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Mortgage Defaults Creep Up, But Healthy Economy Keeping Them Tame

ABI Bankruptcy Brief
ABI Bankruptcy Brief
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November 8, 2018

ABI Bankruptcy Brief

Mortgage Defaults Creep Up, But Healthy Economy Keeping Them Tame

The Mortgage Bankers Association said today that mortgage delinquencies inched up, in part from natural disasters hindering homeowner performance, but a stronger economy is still keeping defaults low, National Mortgage News reported. The delinquency rate for single-family residential properties rose slightly to 4.47 percent of all loans outstanding at the end of the third quarter, marking an increase of 11 basis points from the same period a year ago. The share of loans with foreclosure activity dipped one basis point to 0.23 percent quarter-over-quarter, the lowest this percentage has been since the fourth quarter of 1985. "Despite the small [delinquency rate] uptick this quarter, the healthy economy is overall supporting low mortgage delinquencies and foreclosure inventories," said Marina Walsh, vice president of industry analysis at the MBA. Contributing to the increase in delinquencies in the third quarter were natural disasters like Hurricane Florence and Tropical Storm Gordon, which caused considerable default growth in the affected states of North Carolina, South Carolina, Mississippi, Arkansas and Alabama. It could take several quarters for rates in these areas to return to normal, according to Walsh.

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Mortgage Rates Shoot Up to Their Highest Level in Nearly 8 Years

According to the latest data released today by Freddie Mac, the 30-year fixed-rate average jumped to 4.94 percent with an average fee of 0.5 point, the Washington Post reported. It was 4.83 percent a week ago and 3.90 percent a year ago. The 30-year fixed was last this high in February 2011. “The all-important read on the American labor market showed stronger-than-expected employment and wage growth, which gives the Federal Reserve yet another data point suggesting that the U.S. economy can withstand higher interest rates,” said Aaron Terrazas, senior economist at Zillow. “The upward momentum for rates is likely to continue in the near term.” With rates rising, mortgage applications continued to diminish, according to the latest data from the Mortgage Bankers Association. The market composite index — a measure of total loan application volume — declined 4 percent from a week earlier. The refinance index fell 3 percent from the previous week, while the purchase index dropped 1 percent. The refinance share of mortgage activity accounted for 39.1 percent of all applications.

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Program Chairs Discuss Future Health Care Distress and Opportunities

ABI Executive Director Sam Gerdano talks with Suzanne A. Koenig of SAK Management Services LLC (Riverwoods, Ill.) and Nancy A. Peterman of Greenberg Traurig, LLP (Chicago) about health care distress and previews a special ABI program in January focused on the topic. Koenig and Peterman are both chairs of ABI's "Disruption, Consolidation and Innovation in the Health Care Industry" Program, taking place January 17 at Georgetown University Law Center in Washington, D.C. They discuss the program's focus on the delivery of health care, private equity’s takeover of the industry, the rationing of health care services and reimbursements, and more. Listen to the podcast here.

To register for the program, please click here.

Analysis: How Detroit Saved Its Art Collection from the Bill Collectors

Detroit's $7 billion reorganization plan represents a hard-fought agreement among the city's employees, retirees, bondholders and other creditors. It's also a big win for art lovers, thanks to an unusual, and possibly unique, deal under which outside contributors agreed to put $800 million into Detroit's underfunded pension plans in exchange for taking the Detroit Institute of Art's priceless collection of Van Goghs, Matisses and Picassos off the bargaining table, according to a Forbes analysis. "This is one of the most fascinating cases imaginable,” said Arthur O'Reilly, a partner with the Detroit firm Honigman Miller Schwartz and Cohn, longtime lawyers for the 129-year-old museum. Every bankruptcy case involves hard bargains, he said, but this one required the city's creditors — as well as City Hall itself — to keep their hands off an art collection that some said was worth $4.6 billion. The DIA never acknowledged that its collection was a city asset, let alone a means of covering years of reckless promises the government made to its retirees while emptying out the pension plan with bad investments and excess payments to current employees. Most of the art in the collection was donated by private citizens, O'Reilly said, and they probably never thought of their gifts as contributions to the city treasury. The museum itself passed in and out of city control over the years, but in 1955 Detroit stopped contributing anything to its operation, and in 1997 the independent DIA board was given sole management responsibility. In 2012, voters in the three counties surrounding Detroit passed a tax measure to provide as much as $23 million a year for the DIA, demonstrating strong regional support for the museum. Despite this broad level of support, the actual ownership of the museum's collection was an open legal question. Bond insurers Syncora and Financial Guaranty Insurance Co. had both argued that the art was an asset that could be used to restructure the city's debt, until they dropped their objections late in the process.

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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). 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. This has no effect on the ABI’s 2018 WLC, set for Scottsdale, Ariz., this December.

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New on ABI’s Bankruptcy Blog Exchange: Colorado Voters Approve 36 Percent Interest Cap on Payday Loans

The passage of Proposition 111, which also prohibits lenders from adding origination and monthly maintenance fees, makes Colorado the fifth state to impose caps on payday loans through a voter referendum, 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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