California Pending Sales Bounce Back; Potential Turning Point

The index tracking pending home sales in California jumped 22.9 percent in January to 84.8 from 68.9 in December.  This was the first increase in the Pending Home Sale Index (PHSI) which is based on signed sales contracts, in three months.

While the monthly increase could be viewed as an encouraging sign for spring, pending sales were 17.5 percent below the PHSI of 102.8 one year earlier.  This was the fifth straight annual double-digit drop in the PHSI. 

 "We're starting to see a turning point in the market as we approach the spring homebuying season.  Home sellers realize that home prices are holding steady and are gearing up for the upcoming season by listing their homes for sale, while prospective home buyers are getting more comfortable with stabilizing home prices and interest rates and are entering the market," said C.A.R. President Kevin Brown.

There was an increase in inventory across all property types.  The Unsold Inventory Index for equity properties increased from 3 months in December to 4.4 months in January and the supply of bank-owned real estate (REO) listings climbed to 3.2 months from 2.8 months.  There was a 4.6 month supply of short sales 3.2 months in December

Equity or non-distressed home sales constituted more than 80 percent of sales for the 7^th straight month although their share dipped from 84.5 percent in December to 84.4 percent.  This is a strong comeback from January 2013 when equity sales had a 64.2 market share.

Short sales had a 9.2 percent market share, less than half the 21.2 percent share of a year earlier and down slightly from 10 percent in December.  Sales of bank-owned real estate (REO) inched up to 5.9 percent from 5.0 percent in December.  Those sales had a 14.2 percent share in January 2013.

Mortgage Purchase Apps not Living up to Historical Standards

Applications for mortgage refinancing made up only 58 percent of all mortgage applications during the week ended February 21, down 3 percentage points from the previous week and the lowest market share since last September.  According to the Mortgage Bankers Association (MBA) its Refinancing Index was 11 percent lower than the week ended February 14 and almost all other application volume markets fell as well.

Refinance Index vs 30 Yr Fixed

MBA's seasonally adjusted Market Composite Index which measures all application volume was down 8.5 percent and the unadjusted index fell 7.0 percent compared to the previous week.  The seasonally adjusted Purchase Index declined 4 percent from the previous week to its lowest level since 1995.  Purchase applications rose a slight 0.1 percent from a week earlier but were 15 percent below where they were during the same week in 2013.

"Purchase applications were little changed on an unadjusted basis last week, but this is the time of a year we would expect a significant pickup in purchase activity, and we are not yet seeing it," said Mike Fratantoni, MBA's Chief Economist.

Purchase Index vs 30 Yr Fixed

Contract rates for all fixed rate mortgages returned to mid-January levels and effective rates all increased.  The average contract rate for 30-year fixed-rate mortgages (FRM) with conforming loan balances ($417,000 or less) increased to 4.53 percent from 4.50 percent, with points increasing to 0.31 from 0.26

The rate for jumbo 30-year FRM (balances greater than $417,000) increased to 4.47 percent.  Points increased to 0.13 from 0.11

Average rates for the 30-year Fixed backed by FHA was up one basis point from the previous week to 4.17 percent.  Points increased to 0.20 from 0.14.

Fifteen-year FRM had an average rate of 3.56 percent with 0.28 point.  The previous week the average was 3.55 percent with 0.33 point.

The average contract interest rate for 5/1 adjustable rate mortgages (ARMs) decreased to 3.17 percent from 3.20 percent, with points decreasing to 0.31 from 0.38 and the effective rate decreased.  The ARM share of the market remained unchanged at 8 percent.

MBA's Weekly Mortgage Application Survey has been conducted since 1990.  Respondents include mortgage bankers, commercial banks and thrifts. Base period and value for all indexes is March 16, 1990=100.  Contract and effective rates are quoted for loans with 80 percent loan-to-value ratios and points include the origination fee.

CFPB Fines Lender for Fee Splitting

A Connecticut lender has been fined $83,000 by the Consumer Financial Protection Bureau (CFPB) for violating Real Estate Settlement Procedures Act (RESPA) rules.  1^st Alliance Lending, LLC apparently realized it had illegally split real estate settlement fees and notified CFPB on its own of the infraction.

The East Hartford company buys distressed mortgage loans from servicers and then attempts to refinance those loans into new ones with lower principal balances through federally related mortgage programs.  1^st Alliance initially obtained its funding from a hedge fund and split revenues and fees with the hedge fund's affiliates.  In 2011 1^st Alliance ended the financing arrangement but continued to split origination and loss-mitigation fees with the affiliates, a violation of RESPA which  bans a person from paying or receiving a portion or split of a fee that has not been earned in connection with a real estate settlement.   Fees were shared for 83 loan originations between August 2011 and April 2012. 

In 2013, 1^st Alliance reported to the Bureau that it believed it had violated RESPA by paying these unearned fees.    CFPB said that 1^st Alliance cooperated with the Bureau's investigation and provided information related to the conduct of others, facilitating other enforcement investigations.  The lender's self-reporting and cooperation were taken into account in determining that it would pay an $83,000 civil money penalty

"These types of illegal payments can harm consumers by driving up the costs of mortgage settlements," said CFPB Director Richard Cordray. "The Bureau will use its enforcement authority to ensure that these types of practices are halted. We will, however, also continue to take into account the self-reporting and cooperation of companies in determining how to resolve such matters."

Fannie Offers REO Incentives to Owner Occupants

Starting tomorrow Fannie Mae will offer some homebuyers a special incentive to purchase through its HomePath program which the company uses to market foreclosed properties.  There are several restrictions on eligibility, but those qualifying can receive up to 3.5 percent in closing cost assistance. 

First, the property must be located in one of 27 eligible states.  Second, the house must be in HomePath's FirstLook period - a 20 day window during which only owner occupants are eligible to submit an offer on the property, giving them the opportunity to purchase without competition from investors.  The offer must be an initial one and submitted between February 14 and March 31, 2014.  The transaction must close before May 31, 2014.

"This incentive will provide more opportunities for families to find a property to call home," said Jay Ryan, Vice President of REO Sales.  "Our goal is to sell as many HomePath properties as possible to owner-occupants who will stabilize neighborhoods and help the housing recovery." 

Qualified buyers can receive up to 3.5 percent of the final sales price to pay closing costs which, Fannie Mae says, could also include buying down the mortgage interest rate through upfront points, resulting in additional savings over time.

The 27 states where the incentive is available are: 

Arizona	Maryland	New Mexico
California	Massachusetts	Ohio
Florida	Michigan	Oregon
Idaho	Minnesota	Puerto Rico
Illinois	Missouri	Tennessee
Indiana	Nebraska	Virginia
Iowa	Nevada	Washington
Kansas	New Hampshire	West Virginia
Maine	New Jersey	Wisconsin

Mortgage Delinquencies Below 4% For First Time in 6 Years

For the first time in six years the mortgage delinquency rate has dropped below 4 percent TransUnion said on Wednesday.  Nationally, 3.85 percent of mortgages were past due for 60 days or more in the fourth quarter of 2013, a 5.9 percent decline from 4.09 percent in the third quarter.  The fourth quarter rate was down more than 24 percent from the rate one year earlier of 5.08 percent and it was eighth consecutive quarter the rate had declined on a year-over-year basis.

Every state and the District of Columbia saw an annual decrease in its delinquency rate in the fourth quarter.  In all but two, New Jersey and New York where rates fell by 9.7 and 8.5 percent respectively, those declines were in double digits.  The largest percentage drops were in Arizona where the delinquency rate fell from 5.11 percent to 3.14 percent (-38.6 percent) and California from 4.92 percent to 3.06 percent (-37.8 percent).  Nevada delinquencies remain well above the national average but the state posted the third largest annual net change, -34.7 percent, as its rate fell from 9.98 percent to 6.52 percent.

"It's encouraging to see the mortgage delinquency rate drop for two consecutive years, but at the same time, mortgage delinquencies continue to be twice as high as levels observed prior to the housing bubble," said Steve Chaouki, head of financial services for TransUnion. "The housing market also still shows some volatility, with both housing prices and originations dropping in the latter part of 2013 after experiencing improvements in the first part of the year."

The number of active mortgage accounts in TransUnion's data base continued to shrink in 2013, from a recorded 53.85 million mortgage accounts in the fourth quarter of 2012 to 52.84 million accounts at the end of 2013.  There are more than 10 million fewer accounts than in the fourth quarter of 2008 - 62.85 million.

"New account originations have declined significantly in recent quarters," said Chaouki. "This is primarily related to recent spikes in interest rates, particularly in the refinance market. Additionally, continuing tight lending standards remain a factor in some sectors of the market."

Viewed one quarter in arrears (to ensure all accounts are included in the data), new account originations dropped from 2.29 million in Q3 2012 to 1.95 million in Q3 2013. Interestingly, the non-prime population (those consumers with a TransUnion proprietary credit score below 700) did see an increase in their share of originations, rising from 5.55% in Q3 2012 to 6.61% in Q3 2013.  Still, non-prime account originations remain well below those observed just six years ago (16.26% in Q3 2007).

The company expects delinquencies to continue downward into the first quarter of 2014, with the 60 day rate reaching 3.70 percent by the end of this quarter.  "Mortgage loans originated in the last few years have significantly higher credit quality than those originated prior to the recession, with delinquency rates that resemble those seen seven to 10 years ago," said Chaouki. "As older mortgages continue to slowly exit the system, the industry will experience continued declines in mortgage overall delinquencies."

Mortgage Applications Drift Lower as Rates Pull Back

Mortgage application volume continued to drift during the week ended February 7.  The Mortgage Bankers Association (MBA) said that its Market Composite Index, a measure of that volume, was down 2.0 percent on a seasonally adjusted basis from the week ended January 31.  On an unadjusted basis the index increased 0.3 percent.

The Refinance Index was down 0.2 percent.  Applications for refinancing maintained a 62 percent share of all application activity, the same as in the two previous weeks.

Refinance Index vs 30 Yr Fixed

The seasonally adjusted Purchase Index was down 5 percent from the week before and the unadjusted index was up 1 percent.  The unadjusted index was 13 percent below its level during the same week in 2013.

Purchase Index vs 30 Yr Fixed

Except for FHA-backed mortgages interest rates inched down slightly.  The average rate for the FHA 30-year fixed rate mortgage (FRM) rose 1 basis point to 4.13 percent.  Points decreased to 0.10 from 0.15.

The 30-year FRM with conforming loan balances (417,000 or less) averaged 4.45 percent with 0.34 point compared to 4.47 percent with 0.25 points the week before.  This was the sole product for which the effective rate increased.

Jumbo 30-year FRM, loans with balances above $417,000, had an average contract rate of 4.40 percent, down from 4.42 percent.  Points increased to 0.14 from 0.11.

The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.49 percent from 3.53 percent, with points decreasing to 0.25 from 0.28

The average contract interest rate for 5/1 adjustable rate mortgages (ARMs) decreased to 3.11 percent from 3.15 percent, with points decreasing to 0.31 from 0.41 The adjustable-rate mortgage (ARM) share of mortgage applications increased marginally to 8 percent.

MBA's Weekly Mortgage Applications Survey covers 75 percent of the U.S. retail residential mortgage market and has been conducted since 1990.  Respondents include mortgage bankers, commercial banks, and thrifts.  The base for indexes is March 16, 1990=100 and mortgage rates are based on loans with an 80 percent loan to value ratios.  Points include the origination fee.

Despite new Regs Credit Eased in January

There are competing forces at work in the mortgage market the Mortgage Bankers Association (MBA said today.  First, lenders are still adjusting to the new Qualified Mortgage (QM) rules that went into effect last month.  This is leading them to eliminate some mortgage products.  At the same time there is some loosening in private market credit avenues.  The second factor appears to have more than compensated for the first and MBA's Mortgage Credit Availability Index (MCAI) went up 1.85 percent in January, rising from 110.9 in December to 113.0.

Mike Fratantoni, Chief Economist at MBA said, "The market continues to adapt to the new QM regulation by eliminating products that do not fit inside of the QM box.  This tightening is being offset, both in the market for higher balance loans, where lenders continue to loosen terms for jumbo loans, and in the refi market, where more lenders are offering streamline refinance programs."

Fratantoni continued, "The Federal Reserve's Senior Loan Officer Survey showed that mortgage credit standards loosened somewhat among larger institutions, but tightened for smaller lenders.  The data underlying the MCAI is predominantly from larger, wholesale lenders and investors."

A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of a loosening of credit.  The index was benchmarked to 100 in March 2012.  By way of context, MBA said if its index had existed in 2007 it would have been at a level of roughly 800, indicating the credit was much more available at that time.

CFPB Changes HMDA Data Collection

The Consumer Financial Protection Bureau (CFPB) has announced it will take the initial step to improve data collected under the Home Mortgage Disclosure Act (HMDA) by convening a panel of small businesses to provide feedback on its proposals.  The Bureau is also unveiling a new online tool that makes it easier to navigate the publicly available HMDA data.

HMDA was enacted in 1975 to gather information on whether financial institutions were serving the housing needs of their communities and providing access to residential mortgage credit. HMDA was later expanded to capture information useful for identifying possible discriminatory lending patterns.  Responsibility for HMDA rulemaking was transferred to the newly created CFPB under the Dodd-Frank Wall Street Reform and Consumer Protection Act which also mandated CFPB to expand the HMDA to include information that would be helpful to regulators in spotting troublesome mortgage trends.

At present HMDA data is reported by 7,400 financial institutions on about 18.7 million loans and applications.  Lenders report the type and general location of the property; and the race, ethnicity, and sex of the applicant, information about the loan amount and whether the loan is for purchasing a home, refinancing an existing mortgage, or home improvement.  Once revised to protect privacy, a subset of the HMDA data is made available to the public.

While a lot of information is contained in HMDA data CFPB says additional mortgage information could help federal regulators, state regulators, lenders, consumer groups, and researchers better monitor the market. For example, no data is currently gathered on home equity lines of credit which surged prior to the housing crisis nor on teaser mortgage rates which had a hand in causing it.  HMDA data currently contains only limited information about loan features and interest rates.

CPFB is considering changes to the rules that establish what data financial institutions are required to provide under HMDA.  Preparatory to any rules changes and as required by the Small Business Regulatory Enforcement Fairness Act (SBREFA), CFPB will convene a Small Business Review Panel of small lenders which will be asked for early feedback on how data can be updated to better reflect what is happening in the market.  Potential changes under consideration by the Bureau include:

• Improvements required by Dodd-Frank: The Act directs the Bureau to update HMDA regulations so as to obtain information that could alert regulators to potential problems in the marketplace. This includes: the length of the loan; total points and fees; the length of any teaser or introductory interest rates; and the applicant or borrower's age and credit score.
• New developments in the market: The Bureau is considering additional information that would give regulators a better view of developments in all segments of the housing market such as underwriting and pricing information. This will help regulators investigate the true trouble spots in the mortgage market.
• Monitoring access to credit: Other new requirements could include gathering information about access to credit in the mortgage market such as explanations of rejected applications, whether the lender considered the loan to be a Qualified Mortgage, and information such as debt-to-income ratios to help regulators see whether lenders are making loans that are expensive or unsuitable for borrowers.

At a press conference CFPB Director Richard Cordray said that his agency was also considering ways to make the HMDA data collection less burdensome for lenders.  One way would be to level the playing field between bank and nonbank lenders.  "Today, banks that meet certain conditions must submit annual reports even if they make only a single loan.  However, nonbank mortgage lenders generally are required to report only if they make 100 loans and meet other conditions."  CFPB is considering a proposal to create consistency by requiring all banks and nonbanks that meet certain conditions to report if they make 25 or more loans in a year, but exempting those that fall beneath that proposed threshold.

Cordray suggested other ways in which reporting could be streamlined such as aligning HMDA data requirements with existing standards for information on processing, underwriting, pricing, and selling loans that are already in widespread use in the market.  CFPB will also consult with regulators and consider creating an interface that will allow lenders to connect their own data submission and editing software to a CFPB intake system.

In addition to the panel Cordray said his agency will be seeking feedback from industry and consumer groups that will be affected by these changes to the HMDA process.  "Sometime later this year, we will put out a proposed rule seeking broader public feedback through the standard notice-and-comment rulemaking process.  So today is only the beginning of our journey, and we plan to be fully engaged with the public."

He also announced that a new tool to assist with public access to a subset of HMDA data is now available online. Cordray said that for years, people have commented that the size and complexity of the data can make it difficult to use so this new tool provides the public with easier access to information for 2007 through 2012.  Users can filter data, download it, create summary tables, and share the results.  The tool uses a format that is compatible with most spreadsheet programs and most programming software.

The following information and assistance is currently available on the CFPB website at www.consumerfinance.gov

• The HMDA data tool
• A factsheet about changes CFPB is considering
• Proposals and questions for which CFPB will seek input from the Review Panel
• A factsheet summarizing the Small Business Review Panel process

1 in 6 Housing Markets Back to Pre-Recession Levels

"Housing markets across the nation are continuing their slow and steady climb back to normal levels," National Association of Home Builders (NAHB) Chairman Rick Judson said today.  Judson announced that the NAHB/First American Title Insurance Leading Markets Index hit .87 this month, indicating that the nation is now running at about 87 percent of normal economic and housing activity.  In addition, 58 metropolitan areas made the NAHB list of leading markets, meaning they have returned to or exceeded their last normal levels of economic and housing activity.

The Leading Markets Index is based on data from the U.S. Census, Freddie Mac, and the Department of Labor Statistics on permits for housing construction, home prices, and employment.   More than 350 metro areas are scored by taking their average number for each of the three types of information over the previous 12 months and dividing each by their annual average over the last period of normal growth; 2000-2003 for single-family permits and home prices, and 2007 for employment.  The national score is calculated based on national measures of the three metrics.

NAHB says the index serves to identify those areas that are now approaching and/or exceeding their previous normal levels of economic and housing activity.  There are two more metro areas on this month's list than last and the nationwide score is up from .86 January.

The highest score on the index for major markets was for Baton Rouge at 1.41.  This indicates that the area is performing 41 percent above its last normal market level. Other major metros at the top of the list include Honolulu, Oklahoma City, Austin and Houston, as well as Harrisburg and Pittsburgh - all of whose LMI scores indicate that their market activity now exceeds previous norms.

Looking at smaller metros, both Odessa and Midland, Texas, boast LMI scores of 2.0 or better, putting them at more than double their strength prior to the recession. Also at the top of the list of smaller metros are Bismarck, North Dakota; Casper, Wyoming; and Grand Forks, North Dakota, respectively.

"Firming home prices are hastening the return of normal economic and housing activity in an increasing number of markets," said NAHB Chief Economist David Crowe. "The healthiest markets continue to be centered in smaller metros that boast strong local economies, particularly in the oil and gas producing states of Texas, North Dakota, Louisiana and Wyoming."

"We are pleased about the continued market trends, highlighted by the fact that eighty-five percent of all metropolitan areas have shown signs of improvement over the past year," said Kurt Pfotenhauer, vice chairman of First American Title Insurance Co., which co-sponsors the LMI report.

The improving market levels are good news for the housing industry Judson says.  "As employment and consumer confidence slowly improves, this is spurring pent-up demand among potential buyers."

Refinance Applications Slightly Improved, Offset by Drop in Purchase Apps

The volume of mortgage applications remained largely unchanged during the week ended January 31.  The Mortgage Bankers Association's (MBA) Market Composite Index, a measure of the mortgage application activity, ticked up 0.4 percent from the previous week on a seasonally adjusted basis and rose 14 percent on an unadjusted basis from the week ended January 24.

Refinancing remained at 62 percent of total applications while the Refinancing Index increased 3 percent. 

Refinance Index vs 30 Yr Fixed

The seasonally adjusted Purchase Index was down 4.0 percent from the previous week while the unadjusted index increased 14 percent week-over-week and was 17 percent below the level during the same week in 2013.   

Purchase Index vs 30 Yr Fixed

Rates dropped across the board again, most products and now back to November 2013 levels.  The average contract interest rate for conventional 30-year fixed rate mortgages (FRM) with balances of $417,000 or less was 4.47 percent with 0.25 point compared to rates the previous week which averaged 4.52 percent with 0.40 point.  The effective rate for this and all other products tracked also retreated from a week earlier. 

The jumbo 30-year FRM (balances above $417,000) had an average rate of 4.42 percent, down from 4.47 percent, with points decreasing to 0.11 from 0.27.

The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 4.12 percent from 4.18 percent, with points decreasing to 0.15 from 0.33.

Rates fell an average of 6 basis points to 3.53 percent for 15-year FRMs.  Points increased to 0.28 from 0.26.

The share of applications filed for adjustable rate mortgage products (ARMs) rose from 7 percent the previous week to 8 percent.  The average contract rate for the 5/1 ARM, the most popular of the adjustable rate mortgages, declined to 3.15 percent from 3.25 percent, with points increasing to 0.41 from 0.33.   This decrease took the 5/1 hybrid back to December 2013 levels.

MBA's data is gathered from its Weekly Mortgage Application Survey conducted among mortgage bankers, commercial banks and thrifts and covering 75 percent of all U.S. retail residential mortgage applications.  The survey has been conducted since 1990 and the base period and value for its indexes is March 16, 1990=100.  Interest rates are quoted for loans with an 80 percent loan-to-value ratio and points include the origination fee.

Judicial States Showing Slow Price Appreciation, More New Delinquencies

Black Knight Financial Services said today that the rate for mortgage delinquencies of 30 days or more, which does not include loans in foreclosure, rose by a 0.26 percent in December to 6.47 percent.  The company's Mortgage Monitor for December and year-end 2013 noted that despite the slight monthly increase the rate fell 9.85 percent from December 2012 to December 2013 bringing delinquencies down to about the same rate as they were in early 2009 and about 1.5 times the historic delinquency rate.  There were 3.24 million properties with mortgages delinquent by 30 days or more in December and 1.28 million of those were at least 90 days overdue.

Black Knight is the former Lender Processing Services.  LPS was acquired and renamed by Fidelity National Financial on January 2.  Fidelity is the nation's largest provider of title insurance through its ownership of Fidelity National Title, Chicago Title, Commonwealth Land Title, and Alamo Title.  Fidelity also holds majority interest in American Blue Ribbon Holdings, owner and operator of several restaurant companies including O'Charley's, Ninety Nine, Village Inn and Max & Erma's and has the controlling stake in Remy International, a designer, manufacturer, remanufacturer, marketer and distributor of aftermarket and original equipment electrical components for automobiles, light trucks, heavy-duty trucks and other vehicles.

The foreclosure pre-sale inventory (loans for which the formal foreclosure process has been initiated), fell 27.9 percent from the previous December and is at a current rate of 2.48 percent. This is still more than four-and-a-half times the "normal" foreclosure rate but at the peak the rate was more than eight times the historic norm.  The month-over-month decline was 0.74 percent.  A total of 1.24 million properties are in that inventory.  Foreclosure starts were down 23 percent from levels a year earlier.  Black Knight said that properties in foreclosure have been delinquent for an average of 920 days.

"In many ways, 2013 marked an abatement to crisis conditions in the U.S. mortgage market," said Herb Blecher, senior vice president of Black Knight Financial Services' Data & Analytics division. "Delinquencies neared pre-crisis levels, foreclosure inventory declined 30 percent over the year, new problem loan rates improved in both judicial and non-judicial foreclosure states, and foreclosure starts ended the year at the lowest level since April 2007. Despite a recent drop off, 2013 was also the best year for property sales since 2007, with totals through November outnumbering the full year totals for each of the prior three years. In addition, as we've noted before, due to stricter underwriting, 2013 originations have proven to be the best-performing loans on record.

At the same time, Blecher noted that mortgage originations fell to the lowest levels since 2008 as higher interest rates seemed to have ended the refinancing wave of the last several years.  Even as rates pulled back again toward the end of the year refinancing remained low.  He said that going forward opportunities for new originations will likely come from looser underwriting and/or home equity lending which has shown a sizable increase in volume since 2012.

Black Knight notes that underwriting criteria remains very strict although most originators eased off a little in 2013.  "Looser" standards are primarily focused on the refinancing population where average credit scores have steadily declined and loan-to-value ratios ratcheted up.   

Home sales in 2013 were the strongest since 2007.  National home prices also continued to improve but home values in states where a non-judicial foreclosure process is the norm are recovering faster than in judicial states.  Of course as prices are rising faster the level of negative equity is also shrinking more rapidly in non-judicial states. 

"On the home price front, while national levels rose 8.5 percent year-over-year through November 2013, we did see home prices in judicial states generally recovering at a slower pace than their non-judicial counterparts," Blecher said.   "A similar situation existed with regard to negative equity improvement, which also occurred more slowly in those areas with extended foreclosure processes. With 75 percent of loans that are either seriously delinquent or in foreclosure being 'underwater,' the resolution of these inventories in many regions (and the speed at which that has occurred) has had a pronounced effect on reducing overall negative equity numbers."  New problem loan rates also occurred with greater frequency in judicial states.

The December 2013 data also showed that, even in most states with judicial or legislative slow-downs, foreclosure pipelines have been clearing over the last half of 2013. Massachusetts, for example, has seen its pipeline ratio decline by 49 percent since June, while New York and New Jersey have come down 39 and 37 percent, respectively. On the other hand, California - which enacted its Homeowner Bill of Rights at the start of 2013 - has seen its pipeline ratio increase by 36 percent in the last six months. Overall, judicial states' foreclosure inventories remain 3.5 times as large as those in non-judicial states.

BofA One Step Closer to Swallowing $8.5 bln Countrywide Pill

Bank of America (BoA) came a step closer today to ending litigation that has plagued it since it bought Countrywide Mortgage in 2008.  A New York State judge approved most of an $8.5 billion settlement agreement between the bank and nearly two dozen mortgage securities investors which had itself been the subject of litigation since it was first reached over two years ago.

The original suit involved claims that over 500 securities backed by mortgages originated by Countrywide before it was acquired by BoA were not of the quality promised in their prospectuses.  Investors in the securities included Blackrock, Inc., Pacific Investment Management Company (PIMCO) and American International Group (AIG). 

Bank of New York Mellon Corp was trustee for the investors and filed a petition with the courts in June 2011 seeking approval of the settlement.  However a dozen investors led by AIG objected on the basis that the settlement resolved the claims for only pennies on the dollar and that the trustee did not push aggressively enough for more money from BoA and had shirked its duties in a process; making claims of conflicts of interest.  The AIG group maintained that investor losses from the securities totaled more than $100 billion.

New York State Supreme Court Justice Barbara Kapnick presided over a nine week hearing regarding the settlement after Bank of New York petitioned her to approve it under New York Article 77 which allows trustees to seek such approval for their actions.  The bank said the settlement would save investors years of uncertain and costly litigation.

In approving the agreement the judge said the trustee "did not abuse its discretion in entering into the settlement agreement and did not act in bad faith or outside the bounds of reasonable judgment." However, she qualified her ruling by allowing some loan modification claims by investors to go forward and said in those instances, the trustee settled the claims "without investigating their potential worth or strength."

In a statement issued after the ruling AIG seized on the judges exceptions, saying in part, "We are pleased that the court refused to approve the proposed settlement in its entirety and found that the trustee acted unreasonably in agreeing to compromise billions of dollars of investor claims. We respectfully disagree with the other aspects of the court's ruling, which are not supported by the record and which set a dangerous precedent that could eliminate important protections for investors. This case is very far from over because the settlement will not take effect until a variety of potential post-trial motions and appeals are resolved."

Kapnick delayed the entry of the ruling until Feb. 7.