Recession or not?

A summer of modest economic growth is helping dispel lingering fears that another recession might be near. Whether the strength can be sustained is less certain. The economy grew at an annual rate of 2.5% in the July-September quarter, the Commerce Department said Thursday. But the growth was fueled by Americans who spent more while earning less and by businesses that invested in machines and computers, not workers. The expansion, the best quarterly growth in a year, came as a relief after anemic growth in the first half of the year, weeks of wild stock market shifts and the weakest consumer confidence since the height of the Great Recession. The economy would have to grow at nearly double the third-quarter pace to make a dent in the unemployment rate, which has stayed near 9% since the recession officially ended more than two years ago. For the more than 14 million Americans who are out of work and want a job, that's discouraging news. And for President Barack Obama and incumbent members of Congress, it means they'll be facing voters with unemployment near 9%. "It is still a very weak economy out there," said David Wyss, former chief economist at Standard & Poor's. For now, the report on US gross domestic product, or GDP, sketched a more optimistic picture for an economy that only two months ago seemed at risk of another recession.

Some economists doubt the economy can maintain its modest third-quarter pace. US lawmakers are debating deep cuts in federal spending next year that would drag on growth. And state and local governments have been slashing budgets for more than a year. Obama's $447 billion jobs plan was blocked by Republicans, meaning that a Social Security tax cut that put an extra $1,000 to $2,000 this year in most American's pockets could expire in January. So could extended unemployment benefits. They have been a key source of income for many people out of work for more than six months. Nor is the economy likely to get a lift from the depressed housing market. Typically, home construction drives growth during an economic recovery. But builders have been contributing much less to the economy this time. Wyss said that the collapse of housing had probably depressed annual growth by as much as 1.5 percentage points in the past two years. Paul Ashworth, chief US economist for Capital Economics, predicts that growth will cool in the fourth quarter and next year. "While our baseline forecast does not include an outright contraction, we expect GDP growth to average a very lackluster 1.5% next year," Ashworth said in a note to clients.

California pulls out of foreclosure talks

The state of California pulled out of multi-state mortgage negotiations with large US banks, dealing a sharp blow to long-running efforts to secure a broad settlement over allegations of lending abuses. California Attorney General Kamala Harris wrote in a letter on Friday that she will pursue her own investigation. "California was being asked for a broader release of claims than we can accept and ... the relief contemplated would allow too few California homeowners to stay in their homes," Harris said in the letter to government officials leading the talks. New York had exited the talks in August over a disagreement about how much legal immunity the banks should receive in any settlement. Representatives of the banks met with Harris last week in an attempt to keep California on board. The state has faced some of the worst default rates in the country, with an unemployment rate of 12.1% and two million residents who owe more on their mortgage than their home is worth. Eight of the 10 hardest hit US cities in terms of foreclosure rates are in California, Harris said. State and federal officials have discussed penalties totaling roughly $20 billion from institutions that include Bank of America,
JP Morgan Chase, Wells Fargo and Citigroup.

friction in Obama's refi proposal

"The response to President Obama's recent proposal to refinance more borrowers into lower interest rate mortgages was at best underwhelming and at worst scathing. The plan would expand the government's so-far disappointing, Home Affordable Refinance Program (HARP), which helps current but underwater borrowers with Fannie Mae and Freddie Mac loans to refinance. 'Mr. President, the housing market is the foundation of the US economy. It is cracked and chipping away,' writes Florida real estate consultant Jack McCabe in an editorial in the Herald-Tribune. 'The walls are beginning to cave. Your answer, anecdotally, seems to be put a new roof on it.' McCabe is calling for principal write-down for troubled mortgages, not refinances for borrowers who are current on their monthly payments. The argument so far against principal write-down is that it would cost banks and investors (including Fannie Mae and Freddie Mac) too much.

Unfortunately the plan, which could allow borrowers with more than 25% in negative equity to refinance, is being deemed too costly as well. While the Congressional Budget Office estimated it would cost investors in the original mortgages between $13
and $15 billion (while potentially saving 111,000 borrowers from defaulting), analysts at JP Morgan Chase say it would cost more: If such a policy were successful on a large scale, it would clearly devalue higher coupons, and would threaten lower coupons
with incremental gross supply. A more modest HARP overhaul, while less disruptive, still forces investors to require more conservative valuations until details emerge.

All these arguments, however, may be moot, as the overseer of Fannie Mae and Freddie Mac, the Federal Housing Finance Agency (FHFA), which would have to approve the refinance effort, is sounding wildly cautious. In a statement following the President's speech, Director Ed DeMarco states, 'If there are frictions associated with the origination of HARP loans that can be eased while still achieving the program's intent of assisting borrowers and reducing credit risk for the Enterprises, we will seek to do so.' He goes on to say, however, that there are 'several challenging issues to work through,' and then he uses the word 'uncertain' twice in characterizing any outcome. While DeMarco doesn't detail said 'frictions,' they are vast and not limited to investor cost. First of all, too many borrowers probably still wouldn't qualify if they just did away with the loan to value ratio of 125%. Of the 838,400 HARP refinancings done so far, only 62,432 had LTVs above 105%, according to Jaret Seiberg at MF Global. 'We believe lenders are reluctant to HARP a loan if they fear the borrower is so underwater that they might default anyway,' writes Seiberg. Then there are issues of loan origination dates, put-backs on loans that default and borrower qualifications. Frictions. Beyond the friction, however, is the simple fact that a refinance program, while potentially an economic stimulus, is not a housing stimulus and shouldn't be characterized as such. The HARP program is and always was for current borrowers and does nothing to address the millions of non-current borrowers, bank-owned foreclosed homes and falling home prices."

US to sue banks

The Federal Housing Finance Agency, which oversees the mortgage giants Fannie Mae and Freddie Mac, is set to file suits against more than a dozen big banks, accusing them f misrepresenting the quality of mortgage securities they assembled and sold at the height of the housing bubble, and seeking billions of dollars in compensation.

The Federal Housing Finance Agency suits, which are expected to be filed in the coming days in federal court, are aimed at Bank of America, JPMorgan Chase, Goldman Sachs and Deutsche Bank, among others. The suits will argue the banks, which assembled the mortgages and marketed them as securities to investors, failed to perform the due diligence required under securities law and missed evidence that borrowers’ incomes were inflated or falsified. When many borrowers were unable to pay their mortgages, the securities backed by the mortgages quickly lost value. Fannie and Freddie lost more than $30 billion, in part as a result of the deals, losses that were borne mostly by taxpayers. In July, the agency filed suit against UBS, another major mortgage securitizer, seeking to recover at least $900 million, and the individuals with knowledge of the case said the new litigation would be similar in scope.

Delinquencies Rise, Foreclosures Fall in Latest MBA Mortgage

The delinquency rate for mortgage loans on one-to-four-unit residential properties increased to a seasonally adjusted rate of 8.44 percent of all loans outstanding as of the end of the second quarter of 2011, an increase of 12 basis points from the first
quarter of 2011, and a decrease of 141 basis points from one year ago, according to the Mortgage Bankers Association's (MBA) National Delinquency Survey. The non-seasonally adjusted delinquency rate increased 32 basis points to 8.11 percent this
quarter from 7.79 percent last quarter. The percentage of loans on which foreclosure actions were started during the second quarter was 0.96 percent, down 12 basis points from last quarter and down 15 basis points from one year ago.

The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure. The percentage of loans in the foreclosure process at the end of the second quarter was 4.43 percent, down 9 basis
points from the first quarter and 14 basis points lower than one year ago. The serious delinquency rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 7.85 percent, a decrease of 25 basis points from last quarter, and a decrease of 126 basis points from the second quarter of last year. The combined percentage of loans in foreclosure or at least one payment past due was 12.54 percent on a non-seasonally adjusted basis, a 23 basis point increase from last quarter, but was 143 basis points lower than a year ago.

Mortgage delinquencies are no longer improving and are now showing some signs of worsening," said Jay Brinkmann, MBA's Chief Economist. Foreclosure inventory rates also fell, to their lowest level since the third quarter of 2010. While some have
argued that this drop in foreclosures is a temporary drop which does not reflect the problems yet to come, this does not appear to be the case, at least at the national level.

Shadow inventory improves but still threatens housing recovery

Despite all those millions of distressed properties out on sale, depressing home prices even further, there is one glimmer of hope according Standard & Poor. According to the report the time it would take for banks to purge all of this so-called "shadow inventory" from the market (through foreclosure sales, mortgage modifications and other measures) shrunk to 47 months during the second quarter, a significant drop from the 52 months it estimated for the first quarter of this year. The report also found that the total dollar value of the loans on these properties -- known as non-agency loans because they are not backed by Fannie Mae, Freddie Mac or the Federal Housing Administration -- also fell to $405 billion at the end of June from $433 billion three months earlier. S&P said the decline was helped by stabilizing liquidation rates and by fewer borrowers falling behind on their mortgage payments as the economy slowly recovered during the quarter.

S&P estimates that there are still a total of between 4 million and 5 million homes, including those with agency-backed loans, in shadow inventory, an amount that continues to jeopardize the housing market's recovery. Nevertheless, Fannie and Freddie are looking to rid themselves of a large percentage the shadow inventory they do have -- and quickly. Earlier this month, the Federal Housing Finance Agency (FHFA), the Treasury Department and the U.S. Department of Housing and Urban Development were
seeking suggestions on how to dispose all the repossessed homes now owned by Fannie Mae, Freddie Mac and the Federal Housing Administration in a way that would benefit local communities.

Home Builders Face New Hurdles

Builders are on track to construct the fewest single family homes in history this year. Total housing starts in July were down 1.7 percent, month to month, which may not sound like a lot, but when you break the number down, you see the problem. Single family starts were down 4.9 percent, while Multi-family starts rose 6.3 percent. Rental demand continues to rise, as consumer confidence in homeownership was decimated yet again by the recent debt turmoil in the economy. I am reporting these numbers today from a construction site. Mid-Atlantic Builders of Rockville, MD is putting up the last phase of a large single family development out in Bowie, MD, which is about 15 minutes outside the DC Beltway. According to executive VP Stephen Paul, "We started what we call the spring market in February. We started out very strong, we had a good February, March, even into April. What started to cause consumer confidence to wane was the escalation of gas prices, the debt issue with the government, and what's going on in Europe." In other words: Confidence. "We see people not sure what to do at this moment and a little unsure," adds Paul, though he is confident that things will pick up this Fall, but housing analysts aren't so sure. "The market is continuing to adjust to a reduction in the national home ownership rate at the same time the supply of existing single family homes remain excessive," writes Peter Boockvar at Miller Tabak. Builder Stephen Paul told me of a new trend I'd heard of only anecdotally: We're seeing more multi-generational families moving into our homes, so we're selling in-law suites, with the regular part of the house, and the parents are moving in and actually helping pay, funding the mortgage, so that's helping with the affordability." That's precisely why we are seeing a drop in household formation. Add that to the surge in renting and it's pretty clear why the nation's home builders are in for a long
haul back to recovery.

NAR - existing home sales down

Existing-home sales eased in June as contract cancellations spiked unexpectedly, although prices were up slightly, according to the National Association of Realtors (NAR). Sales gains in the Midwest and South were offset by declines in the Northeast and West. Single-family home sales were stable while the condo sector weakened. Total existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, declined 0.8% to a seasonally adjusted annual rate of 4.77 million in June from 4.81 million in May, and remain 8.8% below the 5.23 million unit level in June 2010, which was the scheduled closing deadline for the home buyer tax credit. The national median existing-home price for all housing types was $184,300 in June, up 0.8% from June 2010. Distressed homes – foreclosures and short sales generally sold at deep discounts – accounted for 30% of sales in June, compared with 31% in May and 32% in June 2010. According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage was 4.51% in June, down from 4.64% in May; the rate was 4.74% in June 2010.

Total housing inventory at the end of June rose 3.3% to 3.77 million existing homes available for sale, which represents a 9.5-month supply at the current sales pace, up from a 9.1-month supply in May. All-cash transactions accounted for 29% of sales in June; they were 30% in May and 24% in June 2010; investors account for the bulk of cash purchases. First-time buyers purchased 31% of homes in June, down from 36% in May; they were 43% in June 2010 when the tax credit was in place. Investors accounted for 19% of purchase activity in June, unchanged from May; they were 13% in June 2010. The balance of sales was to repeat buyers, which were a 50% market share in June, up from 45% in May, which appears to be a normal seasonal gain.

Single-family home sales were unchanged at a seasonally adjusted annual rate of 4.24 million in June, but are 7.4% below a 4.58 million pace in June 2010. The median existing single-family home price was $184,600 in June, up 0.6% from a year ago. Existing condominium and co-op sales fell 7.0% to a seasonally adjusted annual rate of 530,000 in June from 570,000 in May, and are 18.0% below the 646,000-unit level a year ago. The median existing condo price5 was $182,300 in June, up 1.8% from June 2010.

Regionally, existing-home sales in the Northeast fell 5.2% to anannual pace of 730,000 in June and are 17.0% below June 2010. Themedian price in the Northeast was $261,000, up 3.1% from a yearago. Existing-home sales in the Midwest rose 1.0% in June to a pace of 1.04 million but are 14.0% below a year ago. The medianprice in the Midwest was $147,700, down 5.3% from June 2010. Inthe South, existing-home sales increased 0.5% to an annual level of 1.86 million in June but are 5.6% below June 2010. The medianprice in the South was $159,100, down 0.1% from a year ago.Existing-home sales in the West declined 1.7% to an annual paceof 1.14 million in June and are 2.6% below a year ago. The median price in the West was $240,400, up 9.5% from June 2010.

Home prices trending up

Home prices and inventory levels are trending upward in many US cities tracked by Altos Research, according to the firm's latest Housing Market Update. The median national home price for all 26 markets covered by Altos hit $450,358 in June, up from $444,273 in May. Meanwhile, in the past three months, listing prices rose 2.31% and inventory levels grew 3.52%. The only city to report a drop in home prices in June was Las Vegas and even that was amere 0.86% decline when compared to the month before. When analyzing home price data for the past three months, both New York and Las Vegas experienced falling prices, reporting drops of 2.2% and 1.61%, respectively, Altos said.

Inventory rose in 12 of the major markets tracked by Altos last month, while falling in the remaining 14 composite cities. The biggest inventory jump occurred in Boston, with the city's inventory level rising to 5.8%. Phoenix, on the other hand, experienced the largest inventory level drop, falling 7.93%. Even though the 90-day home price trends rose somewhat, Altos said a weekly sample taken from the month of June still shows a "slight flattening" in home prices. Comparatively, the latest S&P/Case Shiller report said the average price of a single-family home rose for the first time in eight months during the month of April. Altos suspects the S&P/Case-Shiller will be reporting a few positive trends through September. At the same time when looking forward, Altos foresees a slowing or plateau of home prices in the fourth quarter.

MBA - mortgage applications decrease

Mortgage applications decreased 5.1% from one week earlier, according to data from the Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey for the week ending July 8, 2011. This week's results include an adjustment to account for the Fourth of July holiday. The Market Composite Index, a measure of mortgage loan application volume, decreased 5.1% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 24.0% compared with the previous week. The seasonally adjusted Purchase Index decreased 2.6% from one week earlier. The unadjusted Purchase Index decreased 21.9% compared with the previous week and was 0.2% lower than the same week one year ago. The Refinance Index decreased 6.2% from the previous week, and was 42.1% lower than a year ago. The Refinance Index has decreased the past four consecutive weeks, reaching its lowest level since April 29, 2011. The Refinance Index is not seasonally adjusted but is adjusted for the holiday.

The four week moving average for the seasonally adjusted Market Index is down 4.7%. The four week moving average is down 1.0% for the seasonally adjusted Purchase Index, while this average is down 6.3% for the Refinance Index. The refinance share of mortgage activity decreased to 65.6% of total applications from 66.4% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 5.5% from 6.1% of total applications from the previous week.

household shifts could affect recovery

"Every now and then you need to take a step back and put the housing market into perspective, take a break from all the monthly motions and commotions, stress and distress. Today I read a report that did just that. It takes a big-picture snapshot of how housing has fundamentally changed over the past several decades, which could have a big impact on its future as the industry rebuilds itself, literally and economically.

The report, from John Burns Real Estate Consulting's Chris Porter, is titled simply, Tremendous Demographic Shift.' And the numbers are pretty tremendous. 'The number of non-family households—people living alone or households that do not have any members related to the householder—has increased nearly five times in the last 50 years, from 7.9 million to 39.2 million. At the same time, the number of family households has increased by just 1.7 times, from 45.1 million to 77.5 million,' according to Porter. In addition, married couples have dropped to less than half of all US households from 75% in 1960. So let's think about the current housing stock, much of which is more than 50 years old. We've recently seen a downsizing trend for several reasons, namely the weak economy and builders constructing cheaper homes to meet the demand but also the environmental movement and the high cost of energy.

But this comes right after the 'McMansion' era when oversized homes were all the rage. Those homes, of course, still exist in vast quantities, despite the fact that there are, according to this report, fewer big family households and therefore less need for large square footage. We've also talked a lot about the surge in renting; we've blamed it on the housing crash, fear of buying into a depreciating market and the tight credit conditions that are pricing many potential buyers out. Perhaps there's more to it than that as well. Perhaps with fewer large family households and less desire for a big space, smaller, full-service rental apartments are more desirable to a growing segment of the population. 'Family households are more likely to stretch for size over location. Non-family households are more likely to value location—proximity to work, entertainment,etc.—and then size. They are less willing to commute than a family household,' noted Porter. We also have to look at the growing population of Americans who intend to 'age in place,' that is, the baby boomers who are moving out of the big family homes but not into what we used to call 'retirement homes.' Now they're 'active adult communities,' with smaller one-story homes. That demographic, though, plays against a growing demographic of Hispanic Americans. The average Hispanic household is statistically larger than the national average.

So what should home builders and housing watchers take from all this?

Obviously there are and always will be large families in the suburbs who want to live in big houses. There will always be wealthy Americans who desire to live in spaces that far exceed their needs. But the shift in household size cannot simply be considered anecdotal. When you couple that shift with a much-changed mortgage market, one that prices so many more Americans out of larger, move-up homes, you have to be concerned about what happens to the stock of larger homes, old and new. Do we see huge price reductions as demand falters?"

Retailers have strong June sales

American consumers that were enticed by warmer weather and deep discounts of up to 80% on summer merchandise went on a buying binge in June, helping many retailers deliver robust revenue gains for what is typically the second-biggest shopping month of the year. Big merchants Target Corp., Costco Wholesale Corp., Limited Brands Inc. as well as teen retailers such as The Buckle were among the companies that posted June results that beat Wall Street estimates. The few stragglers included Destination Maternity Corp. and Bon Ton Stores, which reported declines. The figures are based on revenue at stores opened at least a year. This measure is considered a key indicator of a retailer's health because it excludes results from stores opened or closed during the year. June is the second most important month on a retailers' sales calendar behind December. During the month, stores typically clear out summer merchandise to make room for fall goods. But this time, it took deep discounts of up to 80% to get shoppers to buy amid worries about the economy.

Analysts fear that retailers have not quite turned a corner. After all, gas prices are still 35% higher than last year at this time. Moreover, prices in the food aisle remain high and this fall, shoppers will be seeing the price tags of fashion and accessories rise as retailers try to offset higher labor costs in China and soaring prices of raw materials like cotton. Shoppers' biggest concerns remain a weak job recovery and stagnant wages. These worries sent consumer confidence to a seven-year low in June, according to the Conference Board's survey released last
week. In fact, consumer confidence has never been this low in the 24th month of a recovery, according to David A. Rosenberg, chief economist and investment strategist at the Toronto-based money management firm Gluskin Sheff. Historically at the two-year mark, confidence is at 94, not 58.5, which was recorded by The Conference Board's June survey.

Wells Fargo modification outnumber Obama's 5 to 1

Wells Fargo completed or started trials on roughly 585,000 mortgage modifications through its private programs since the beginning of 2009, more than five times the 101,000 initiated through the Home Affordable Modification Program (HAMP). HAMP launched in March 2009 but almost immediately drew criticism. Treasury officials admit the more than 3 million modifications initially promised was over estimated. Through May, servicers started roughly 731,000 permanent loan modifications and have been averaging between 25,000 and 30,000 per month this year. According to a recent poll of housing counselors, only 9% of borrowers who entered the program described it as a "positive" experience. Homeowners continually blame servicers for mishandling documentation. Overwhelmed servicers point out many borrowers are simply out of reach. "Avoiding foreclosure is a top priority for us and when customers work with us, we can help seven of every 10 to stay out of foreclosure," said Teri Schrettenbrunner, senior vice president, Wells Fargo Home Mortgage.

The Treasury points out most of the private programs built since the foreclosure crisis use HAMP as a model. But since mishandled foreclosure and modification processes came to light late last year, new standards were put in place, including a single point of contact that servicers are required to provide throughout the loss-mitigation process. The Treasury began to clamp down on poorly performing servicers — at least to the extent their contracts with these firms allow. In June, the Treasury announced it was withholding HAMP payments from Bank of America, JPMorgan Chase and Wells. Schrettenbrunner said the bank continues to build on its primary contact model it established last summer, and the bank has met with 58,000 borrowers at 31 home preservation workshops. Half of those received a decision on the spot or shortly after the event. Schrettenbrunner said the department continues to "aggressively reach out" to borrowers behind on payments to bridge the communication gap as quickly as possible. "We also continue to aggressively reach out to customers 60 or more days behind on their home loans via mail and telephone in an effort to engage them," Schrettenbrunner said.

NAR - existing home sales decline

According to the National Association of Realtors (NAR), Existing-home sales, (completed transactions that include single-family, townhomes, condominiums and co-ops), fell 3.8% to a seasonally adjusted annual rate of 4.81 million in May from a downwardly revised 5.00 million in April, and are 15.3% below a 5.68 million pace in May 2010 when sales were surging to beat the deadline for the home buyer tax credit. There were notable regional differences in home sales. “A large decline in Midwestern existing-home sales can be attributed partly to the flooding and other severe weather patterns that occurred, but this also implies a temporary nature of soft market activity,” Lawrence Yun, NAR chief economist, explained.

The national median existing-home price for all housing types was $166,500 in May, down 4.6% from May 2010. Distressed homes3 – typically sold at a discount of about 20% – accounted for 31% of sales in May, down from 37% in April; they were 31% in May 2010. NAR President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I., said a number of proposals being considered in Washington could further jeopardize the housing recovery. “We’re concerned about the flow of available capital, including a possible rule that would effectively raise minimum downpayment requirements to 20%,” he said. “We don’t need to throw the baby out with the bath water – increasing downpayment requirements would effectively shut many qualified families out of the market. What we critically need is a return to the basics of providing safe mortgages to creditworthy buyers willing to stay well within their budget.”

WSJ - tighter lending hurts housing

The percentage of mortgage applications rejected by the nation's largest lenders increased last year, spotlighting how banks' cautious lending practices are hampering the nascent housing market recovery. In all, the nation's 10 largest mortgage lenders denied 26.8% of loan applications in 2010, an increase from 23.5% in 2009, according to an analysis by The Wall Street Journal of mortgage data filed with banking regulators. Although lenders were expected to pull back from the freewheeling conditions that helped inflate the housing bubble, some economists argue they are now too conservative, and say that with the US economy still wobbly, mortgages need to be easier to obtain for qualified borrowers, not harder. "As the noose on credit availability tightens, credit is being choked off at a time when the housing market is extremely fragile," says Laurie Goodman, senior managing director at Amherst Securities Group LP.

Christopher Thornberg, a housing economist at Beacon Economics in Los Angeles, counters that "banks are doing what they need to do" to change lending standards in the wake of a "crazy bubble.” He adds, "You had decades where credit standards were tougher than they are even now."

Among the would-be borrowers having a harder time are those who have seen their incomes fall or interrupted by a period of unemployment, scenarios that have become increasingly common in recent years. Some self-employed applicants are also hitting barriers to loans—hurdles they didn't face in the past. Lending standards are still tight in part because government entities Fannie Mae, Freddie Mac, and the Federal Housing Administration, which collectively account for more than nine in 10 loans being made today, are under heavy pressure to avoid any losses. Those firms don't make loans directly but instead purchase or guarantee mortgages that meet their standards, and so have significant influence over which loans banks are willing to approve.

WSJ - mortgage rates flat

Mortgage rates changed little for a second straight week,according to the latest survey from Freddie Mac. Mortgage ratesgenerally track Treasury yields, which move inversely to Treasury prices. Rates have slumped for months as yields on Treasury’sslid amid economic uncertainty. Freddie Mac Chief EconomistFrank Nothaft pointed to more signs of a softening US housing market, including the Federal Reserve's policy-committee statement on Wednesday, which acknowledged continued weakness in the sector. "Although new construction on single-family homes ticked up in May from April, it was still below the overall pace set in 2010," Mr. Nothaft said. "Moreover, existing home sales fell 3.8% in May to the fewest since November 2010."

The 30-year fixed-rate mortgage was at 4.5% in the week ended Thursday, the same rate as in the previous week, though the rate was below last year's 4.69% average. The 30-year rate has fallen steadily since reaching the 2011 high of 5.05% in early February. Rates on 15-year fixed-rate mortgages edged up to 3.69% from 3.67% the previous week but were down from 4.13% a year earlier.

Five-year Treasury-indexed hybrid adjustable-rate mortgages decreased to 3.25%, down from 3.27% last week and 3.84% a year earlier. One-year Treasury-indexed ARM rates ticked up to 2.99% from 2.97% the prior week, but still well below the prior year's 3.77% rate. To obtain the rates, 30-year and 15-year fixed-rate borrowers required an average payment of 0.8 point and 0.7 point, respectively. Five-year hybrid adjustable rate mortgages required a 0.6-point payment, while one-year adjustable-rate mortgages required a 0.5-point payment. A point is 1% of the mortgage amount, charged as prepaid interest.

Q1 mortgage volume drops
Independent mortgage banks and subsidiaries made an average profit of $346 on each loan they originated in the first quarter of 2011, down from $1,082 per loan in the fourth quarter of 2010, according to the Mortgage Bankers Association’s (MBA) First Quarter 2011 Mortgage Bankers Performance Report released yesterday. “Mortgage origination volume in the first quarter of 2011 dropped significantly from the refinance-heavy fourth quarter of 2010. As in the past, mortgage companies had difficulty managing staff levels to reflect the drop in loan volume. This caused higher per-loan production costs. Even though overall revenues went up, they did not go up fast enough to offset the higher costs,” said Marina Walsh, MBA's Associate Vice President of Industry Analysis. Walsh continued, “In the first quarter of 2011, changes in compensation plans and investor expectations are additional factors that likely drove up loan production expenses per loan to the highest levels ever reported for this study.”

Among the other key findings of MBA’s Quarterly Mortgage Bankers Performance Report are:

- Average production volume was $164 million per company in the first quarter of 2011, down from $286 million per company in the fourth quarter of 2010.

- The refinance share of total originations by dollar amount for this sample of independent mortgage bankers and subsidiaries was 50% in the first quarter of 2011, compared to 63% in the fourth quarter of 2010.

- Average loan balances dropped to $196,456 in the first quarter of 2011, from $208,319 in the fourth quarter of 2010.

- Measured in basis points, net secondary marketing income rose to 201 basis points in the first quarter 2011, compared to 188 basis points in the fourth quarter of 2010. But with the decreasing average loan balances, net secondary marketing income dropped to $3,827 per loan in the first quarter of 2011, from $3,870 per loan in the fourth quarter of 2010.

- Personnel expense drove the majority of the change in net production income, rising to $3,640 per loan in the first quarter of 2011, compared to $3,124 per loan in the fourth quarter of 2010.

- Total production operating expenses - commissions, compensation, occupancy and equipment, and other production expenses and corporate allocations - rose to $5,837 per loan in the first quarter of 2011, compared to $4,930 in the fourth quarter of 2010.

- The "net cost to originate" increased to $3,540 in the first quarter of 2011, from $2,827 per loan in the fourth quarter of 2010. The "net cost to originate" includes all production operating expenses and commissions minus all fee income but excludes secondary marketing gains, capitalized servicing, servicing released premiums and warehouse interest spread.

- 63% of the firms in the study posted pre-tax net financial profits in the first quarter of 2011, compared to 84% in the fourth quarter of 2010.

- Full-year 2010 production profits were $1,054 per loan originated. In comparison, average production profits in 2009 were $1,135 per loan originated and $305 per loan originated in 2008, based on MBA’s Annual Summary Report, which is available free to annual subscribers of MBA’s quarterly reports.

Lenders make short sales even more attractive

CitiMortgage, the mortgage servicing arm of Citigroup is paying borrowers an average $12,000 after completing a short sale this year. Justin Rand, the senior vice president of loss mitigation at the bank, said servicers are putting more of an emphasis on streamlining the process and pursuing a short sale ahead of foreclosure. The short sale process in 2009 took an average 120 days from listing to close. But by reaching out to borrowers instead of waiting for them to ask the bank, short sales now take an average 83 days to complete, Rand said at a panel for the REO Expo Conference in Fort Worth, Texas, earlier this week. "For Citi-held portfolio loans today, we have a little over 16% of delinquent loans in a short sale program," Rand said, adding that increased from roughly 4% two years ago.

Not only are the timelines shrinking to complete these deals, but the incentives paid to qualifying borrowers – again only on loans owned by Citi – increased in recent years as well. In early 2009, Citi offered an average $1,500 to qualifying borrowers. That went up to between $3,000 and $5,000 in 2010 and finally up to an average $12,000 so far in 2011, Rand said. "Incentives will be offered to customers experiencing financial hardship who need funds to proceed with the short sale," a Citi spokesman said. "The amount, which is agreed upon up front, varies according to the borrower's individual circumstances and loan characteristics. It is disbursed to the homeowner when the sale is completed."

The key to a successful short sale, just like modifications, is the timely collection of financial documents. Regulators helped move the process along with guideline changes to programs like the Home Affordable Foreclosure Alternatives initiative, which lessened the amount of documents required. "It took us about 30 days to collect documentation in 2009 to now less than 10 days," Rand said. "A lot of the time, for seriously delinquent loans, all we need is just a letter of authorization from the homeowner." David Sunlin, the operations executive for short sales at Bank of America (BOA) was on the same panel as Rand. He said the entire industry is becoming more proactive. BOA completed more short sales than REO every month for the last year and a half. The short sale department at BOA grew from 150 people to now over 3,000. Each employee handles roughly 75 cases. "We're past the point where we're bumbling around losing files," Sunlin said.

Rand said the big shift began in 2009 as the Treasury Department was putting together plans for the HAFA, which would launch in April 2010. "In 2009, we started a proactive approach, reaching through MLS services and reaching out to real estate agents and customers with underwater mortgages, distressed loans," Rand said. "We're not going to turn anybody away if the short sale meets the net requirement we're looking for."

hard to make a call on housing

[Friday's] report on consumer confidence, or the striking lack of it, is yet another sign that housing is going to be in a very sticky state for a while. It's hard to say whether housing is weighing on confidence or lack of confidence is weighing on housing; the answer lies somewhere in the middle. Next week is a big week for housing because we get the all-important readings on existing and new home sales for May. The pending home sales index, based on contracts signed, not closings, fell dramatically in April, and that has the housing prognosticators building another arc for the flood of bad news yet to come. Home builder sentiment fell in June, largely based on competition from distressed properties and high material costs, but you can bet the builders know we're in for some tough sales numbers in their market as well.

I know I've said this before, but here I go again: All real estate is local, but confidence is national. Potential summer buyers, who are historically few and far between, will be watching the national numbers, as they try to time the bottom of the market, which is of course impossible to do. You can't time the bottom of this market, because it will likely bounce along the bottom for several years. You also have no historical perspective because we've never seen a crash like this ever before. The two greatest factors that will keep us bouncing are the huge volume of distressed properties and uncertainty over the direction of new regulation in the mortgage market.

Regulators pushed back the deadline for a huge decision on risk retention for the mortgage market, and that has talk abounding that the entire proposal is going back to the drawing board. This is the proposal that would require, among many other things, a 20% down payment on loans for them to be exempt from risk retention. Without that, banks would have to hold 5% risk on their books when securitizing the loan.

All this uncertainty in the mortgage market, piled on top of all kinds of new regulations now going into action, just makes lending more expensive for the banks and borrowing more expensive for consumers. It's no surprise that confidence in housing is so low, despite the fact that now may in fact be one of the best times to get into the housing market. You just have to have a long view, which foreign buyers apparently have but Americans sorely lack.

Housing starts up

The number of permits for future housing construction jumped to a
seasonally adjusted annual rate of 612,000 last month, up 8.7%
from the revised rate of 563,000 in April, the Commerce
Department said. It was the highest monthly rate since December
and was much higher than expected, with economists surveyed by
Briefing.com looking for a 548,000 permit rate. Permits for
single-family homes, viewed as a more stable indicator of new
homebuilding activity than permits for multi-family home
construction, ticked up 2.5% from April to a rate of 405,000.
Housing starts, the number of new homes being built, rose 3.5% in
May to an annual rate of 560,000 units from a revised 541,000 in
April, the Commerce Department said. Economists had expected an
annual rate of 540,000 units, according to consensus estimates
from Briefing.com. Construction of single-family homes rose 3.7%
to a rate of 419,000.

While permits are typically viewed as an indication of builders'
confidence in the housing market, the big jump in permits could
have had a lot to do with seasonality, even allowing for the
government's adjustment, said Doug Roberts, chief investment
strategist for Channel Capital Research. Roberts said that this
is the prime time of year to begin construction, given the better
weather. And given the flooding and bad weather in April, many
builders may have gotten off to a late start -- leading to a jump
in permits and housing starts last month. "These are the months
where the most construction occurs, so this increase could be
more of a seasonal blip," he said.

Retail sales down

Total retail sales slipped 0.2% last month, the Commerce
Department reported. The decline broke a winning streak of
consecutive monthly gains going back to June 2010. But from a
year ago, sales were up 8%. Economists had expected a 0.7% drop,
according to consensus estimates from Briefing.com. Declines
were led by a 2.9% slide in sales at motor vehicle and parts
dealers. This drop overshadowed stronger sales at building
material companies and restaurants, which came in the face of
higher gas prices last month. Sales excluding autos and auto
parts were 0.3% higher, beating forecasts for a 0.2% rise.

"The numbers we've been seeing from retailers lately have been
running better than expected, and the number today excluding
autos is better than expected," said Ken Perkins, an analyst at
Retail Metrics. "But there's still definitely a soft patch
unfolding here in terms of economic growth, which I think was
reflected in sales of autos." Perkins said the widespread supply
chain disruptions sparked by the earthquake in Japan were mainly
to blame for the big decline in auto sales last month. But even
taking auto sales out of the mix, many big areas like consumer
electronics and appliances were disappointing, partly due to high
gas prices.

Fannie Freddie are better, but still cash drains

Conservatorship has been good for Fannie Mae and Freddie Mac, but
the companies continue to drain federal resources away from other
government operations, according to the regulator of the mortgage
giants. In its third annual letter to Congress, the Federal
Housing Finance Agency (FHFA ) said stronger loan underwriting
standards enabled the companies to narrow losses in 2010 to $28
billion from $93.6 billion a year earlier. The companies have
received more than $160 billion funding from the Treasury
Department the past few years. "Since being placed under
conservatorship in 2008, Fannie Mae and Freddie Mac remain
critical supervisory concerns," said Edward DeMarco, acting
director of the FHFA. This is a "result of continuing credit
losses in 2010 from loans originated during 2005 through 2007 as
well as forecasted losses from loans originated during that
time." Still, DeMarco said governmental control allowed the
companies to "accomplish their statutory mission of facilitating
stability and liquidity for single-family and multifamily housing
finance."

The FHFA said Fannie and Freddie remain plagued by "credit risk,
operational risk, modeling risks and retention of qualified
leadership and personnel." The companies hold a 60% share of
single-family loan production. As conservator, the FHFA is
tasked with minimizing credit losses at the GSEs, and DeMarco
said more stringent underwriting standards and a stronger price
structure have helped. "Although past business decisions leading
to these losses cannot be undone, each enterprise, under the
oversight and guidance of FHFA as conservator and regulator, has
improved underwriting standards for loan purchases in the past
two years.," he said. "Another way FHFA minimized losses was to
require the enterprises to enforce existing contractual
representation and warranty loan repurchase agreements with
lenders." The FHFA also oversees the dozen Federal Home Loan
Banks and said all 12 reported profits in 2010. Loans to the
banks dropped to $479 billion last year from $631 billion at the
end 2009. The regulator said the banks' financial condition and
performance stabilized in 2010, but several continue "to be
negatively affected by their exposure to private-label
mortgage-backed securities."

Luxury housing leading the recovery

The housing market is showing "signs of improvement" with help
from luxury home sales, Toll Brothers Chief Executive Douglas
Yearley said yesterday. "There are some signs luxury is leading
us out of this a little bit," he said. "We're clearly off the
bottom." But while Toll is a builder of those luxury homes, the
CEO expects sales the rest of the year to be relatively flat.
That's despite 60% of Toll sales coming from the northeast
corridor of Boston to Washington, D.C., which was not hit with
the same housing problems as Las Vegas and Florida, among others.
"I think in pockets we’ll see some success," Yearley said.
"The good news is pricing has definitely stabilized. We’re not
seeing price reductions. In some isolated cases, we have some
pricing power, we’re able to raise prices." He added that
after five or six years of waiting, buyers want "to move on with
their lives and I think they’re done trying to time the perfect
point to get in the market. They’re taking advantage of great
interest rates. Affordability’s at an all-time high…It’s
helping us but we have a long ways to go."

Fed’s Fisher Opposes Extension of QE2

U.S. Federal Reserve Bank of Dallas President Richard Fisher said he opposes any extension of the Fed’s asset purchase program after June, saying inflationary pressures are building “world-wide.” “No further accommodation is needed after June. We can no longer press on the monetary pedal,” Fisher said in a speech at Goethe University in Frankfurt. Fisher has been skeptical of the program, dubbed QE2, saying two weeks ago, that it should prove “demonstrably counterproductive,” and it would be better to discontinue it. Last week, the Fed voted to maintain its key lending target near zero and maintain its planned $600 billion in Treasury purchases through June. As the Fed’s rate-setting board voted to continue the program, he warned of speculative excesses that may be contributing to the rise in oil prices. “We are seeing the signs of all the intoxication” that arises from cheap and available capital, Fisher said.

Mini-budget cuts signed

President Obama signed a budget cutting stop-gap spending bill yesterday after it was passed by the Senate by 91 votes. The bill terminates eight government programs, for savings of $1.24 billion, while an additional $2.7 billion in earmarks are eliminated. On the chopping block were eight programs involving broadband access in rural communities, education, highway construction and the Smithsonian Institution. All eight had been identified by both parties as wasteful and unnecessary. The programs that were cut fall into two umbrella categories: ineffective or duplicative. The bill eliminated $75 million in election assistance grants, which are funds allocated to help states upgrade voting machines and voter rolls.

Since 2002, Washington has pumped $3 billion into the program, but states have only found ways to spend $2 billion. And that rural broadband program? The Agriculture Department's inspector general uncovered "abuses and inconsistencies" as well as "a lack of focus on the rural communities it was intended to serve." The four education programs total $468 million, and are being eliminated for being outdated, ineffective or duplicative. The highway funds, $650 million in total, were originally budgeted as a one-time payment for 2010 but never cut. The remaining $2.7 billion in cuts cover almost 50 different earmark programs that will no longer be funded because House Republicans have instituted a new rule banning that type of spending.

Obama tries to force mortgage deal

WSJ - Obama tries to force mortgage deal

The Obama administration is trying to push through a settlement over mortgage-servicing breakdowns that could force America's largest banks to pay for reductions in loan principal worth billions of dollars. Terms of the administration's proposal include a commitment from mortgage servicers to reduce the loan balances of troubled borrowers who owe more than their homes are worth, people familiar with the matter said. The cost of those writedowns won't be borne by investors who purchased mortgage-backed securities, these people said. If a unified settlement can be reached, some state attorneys general and federal agencies are pushing for banks to pay more than $20 billion in civil fines or to fund a comparable amount of loan modifications for distressed borrowers, these people said. But forging a comprehensive settlement may be difficult. A deal would have to win approval from federal regulators and state attorneys general, as well as some of the nation's largest mortgage ser
vicers, including Bank of America Corp., Wells Fargo & Co, and J.P. Morgan Chase & Co. Those banks declined to comment.

So far, most loan modifications have focused on shrinking monthly payments by lowering interest rates and extending loan terms. Banks, as well as mortgage giants Fannie Mae and Freddie Mac, have been shy to embrace principal reductions, in part due to concerns that many borrowers who can afford their loans will stop paying in the hope of being rewarded with a smaller loan. Several federal agencies have been scrutinizing the nation's largest banks over breakdowns in foreclosure procedures that erupted last fall. Last week, the Office of the Comptroller of the Currency said only a small number of borrowers had been improperly foreclosed upon. But the regulator raised concerns over inadequate staffing and weak controls over certain foreclosure processes.

A settlement must satisfy an unwieldy mix of authorities, including state attorneys general and regulators such as the newly formed Bureau of Consumer Financial Protection, who support heftier fines. They must also appease banking regulators, such as the OCC, that are concerned penalties could be too stiff. "Nothing has been finalized among the states, and it's our understanding that the federal agencies we are in discussions with have not finalized their positions," said a spokesman for Iowa Attorney General Tom Miller, who is spearheading a 50-state investigation of mortgage-servicing practices.

Create A Note -- And Sell It!

Credit of the Property Buyer(s)
The better it is, the more valuable the carryback note is going to be to a prospective note buyer. Don't know what the property buyer's credit is? Then don't bet the barn on a great note
sale, because the note buyer will want to know the buyer's credit. And if the property buyers are husband and wife, or more than one buyer, demand credit and financial statements from everyone. These days it's common for the wife to earn more than the husband, and you want to know all about both. If the noteholder is not equipped to obtain a credit report, ask your bank or local credit agency. They'll help you get it.

Sales Price of the Property
This should be at or LESS than the provable/establishable value of the property. Is it more than the actual value of the property? Then expect your note to sell for LESS than you want,
because the experienced note buyer wants the property buyer to have some equity in the property so the property buyer isn't likely to default.

Provable Value of the Property
Don't know? And the property buyer hasn't demanded an appraisal of any kind? Great, if the property is selling for all cash -- but if you're taking back a note and you want to sell that
note simultaneously, be aware that the note buyer is going to want to know the property value. And many problems are created if your note sale is AFTER the property sale, and the property is now inaccessible to an appraiser.

Down Payment
Zero down deals are done all the time but are not popular with note buyers. They want to know that the buyer has immediate equity in the property, something to protect, so the less the down payment you're taking, the less the cash you're going to be selling your note for.

Terms Of The Carry-Back Note
A. Interest Rate: The higher the better, but not so high as to gamble with usury law violations. Many states have usury laws that govern personal, consumer loans (e.g. Washington State has a 12% "do not exceed" rate); however, not all states have usury laws. So check before you structure your deal. Don't know what a good interest rate is for your deal? Ask a mortgage person or residential agent. They live with this on a daily basis and they'll give you some good advice. The lower the rate, the poorer the deal for the note buyer, and he'll just make it up by charging you more of a discount when he buys it.

B. Length of Note: Again, ask what is normal currently. Probably the typical length is 5 years, or maybe 10 to 25 years but with 3 to 5 year balloon. This is important to the note buyer, because he doesn't want to wait forever to get repaid. But not too short...I've seen notes with 6-12 months go begging for a buyer because the note buyers feared the property buyer couldn't pay it off in that time period.

C. Balloon: Again, the note buyer wants to have this on his books for no more than 3-5 years, so even if the new note has a 20-25 year amortization period, to keep the monthly payments
within reason, the note should have a 5 or so year balloon for full payoff in that time.

D. Loan-To-Value Ratio (LTV): Total loan-to-value, of both the first and new second, must be considered, and typically not to exceed 75% of provable value, for the buyer of the new
second to be seriously interested. Also, many second buyers want the ratio of the first to the second to be no more than 4:1. Translation: they don't want a little second that's behind a huge first, which might have a much bigger RATIO than 4:1. (e.g. $100,000 first and $10,000 second would be 10:1; but $30,000 first and $10,000 second would be 3:1). Do some shopping and learn what note buyers would accept before you structure your property sale. Of all the elements listed here, this is probably the one most ignored by note buyers. If they like everything else, they might not care at all about the LTV.

E. Will the Lender on the First Permit the Second You're Willing to Carry? Frequently, the lender on a new institutional loan inserts a clause to the effect that it is permitting NO carryback loan by the seller, and you'd better hammer this out up-front if you plan to carry a second and are expecting to sell it.

F. Security For Your Second: Normally it should be a recordable deed of trust, or mortgage in non-deed of trust states, drafted to comply with laws of property situs (where it's at!) to secure payment of the second. And to be recordable in deed records it should normally be signed and acknowledged by a notary. Further, it should normally have provisions to the effect that any default on buyer's part in payment of his first note is also a default in the carryback second. And, although frequently omitted, it should contain explicit, written permission for its holder to verify the current status of the first.

G. Buyer's Identity: If the payors are husband and wife, make sure they ARE husband and wife and have both executed the note and deed of trust individually. Don't permit one to sign for both. This is not permissible or binding on the spouse in every state, and you don't even know for sure they're still married. If you're selling to a corporation or LLC, make sure you're also getting the buyers on the note and deed of trust INDIVIDUALLY. I see too many notes where ONLY the corp/LLC is on there, and the people signing, sign ONLY as corporate officers -- this doesn't bind them individually and your note isn't going to sell.

One element that has not been addressed in this article is "seasoning," or aging. While there is no doubt that a note that has a few years successful seasoning is a more valuable note, of course this element is completely absent in a "simultaneous" sale, where the note is purchased as the property sale is closed.

FHFA presents new compensation model

The Federal Housing Finance Agency (FHFA) has issued a 28-page document that presents several alternatives it plans to consider for how Fannie Mae and Freddie Mac compensate mortgage servicers. The report is part of joint initiative announced by FHFA and HUD in January to revise the compensation model for mortgage servicing. The new payment models are also being considered for companies that service Federal Housing Administration (FHA) loans on behalf of Ginnie Mae. Currently, the typical compensation structure pays the loan servicer from a strip of the interest on each mortgage, an “IO” strip, regardless of loan status, FHFA explained.

The agency says the IO strip is a difficult asset to manage and results in a servicer receiving more than enough income to cover the expenses of servicing performing loans, but not enough when a portfolio includes a significant number of nonperforming loans. FHFA says this arrangement decreases the flexibility needed to ensure optimal servicing of nonperforming loans during times of high defaults like the industry is currently experiencing. The document outlines various alternatives to the current pay model, including a fee-for-service compensation structure for nonperforming loans and reducing or eliminating the minimum mortgage servicing fee for performing loans. FHFA provides extensive analysis of the alternative scenarios that encompasses illustrations of cash flows and accounting, capital calculations and requirements, and mortgage rate setting. FHFA says the ideas, models, and alternatives included in the presentation should be used as starting points “to generate
thinking and to explain concerns with the current compensation system.”

The agency said it is coordinating the efforts of the initiative to gather feedback from the industry, consumer groups, investors, and other regulators and government agencies. FHFA has established a dedicated Web link to post information related to the servicing compensation initiative, including background materials and issues that should be considered as development moves forward. When the administration released its plan for winding down Fannie Mae and Freddie Mac earlier this month, officials stressed that one of the near-term reforms on the agenda is reforming servicing compensation. FHFA said in January that implementation of a new servicing compensation structure is not expected to occur before the summer of 2012.

Mortgage servicing crackdown expected

U.S. banking regulators are close to finalizing new national guidelines that will impact mortgage servicing shops after an interagency investigation revealed "significant weaknesses in mortgage servicing related to foreclosure oversight and operations," said John Walsh, the Acting Comptroller of the Currency, in prepared statements to be delivered before a Senate Banking panel today. "In general, the examinations found critical deficiencies and shortcomings in foreclosure governance processes, foreclosure document preparation processes, and oversight and monitoring of third-party law firms and vendors," Walsh said.

"These deficiencies have resulted in violations of state and local foreclosure laws, regulations, or rules and have had an adverse affect on the functioning of the mortgage markets and the U.S. economy as a whole." Walsh said even though the process of outlining new guidelines for servicers is at its early stage, regulators intend to address some of the pressing issues they discovered while investigating the servicing process — namely a lack of national standards for the foreclosure process and borrower confusion over whom to contact in foreclosure cases due to uncertain protocols.

Walsh's report on the investigation of loan servicing firms comes on the heels of a major announcement from the Mortgage Electronic Registration System, or MERS. MERS, which is an electronic registry of mortgage records, informed members late Wednesday that they are now prohibited from foreclosing on residential loans using the MERS name. MERS has long been the target of foreclosure defense attorneys and consumer advocates for creating a foreclosure process that fails to create transparent oversight and protocols.

Walsh said as part of their comprehensive examination of servicing shops, regulators examined Lender Processing Services Inc. (LPS), MERSCORP, the parent company of MERS, and MERS itself. After reviewing the servicing shops and examining bank self assessments, as well as 2,800 foreclosure cases, Walsh said investigators concluded that there were "significant weaknesses in mortgage servicing related to foreclosure oversight and operations." He said regulators have yet to finalize their proposed guidelines, but that will be the next step in the process.

President tries to curb mortgage interest rate deduction

President tries to curb mortgage interest rate deduction

The president proposed in his budget to curtail high-income earners' tax deduction for mortgage interest payments and charitable contributions. Under his proposal, taxpayers in the 33% and 35% tax brackets would only be able to deduct their contributions and mortgage interest payments at the 28% rate. It would affect those with taxable income of $250,000 and up and bring in $321 billion over 10 years, according to the White House. The Obama administration, as well as several tax and deficit commissions, have called for limiting or eliminating the deductions in the past. But the proposals have gone nowhere and the same outcome is expected this year. Still, the real estate industry and non-profit sector are not taking any chances. They are making it clear to both Congress and the White House that they strongly oppose any limits to the deductions.

The industry is concerned that capping the deduction will hurt the housing market, which continues to stumble. The tax break makes homeownership more affordable, they argue. This is the second time in recent months that the Obama administration has recommended curtailing the deduction, which costs the Treasury Department an estimated $131 billion a year. In December, a presidential debt panel recommended turning the itemized deduction in to a 12% non-refundable tax credit available to everyone. It would also cut the size of eligible mortgages in half to up to $500,000. "NAR will remain vigilant in opposing any plan that modifies or excludes the deductibility of mortgage interest," National Association of Realtors President Ron Phipps said at the time.

Foreclosures falling - not

The number of homes receiving foreclosure filings, default notices, auctions, and repossessions, fell 17% in January compared to a year earlier, RealtyTrac reported today. But that's still 261,333 properties and a 1% increase compared to December. Even with the slowdown, more than 78,000 borrowers lost their homes in January, easing off the record 102,000 that was reached last September. Besides, it's less a sign of a robust housing recovery and more a sign that lenders have become bogged down in reviewing procedures, resubmitting paperwork and formulating legal arguments related to accusations of improper foreclosure processing.

"We expect a spike in the first quarter," said Rick Sharga, a RealtyTrac spokesman. "If we don't get that, it could mean that the foreclosures are being pushed back even more and that the time needed for recovery will be prolonged." There was a bit of a shakeup among the individual states at the top of RealtyTrac's hardest-hit states. Florida, which had been outpacing all others for years, fell to ninth place in January, with a rate of one in ever 409 homes receiving a filing. Year-over-year, filings are off by 54% in the Sunshine State. Now, the seven states with the highest rate of foreclosure filings in January were all in non-judicial states, where foreclosure auctions can be scheduled and homes repossessed without any court hearing. Nevada led the states for the 49th consecutive month; Arizona was second and California third. Idaho and Utah filled out the top five worst-hit states. Among metro areas of more than 200,000 residents, Las Vegas had, as usual, the highest
foreclosure rate.

Home affordability at pre-boom prices

WSJ - home affordability at pre-boom prices

Data provided by Moody's Analytics track the ratio of median home prices to annual household incomes in 74 markets. By that measure, housing affordability at the end of September had returned to or surpassed the average reached between 1989-2003 in 47 of those markets. Most economists believe the housing boom took off in 2003. Nationally, the ratio of home prices to annual household income reached a peak of 2.3 in late 2005. But by last September, it had fallen to 1.6, matching the lowest level in the 35 years the data have been collected and well below the historical average of 1.9 between 1989 and 2003. "Based on incomes, this is as affordable as it gets," said Mark Zandi, chief economist at Moody's Analytics. "If you can get a loan, these are pretty good times to buy."

Measuring home prices relative to income is not the only way economists calculate housing affordability. They also examine the relationship between house prices and rents. Measured by the price-to-rent ratio—the price of a typical home divided by the annual cost of renting that home—prices are fairly valued, or undervalued, in around 20 markets. Nationally, the price-to-rent ratio stood at 14.85 at the end of September, above the 1989-2003 average of 12. The data suggest pockets of the country have further to fall. Home prices still remain overvalued by both measures in several markets, including Seattle, Charlotte, New York and Portland, Ore. Based on rents, "it's still not a slam dunk to buy" in those markets, said Mr. Zandi. He said markets appeared most overvalued in the Pacific Northwest, which was among the last regions to enter the housing downturn.

Historical measures also showed prices were still high along the Northeast corridor from Baltimore to Boston. Of the 74 housing markets, Baltimore appeared to be the most overvalued. By contrast, prices in Cleveland, the most undervalued market, have returned to 1991 levels based on the price-to-rent ratio. Historical measures comparing rents and incomes with home prices provide a useful gauge of affordability, but can be imperfect at measuring how close different markets are to recovering from a bubble.

GOP calls for end to HAMP

House Republicans introduced a bill this week that would repeal the Home Affordable Modification Program (HAMP). The bill was introduced by Reps. Jim Jordan (R-Ohio), Darrell Issa (R-Calif.) and Patrick McHenry (R-N.C.), who cited yet another report from government watchdogs about the program’s underwhelming performance. The Treasury Department introduced HAMP in March 2009 allocating nearly $50 billion in incentive payments to servicers, borrowers and investors for modifying mortgages on the verge of foreclosure. Through December, servicers have modified more than 579,000 loans, well short of the 3 million to 4 million the Obama administration targeted. In December, the Congressional Oversight Panel estimated the program ultimately will reach between 700,000 and 800,000 borrowers.

If the bill passes, the Treasury will be unable to provide assistance under HAMP, which was authorized under the Emergency Economic Stabilization Act of 2008. The bill also would terminate all contracts between the servicers and the Treasury. “HAMP is a colossal failure,” Jordan, co-sponsor of the bill and chair of the oversight subcommittee on Regulatory Affairs, Stimulus Oversight and Government Spending said. “In many cases, it has hurt the very people it promised to help. It’s one more example of why government interference in the private sector doesn’t work and that’s why it should be repealed.”

Bank of America splits mortgage department

Bank of America splits mortgage department

Bank of America (BOA) created a separate mortgage servicing unit that will handle loans in default, while performing ones will stay in the bank's home loan division, the company said Friday. Regulators, lawmakers consumer advocates and even some players within the industry have been calling for mortgage servicing companies to divide their departments into performing and nonperforming sections as they work toward a new national servicing standard due out in 2012, according to the Federal Housing Finance Agency. BOA's announcement could be the first step in that process. Proponents of a new system have also called on servicers to provide a single point of contact at the bank and develop new servicing fees where companies are paid more for the extra work required in working out delinquent loans.

The bank appointed Terry Laughlin as the head of the "Legacy Asset Servicing" unit. In this role, Laughlin will oversee the company's mortgage modification and foreclosure programs. Barbara Desoer will continue to manage the company's home loan division, which will service performing loans and hold the bank's origination department, which wrote $306 billion in new loans during 2010. Laughlin will also be in charge of sorting out the bank's mortgage representation and warranties repurchase claims. Fannie Mae, Freddie Mac and private investors have put major lenders under pressure to buy back defaulted loans they say were not originated to standard. BOA settled with the GSEs late in December to pay $3 billion for their claims. "This alignment allows two strong executives and their teams to continue to lead the strongest home loans business in the industry, while providing greater focus on resolving legacy mortgage issues," BofA CEO Brian Moynihan said. "We believe this will
best serve customers — both those seeking homeownership and those who face mortgage challenges — as well as our shareholders and the communities we serve."

In 2010, BOA completed 285,000 modifications through both its private programs and the government's Home Affordable Modification program. It has boosted its default servicing staff to 30,000, and it said it will hold 400 events this year to put borrowers in touch with those employees.

MBA - 2010 ranking of servicers

The Mortgage Bankers Association's (MBA) year-end ranking of commercial and multifamily mortgage servicers as of the end of December 31, 2010 was released yesterday. On top of the list of firms is Wells Fargo with $451.1 billion in US master and primary servicing, followed by PNC Real Estate/Midland Loan Services with $337.4 billion, Berkadia Commercial Mortgage with $194.9 billion, Bank of America Merrill Lynch with $126.6 billion, and KeyBank Real Estate Capital with $118.9 billion. Specific breakouts in the report include:

- Total US Master and Primary Servicing Volume
- US Commercial Mortgage-backed Securities (CMBS), Collateralized Debt Obligations (CDOs) and Other Asset-Backed Securities (ABS) Master and Primary Servicing Volume
- US Commercial Banks and Savings Institution Volume
- US Credit Company, Pension Funds, REITs, and Investment Funds Volume
- Fannie Mae and Freddie Mac Servicing Volume
- Federal Housing Administration (FHA) Servicing Volume
- US Life Company Servicing Volume
- US Warehouse Volume
- US Other Investor Volume
- US CMBS Named Special Servicing Volume
- Total Non-US Master and Primary Servicing Volume

A primary servicer is generally responsible for collecting loan payments from borrowers, performing property inspections and other property-related activities. A master servicer is typically responsible for collecting cash and data from primary servicers and then providing that cash and data, through trustees, to investors. Unless otherwise noted, MBA tabulations that combine different roles do not double-count loans for which a single servicer performs multiple roles.

Wells Fargo, PNC/Midland, Berkadia, Bank of America Merrill Lynch and KeyBank are the largest master and primary servicers of commercial/multifamily loans in US CMBS, CDO and other ABS; PNC/Midland, GEMSA Loan Services, Prudential Asset Resources, Northwestern Mutual, and Northmarq Capital are the largest servicers for life companies; PNC/Midland, Wells Fargo, Berkadia, Deutsche Bank Commercial Real Estate and Prudential Asset Resources are the largest Fannie Mae/Freddie Mac servicers. PNC/Midland ranks as the top master and primary servicer of commercial bank and savings institution loans; GEMSA the top credit company, pension funds, REITs, and investment funds servicer; PNC/Midland the top FHA and Ginnie Mae servicer; Wells Fargo the top for mortgages in warehouse facilities; and Berkadia the top for other investor type loans.

Year-end housing sales end in the black; month-to-month median price increases 6 percent

(January 13, 2011 – Orlando, FL) Members of the Orlando Regional REALTOR® Association closed just 1.74 percent fewer homes in December of this year (2,368) than last (2,410), keeping year-to-date Orlando area sales in the black at 19.57 percent above 2009.

“In the first half of the year, the extended $8,000 first-time homebuyer tax credit and expanded $6,500 tax credit for repeat buyers helped encourage sales,” reviews ORRA Chairman of the Board Mike McGraw, McGraw Real Estate Services, PL. “Orlando’s homebuyers in 2010 also benefited from historic affordability levels, record low mortgage rates, and an inventory chock full of moderately priced homes.”

The 8,363 sales under contract and awaiting closing at the end of December are 2.45 percent above December 2009, which recorded 8,163 pending sales. There were 8,998 pending sales in November 2010.

Newly filed contracts —like pending sales an indicator of future sales activity — reached 3,196 in December 2010, a 7.1 percent increase over the 2,984 newly filed contracts in December 2009.

The median sales price of all homes sold in the Orlando area increased to $106,000 in December from the $105,000 median price that had held steady since September. According to ORRA the current median price is 6.11 percent above than the $99,900 median price recorded in August 2010 (the year’s lowest) and is 11.67 percent below the median price of $120,000 recorded in December 2009.

The median price for “normal” existing homes – i.e., those that are neither a short sale nor a foreclosure – sold in December is $160,000. The median price for bank-owned sales is $75,000 and the median price for short sales is $100,000. The lower median prices of bank-owned and short sales, which accounted for 68.71 percent of all sales in December, exerts a downward influence on the overall median price ($106,000).

The Orlando affordability index decreased to 246.73 percent in December. (An affordability index of 99 percent means that buyers earning the state-reported median income are 1 percent short of the income necessary to purchase a median-priced home. Conversely, an affordability index that is over 100 means that median-income earners make more than is necessary to qualify for a median-priced home.) Buyers who earn the reported median income of $53,447 can qualify to purchase one of 11,729 homes in Orange and Seminole counties currently listed in the local multiple listing service for $261,532 or less.

First-time homebuyer affordability in December decreased to 175.45 percent. First-time buyers who earn the reported median income of $36,344 can qualify to purchase one of 8,450 homes in Orange and Seminole counties currently listed in the local multiple listing service for $158,083 or less.

Homes of all types spent an average of 96 days on the market before coming under contract in December 2010, and the average home sold for 94.40 percent of its listing price. In December 2009 those numbers were 89 and 93.95 percent, respectively. The area’s average interest rate increased in December to 4.92 percent.



Inventory

There are currently 14,993 homes available for purchase through the MLS. Inventory decreased by 199 homes (1.31 percent) from November 2010, which means that 199 more homes exited the market than entered the market. The December 2010 inventory level is 3.58 percent lower than it was in December 2009 (15,549). The current pace of sales translates into 6.33 months of supply; December 2009 recorded 6.45 months of supply.

There are 11,919 single-family homes currently listed in the MLS, a number that is 4.13 percent more than the 11,466 single-family homes listed in December of last year. Condos currently make up 1,814 offerings in the MLS, while duplexes/town homes/villas make up the remaining 1,260.



Condos and Town Homes/Duplexes/Villas

Sales of condos in the Orlando area increased by 7.74 percent in December 2010 when compared to December of 2009 and increased by 24.55 percent compared to November of 2010.

As we’ve seen all year long, the most (254) condos in a single price category that changed hands in December 2010 were yet again in the $1 - $50,000 price range. This year-long trend accounted for 54.32 percent of all condo sales in 2010.

Orlando homebuyers purchased 224 duplexes, town homes, and villas in December 2010, which is a 6.16 percent increase from December 2009 when 211 of these alternative housing types were purchased.



MSA Numbers

Sales of existing homes within the entire Orlando MSA (Lake, Orange, Osceola, and Seminole counties) in December were down by 2.05 percent when compared to December of last year. Throughout the MSA, 2,910 homes were sold in December 2010 compared with 2,971 in December 2009.

Each county’s December-to-December sales comparisons are as follows:

Lake: 5.51 percent below 2009 (360 homes sold in 2010 compared to 381 in 2009);
Orange: 5.21 percent below 2009 (1,527 homes sold in 2010 compared to 1,611 in 2009);
Osceola: 3.40 below 2009 (511 homes sold in 2010 compared to 511 in 2009); and
Seminole: 13.78 percent above 2009 (512 sold in 2010 compared to 450 in 2009).


2010 Year-end Recap

Sales in 2010 were up by 19.57 percent over 2009. A total of 28,602 homes were sold in 2010 compared to 23,921 the previous year.
From a year-long perspective, the 2010 cumulative median price fell 16.23 percent to $108,900 compared 2009’s $130,000.
Throughout 2010, the majority (10.25 percent) of single-family homes that changed hands each month were sold for less than $50,000. About 8 percent of all single-family home sales in 2009 were in the $50,000 or less price range.
Condo sales increased 49.34 percent in 2010, with 6,532 condos sold in all of 2010 compared to 4,374 sold in 2009 and 1,454 sold in 2008. An enormous majority (3,548 or 54.32 percent) of sold condos fell into the $50,000 or below category. For the entire year, duplex, townhome, and villa sales were up 28.52 percent.
By year’s end in 2010, 35,021 homes were sold in the Orlando MSA while 30,377 homes had been sold by year’s end in 2009 (a 15.29 percent increase).


Each county’s 2010 year-end sales comparisons are as follows:

Lake: 2.19 percent above 2009 (4,199 homes sold in 2010 compared to 4,109 in 2009);
Orange: 16.29 percent above 2009 (18,823 homes sold in 2010 compared to 16,186 in 2009);
Osceola: 11.13 percent above 2009 (6,311 homes sold in 2010 compared to 5,679 in 2009); and
Seminole: 29.18 percent above 2009 (5,688 sold in 2010 compared to 4,403 in 2009).


For detailed statistical reports, please visit www.orlrealtor.com and click on “Housing Statistics” on the top menu bar. This representation is based in whole or in part on data supplied by the Orlando Regional REALTOR® Association or its Multiple Listing Service (MLS).

Revised appraisal guidelines haunt investors

Revised appraisal guidelines haunt investors
Posted on January 28, 2011

Just in case you haven’t run into it yet, our wise government – particularly the agencies that oversee mortgages – instituted more new guidelines in December that are just now starting to affect real estate investors. Effective Dec. 2010, in order to continue policing the mortgage industry, the Federal Reserve System engaged new policies for Automated Valuation Models on appraisals. (See http://www.federalreserve.gov/newsevents/press/bcreg/20101202a.htm) The newest guidelines require “interagency cooperation” in inputting data into the huge property database. These agencies include the Office of the Comptroller of the Currency (OCC), FDIC, Office of Thrift Supervision, Federal Reserve System, and the National Credit Union Administration. Further, the guideline goes one step further requiring actual visits to the property for a property condition report. Certainly, this inspection is needed in many circumstances. However, it does slow the process down by several more days and, on REO and foreclosure properties oft times, this can be the kiss of death.

How does this affect you? If you are a real estate investor that uses mortgage financing on potential rentals or flips, you may run into a new set of appraisal problems. Most affected are non-owner occupied loans, second mortgages, and lines of credit. If you’re one of those rare birds that still has a line of credit in place, it means when the bank is reviewing their collateral for the line, your ability to borrow may be reduced – sometimes drastically.

For potential new homebuyers, this doesn’t change things much. If it is an owner occupied property for a traditional or FHA first mortgage, lending institutions policies on appraisals are fairly close to the same as they were prior to December 2010. Some, however, have gone to the “two appraisal” rule. This means, to be safe, they are requiring two independent appraisals on each property. Whether they select one appraisal to go with, choose the lower of the two, or average the two varies with each institution.

Bottom line: In the near future, if you have been dependent on mortgages to purchase investment properties, you may want to adjust your business model. Several investors I know have already been shocked by hugely reduced values lenders are willing to do on investment properties. This is no fun when you’re expecting to have a closing. So, to be safe, do one of two things: (1) Use property you already own to collateralize lines of credit. Realize there must be plenty of equity available to do this smoothly; or (2) Even if you do fewer transactions, simply pay cash. Whether this is your own funds or those of an angel investor doesn’t matter. Paying cash is and has always been the path of least resistance. All others to the back of the line.

China's President: Dump Dollar for Yuan as Global Currency

China's President: Dump Dollar for Yuan as Global Currency
Tuesday, 18 Jan 2011 09:12 AM Article Font Size
By Greg Brown

On the eve of a U.S. visit, Chinese President Hu Jintao made the boldest statement yet on the future of the U.S. dollar as a reserve currency, calling the current global monetary exchange system “a product of the past” while promoting his own country’s currency as a replacement.

In written answers to questions from U.S. media, Hu roundly criticized the U.S. Federal Reserve for unleashing a wave of dollars into the world, prompting sharply rising inflation in places like China and India.

He also rejected the common U.S. complaint that China holds the value of the yuan artificially low to promote exports to support its own rise.

He called on changes to the currency reserve system in place today "to fully reflect the changing status of developing countries in the world economy and finance," reported The Wall Street Journal.

As to the Fed, Hu said that an increased supply of U.S. dollars "has a major impact on global liquidity and capital flows and therefore, the liquidity of the U.S. dollar should be kept at a reasonable and stable level."

The Chinese leader went so far as to suggest an overhaul of the monetary regime in place since the Bretton Woods accord at the end of World War II, creating instead system that is more "fair, just, inclusive and well-managed."

Hu’s stance is a dangerous one to both the United States and to China, considering that a wholesale move by major foreign holders out of U.S. dollar investments would destroy trillions in their foreign reserves while thumping the U.S. economy with much higher borrowing costs.

China’s foreign reserves reached $2.85 trillion in 2010, a total heavily weighted in U.S. dollars in the form of Treasury bonds.

Oil prices, a huge component along with food in rising inflation worldwide, are seen breaking $100 a barrel soon with no sign that major products will hit the brakes. U.S. consumers could see a quick return to $4.50 a gallon gas, slowing the recovery.

Merrill Lynch commodity analyst Sabine Shels told Reuters that the breaking point for the global economy is $120 a barrel, which would mean energy had risen to 9 percent of the total economy.

"Whenever the size of the energy sector in the global economy reached 9 percent, we went into a major crisis," said Schels.

Oil touched $147 in July 2008 just as the market began its historic recent plunge.

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