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DS News Webcast: Tuesday 2/17/2015

With the nation's homeownership rates similar to those of 50 years ago, the foreclosure rate is significantly higher compared to the early 1960s. The main reason for the increase in foreclosure risk while the homeownership rate remains little changed is leverage, according to CoreLogic chief economist Sam Khater. The economist noted that leverage remains unaddressed by those responsible for initiating housing policy, and he recommended in his study that they may want to consider the ability to manage leverage in order to obtain financial stability in the residential housing market.

Khater said the CoreLogic research on the relationship of leverage to residential foreclosures revealed four main findings: first, foreclosure risk is two to three times higher than it was 50 years ago despite homeownership rates being close to their 1960s levels; second, leverage has been a primary driver of foreclosures during the last 50 years; third, high inflation rates in the 1970s and 1980s led to reduced aggregate LTV and lower default risk; and fourth, government regulations center on an income-based ATR rule that manage the risk of delinquency, but are not so much focused on foreclosure risk.

At a House Judiciary Committee hearing entitled Oversight of the Justice Department’s Mortgage Lending Settlements, some lawmakers criticized the federal government for using little or none of the $36 billion in recent mortgage backed-securities settlements with big banks to help foreclosure victims. Republicans had called the hearing to address concerns that the funds from the RMBS settlements were not going toward consumer relief, as was intended, but instead going to third-party organizations.

About Author: Jordan Funderburk

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