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Residential Prices and LIBOR’s End

loan defects in application formFrom rent and home price appreciation to loan performance and the end of LIBOR, CoreLogic’s latest Market Pulse report reviews the most important data for servicers and lenders alike. According to the report, U.S. single-family rents increased 2.9% year over year in December 2019, while the national CoreLogic Home Price Index increased more than 3% in 2019 and is forecast to rise about 5% in 2020.

CoreLogic found that the nation’s overall delinquency was 3.9% in November 2019, which is a marginal decline from last year’s 4%. November’s reading was the lowest reading for November in more than 20 years.

The share of delinquent mortgages in November historically peaked in 2009 at 11.5%. Since March 2018, the overall delinquency rate each month has been lower than the pre-crisis period from 2000 to 2006. The rate averaged 4.7% during that time.

The report also covered the end of LIBOR. Jacqueline Doty, Executive, Product Management, Collateral Risk Solutions at CoreLogic, explained that the end of LIBOR will impact $1.2 trillion dollars in adjustable-rate mortgages.

"It means that lenders with loans or lines of credit based on the LIBOR index will need to identify and review the terms of all of their LIBOR loans," said Doty. "A portfolio of loans likely contains a wide variety of terms regarding LIBOR, and this will need to be assessed."

LIBOR's end is likely to impact more than lenders and borrowers. According to Fitch Ratings, U.S. RMBS servicers showed an improved awareness of difficulties and implications tied to the anticipated expiration of LIBOR at the end of 2021.

To help facilitate the likely transition away from LIBOR, Doty notes that the Federal Reserve convened a working group called the Alternative Reference Rates Committee. The ARRC has recommended an alternative to the LIBOR index called the Secured Overnight Financing Rate (SOFR) and has started promoting its use on a voluntary basis.

Lenders may need to face modification. Between now and the end of LIBOR, there’s a good possibility that many loans will need to be modified because the fallback provisions are either nonexistent, unclear or impractical.

"For example, in some cases, the margin cannot be adjusted and it is either too high or too low when added to the new alternate index," Doty said.

But there’s no need to panic just yet," she adds. "The good news is there’s still time to successfully manage a smooth and efficient transition. Now is a good time for lenders to start auditing their loan data and documents and planning for fulfillment of amendments or borrower notifications."

About Author: Seth Welborn

Seth Welborn is a Harding University graduate with a degree in English and a minor in writing. He is a contributing writer for MReport. An East Texas Native, he has studied abroad in Athens, Greece and works part-time as a photographer.
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