A monthly report that covers bankruptcy, foreclosure, consumer confidence, and other data was released Thursday revealing that foreclosures are increasing—and bankruptcies could be close behind.
LegalShield, a provider of legal safeguards and identity theft solutions, released its LegalShield Law Index that uses five indices: the LegalShield Consumer Financial Stress Index, Bankruptcy Index, Housing Activity Index, Foreclosure Index, and Real Estate Index. The indices rely on LegalShield’s unique and proprietary database of member demand for and usage of legal services as well as a close tracking of the Consumer Confidence Index by The Conference Board, Housing Starts report by the Census Bureau, and Foreclosure Starts by the MBA.
In its Foreclosure Index, foreclosures worsened, which is reflected in a 5.1 point rise to 63.8 in August, even though foreclosures remain down nearly 5 percent year-over-year. LegalShield said if debts such as student loan, credit card, and auto increase, bankruptcies could also be on the rise, mainly due to consumer financial health being weighed down.
"While confidence remains an important economic indicator, our data suggest that confidence is inflated right now,” said James Rosseau, LegalShield's Chief Commercial Officer. “Decision makers who rely heavily on confidence measures in forecasting consumer spending may be disappointed."
Rosseau said the inflated confidence is due to what they believe is stubborn optimism. Though consumers have reason to be assured about the economy, and LegalShield hopes for continued economic strength, their data has worsened in recent months.
“In light of these developments, we want to make decision makers aware that consumer spending will likely continue to fall short of the levels implied by consumer confidence,” Rosseau said. “In short, the consumer picture is pretty good, but not gangbusters."
LegalShield publishes the Law Index on the sixth business day each month. To read the full report, click here.
“The market is about to change and we need to be ready,” said Delgado. “REO is going to increase in 2018 as we see more fractures in the market—how much is determined by location and how big the fall off in price points will be.”
According to Delgado, the real estate market is white hot while demand is still strong. These factors are driving price points, appreciation, and values way up. However, 5 to 10 percent spikes in appreciation along with price points that are overvalued by 15 to 20 percent aren’t a new observation—it’s something he witnessed in 2007 and 2008.
“This is what we think will happen in the next year: Regional or microbubbles will start to burst—pay attention to Denver, Dallas, San Antonio, Las Vegas, Phoenix, Los Angeles, and San Francisco,” said Delgado. “Delinquency will rise and foreclosures will increase.”
Additionally, after being devastated by Hurricanes Harvey and Irma respectively, Delgado said Houston has an understated delinquency population by as much as 300,000 while Florida homeowner insurance deductibles will create long-term hardships putting a greater financial strain on homeowners.
In 2016, Judy Dominguez of Cherry Creek Mortgage, a residential lender based out of Greenwood, Colorado, had her spousal health insurance revoked and was saddled with about $40,000 in medical bills after her wife had a heart attack. Though they have a recognized marriage, the bank cited the decision to revoke as recognizing marriage as a union between a man and a woman.
“Every once in a while when discussing the AMDC I’ll have a well-meaning executive ask ‘what’s the point’,” said Delgado. “Ensuring that stories like this don’t happen again is the point.”
Delgado said that discussions are important and should be had, but anyone can pull professionals together so they can say the right things and feel good about themselves. Once the steps are defined, they must be walked out.
“It is up to each of us to pursue the change that we want to see with passion,” Delgado said. “The stakes are simply too high for us to give anything but our best.”
Negative equity dropped over the first quarter, with the total value of underwater mortgages declining by more than $283 billion since the start of the year, according to the CoreLogic Q1 2017 Equity Insights Report released on Thursday. The national aggregate value fell 0.9 percent over the quarter and 7.1 percent since Q1 2016.
In total, the number of underwater residential mortgages dropped 3 percent since Q4 2016 and 24 percent over the year. Still, about 3.1 million residential mortgages—or 6.1 percent of all U.S. mortgages—remain underwater as of Q1, according to the report. At their peak in 2009, underwater mortgages accounted for a 26 percent share of all mortgages.
Subsequently, positive equity is on the rise across the country. According to the report, about 9 million borrowers have regained equity since 2017, and 91,000 regained equity in 2017 alone. About 63 percent of all homeowners have seen an increase in equity since Q1 2016, with the average homeowner gaining about $13,400 in equity during that time period.
According to Dr. Frank Nothaft, Chief Economist at CoreLogic, mortgage risk is falling as a result.
“One million borrowers achieved positive equity over the last year, which means mortgage risk continues to steadily decline as a result of increasing home prices,” Nothaft said. “Pockets of concern remain with markets such as Miami, Las Vegas, and Chicago, which are the top three for negative equity among large metros, with each recording a negative equity share at least twice or more the national average.”
Broken down by state, Texas had the highest percentage of positive-equity mortgages as of Q1, with 98.4 percent in the black. The Lone Star State was followed by Utah (98.2 percent), Washington (98.2 percent), Hawaii (98.1 percent), and Colorado (98 percent). Washington saw the highest jump in equity over the year, with an average of $37,900 per homeowner.
According to Frank Martell, President and CEO of CoreLogic, rising equity also means a stronger overall economy.
“Homeowner equity increased by over $750 billion during the last year, the largest increase since mid-2014,” Martell said. “The rising cushion of home equity is one of the main drivers of improved mortgage performance. It also supports consumer balance sheets, spending, and the broader economy.”