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."

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.

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?"

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.

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.

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.

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."

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.

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.