Mortgage Recovery Still Rocky

Could Housing Be the Antidote to the 'Fiscal Cliff'?
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Home prices and home buyer confidence are rising in tandem, as the housing recovery appears to be gaining steam, even into the winter months.

A drop in sales of distressed properties are largely to thank for both. Just under 34 percent of homes sold in November were either foreclosures or short sales, according to a new report from Inside Mortgage Finance. That's the lowest level in three years, down from a record high of nearly 46 percent in 2011.

"Current homeowners are continuing to drive the recovery of the housing market," according to IMF's latest HousingPulse. "In November, current homeowners accounted for 46.3 percent of the total home purchase transactions tracked. This was the highest level ever recorded in the HousingPulse survey and was up from 44.8 percent a year earlier." (Read More: Housing's Repo Man Is Back)

Up to now the housing recovery had been fuelled by investors buying up thousands of distressed properties, the bulk of them in western states like Arizona, Nevada and California. This helped shrink supplies in those states and boost prices by double digits. While it may seem like the distress is quickly flying out of the market, that may not be the case just yet. (Read More: Best US Housing Markets for Buyers and Sellers)

The percentage of mortgages 30 to 59 days past due rose just over 10 percent in the third quarter of this year from the previous quarter and is now up 3.6 percent from a year ago, according to a new report from the Office of the Comptroller of the Currency (OCC).

Seriously delinquent mortgages, defined as 60 or more days past due, remained unchanged from the previous quarter and are down nearly 11 percent from a year ago.

The big drop in seriously delinquent loans this year is largely due to new, more aggressive loan modifications by the nation's largest banks under the National Mortgage Settlement signed early this year. This followed the so-called "robo-signing" foreclosure paperwork scandal. Those modifications include billions of dollars in collective principal reduction; that type of modification results in a far lower re-default rate than other modifications that just offer interest rate reductions or forbearance. (Read More: Rising Mortgage Rates Spook Housing )

The trouble is, the banks are close to finishing their obligations under the settlement, and the largest, Bank of America, will not continue to offer principal reduction afterward.

"The programs then going forward will provide for similar relief, but I think we have offered principal reduction to all our borrowers — all the people we own, the asset that we can actually offer to that's been done," said Bank of America CEO Brian Moynihan in an interview last week.

Another report Friday from Lender Processing Services showed a monthly increase in the U.S. loan delinquency rate in November. As it stands now, 7.12 percent of loans are 30-plus days past due, but not yet in foreclosure, and 3.51 percent are in the foreclosure process. Add it up and 5.35 million loans are still in some kind of trouble, according to LPS, as big banks finish their obligations under the settlement.

—By CNBC's Diana Olick; Follow her on Twitter @Diana_Olick or on Facebook at

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