Mortgage Market News and Insight

For the Weekend of March 30^th, 2024

 

Hawaii’s Most Read Mortgage Publication for 16 Years

 

Volume 16 – Issue 30

Many on Maui Will Face Foreclosure

Shortly after the fire disaster in Lahaina I offered some sane rational advice that was highly criticized.  Coming from a perspective of lending and the mortgage process, I was keenly aware that people faced with no home and no employment would make it impossible for most to continue making the mortgage payments they had on the home that no longer existed.

 

The governor, and frankly all the politicians, scoffed at the idea of investors looking to take a gamble and buy a destroyed lot from someone that lost everything.  Knowing what I know about bureaucracy, especially Hawaii’s version of “let’s study everything and do nothing”, I would never take the gamble and buy a Lahaina lot.  I realize it will probably be a decade before there’s any real semblance of normalcy.  But if people want to take a chance, they should be allowed.

 

The unintended consequence of scaring away potential buyers is that people are stuck with lots they cannot build on yet must continue to make mortgage payments they cannot afford.  The University of Hawaii’s Economic Research Organization just released research on the growing problem of those impacted by the fire being unable to make their mortgage payments.  Here’s some excerpts from their report:

 

As of the 2020 Census, almost three-quarters (74%; 1309 out of 1773) of Lahaina homeowners did not own their home free and clear. Even with various housing assistance programs in place, additional costs for temporary shelter and daily expenses are mounting for displaced West Maui residents, and it is no surprise that many of them struggle to make regular mortgage payments.

 

Further data analysis shows that once mortgages in Lahaina had become delinquent, homeowners tended to remain unable to make payments. Only 30% of the mortgages that had become delinquent in the aftermath of the Maui wildfires have become current again. All the while, arrears balances have climbed over time.

 

 

 

I’m not sure why the report used data only up through November 2023.  The fire happened in August.  For many, they had already made their August mortgage payment before the tragedy.  Most mortgage servicers gave 3-month forbearances starting in September.  Those forbearances would have covered SEPT-OCT-NOV.  When a property is in forbearance, the lender-servicer is not reporting the mortgage delinquent.  Despite the forbearances offered, the UHERO report stated that 296 mortgages became delinquent.  That’s 22% of all the Lahaina mortgages, based on their research.

 

It will be interesting to see the data going forward from November.  As forbearances end, more Lahaina lot owners are once again faced with making their mortgage payments that they can’t afford.  Whenever the next report comes out, you’ll see a huge spike in delinquencies.

 

What you won’t see in UHERO’s next report or in the news is a spike in foreclosures.  With pressure from government and native Hawaiian groups keeping interested investors away, the banks have no urgency to take the properties back.  The foreclosed lots would sit on their books without the ability to unload them.

 

Here’s the conclusion of the UHERO report:

 

Arrears balances have climbed over time. The median arrears balance for Lahaina mortgages that have become delinquent since the Maui wildfires and remained delinquent for four months was $9,360. With the majority of mortgages remaining delinquent over time, the balance in arrears will keep rising. Over the 4-month period observed in the data, the total arrears balance for mortgages in Lahaina that have become delinquent since the Maui wildfires already stands at more than $1,200,000. Clearly the observed time series is short and more data is needed to get a clearer picture of future trends. However, given the overall uncertainty of the disaster recovery, it is likely that for many of the affected families financial difficulties remain for the foreseeable future.

 

 

It actually makes sense for the lenders to not foreclose and let the penalties and interest keep adding up.  If a homeowner couldn’t make a one-month payment, where are they going to get the funds to make 6 or 12 payments to get the mortgage back current?  The lenders will just wait and let the balances climb.  Once the sentiment changes and sales can occur, you’ll see the properties get foreclosed upon and sold.

 

What we are witnessing is a slow-motion train wreck that could have been avoided by many affected by the fire.  For those that realized early that without housing and employment they would need to move elsewhere, they could have sold their lot and made a clean break to more opportunities elsewhere.  For those that did move away, they left with nothing.

 

In hindsight, the overwhelming and overbearing hand of government and activists to keep Lahaina “for the people of Hawaii” has actually hurt those most needing help.  What makes our country great is the opportunity of free and open markets.  If someone wishes to sell their property they should be allowed to.  If an investor is willing to take the gamble and buy one of these lots they should be allowed to.  And with the current sentiment of government and activists trying to shape Lahaina’s future, that gamble is a very risky one.

 

 

 

 

 

And now the week’s economic news…….

 

Inflation Slightly Higher

The Fed’s favorite measure of inflation PCE (Personal Consumption Expenditures) showed on the headline number that inflation rose 0.3% for the month, which was 0.1% lower than estimates.  The previous month’s report was revised 0.1% higher to 0.4%.  Year-over-year, inflation increased from 2.4% to 2.5%.  Energy costs are responsible for the slight uptick in inflation.  Energy costs rose 2.3% in February.

 

The core rate, which is what the Fed focuses on because it strips out food and energy prices, rose 0.3% in February.  The year-over-year index fell from 2.9% to 2.8%.  The bottom line is that progress on inflation has stalled, and it will be very difficult to get to the targeted 2% rate the Fed wants.

 

With inflation in focus, the monthly report on consumer confidence published by the Conference Board has been receiving more attention lately, since it may provide hints about upcoming changes in spending habits. In the most recent reading, it unexpectedly fell to the lowest level since November. Concern about the political environment was the most common reason cited for the decline in confidence this month. Investors will be keeping a close eye on upcoming Retail Sales reports to see if this weakness translates into lower consumer spending.

 

The Department of Labor releases the total number of new claims for unemployment insurance each week, and the most recent reading was just 210,000. This was down sharply from the inflated figures seen during the early months of the pandemic and even lower than the levels which were typical during 2019. Sustained strength in the labor market is one reason that Fed officials are in no hurry to begin lowering the federal funds rate.

 

 

 

 

Next Week

Mortgage markets will be closed on Friday in observance of Good Friday, but Personal Income and the PCE price index, the inflation indicator favored by the Fed, still will be released that day. The ISM national manufacturing index will come out on Monday and the national services sector index on Wednesday. The key Employment report will be released on April 5, and these figures on the number of jobs, the unemployment rate, and wage inflation will be some of the most highly anticipated economic data of the month.

 

 

Until next week…….