While Home Prices May Be Falling, Insurance Premiums Are on the Rise

By CHAD TERHUNE And ANNAMARIA ANDRIOTIS
Already plagued by stubbornly low home prices, homeowners soon may be facing another blow: rising insurance premiums.

After five years of relatively stable premiums, some of the country's biggest insurers have raised rates—or say they plan to. Premiums vary by state, but last year, State Farm Mutual Automobile Insurance Co. says it increased homeowners rates 7.3% on average and, this year, has raised them in 18 states, including a few by more than 7%. By contrast, it cut rates in just two states.

In Florida, upscale insurer PURE Risk Management raised premiums 11% this year. Fireman's Fund Insurance Co., a subsidiary of Allianz SE, says it has started to raise premiums in some areas. For some Pennsylvania homeowners, premiums shot up 33% last year.

For homeowners, the increases may seem counter-intuitive. Why are they paying more to protect a house that may have lost significant value? Insurers say premiums are partly based on rebuilding costs, not on a home's appraised market value. When energy and building-material costs rise, insurers sometimes raise premiums, said Mike LaRocco, chief executive of Fireman's Fund Insurance. Even with the recent decline in commodities prices, gasoline is up 37% in the past year, copper is up about 20% and plywood is up around 8%.

There may be more premium increases on the way, experts say, given the rising toll of natural disasters, including recent tornadoes and extreme weather in the U.S. and the earthquake and tsunami in Japan in March.

New risk models also are causing insurers to reassess rates, said PURE President and CEO Ross Buchmueller. A new hurricane model used widely across the industry forecasts a higher "wind risk," even for homes far from the coasts, driving premiums higher.

Federal flood-insurance prices may rise as Congress looks to erase the remaining $18 billion deficit from Hurricane Katrina. One congressional proposal would raise the limit on annual premium increases to 20% from 10% and make it harder for the most flood-prone properties to get coverage. The average flood premium is about $600 annually; rates go to nearly $6,000 for the highest-risk coastal properties, the National Flood Insurance Program says.

All this may be a shock to homeowners, who have gotten used to premiums kept stable by the absence of big storms and costly disasters since Hurricane Katrina caused insured losses of more than $45 billion in 2005. The recession and decline in home construction also sapped demand for insurance, according to industry researcher Insurance Information Institute. The average annual premium for homeowners' insurance fell 3.8% to $791 in 2008 from 2007, Institute figures show. It estimates the average premium rose to $807 last year.

There may be little home owners can do, beyond the usual shopping around. Jack Powers, an independent agent at Gulfshore Insurance in Naples, Fla., says some of his customers face rate increases of 20% or more. Still, he advises many of them to swallow the increases. The alternatives, he says, are smaller, unrated insurers that may not withstand a storm financially.

More than half of U.S. adults believe housing recovery unlikely until 2014 or later

An ongoing survey conducted by Harris Interactive on behalf of Trulia and RealtyTrac finds that 54 percent of U.S. adults believe recovery in the housing market will not happen until 2014 or later. In a previous survey conducted six months ago, 42 percent of American adults said they thought the market would turn around by 2012 or had already turned around. Now, only 23 percent continue to think this will happen.

According to the survey, 45 percent of American adults say the government is not doing enough to prevent foreclosures, and only 17 percent say too much is being done. Sixteen percent say the government is doing the right amount to prevent foreclosures, and 22 percent are unsure.

More than half of U.S. renters (56 percent) and 47 percent of current homeowners are at least somewhat likely to purchase a foreclosed home, according to the survey. Along with having some concerns about hidden costs, a risky buying process and loss in home value, the majority of American adults expect to pay 38 percent less for a foreclosed home than a similar home that was not in foreclosure – not too far above the average discount of 36 percent on sales of bank-owned homes (REO) compared to sales of homes not in foreclosure reported in the RealtyTrac 2010 Foreclosure Sales Report.

Foreclosures Decline Again:

Foreclosure activity decreased in April for the seventh straight month, bringing total foreclosure activity to a 40-month low, according to a new report from RealtyTrac.

"This slowdown continues to be largely the result of massive delays in processing foreclosures, rather than the result of a housing recovery that is lifting people out of foreclosure," notes RealtyTrac CEO James Saccacio in a statement.

Certainly there are more foreclosures on the horizon, but this legal bottleneck will be around for awhile. This means that a massive wave of additional inventory will not be hitting the markets during the peak purchasing season. Inventory levels are the key to home prices and any stabilization in those inventory levels regardless of the reason is welcome news to the housing industry even if it is only temporary.

Los Angeles Times: Mortgage delinquencies level off

The percentage of homeowners who are behind on their mortgage payments inched higher in the first quarter while the number of new foreclosures declined, a lobbying group for the home-lending industry says.
"Overall, it's a picture of the market on the mend," Michael Fratantoni, an economist at the Mortgage Bankers Assn., said in an interview.
In a report Thursday, the trade group said 8.32% of homeowners with mortgages had missed at least one payment, up from 8.25% in the final quarter of 2010 -- a change Fratantoni described as more "leveling off" than significant statistical change.
The rate, adjusted for seasonal variances, was well below that recorded a year earlier: 10.06% of borrowers were in some stage of delinquency in the first quarter of 2011.
In a positive sign, the percentage of loans that are more than 90 days delinquent was down compared to the previous quarter and a year earlier, Fratantoni said.
The delinquency rate does not include homes in the foreclosure process. The trade group said 4.52% of all residential mortgages were in foreclosure during the quarter on a nonseasonally adjusted basis, down from 4.64% during the fourth quarter of 2010 and 4.63% during the first quarter of 2010.
The percentage of homes entering foreclosure dropped from 1.27% in the fourth quarter to 1.08% in the first quarter.
Increased scrutiny of foreclosures, triggered by revelations that banks cut legal corners as they took back homes, has dragged the repossession process out to unprecedented lengths, industry data firm  RealtyTrac said in a recent report that looked at data from April, the beginning of the second quarter.
Big banks specializing in customer service on mortgages have agreed to implement new rules imposed by federal regulators in the aftermath of that scandal, including providing a single person to contact for each troubled borrower, while a task force of state attorneys general works to impose more sweeping reforms.
Foreclosure filings, which include initial notices of default, scheduled auctions and bank seizures of property, dropped 9% in April from March and plunged 34% from April 2010 as 219,258 U.S. properties received new filings in April, a study by Irvine-based RealtyTrac showed last week.
California, where the housing picture was once far more grim than the nation's, more closely mirrored the rest of America in the latest report from the Mortgage Bankers Assn.
Delinquent loans made up 8.31% of all residential mortgages in California during the first quarter, down from 10.88% a year earlier. The rate of loans 90 or more days delinquent was 4.84%, down from 6.98%. Loans in foreclosure had dropped from 5.15% to 3.97%, Fratantoni said.

Q4 First-time Buyer Housing Affordability

LOS ANGELES First-time buyer housing affordability matched or set new record-high levels in all regions of the state during the fourth quarter of 2010, the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) reported today. Led by historic-low interest rates and a slight decline in home prices, housing affordability surpassed or maintained current levels in both quarter-over-quarter and year-over-year comparisons statewide.
The percentage of first-time buyers who could afford to purchase an entry-level home in California rose to 69 percent in the fourth quarter of 2010, matching the record-high set in the first quarter of 2009, according to C.A.R.’s First-time Buyer Housing Affordability Index (FTB-HAI). In the third quarter of 2010, the Index was 66 percent, and was 64 percent in the fourth quarter of 2009, C.A.R. reported.

C.A.R.’s FTB-HAI measures the percentage of households that can afford to purchase an entry-level home in California. C.A.R. also reports first-time buyer indexes for regions and select counties within the state. The Index is considered the most-fundamental measure of housing well-being for first-time buyers in the state.

“With incomes better aligned with home prices during the fourth quarter, affordability matched or exceeded record-high levels across the counties and regions of the state,” said C.A.R. President Beth L. Peerce. “While this is an encouraging development, prospective home buyers want to see a recovery in the economy and have more confidence in their own personal situation before they’re willing to take advantage of higher affordability.”

Mortgage rates in the fourth quarter were more than one percentage point lower than the year prior, enabling first-buyers with lower incomes to enter the homeownership arena. First-time buyers, who typically purchase homes equal to 85 percent of an area’s prevailing median price, needed to earn a minimum annual income of $39,600 to qualify for the purchase of an entry-level home of $256,220 during the fourth quarter. The monthly payment, including taxes and insurance, was $1,320, assuming a 10 percent down payment and an adjustable effective interest rate of 3.39 percent.

At 85 percent, the High Desert region was the most affordable area in the state. Although affordability for first-time buyers increased in the San Francisco Bay region, the region was the least affordable in the state at 55 percent, followed by the San Luis Obispo County and Santa Clara County regions, both at 57 percent.

Bankrupt Bay Area homeowners shed second mortgages

By Pete Carey
pcarey@mercurynews.com

Posted: 05/09/2011 09:10:53 AM PDT

Updated: 05/09/2011 03:13:28 PM PDT

Stung by the crash of the housing market, some struggling homeowners are using a little known but increasingly popular provision of the bankruptcy code to eliminate second mortgages and avoid foreclosure.

Statistics are hard to come by, but bankruptcy lawyers say the provision has been used effectively on hundreds, if not thousands, of cases in the Bay Area during the past two years.

"It's a big thing in our valley," said James "Ike" Shulman, a San Jose bankruptcy lawyer. "But it's not widely known."

Shulman, co-founder of the National Association of Consumer Bankruptcy Attorneys, said he has helped a number of clients who have filed for personal bankruptcy use the law to hold on to their houses -- including three last week.

Cathy Moran, a Mountain View bankruptcy lawyer, said one of her clients had a $132,000 second mortgage voided by the court.

"This is a really big-ticket issue that allows people to keep a home and conform the mortgage to something closer to real value," Moran said.

Bankruptcy laws prevent homeowners from eliminating the debt of a first mortgage if they plan to stay in their home. But second mortgages are treated differently. They can be declared unsecured debt when there is no equity to cover them, as is the case for millions of houses that are now worth far less than a few years ago.

When that happens in a personal bankruptcy proceeding, the second mortgage is put on hold and no payments are required while the homeowner completes a repayment plan for other debts -- which typically takes three to five years. At that point, the second mortgage is eliminated.


Many of these second mortgages were granted during the housing bubble, when home prices were going in one direction only -- up, up and up.

"A lot of these are loans that shouldn't have been made at all," said Henry Sommer, editor of Collier on Bankruptcy, a publication on bankruptcy law.

One of Shulman's clients, Veronica -- who asked that her full name not be used -- was struggling to keep the San Jose house she bought in 2005 for $612,000.

Her home's value has dropped to about $367,000 -- less than her first mortgage of $489,000 -- which allowed her to petition the bankruptcy court to set aside her $122,000 second mortgage. The court granted her motion.

She successfully completed her payment plan for other debts two months ago, and her second mortgage is now eliminated.

"It's wonderful," she said. "After almost six years, I am finally able to see the light at the end of the tunnel and I'm so, so grateful."

Mortgage bankers don't like the practice.

It's "a troublesome phenomenon. It's one of those things that's just now developing and bubbling up," said Dustin Hobbs, spokesman for the California Mortgage Bankers Association. But there is little the mortgage industry can do, aside from seeking to change the law. That could be difficult given the current partisan lineup in Washington.

And there are no complaints from investors in first mortgages, like the pension and retirement funds represented by the Association of Mortgage Investors. "We think with the right controls, something like this to allow a responsible, distressed homeowner to reorganize their assets, liabilities and cash flows is a very pro-business proposition," said Chris Katopis, the association's executive director. "We disagree with what the mortgage bankers associations are saying on this."

The law has been like this for years, bankruptcy lawyers say. It's just never been used as much because in the past there was usually enough equity in a home to cover the second mortgage.

"We're having great results" using the rule, said Brette Evans, a San Jose bankruptcy lawyer. In one recent case, a small-business owner was able to hang on to her home by setting aside a $240,000 second mortgage, she said.

That put the borrower in "a safe zone" where she could work out a modification of her first mortgage, Evans said.

75 Percent of Refinancing Homeowners Maintain or Reduce Debt in First Quarter

Real Cash-Out Volume Reaches 15-Year Low
MCLEAN, Va., May 5, 2011 /PRNewswire/ -- Freddie Mac (OTC: FMCC) released the results of its first quarter refinance analysis showing homeowners who refinance continue to strengthen their fiscal house.

News Facts

• In the first quarter of 2011, 3-out-of-4 homeowners who refinanced their first-lien home mortgage either maintained about the same loan amount or lowered their principal balance by paying-in additional money at the closing table. Fifty-four percent maintained about the same loan amount, the highest share since 1985, when Freddie Mac began keeping records on refinancing patterns. In addition, 21 percent of refinancing homeowners reduced their principal balance.
• "Cash-out" borrowers, those that increased their loan balance by at least five percent, represented 25 percent of all refinance loans; the average cash-out share over the past 25 years was 62 percent.
• The net dollars of home equity converted to cash as part of a refinance, adjusted for inflation, was at the lowest level in 15 years (third quarter of 1996). In the first quarter, an estimated $6.0 billion in net home equity was cashed out during the refinance of conventional prime-credit home mortgages, down from $9.1 billion in the fourth quarter and substantially less than during the peak cash-out refinance volume of $83.7 billion during the second quarter of 2006.
• Among the refinanced loans in Freddie Mac's analysis, the median appreciation of the collateral property was a negative six percent over the median prior loan life of five years. In comparison, the Freddie Mac House Price Index shows a 21 percent decline in its U.S. series between the end of 2005 and end of 2010. Thus, borrowers who refinanced in the first quarter owned homes that had held their value better than the average home, or may reflect value-enhancing improvements that owners had made to their homes during the intervening years.
• The median interest rate reduction for a 30-year fixed-rate mortgage was about 1.2 percentage points, or a savings of about 20 percent in interest costs. Over the first year of the refinance loan life, these borrowers will save over $1,800 in interest payments on a $200,000 loan.