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."