On Thursday,RealtyTrac, a private marketer of foreclosure properties, reported that banks could repossess more than one million households this year due to foreclosures, while the Federal Deposit Insurance Corporation (FDIC) reports about 612,000 loans entered foreclosure in the first quarter of 2010. ``Based on recent trends’’ a FDIC spokesperson said,`` it looks like a safe bet that the annual total will once again be between two and three million this year.’’
And keep in mind that if wasn’t for the 600,000 and 700,000 who applied for the Home Affordable Modification Program (HAMP) in the first four months of the year, the foreclosure rate could easily have been much higher without the modifications.
So as a way to examine the U.S. housing market over the last decade, I compiled a brief timeline of key moments and contributing factors that led to its precipitous fall.
• Industry analysts contend the growth of the subprime lending debacle was precipitated by two pieces of legislation, which liberalized home buying loans: Depository Institutions Deregulation and Monetary Control Act (DIDMCA) of 1980 (abolishing interest rate ceilings); and the Alternative Mortgage Transaction Parity Act (AMTP) of 1982, which allowed for the total costs of loans to become obscured, and led to the availability of various new mortgages, such as adjustable rate mortgages (ARMs), interest only mortgages, and balloon payment mortgages
• Technically, mortgage “default” occurs when a borrower has missed three payments and a fourth is due. The default leads lenders to initiate the foreclosure process.
• Data from the U.S. Census Bureau’s Housing Vacancies and Homeownership Survey (CPS/HVS) reported that the national homeownership rate rose from 65 percent at the end of 1995 to a record 69 percent at the end of 2005.
• During the 1990’s, home prices rose at an average annual rate of slightly less than three percent. From 2000 through 2006, by comparison, home prices jumped nationally by an average of nearly nine percent.
• In 1998, the Chicago-based National Training and Information Center (NTIC) noted a sharp increase in foreclosures, linking the alarming rise to the increase of subprime lending in minority neighborhoods in Chicago.
• The share of subprime loans nearly tripled from 7.2 percent in 2001 to 20.1 percent in 2006.
• Subprime mortgage originations increased from $160 billion in 2001 to $625 billion in 2005.
• The share of subprime mortgages that were seriously delinquent increased from about 5.6 percent in mid-2005 to over 23 percent in September 2008.
• Between 2000 and 2003, home prices increased by 41 percent.
• In 2000, the Department of Housing and Urban Development (HUD) published a report, documenting “the rapid growth of subprime lending during the 1990s” and called for increased scrutiny of subprime lending due to “growing evidence of widespread predatory practices in the subprime market.”
• The housing boom first begins to slow in the middle of 2005, when mortgage rates rise and house price appreciation first began to slow. Nonprime lending leveled off in 2006, dropped dramatically in the first half of 2007, and became practically nonexistent through most of 2008.
• Existing home sales fell nationwide by 29 percent from the 4th quarter of 2005 to the 4th quarter of 2007.
• As measured by the S&P/Case-Shiller Home Price Indices, home prices rose at an average annual rate of 11 percent from 2000 through 2005, stagnated, and then fell at an average annual rate of 10 percent from mid-2006 to mid-2008
• In 2006, Miami posted an average home price increase of 17.1 percent; Los Angeles 16.1 percent; and Las Vegas 14.0 percent.
• December 19, 2006, The Center for Responsible Lending (CRL), estimated (based on forecasts by Moody’s Economy.com) that more than one million recent subprime loans would end in foreclosure, carrying with it the potential of producing the worst foreclosure crisis in the modern mortgage era.
• According to the State of the Nation’s Housing Report from 2006, researchers from the Joint Center for Housing Studies observe the combination of rapidly rising home prices and interest rates had eroded the affordability of homeownership.
• In 2007, the number of prime loans entering foreclosure nearly doubled to about 500,000; by 2008, it had exceeded 850,000.
• On February 24, 2007, The Daily Telegraph was one of the first newspapers to report on the housing crisis, carrying the headline, ``US Mortgage Crisis Goes into Meltdown ; followed by The New York Times on March 5, 2007: “Mortgage Crisis Spirals, and Casualties Mount ; and USA Today on March 13, 2007: ``Record Foreclosures Hit Mortgage Lenders,”
• With the start of the national foreclosure crisis in 2007, the number of states with foreclosure start rates above 0.50 percent increased dramatically, reaching 35 in 2007 and 46 in 2008.
• 48 states report an increase in the foreclosure start rate between 2006 and 2007, according to the MBA’s National Delinquency Survey, but interestingly enough, over this same time period, only 16 states had an increase in the unemployment rate, and in 10 of these states, the increase was 0.2 percentage points or less.
• Ohio, Michigan, and Indiana were the first states to report significant increases in delinquency rates, rising to 14 percent at the beginning of 2007, well above the 8.5 percent delinquency rate nationally.
• June 8, 2007: Economists at the Federal Reserve Bank at San Francisco define ``subprime’’ as a lender-given designation for borrowers with low credit scores with low credit history, or with other types of observable credit impairment.
• July, 2008: The Housing and Economic Recovery Act authorized the Federal Housing Authority to guarantee up o $300 billion in new 30 year-fixed-rate mortgages for subprime borrowers.
• The Mortgage Bankers Association estimated that roughly 1.7 million foreclosures were started in the first three quarters of 2008, an increase of 62 percent from the 1.1 million in the first three quarters of 2007.
• As of mid-2008, over half of borrowers in California, Florida, Arizona, and Nevada, over a third of borrowers in Ohio, Michigan, and Indiana, and over 10 percent of borrowers in the rest of the United States had negative equity.
• Approximately 26 percent of 2006 subprime mortgage originations and 18 percent of 2007 subprime mortgage originations in California, Florida, Arizona, and Nevada were in default by the middle of 2008.
• RealtyTrac reported that more than 573,000 properties nationwide were in some stage of foreclosure in the first half of 2007.
• Between February through March, 2007, more than 25 subprime lenders declare bankruptcy.
• July 31, 2007: Two Bear Stearns hedge funds file for bankruptcy
• 46 states saw home prices fall in the 4th quarter of the 2007.
• Homeownership rates fell 67.9 percent in the third quarter of 2008.
• From August, 2007 through August, 2008, home prices in Miami declined by 28.1 percent, Los Angeles by 26.7 percent; and Las Vegas by as much as 30 percent.
• September 7, 2008-U.S. seizes Fannie Mae & Freddie Mac, two of the largest mortgage finance lenders
• Subprime mortgages accounted for less than five percent of total originations in 1994; in 2000, their share increased to 13 percent; and topped 20 percent in both 2005 and 2006. Their shared dropped to 7.9 percent in 2007 and shrank to less than one percent in the third quarter of 2008.
• In 2008, median home prices fell 9.8 percent from the previous year.
• November 12, 2008: The U.S Dept of Housing and Urban Development began to require mortgage lenders and brokers to provide borrowers with easy to read standard of good faith estimates (GFE) that will clearly answer key questions they have when applying for a mortgage. The new standardized GFE takes effect January 1, 2010.
• July 15, 2010: RealtyTrac, releases its 2010 U.S. Foreclosure Market Report, which shows a total of 1,961,894 foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 1,654,634 U.S. properties in the first six months of 2010, a five percent decrease in total properties from the previous six months but an eight percent increase in total properties from the first six months of 2009. The report also shows that 1.28 percent of all U.S. housing units (one in 78) received at least one foreclosure filing in the first half of the year.
• Nearly six percent of all Nevada housing units (one in 17) received at least one foreclosure filing in the first half of 2010, giving Nevada the nation’s highest foreclosure rate during the six-month period despite decreasing foreclosure activity.
• Arizona registered the nation’s second highest state foreclosure rate in the first half of 2010, with 3.36 percent of its housing units (one in 30) receiving a foreclosure filing, while Florida registered the nation’s third highest state foreclosure rate, with 3.15 percent of its housing units (one in 32) receiving a foreclosure filing during the six months.
• July 15, 2010: Congress passes the Dodd-Frank Wall Street Reform and Consumer Protection Act. Changes relating to mortgage reform, include:
1.) Prohibits the financial incentives for subprime loans that encourage lenders to steer borrowers into more costly loans, including the bonuses known as "yield spread premiums" that lenders pay to brokers to inflate the cost of loans. Prohibits pre-payment penalties that trapped so many borrowers into unaffordable loans
2.) Establishes penalties for irresponsible lending.
3.) Establishes an Office of Housing Counseling within HUD to boost homeownership and rental housing counseling.
4.) Lenders must disclose the maximum a consumer could pay on a variable rate mortgage, with a warning that payments will vary based on interest rate changes
5.) Establishes an Office of Housing Counseling within HUD to boost homeownership and rental housing counseling
Source: ``Report to Congress on the Root Causes of the Foreclosure Crisis’’ from the U.S. Department of Housing and Urban Development Office of Policy Development and Research, January 2010; “The Rise in Mortgage Defaults,” from the Journal of Economic Perspectives 23 (1): 27–50; ``The Rise and Fall of the U.S. Mortgage and Credit Markets'' By James R. Barth (Milken Institute); RealtyTrac; U.S Senate Banking Committee Report