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Foreclosures Drop to Lowest Level in Nearly 12 Years

ABI Bankruptcy Brief

August 16, 2018

 
ABI Bankruptcy Brief
 
 
 
 
NEWS AND ANALYSIS

Foreclosures Drop to Lowest Level in Nearly 12 Years

Mortgage delinquencies and foreclosure rates in the U.S. dropped in May to their lowest level for the past 12 years, according to the latest Loan Performance Insights report from CoreLogic, a property information, analytics and data-enabled solutions provider, HousingWire.com reported. Across the U.S., about 4.2 percent of mortgages were in some stage of delinquency (30 days or more past due, including those in foreclosure) in May — a decrease of 0.3 percentage points from the year before, according to the report. The foreclosure inventory rate, which measures the share of mortgages in some stage of the foreclosure process, also decreased, falling 0.2 percentage points from May 2017 to just 0.5 percent in May this year. This represents the lowest inventory rate for any month since September 2006. In order to measure the health of the mortgage market, CoreLogic monitors early-stage delinquencies, those 30 to 59 days past due. The company found that these delinquencies slipped from 1.9 percent of all mortgages in May 2017 to 1.8 percent in May of this year. The share of mortgages that were 60 to 89 days past due remained unchanged at 0.6 percent in May, while the serious delinquency rate, or those 90 days or more past due (including loans in foreclosure), decreased to 1.8 percent in May, down from 2 percent the year before.
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Be sure to check out today’s ABI Chart of the Day.

Commentary: Outstanding Student Loan Balance Helps Predict Whether Borrowers Fix Defaults*

A new American Enterprise Institute study shows that five years after first defaulting on a federal student loan, 70 percent of borrowers have gotten out of default, according to a Forbes.com commentary. A borrower’s outstanding loan balance predicts both entering and exiting default, but in opposite ways, according to the research. Borrowers with smaller balances, who typically attended college for just a couple of semesters, enter default at higher rates. However, borrowers with balances below $5,000 also exit default at the high rate of 74 percent, compared to 59 percent for those who default on more than $20,000. The minority of defaulters with large balances typically do not pay down their loans, according to the research.
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*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

Analysis: Leveraged Loans Not as Safe as They Once Were

Investors bought record amounts of junk-rated corporate loans in recent years, betting they would deliver more stable returns than high-yield bonds, but the loans are no longer as safe as their owners may think, the Wall Street Journal reported. A rapid deterioration in the quality of “leveraged loans” means loanholders will recover far less in a future economic downturn than they have historically, according to research by Moody’s Investors Service. Years of low rates have spurred record amounts of corporate borrowing, often in the $1.4 trillion market for below-investment-grade loans. The typical recovery on leveraged loans will likely decline to 61 percent of the face amount in the next downturn, compared with the 77 percent historical average, Moody’s says. Recoveries on riskier so-called second-lien loans would fall even further to 14 percent from about 43 percent previously, the ratings firm estimates. Most leveraged loans are still secured, but companies are issuing them in larger quantities. At the same time, they offer lenders fewer legal protections, also called covenants, that traditionally prevent shareholders from paying themselves excessive dividends or stripping corporate assets. That means that in the next default cycle, there will be more loanholders making claims on companies with fewer assets to recover than the historical norm. There will also be less left over for unsecured bondholders, who stand to recover about 32 percent in the next default cycle compared with a historical average of about 40 percent, according to Moody’s.
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Commentary: Companies Shouldn’t Be Accountable Only to Shareholders*

In the early 1980s, large American companies sent less than half their earnings to shareholders, spending the rest on their employees and other priorities. But between 2007 and 2016, large American companies dedicated 93 percent of their earnings to shareholders, according to a commentary by Sen. Elizabeth Warren (D-Mass.) in the Wall Street Journal. Before “shareholder value maximization” ideology took hold, wages and productivity grew at roughly the same rate. But since the early 1980s, real wages have stagnated even as productivity has continued to rise, according to Warren. Companies also are setting themselves up to fail, as retained earnings were once the foundation for long-term investments. But from 1990 to 2015, nonfinancial U.S. companies invested trillions less than projected, funneling earnings to shareholders instead, according to Warren. She recently introduced the "Accountable Capitalism Act," which would require corporations with more than $1 billion in annual revenue to get a federal corporate charter. The new charter requires corporate directors to consider the interests of all major corporate stakeholders — not only shareholders — in company decisions. Shareholders could sue if they believed directors weren’t fulfilling those obligations.
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*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

Wage Growth Being Wiped Out by Inflation

Rising prices have erased U.S. workers’ meager wage gains, the latest sign strong economic growth has not translated into greater prosperity for the middle and working classes, the Washington Post reported. The cost of living was up 2.9 percent from July 2017 to July 2018, the Labor Department reported Friday, an inflation rate that outstripped a 2.7 percent increase in wages over the same period. The average U.S. “real wage,” a federal measure of pay that takes inflation into account, fell to $10.76 an hour last month, 2 cents down from where it was a year ago. The stagnation in pay defies U.S. growth, which has increased in the past year and topped 4 percent in the second quarter of 2018 — the highest rate since mid-2014. The lack of wage growth has befuddled economists and policymakers, who had hoped that after job openings hit record highs and the unemployment rate dipped to its lowest level in decades, employers would give beefy raises to attract and retain workers. But so far, gains have been slight, and small recent increases are being eclipsed by rising prices.
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Notice to All ABI Members

UNITE HERE Local 11 is a labor union based in southern California. They represent more than 20,000 workers in the hotel and restaurant industry. The union has been attempting to organize employees at the Terranea Resort, site of ABI’s 2019 Winter Leadership Conference (WLC). UNITE HERE Local 11 is known for their aggressive tactics, both on site and also aimed at hotel clients. The union has repeatedly contacted ABI leadership, including members of the board and committee leaders, to urge ABI to cancel or move the WLC. ABI has no plans to move or cancel the event, which would result in substantial legal exposure. If you are contacted by phone or email by representatives of the union, ABI encourages you to ignore rather than engage or respond. ABI regrets this development and will continue to closely follow events at the property.

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BLOG EXCHANGE

New on ABI's Bankruptcy Blog Exchange: Community Banks Embrace Health Care Lending Despite Risks

Despite uncertainty over the Affordable Care Act and government reimbursements, bankers say that opportunities in lending to medical practices and device manufacturers make it hard to resist, according to a recent blog post.

To read more on this blog and all others on the ABI Blog Exchange, please click here.

 
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