.

Everywhere in the country is having real estate inventory issues, but not in San Francisco, everyone is trying to sell their house in San Francisco and they aren’t selling fast. There’s an Exodus from that city for a variety of reasons. I’m sure there’s a lot of tech companies there that have now told people they can work from home. Why would you pay a ton of money to live in San Francisco to go work at your company if you can live in a less expensive place? I’m sure it wasn’t the greatest place to quarantine. It was a very strict area plus they have all sorts of political stuff going on.

The Exodus is real. They made some interesting decisions over the last couple of years there, and it has hit harder in COVID than any other time. Of all the big cities in the country, San Francisco is the only one that has these huge spikes and inventory available. There’s twice as many people trying to sell their house today in San Francisco than there were just six months ago. That is pretty crazy. That data was released from Zillow. If you check that out, the article’s also SFGATE.

Aaron: Next article. This one just came out yesterday. It came out on Politico, it did come out yesterday and it says, “HUD to extend foreclosure ban protecting 8.1 million people until 2021.” Now, I have to tell you, I read the article that they said, that’s a big of ahead, that’s a huge headline. That they are going to extend the foreclosure moratoriums. I think most of you guys know and have heard as real estate experts, the last few months they’ve said, “Hey, no foreclosures.” Any government backs, Fannie Mae, FHA loan, there’s been a foreclosure moratorium. They have not been able to evict or foreclose on those. That is set to expire on the last day of August this month. That’s set to expire in 11 days.

What we’ve seen there still have been foreclosures, but they’ve all been business hard money type loans and everything else has been slowed down to almost nothing. You look at this article says, “HUD to extend the foreclosure ban”, and in here they says they had a department of housing, urban development, “We’ll extend it ban on evictions and foreclosures for homes backed by FHA. Administration officials told Politico.” Now, I want you to take that with a grain of salt because I haven’t found any other news sources to confirm that. I’ve tried to find four or five others.

Politico is saying, they’re the only ones that know it, that the administration officials told them but then they use a quote that I did hear. It said, “The Trump administration is looking at using local authorities to extend release through the calendar year.” Also, that doesn’t really say what that relief is that includes funds, as well as moratoriums on foreclosures and evictions. I’m not sure if it really is going to extend the ban on all FHA or not, but that is what Politico is setting. Now, I did a little bit of statistics research for everybody though, for that. We managed a lot of foreclosures in Texas.

We track all the foreclosures in Texas. I think what happens in Texas, looks a lot like what happens in the rest of the country. Right now, in Texas, there’s probably 15,000 to 20,000 foreclosures that are in a shadow inventory. Those are foreclosures that would have sold during a normal market that right now have not sold because of those moratoriums. Now, in Texas, every month, 40% of the postings are FHA. If a thousand houses are scheduled for foreclosure, 400 of them are FHA.

Now, what’s funny though, is on the sold side, the percentage goes down a little bit. Of the houses that sell only 30% are FHA. What does that tell you? It says, “If there truly will be a ban on FHA foreclosures, if they truly do extend the moratorium, then that still means that 60% of the normal postings will get posted and 70% of the normal postings will actually start going to sale again.” Which is a big change from what we saw and when you have six months of inventory built up, 60% to 70% of that number is still much higher than we’ve seen in a one-month period in years, since 2012.

Again, that was an article that came out, keep on the lookout for that. That may be able to get confirmed, it maybe something that goes into play, just trying to give you guys a heads up. If you have FHA clients out there that are in these situations where they are behind trying to sell their house right now, worried, it looks like there is a chance. Politico says, “It is certain.” I haven’t seen it anywhere else but, “FHA foreclosures will be banned until January 1st.” That will be a little over prev for 8.1 million people.

Now, I have another article that goes right in-line with this. This one came out two days ago, this was Prashant Gopal, at bloomberg.com and that highlight says, “FHA mortgage delinquencies reached a record.” “Reach a record,” it says, “The share of late FHA loans rose to almost 16% in the second quarter, up from 9.7% in the first quarter and the highest level ever recorded,” and they started these records back in 1979. What does that really tell you? FHA mortgage delinquencies reached a record level, led by New Jersey.

If you have 16% of FHA loans are in default, and it’s the highest ever. That means there are more people that aren’t paying their FHA loans than stop paying in 2007, 2008, 2009, absolute housing crash, foreclosures everywhere. There are more people today, that haven’t paid their mortgage. That is something to keep an eye on, we’ve mostly had great, great real estate news the last six months but now we’re starting to see a few little adjustments that I want you guys to pay attention to.

Again, especially if you’re in a market where there’s a lot of FHA-priced homes or if you have FHA-priced clients. If you focus on new home buyers, then you need to be paying attention to this. I also believe that if they shut down FHA foreclosures it is going to be tougher for lenders to lend on FHA loans, and I also see more stringent things coming in requiring overlays with higher credit scores and things like that.

A common question I got when I post this online was, “Well, what about the people in forbearance?” Yes, this does include the people in forbearance, but there was also a forbearance in 2009 and 2010. There were lots of different workouts going on back then, that allowed people to not pay their loan and work it out for modifications. We’re still the highest level ever. Another thing about forbearance is you have to remember that means there’s a lot of people that are just not paying their mortgage.

Now, they may get a workout and in a month, the banks may say, “Okay, we’re going to work it out now, and you don’t have to pay the last six months. You don’t have to pay us the $10,000 you owe us, we’re going to tack it on to the back of the loan.” That will be really, really nice but the other thing that people have to remember is if somebody starts getting used to not paying their housing bill, it’s really hard to start paying that bill again. It’s still their biggest bill.

People live every month and spend every month as if they– Without the housing bill, it’s like they have extra money. When all of a sudden they start living on- You guys all know it’s so hard to live below our means. So many people live through whatever they make. They spend whatever they make, and if they’re not paying their mortgage, they spend whatever they make. If all of a sudden they have to start paying that mortgage again, that’s a tougher adjustment.

If you have FHA buyers right now or FHA sellers, try to tell them to be careful with their finances. Especially sellers, if they are in these forbearance periods, tell them to hang on to their money and spend as if they are paying their mortgage even if they’re trying not to. That is a big one on there. Now, along the same- Let me see, there was a mortgage article. Some of those statistics. I want to jump over now. There’s mba.org 2020 Press Release, this came out August 17th.

This is where Prashant got some of the data for his article. It says, “Mortgage Delinquencies Spike in the Second Quarter of 2020“, and it talk about the delinquency rate increased 386 basis points and 369 from a year-over-year. One of the interesting things I saw in this article is the fourth paragraph down, it says, “There was also a movement of loans to the later stages of delinquency, with the 60-day delinquency rate reaching a new survey high and the 90-plus day delinquency rate climbing to its highest level since the third quarter of 2010”.

Any of you people out there that are in real estate know that the second quarter, third quarter of 2010 was crazy. We had a lot of foreclosures on the market, it was very difficult to buy a house and the housing prices were falling every month. That was a crazy, crazy time and this is saying the people that are 90-days late, people that haven’t made more than three payments, 90-days behind. Now in states like California, it takes 90-days behind to actually get foreclosed on, in Texas you have to be behind three weeks. In California, you have to be behind three months for those foreclosure proceedings to start.

Again, the number of people that haven’t paid their mortgage for 90-days is climbing to its highest level since the third quarter of 2010. That’s a lot, 90-day delinquencies, third-quarter 2010, it was only worst those months and years just prior to that. Keep an eye on foreclosures, especially FHA-based foreclosures and then some of those 90-day states where they had their people that are 90-days behind, they do not catch up very often. They can sell their house, most of those people do have equity, they need to sell their homes and capitalize that equity. As agents you can find those people with equity that are in default and help them sell their house, that creates a win-win.

Is it all bad news? It’s not all bad news. There’s another article that came out just a few weeks ago and it says, “US homeownership rates soars the highest level since 2008.” Same author, Prashant Gopal, “Us homeownership rate led by young buyers are the highest rates since 2008, signaling the housing boom underway before the pandemic has only accelerated.” There’s some good news out there too, right? The homeownership boom. That’s saying the number of people that actually own their home is the highest it’s been.

“The rate was 67.9 in the second quarter, it was a forced rate increased, climbed to 65.3 in the prior months.” Let me see what that 67.9 is. 67.9 the quarterly homeownership rate. I don’t know if that’s going to people that can buy their house, but it’s showing this historical chart here and in 2019 it was at 64, in 2016 it was at 63. It hasn’t been at this level, the 67.9 level, since 2008. Again 2008, coming right off of the peek, the highest level was around 69% at the peek of the US real estate market in 2005. Some good news out there too, US, there are more people today that own their homes than have over the past four or five years as we get to look at that.

Aaron: All right. The next second, I got to refresh this article. It was asking me to log in Bloomberg. It says “Catskills town leads us and rising home prices with the New York City Exodus.” What do we think about that? We just talked about the Exodus is from San Francisco. We’re not super surprised that there was an Exodus in San Francisco or maybe we were, but those statistics were wild as saying something similar was happening in New York City. A lot of people are leaving New York City and it says, “The the people that are getting it is a small Catskills town near New York”.

Says, “The picture has Hudson Valley town, north of New York City, as the fastest rising home prices in the US.” I know a lot of our listeners live in that area. I know a couple of people that I recently interviewed on the podcast live in that area, just north of New York. From the typical home in Kingston New York and now on the receiving end of the Exodus from the densely packed city.

A normal house sold for 276,000 the second quarter, an 18% jump year over year. I would say if we’re probably looking at the third and fourth quarters statistics, it’s going to go up even higher. The agent interviewed here says, “Every single deal I have is someone from Brooklyn or Manhattan, said Amy Crossfield, a Kingston agent and a former Brooklynite. You have bidding wars, cash offers, and people rushing to put an offer the day something comes on the market”.

Agents out there, we’ve been talking about this for a while. You guys are probably already taking advantage of this, but I think there’s going to continue to be a boom in these small areas, just outside the urban core. If you can find those areas, if you can find leads, your prospective buyers are going to be the people that are moving from the city.

If you’re going to find a place just outside of Austin, if you want to start marketing those houses that are $150,000 that are 30-minute drive from Austin, you want to market to the people that live in Austin. I saw an ad in the real estate market here in Austin that talked about having so much space to be able to live in a safe COVID world. It’s like, “Hey, there’s 50 acres close to Austin, so you could still get the lot resources, get to the airport, but you can live in the middle of nowhere without having any neighbors and feel very, very safe”.

I’ll tell you, that’s what these people are marketing and that’s what’s happening. If you find affordable cities, they’re getting two for one. I think we would see the same thing with so many of those people that are leaving San Francisco. They’re going to move from cities that are really, really expensive and move to outskirts where they have a little bit more space or it might be a little bit easier to quarantine, might be a little less risk of future viruses, and they’re going to save a heck of a lot of money.

Just a couple left as we fly through today’s issue at today’s episode of State of the Market. This is something we’ve been talking about for six months. This is non-COVID, non-quarantine related, some really fun real estate news. It says, “NAR and MLS has strike back against antitrust suit over the pocket listing policy.” There was a company called Pocket Listing Service, pls.com, out of the out of California. That’s run, or one of the guys that’s part of that is one of the guys from Million Dollar Listing that we’ve actually interviewed on our site before, on our Real Estate Rockstars podcast.

I don’t know what month it was now. It feels like in February, somewhere around February, the MLS and the realtor decided that they were going to make util it can no longer have pocket listing. Do you guys remember that? The article came out, no pocket listings. If you were going to get an offer on a house, you were going to have to put it on the market within like 24 hours.

Pat and I got on here and we talked about that new law on the State of the Market podcast as that was coming out. Then, we also talked about the pocket listing service. This new company was coming out, and that’s what they’re focusing. High-end buyers saying, “Hey, you don’t have to market through the MLS, we’ll take it. We’ll market to people. We’ll save money on some of those commissions”.

When the realtor organization said, “You can no longer have pocket listings”, pls.com filed a lawsuit. It says, “The controversial rule is effectively the end practice of publicizing listings for days or weeks without making them universally available to other agents, in part to address fair housing concerns. The clear cooperation policy implementation was made first, and then some MLS has instituted half the fines to enforce it”.

We also had some stuff on the news about that. Some MLSs charging $1,000 or $1,500 a day if they find out that someone was marketing a property, not on the MLS. I also know I’ve been getting a lot less wholesale emails. I used to get a lot of wholesale emails from wholesale companies saying, “Hey, I have this off-market property and I wonder what they’ve been doing, and maybe within 24 hours they were putting it on the MLS instead”.

It’s amended complaint, pls.com. This is Pocket Listing Service. They’ve sued, it says, “National Association of Realtors, they’ve sued NAR. They alleged NAR controls competition in the real estate brokerage industry through realtor-affiliated MLSs and has used its control over MLSs to exclude new and disruptive market entrance to the benefit only of NAR members”.

The Pocket Listings Services are saying, “Hey, that’s not fair. If you’re saying we’re not allowed to sell it, that’s unfair monopoly. Those are unfair practices that only realtors get to benefit from.” The complaint further continues to allege, NAR saw the pls.com, which the complaint says operated the largest network of licensed real estate professionals with market listings, and they’re saying, “Hey, they saw us as a competitive threat so the claim is that the National Association of Realtors actually made that law to stop them from competing.

That is a monopoly-type suit that they’re alleging there. They’re saying, “Hey, they’re trying to monopolize against us. They thought we were competition so they made a law against it, knowing that they would be making that law against a bunch of agents. Then the NAR and multiple listing services, they filed motions against that saying that they aren’t the ones being unfair. It is far more likely that the policy benefits buyers and sellers by increasing access to information thus increasing market stimulation.

I don’t know what’s going to happen there. It’s been a really interesting thing to follow over the last six months and it’s refreshing to actually have some news that isn’t COVID quarantine craziness related. Let me know what you think about that one. Our listeners, our agents. Our listeners are licensed agents, do you think the pocket listing rule, do you think it’s fair? Do you think you should not be allowed to market something off the market? Do you think you have to put it on MLS? Is that fun? Is that fair the way they’re doing it?

Couple last articles, “Luxury market shows signs of recovery as home prices rise. A new Redfin report.” This is from Inman, says, “The median price of a luxury home in the US is 825,000, and that’s up a little bit year over year. A median luxury home costs 825,000, that’s a slight increase from the same time period last year.” Now, they go through and they have a chart showing the dipped way down and now it came back up. It shows that between August of last year and January of 2020, prices had gone way up.

Then it shows that the prices dropped significantly during quarantine COVID these last five, six months, but then over the last month have dropped back up. It’s saying it’s increased year over year. It’s just gotten back to where it was a year ago, but it still is not where it was in January. I would say pay attention to the data and fact check everything, because they’re saying it’s showing signs of recovery, that might make you think that it has recovered, especially when they say, “Hey, the price is up year over year, but the price is still way down compared to where it was in January”.

All right, last article, this one is pretty interesting. This is a mortgage article on inman.com. It says, “Feds proposed new mortgage category. Consumer Financial Protection Bureau believes season QM mortgages will spur innovation, but not everyone is convinced they’re a good idea. The federal government announced this week that it wants to create a new mortgage category that will spur innovation. Our critics argued proposal could contribute to predatory lending.”

“You could see a creation of a season-qualified mortgages or seasoned QM. A qualified mortgage generally is a loan that is considered stable and on which the lender worked to ensure that the borrower could make payments. This is, these are the gold standard housing loans. Under the new proposal, such loans could become seasoned QM after three years called a seasoning period on a lender’s balance sheet. However, qualify loans would also have fixed interest rates and they’d have to be first lien, or in other words, the primary loan.”

I think that what that’s saying is, if someone has been paying their mortgage on time for three years, now they’re not just a qualified borrower, but now they’ve also paid their mortgage on time and now it says, “No more than two 30 day delinquencies and no delinquencies of 60 or more days.” Now, that’s lenient. That’s more lenient than I was expecting, actually, it’s saying, “Hey, you could only be 30 days late twice and still be considered seasoned”.

I would have said to be seasoned like that there’s no late payments. They’re saying, “All right, no more than two 30 day delinquency, you can be considered a seasoned qualified mortgage.” That would be somebody that has proved over the last three years they have the ability to pay on the loan, and as a result, they could qualify for different lending, different resale throughout the lone network out there.

It says, “QM says a disaster or pandemic such as the current coronavirus we’re getting a temporary payment accommodation, an apparent reference to the mortgage forbearance program that become widespread this spring and summer. Lenders will need to verify their borrower debt to income ratio. However, loans will not be disqualified from seasoned QMs.

It’s saying, “Hey, to be a seasoned QM you have to make your payments for three years”, but if something happened like this, like COVID, and then you weren’t able to make your payment, they wouldn’t count that against you. I don’t know what we’ll see, what will happen slowly by the virtue of staying current, it says, “In the proposal we’ll ultimately confer qualified status on non-qualified loans.” These could be people that got loans that weren’t necessarily conforming at the beginning, they made their three years of payments. It’s funny that they can make them now qualified solely by the virtue of staying current-ish for three years, by having no more than 30 days. Funny thing to see there, it’s been a while since they added a new category on the federal mortgage.

That is today’s State of the Market episode. It’s me, Aaron Amuchastegui, I hope you guys got some value out of that as you listen. I hope you’ve had a fun month listening to all of our podcast episodes. If we are adding value out here, please share the podcast, tell your friends about it. We want to give you actionable news out there. There was some really fun interesting stuff today, a lot of stuff we’ve been hearing about. Some evidence and statistics behind the Exodus, from people leaving San Francisco and leaving New York. I hope you guys listened to that a little bit and thought, “Hey, I should target on people leaving those areas and buying in this other market just outside there. All the big cities around the US have smaller towns outside that people are leaving to.

We talked a lot about foreclosures, defaults, moratoriums, and the Fannie Mae loans, like how many FHA loans. There’s more in default than we’ve ever had before. They also may postpone foreclosures for the FHA loans until January. Again, Politico is the only one that has that article, I want you to keep looking at the news and I will keep looking at the news for you and tell you more about it next week if I’m able to fact-check that and confirm it.

Hopefully, you guys are having an awesome week as you go in to your weekend. August is almost over. People’s kids are going back to school, some are going back to school, some are wearing masks, some are working from home, but our summer season is about to change. I think it’s going to be a really interesting time the next month or two in real estate, because we’re about to have an election, people are going back to school and most of the time this is when selling seen and buying slows down.

People want to buy a house before the school year starts. I think the rules are a little different this time because people are buying a house before a school year starts, but if the school year is starting remotely, and the school year is starting working from home, maybe we don’t have the same deadlines we had before. If you have any comments about that, comment below on the video, on the podcast, send me a message, find me @aaronamuchastegui on Instagram or @rerockstars on Instagram. We’re also on Facebook and just about everywhere else.

Find all our podcasts at hibandigital.com. Don’t forget right now we’re still doing crazy discounts on our Rebus University training classes. If you are a new agent or an agent looking to get an edge, we have a variety of classes on there that will help you succeed and thrive during this time. All right, thanks for listening to State of the Market, we’ll talk to you next week.