Posts Tagged ‘foreclosures’
Tuesday, January 24th, 2012
The Obama administration plans to work closely with federal regulators, Fannie Mae and Freddie Mac to start a pilot program to sell government-owned foreclosures in bulk to investors as rentals, according to administration officials.
There currently are approximately 250,000 foreclosed properties on the books of Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA), and millions more are expected. Last year’s foreclosure processing delays created an enormous backlog of properties yet to be processed and are just now being restarted. One of the program’s initiatives is for the federal government to mitigate and manage new foreclosures. Late-stage delinquencies still number close to two million, according to a report from Lending Processing Services (LPS). Foreclosure starts are double foreclosure sales and “the trend toward fewer loans becoming delinquent, which dominated 2010 and the 1st quarter of 2011, appears to have halted,” according to LPS.
“I think there is a fair amount of money in the wings waiting to buy, investors doing cash raises to buy properties on a large scale,” said Laurie Goodman of Amherst Securities. “But that means they have to build out a rental organization; it means they build out a management company, because if you’re accumulating a hundred homes in Dallas that’s very different than running a multifamily building.”
This is good advice. The recession began with housing, and is one of the main things holding back the recovery. The most recent unemployment numbers — which showed that non-farm payrolls grew by 200,000 in December, and the jobless rate declined to 8.5 percent from 8.7 percent — join other cautious signs of an improving economy, although the housing situation is worsening. There’s still a serious risk it might put a halt to and not just delay expansion.
“Foreclosed homes are a complex problem. We need some creative thinking and new processes to solve the problem of so many distressed homeowners. I would love to see the market handle it on its own but what makes sense for a single home is likely to destroy confidence in the housing market in aggregate,” said Jafer Hasnain, Partner at Lifeline Assets. “Housing distress needs a Michael Dell to think about streamlining process details, and a Steve Jobs to make it elegant and human.”
House prices fell again in October, according to the S&P/Case-Shiller index. The pipeline of delinquencies and future foreclosures is full, which continues to dim the prospects of a quick recovery. Efforts so far, such as the Home Affordable Modification Program (HAMP), have helped, but less than hoped.
According to the Federal Reserve, there are no simple answers, but it makes several suggestions that Congress should examine. One is to encourage conversions from owner-occupied to rental because that market has strengthened in recent months: Rents have risen and vacancies have declined. A faster conversion rate would hold down rents and ease the pressure of unsold homes on house prices. Fannie, Freddie and the Federal Housing Administration account for about 50 percent of the inventory of foreclosed properties. Many of these are viable as rentals. A government-sponsored foreclosure-to-rental program to clear away regulatory hurdles would make a big difference.
A second suggestion is to encourage refinancings. The administration tweaked the existing HAMP program in October, easing some of the earlier restrictions on eligibility. Even more could be done, according to the Fed. One possibility involves the fees that lenders pay to Fannie and Freddie for assuming new risks when loans to distressed borrowers are refinanced. These charges could be cut or eliminated, even though Congress just voted to increase them to help pay for the payroll-tax extension.
Some institutional investors have shown interest in bulk REO deals, but the plan has to incorporate ways to help facilitate financing. That has been one of the biggest barriers to deals already in the works between hedge funds and the major banks. There is plenty of cash to buy properties, but creating a management structure for the rentals is costly, and some investors are finding the math doesn’t add up to make it worth their while.
Larger investors want to get real scale in any government program, in the range of 50, 100, 500 properties per deal, or $1 billion-plus in assets. That’s why the government is looking to test several different approaches. Fannie Mae did a $50 million sale in June, although that was on the small side. Officials are evaluating what larger asset sales would look like.
“We expect several pilots that will involve both local investors and institutional investors. The goal here is to reduce supply by converting foreclosed homes into rental units,” says Jaret Seiberg of Guggenheim Securities. “Less supply – even less fear about a flood of foreclosed homes hitting the market – could stabilize (home) prices.”
Tags: congress, Fannie Mae, Federal Housing Administration, federal regulators, Federal Reserve, foreclosures, Freddie Mac, hedge funds, Home Affordable Modification Program, institutional investors, Obama administration, Payroll-tax extension, refinancing, Rental market, REO deals, S&P/Case-Shiller index
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Tuesday, January 3rd, 2012
Confidence in American homebuilders rose in December for the third consecutive month, a sign that the housing market is finally stabilizing. The National Association of Home Builders/Wells Fargo (NAHB) Housing Market Index (HMI) of builder confidence climbed to 21 — the highest level since May 2010 — from a revised 19 in November. Economists had projected an index of 20, according to a Bloomberg News survey. Readings below 50 mean the majority of respondents believe that conditions are poor.
Mortgage rates near record lows are attracting prospective homebuyers. At the same time, a new wave of foreclosures means a sustained housing recovery could take years. “We’re just seeing some incremental improvement,” John Herrmann, a senior fixed-income strategist at State Street Global Markets LLC in Boston, said. “It’s too early to say that the worst is over. It’s too early to say that we’re pulling ourselves out of the morass of housing.”
Builders in the South had the biggest increase, with the index jumping four points to 25 this month. The West reported a gain to 16 from 15, while the Midwest held steady at 24. Confidence in the Northeast fell to 15 from 16.
“This is the first time that builder confidence has improved for three consecutive months since mid-2009, which signifies a legitimate though slowly emerging upward trend,” NAHB Chief Economist David Crowe said. “While large inventories of foreclosed properties continue to plague the most distressed markets and consumer worries about job security and the challenges of selling an existing home remain significant factors, builders are reporting more inquiries and more interest among potential buyers than they have seen in previous months.”
Low-ball appraisals are spoiling some deals, even after contracts have been signed. As a result, some buyers are waiting to buy a new house because they can’t sell their home. Those positioned to purchase are benefiting from lower prices and rates. 30-year fixed mortgages are 3.94 percent — a record low. So far, those factors have not boosted new home sales.
The seasonally adjusted index, which parallels closely with single-family housing starts, is designed so that readings over 50 are considered “good.” This hasn’t been the case since April 2006.
According to NAHB Chairman Bob Nielsen, “While builder confidence remains low, the consistent gains registered over the past several months are an indication that pockets of recovery are slowly starting to emerge in scattered housing markets.”
Each of the HMI’s three component indexes registered a third consecutive month of improvement in December. The component gauging current sales conditions rose two points in the latest month to 22, while the component gauging sales expectations in the next six months edged up one point to 26. The component gauging traffic of prospective buyers gained three points and is now at 18, which is its highest level since May of 2008.
Tags: foreclosures, mortgage rates, National Association of Home Builders, National Association of Home Builders/Wells Fargo index, New housing starts
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Tuesday, December 6th, 2011
Fewer borrowers currently are delinquent on their home loans, a Mortgage Bankers Association (MBA) report shows. Curiously, new foreclosures are rising in states like California. This is evidence that the nation still must endure significant pain before the housing crisis finally comes to an end. According to some analysts, the nation is only halfway through the wrenching grip of the foreclosure epidemic. That’s reflected in the housing market, where sales and prices continue to sag despite record low interest rates. Five years after the crisis began, 7.99 percent of all mortgages were behind by at least one payment in the 3rd quarter but not yet in foreclosure. Nevertheless, that’s down by nearly half a percentage point from the 2nd quarter and more than one percent when compared with last year.
The percentage of American mortgages that were somewhere in the foreclosure process at the end of the 3rd quarter was 4.43 percent, a slight increase over last year. The rate of homes in foreclosure was highest in the East and Midwest that route residential repossessions through the courts, with Florida at more than 14 percent and New Jersey at eight percent.
Rather surprisingly, new foreclosures rose to 1.08 percent of all loans from 0.96 percent in the prior three months, according to the MBA. The rate had been declining since the 3rd quarter of 2010, when regulators began investigating robo-signing. Some of the nation’s largest banks temporarily halted foreclosures while they addressed claims of flaws in their court documents. The moratoriums clogged the entire foreclosure pipeline as banks investigated their procedures, said Patrick Newport, an economist at IHS Global Insight. “Banks are starting to speed up the process now that they’ve cleaned up their paperwork,” Newport said. “We’re seeing the backlog begin to move.”
Unfortunately, the improvement may be short lived. For the 4th quarter, the pace probably will slow to 2.3 percent, according to the median estimate among 86 economists surveyed by Bloomberg. The pace likely will slow to two percent in the first three months of 2012, according to the estimates. “While the delinquency picture changed for the better in the 3rd quarter, the foreclosure data indicated that we are not out of the woods yet and that the issues continue to vary by geography,” Michael Fratantoni, the Mortgage Bankers Association’s vice president of research and economics, said.
“That’s really just reflecting the modest improvement we’ve seen in the economy broadly and the job market in particular,” Fratantoni said. “Job growth is not what we want it to be, but it’s been good enough to keep the unemployment rate at least level and that’s been beneficial here with fewer people falling behind.”
“While foreclosure activity in September and the 3rd quarter continued to register well below levels from a year ago, there is evidence that this temporary downward trend is about to change direction, with foreclosure activity slowly beginning to ramp back up,” said James Saccacio, chief executive officer of RealtyTrac. “Third quarter foreclosure activity increased marginally from the previous quarter, breaking a trend of three consecutive quarterly decreases that started in the fourth quarter of 2010,” according to Saccacio. “This marginal increase in overall foreclosure activity was fueled by a 14 percent jump in new default notices, indicating that lenders are cautiously throwing more wood into the foreclosure fireplace after spending months trying to clear the chimney of sloppily filed foreclosures.”
Foreclosure were filed on 214,855 U.S. properties in September, a six percent decrease from August and a 38 percent decrease when compared with September of 2010. September marked the 12th consecutive month where foreclosure activity decreased on a year-over-year basis.
A report issued by the Center for Responsible Lending found that 6.4 percent of mortgages created between 2004 and 2008 ended in foreclosure. Another 8.3 percent of mortgages are at “immediate, serious risk.” According to Fratantoni, “Given the pace of foreclosure sales — about one million foreclosure sales a year — it’s a three- or four-year process to get it back to a more typical level of foreclosed properties.”
The refinance share of mortgage activity fell to 77.3 percent of total applications from 78.6 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 6.1 percent from 5.8 percent of all applications. In October, 50.6 percent of refinancing applications opted for fixed-rate 30-year loans, 28.8 percent opted for 15-year fixed loans and six percent went with ARMs. In terms of applications for home purchase mortgages, 85.5 percent were for fixed-rate 30-year loans, 6.9 percent for 15-year fixed loans and 5.9 percent for ARMs, the lowest share of that vehicle for purchases since January.
Tags: 15-year fixed loans, adjustable-rate mortgages, Bloomberg, Center for Responsible Lending, foreclosures, IHS Global Insight, job growth, Mortgage Bankers Association, Mortgage delinquencies, RealtyTrac, refinancing, robo-signing, unemployment
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Thursday, November 10th, 2011
Is a 20 percent downpayment on a house or condominium on the horizon? If some federal regulators get their way, buyers may have to put down $60,000 on a $300,000 house to get the best possible mortgage interest rate. Although this sets the bar high, regulators believe it will prevent the risky lending practices that ended in a rash of foreclosures.
Numerous groups immediately announced their opposition to the proposal, contending that a 20 percent downpayment is too burdensome for many working class would-be homebuyers. If the proposal goes into effect in summer, it is not likely to have a major impact on the housing market for a while because the majority of mortgages are insured by federal agencies and are exempt from the rule. John Taylor, chief executive of the National Community Reinvestment Coalition, said “If we require 20 percent downpayments to get a loan, we will ensure broad swaths of working- and middle-class people will not be able to get a loan.” According to Tom Deutsch, executive director of the American Securitization Forum, believes the 20 percent requirement will do little to encourage banks to make loans without federal backing. “The extremely rigid proposals…will further prolong the U.S. government’s 95 percent market share of the credit risk of newly originated mortgages,” he said.
Sheila C. Bair, chairman of the Federal Deposit Insurance Corporation, disagrees. “Properly aligned economic incentives are the best check against lax underwriting,” she said. The Federal Reserve and Treasury Department also support the move, and other federal regulators are expected to get behind the new requirement. The move comes as the Obama administration is working to end Fannie Mae and Freddie Mac, the government-backed mortgage companies, by reducing the competitive advantage they have over banks. One proposal is to require the agencies to charge higher fees to draw private firms back into the mortgage market.
Mortgage Bankers Association CEO John Courson warns that the 20 percent downpayment requirement would further damage already sluggish housing demand. “We believe that such a narrow construct of the risk retention exemption would limit mortgage opportunities for qualified borrowers more than it would reduce the number of problem loans,” Courson said. Ron Phipps, president of the National Association of Realtors, said the new rules will further restrict mortgage credit and housing recovery overall. “Adding unnecessarily high minimum downpayment requirements will only exclude hundreds of thousands of buyers from home ownership, despite their creditworthiness and proven ability to afford the monthly payment, because of the dramatic increase in the wealth required to purchase a home,” Phipps said.
Treasury Secretary Timothy Geithner, who is leading the regulatory effort, said “Risk retention will help promote better standards for underwriting and securitizing mortgages, which is good for the long-term health of the housing market and for our nation’s economy.” An element of the Dodd-Frank Act that impacts the residential market, known as “risk retention”, is a rule that requires that mortgage lenders and securitizers to invest a minimum of five percent of the risk on qualified residential mortgages. The rule will play a crucial role in determining how much risk banks have to retain from mortgages they originate or package into bonds known as mortgage backed securities (MBS) and then subsequently sell into the market. “If this proposal goes through, the way it’s written, I think the housing market will not recover for years to come,” says Joe Murin, chairman of consulting firm The Collingwood Group.
Tags: 20 percent downpayments, American Securitization Forum, Dodd-Frank Act, Fannie Mae, Federal Deposit Insurance Corporation, federal regulators, Federal Reserve, foreclosures, Freddie Mac, Mortgage Bankers Association, Mortgage interest rate, mortgage-backed securities, National Association of Realtors, National Community Reinvestment Coalition, Obama administration, Qualified residential mortgages, residential market, Risk retention, Risky lending practices, Timothy Geithner, Treasury Department
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Tuesday, October 11th, 2011
Default notices sent to delinquent U.S. homeowners soared 33 percent in August when compared with July, evidence that lenders are accelerating the foreclosure process after almost one year of delays, according to RealtyTrac, Inc. First-time default notices were filed on 78,880 homes, the highest number in nine months. Total foreclosure filings, which also include auction and home-seizure notices, rose seven percent from a four-year low in July to 228,098. One in 570 homes received a notice during August. “The industry appears to be hitting the reset button and the logjam may finally be breaking up,” Rick Sharga, RealtyTrac senior vice president, said. Foreclosure filings in 2011 have been “artificially low.”
“This is really the first time we’ve seen a significant increase in the number of new foreclosure actions,” Sharga said. “It’s still possible this is a blip, but I think it’s much more likely we’re seeing the beginning of a trend here.” Foreclosure activity started declining last year after problems surfaced with the way many lenders were handling foreclosure paperwork, such as shoddy mortgage paperwork comprising several shortcuts known as robo-signing.
Additional factors have also stalled the pace of new foreclosures. In some cases, the process has been held delayed by courts in states where judges are involved in the foreclosure process, a possible settlement of government investigations into mortgage-lending practices, and lenders’ reluctance to take back properties because of slowing home sales. A rise in foreclosures also means a potentially faster turnaround for the U.S. housing market. Experts say that revival won’t occur as long as the glut of potential foreclosures remains on the market.
Foreclosures depress home values and create uncertainty among potential homebuyers who worry that prices may further decline as more foreclosures hit the market. There are approximately 3.7 million more homes in some phase of foreclosure at present than there would be in a normal housing market, according to Citi analyst Josh Levin. “This bloated foreclosure pipeline now presents the greatest obstacle to a housing market recovery,” he said.
Although negotiations between some banks and state attorneys general regarding foreclosure practices are still unresolved, several restarted foreclosure actions after an April settlement with federal regulators. JPMorgan Chase & Co., as of the end of June, had resumed foreclosure actions in nearly all of the 43 states where it had suspended its efforts. So-called “shadow inventory,” or the looming foreclosures that are still expected to hit the market, is a major threat for a housing sector that already has a glut of unsold homes. In spite of everything, default notices had fallen 18 percent when compared with August of 2010 and down 44 percent from the peak reached in April 2009 during the tail end of the recession.
Writing for The Consumerist website, Chris Morran says that “Last year, several of the country’s largest mortgage servicers — Bank of America, GMAC/Ally, JPMorgan Chase, among others — were forced to hit the pause button on foreclosure procedures after it was revealed that many foreclosure documents were being rubber stamped by untrained, ill-informed ‘robo-signers.’ This delay caused a bottleneck of foreclosure-worthy properties waiting to be reviewed. But now it looks like those homes are starting to trickle out into what could be a flood in early 2012. According to Bank of America, “We are on an ongoing path to return foreclosures to normal levels. Strong gains like that from July to August demonstrate our progress – primarily in judicial states — clearing more volume to advance to foreclosure once we pass the numerous quality controls we have in place and exhaust all options with homeowners. Our progress each month builds upon foreclosure levels lower than the market realities would dictate.”
A more optimistic view of the dismal report was offered by Gregory Tsujimoto, who performs market research for John Burns Real Estate Consulting in Irvine, CA, and views the data as reflecting more of a stall in an improving market than a new downtrend. Despite the sharp increase in monthly figures, Tsujimoto attaches more weight to an 18 percent decline in default notices on a yearly basis. Tsujimoto believes that the uptick in default notices is “a leading indicator for future foreclosures, which is not coming at a great time when measures of consumer confidence have declined.” But, he says that we must address the backlog of distressed inventory and “vacant homes in the marketplace before we get true improvement.” The other key, he says, is “creating jobs to spur demand.”
Among the states with the highest foreclosure rates, California led in new foreclosures with an increase of 55 percent over July, according to RealtyTrac. Cities in inland California posted big jumps, with Riverside and San Bernardino counties soaring 68 percent, Bakersfield 44 percent and Modesto 57 percent. “Scratch beneath the surface and there’s not a lot to cheer about this month. Home sales were up from a year earlier but remained far below average,” DataQuick President John Walsh said. “Many would-be buyers can’t find financing, and others who want to make a move now are stuck because they owe more than their homes are worth.”
The decision to move ahead is an important one since RealtyTrac has long maintained that property values won’t rise until a large number of distressed properties are purchased. “We don’t know yet if this is a beginning of a trend, but there is a good chance we might see a return to more realistic foreclosure numbers,” Sharga concluded.
Tags: Bank of America, California, DataQuick, Distressed properties, Foreclosure auctions, foreclosures, GMC/Ally, housing market, Inc., Inside Mortgage Finance Publications, John Burns Real Estate Consulting, JPMorgan Chase & Co., mortgage defaults, property values, RealtyTrac, recession, robo-signing, Shadow inventory
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Tuesday, September 13th, 2011
Home prices revived somewhat during the 2nd quarter, but the housing market is still struggling. Prices climbed an impressive 3.6 percent, compared during the three months ending March 31. Despite the upbeat news, home prices are still down 5.9 percent compared with the 2nd quarter of 2010. The rise in home prices came after three straight quarters of drops, the S&P/Case-Shiller national index — a recognized gauge of residential real-estate markets — reported. The year-over-year decline was slightly more than the than the 4.7 percent drop that had been forecast by a consensus of experts at Briefing.com. A separate monthly index of home prices in 20 major metro areas reported a month-over-month gain of 1.1 percent for June, and a 4.5 percent decline compared with last year.
The quarter-over-quarter price increase may be the last one for a while, said Stan Humphries, chief economist for the real estate website Zillow. He expects prices will weaken again. “The August turmoil of credit rating downgrades, negative GDP revisions, stock oscillations and European debt woes are likely to leave a mark on both August home sales and home value appreciation,” according to Humphries. “Monthly home value appreciation in June may mark the last hurrah before beginning to weaken in the back half of this year,” Humphries said.
Foreclosures still constituted a higher proportion of sales throughout the winter and spring as families took a break from home shopping; cash-rich investors dominate the market. Nationally, home prices have returned to their 2003 levels.
Chicago, Minneapolis, Washington and Boston saw the largest monthly increases. Cities hit hardest by the housing crisis, such as Las Vegas and Phoenix, reported small seasonal increases. Housing has remained a drag on the economy and is one of the most important reasons why it is still struggling to recover two years after the recession officially ended. Home sales in 2011 are likely to be at the lowest level in 14 years. Home prices in many cities have reached their lowest points since the market bubble burst more than four years ago. Home prices in Cleveland, Detroit, Las Vegas, Phoenix and Tampa are at 2000 levels. “These shifts suggest that we are back to regional housing markets, rather than a national housing market where everything rose and fell together,” said David M. Blitzer, chairman of the S&P’s index committee. “This month’s report showed mixed signals for recovery in home prices. No cities made new lows in June 2011, and the majority of cities are seeing improved annual rates,” Blitzer said. “Looking across the cities, eight bottomed in 2009 and have remained above their lows. These include all the California cities plus Dallas, Denver and Washington D.C., all relatively strong markets.”
“There’s no theoretical floor for prices. If the economy worsens, housing will get into a vicious cycle of falling prices and foreclosures,” said Mark Zandi, chief economist at Moody’s Analytics. “When prices fall, confidence wanes.”
Foreclosures and short sales — when a lender sells for less than what is owed on a mortgage – accounted for approximately 30 percent of all home sales in July, an increase from about 10 percent reported in normal years. Nearly 1.7 million potential foreclosures are being delayed, according to real estate firm CoreLogic, either by backlogged courts or lenders waiting for the conclusion of state and federal investigations into questionable foreclosure practices.
“Prices aren’t going to rebound back rapidly,” said Paul Dales, a senior U.S. economist at Capital Economics Ltd. in Toronto. “Most people think that when the downturn ends the recovery will be pretty good, but that’s not going to be the case at all.”
“Consumer confidence is still weak, and the housing sector remains in a fragile state,” According to Robert Toll, chairman of Toll Brothers, Inc. the nation’s largest luxury homebuilder. “The nation’s economy continues to suffer from the lack of jobs in housing construction and the related manufacturing and service sectors that a decent new-home market would typically generate.”
Federal Reserve Chairman Ben Bernanke said “an overhang of distressed and foreclosed properties, tight credit conditions for builders and potential homebuyers, and ongoing concerns by both potential borrowers and lenders about continued house price declines” are hurting the housing market.
Lawrence Yun, chief economist at the National Association of Realtors, described the activity as “underperforming. The market can easily move into a healthy expansion if mortgage underwriting standards return to normalcy,” he said. “We also need to be mindful that not all sales contracts are leading to closed existing-home sales. Other market frictions need to be addressed, such as assuring that proper comparables are used in appraisal valuations, and streamlining the short sales process.”
Tags: Ben Bernanke, Briefing.com, Capital Economics Ltd., CoreLogic, Credit-rating downgrades, European debt woes, Federal Reserve, foreclosures, GDP, home prices, Inc., Moody’s Analytics, mortgages, National Association of Realtors, recession, S&P/Case-Shiller National Index, short sales, Toll Brothers, Zillow
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Monday, August 29th, 2011
Foreclosure filings fell a dramatic 35 percent in July to the lowest level in nearly four years as lenders and state and federal agencies ramped up their efforts to keep delinquent borrowers in their homes, according to RealtyTrac Inc. A total of 212,764 properties received default, auction or repossession notices, the lowest number in 44 months. Filings declined on a year- over-year basis for the 10th consecutive month, and were down four percent when compared with June. One in every 611 households across the country received a notice. “The downward trend in foreclosure activity has now taken on a life of its own,” RealtyTrac Chief Executive Officer James J. Saccacio said. “Unfortunately, the fall-off in foreclosures is not based on a robust recovery in the housing market but on short-term interventions and delays that will extend the current housing market woes into 2012 and beyond. It appears that processing delays, combined with the smorgasbord of national and state-level foreclosure prevention efforts, may be allowing more distressed homeowners to stave off foreclosure.”
Nevada leads the nation with the highest foreclosure rate of any state, one filing for every 115 homes. California, with one foreclosure for every 239 homes came in second, while Arizona, with one in every 273 homes, was third. Las Vegas continued to record the nation’s highest foreclosure rate, with one in every 99 homes getting a foreclosure filing in July.
Foreclosure auctions, the final step in the agonizing foreclosure process were also scheduled on five percent fewer properties in July. The month’s auction total hit a three-year low and was nearly half (46 percent) below the March, 2010, peak. An estimated four million vacant homes not yet accounted for by lenders constitute an immense inventory of residential properties, approximately 2.2-million of which are in default and have not yet been formally foreclosed known as the “shadow inventory” weigh down the marketplace.
The Obama administration is proactively seeking ways to dispose of foreclosed homes that are under government control. The goal is to “bring stability and liquidity” to the housing market, Edward J. DeMarco, acting director of the Federal Housing Finance Agency (FHFA), said. The FHFA regulates Fannie Mae and Freddie Mac, which guarantee approximately 90 percent of American mortgages. President Obama has proposed a program to encourage the rental of foreclosed homes owned by the Federal Housing Administration, Fannie Mae, and Freddie Mac. Banks could adopt similar programs and offer homes at steep discounts to get residential real estate off their books. Financial institutions typically get lucrative write-offs from these and so might prefer to rent some properties. Other federal attempts to prop up the housing market have not been successful to date. The Making Home Affordable Program operation was launched in March of 2009 with the main component the Home Affordable Modification Program. This was created to cut mortgage payments for families who couldn’t afford them, but wanted to keep their houses. A Congressional Oversight Panel report said the programs had failed and fell far short of its goal to modify mortgages for three million to four million homes. The new Obama plan to rent foreclosed homes has the potential to positively impact home prices.
Writing on MSNBC, John W. Schoen says that “A sharp slowdown in the pace of home foreclosures may help ease the financial burden on bankers by helping them unload a glut of repossessed homes more slowly and delay booking losses from the sale of distressed properties. But it will do little to help millions of Americans families at risk of being tossed from their homes in the next few years. The slowdown follows a wave of legal challenges by homeowners that has all but shut down the machinery of bank repossession in some states. Some homeowners are disputing the widespread practice of ‘robo-signing’, in which lenders process batches of foreclosure fillings with little or no formal review. Other homeowners have successfully halted repossessions by questioning shoddy paperwork or broken paper trails that don’t establish clear title to a property. The slowdown has left millions of American households in legal limbo, prolonged the housing market’s four-year recession and delayed hopes for a broader economic recovery.”
“The process has more or less ground to a halt in a lot of states that do foreclosures through the court system,” said Rick Sharga, a senior vice president at RealtyTrac.
Tags: Arizona, California, Congressional Oversight Panel, Fannie Mae, Federal Housing Finance Agency, Foreclosure auctions, foreclosures, Freddie Mac, Home Affordable Modification Program, Inc., Las Vegas, Making Home Affordable Program, Nevada, Obama administration, RealtyTrac, robo-signing, “Shadow inventory”
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Wednesday, August 24th, 2011
A new phenomenon has emerged that is depressing the sales of existing homes. Contract cancellations are surging, dashing hopes that the distressed housing market is showing signs of improvement. According to the National Association of Realtors (NAR), sales fell 0.8 percent in June compared with May to an annual rate of just 4.77 million units, the lowest since November, and falling for the third consecutive month. Economists had expected sales to climb to a 4.90 million-unit yearly pace. “Buyers and sellers are increasingly running up against conservative appraisals, which often cause deals to fall through or be delayed,” said Mark Vitner, senior economist at Wells Fargo Securities. In fact, the market is unlikely to improve in the near term, said Ian Shepherdson, chief U.S. economist at High Frequency Economics.
“A variety of issues are weighing on the market including an unusual spike in contract cancellations in the past month,” NAR chief economist Lawrence Yun said. Fully 16 percent of NAR members reported a sales contract was cancelled in June, up from four percent in May. “The underlying reason for elevated cancellations is unclear,” Yun said, suggesting possible problems like tight credit for buyers and low home appraisals.
Writing for the Wall Street Pit, Dirk van Dijk says that “Regionally sales were down on the month in two of the four Census regions. All four regions were down year over year. The Northeast fared the worst, with sales down 5.2 percent for the month and down 17.0 percent from a year ago. The West had a month to month decrease, with sales falling 1.7 percent, down 2.6 percent from a year ago. In the Midwest, sales rose one percent for the month but are down 14.0 percent year over year. The South, the largest of the four regions, saw a 0.5percent rise on the month, but a 5.6 percent year-over-year decline. After all, it is better to simply sell the house and get something for it, rather than let the bank take it and get nothing for it. The more people under water, and the deeper they are, the higher foreclosures and strategic defaults are going to be. A strategic default is when someone has the cash flow available to continue to make his mortgage payment, but simply decides not to, since paying is a just plain stupid thing to do from a financial perspective. If you have a house that could only sell for $150,000 in the current environment, and you owe $200,000 on the mortgage, in effect you have the option of ‘selling’ the house to the bank for $200,000 simply by not writing the checks. Of course that will be a hit to your credit rating, but $50,000 is probably worth a bit of a tarnish on your Fico score. If the difference is only $5000, then the hit to your credit score makes less sense, and there are lots of non economic factors (a house is after all a home, not just an investment) that come into play.”
Despite the disappointing existing house data, homebuilders appear to have more confidence than buyers, because May housing starts climbed to a five-month high, according to the Department of Commerce. The month was the first time in five years that more homes were started than completed. A majority of the buyers were investors, with 29 percent of the transactions being all cash.
Writing for The Hill, Vicki Needham says that “Distressed homes — foreclosures and short sales generally sold at deep discounts — accounted for 30 percent of sales in June, compared with 31 percent in May and 32 percent in June 2010. Foreclosures have flooded the market, providing good deals for some potential homebuyers but hindering new construction. Mortgage rates for a 30-year, conventional, fixed-rate mortgage were 4.51 percent in June, down from 4.64 percent in May. The rate was 4.74 percent in June 2010, according to Freddie Mac.”
“With record high housing affordability conditions thus far in 2011, we’d normally expect to see stronger home sales,” said NAR President Ron Phipps. “Even with job creation below expectations, excessively tight loan standards are keeping many buyers from completing deals. Although proposals being considered in Washington could effectively put more restrictions on lending, some banking executives have hinted that credit may return to more normal, safe standards in the not-too-distant future, but the tardiness of this process is holding back the recovery.
Phipps noted that lower mortgage loan limits, which are scheduled to go into effect October 1, already are having an effect. “Some lenders are placing lower loan limits on current contracts in anticipation they may not close before the end of September,” he said. “As a result, some contracts may be getting canceled because certain buyers are unwilling or unable to obtain a more costly jumbo mortgage.”
Tags: Contract cancellations, credit, Department of Commerce, Existing house sales, Fico score, foreclosures, Freddie Mac, High Frequency Economics, homebuilders, Housing starts, mortgage rates, National Association of Realtors, short sales, Strategic defaults, Wells Fargo Securities
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Wednesday, July 20th, 2011
American home prices may start rising as soon as the 3rd quarter as a foreclosure decline makes more homes available for sale, according to Housing and Urban Development Secretary Shaun Donovan. “It’s very unlikely that we will see a significant further decline,” Donovan said. “The real question is when will we start to see sustainable increases. Some think it will be as early as the end of this summer or this fall.” Home sales have increased in six of the past nine months; the number of homeowners in default is declining, Donovan said on CNN’s “State of the Union” program.
“In the long run, it’s a good time to buy,” Donovan said. “It’s so affordable today compared to where it’s been for generations.” Contracts to purchase previously owned homes rose 8.2 percent in May, following a revised 11 percent drop in April, according to the National Association of Realtors (NAR). Another NAR report showed sales of existing houses, which make up about 96 percent of the market, fell in May to a six-month low. Home prices fell four percent in April over 2010, the biggest decline in 17 months according to the S&P/Case-Shiller index of values in 20 cities. An estimated 1.7 million U.S. homes were in the foreclosure process and expected to be put on the market in April, representing an 18 percent decline from the peak, as fewer loans entered delinquency and more distressed homes were sold, CoreLogic Inc. said.
Additionally, Donovan said that foreclosures are down approximately 40 percent when compared with last year. Although 1.3 million homes are still in the foreclosure process, Donovan said that housing prices are stabilizing in the aftermath of the worst financial crisis since the Great Depression. According to Donovan, “So, we are making progress, but rightly, the American people recognize we’re not where we need to be. We still have a ways to go.”
On the subject of requiring 20 percent downpayments to buy homes, Donovan said there should be a way for qualified people to buy a home with less money upfront. “We can’t go so far in the other direction that we cut off home ownership for people who really can be successful homeowners. We can get back to the place where it’s a good investment and we will be able to make money over time,” Donovan said, noting that Americans should no longer view their homes as ATMs.
Financial analyst A. Gary Shilling, writing in The Christian Science Monitor, isn’t as optimistic. In fact, he thinks that housing prices are likely to fall another 20 percent before bottoming out. According to Shilling, “Many housing optimists a year ago believed not only that the housing collapse was over, but also that a robust rebound was under way. Low mortgage rates and collapsed housing prices, not to mention the $8,000 federal tax credit for new home buyers and other initiatives, seemingly were going to kick-start housing activity nationwide. Then a funny thing happened on the way to the housing recovery. The tax credits expired, home sales dried up, and prices resumed their declines from their 2006 peak. Excess inventories piled up due to overbuilding and mounting foreclosures. In the meantime, buying those lower-priced houses became more difficult as lenders, burned by the housing crash, tightened lending standards and increased downpayment requirements. As a result, the housing sector not only has failed to bolster the weak economic recovery but is also likely to continue to struggle for years. And that’s bad news for the economy, which has softened in recent months. Excess inventories are the mortal enemy of housing prices. Lower prices are needed to unload surplus inventory, but in turn, lower prices bring forth more inventory from anxious sellers. The anxiety of house sellers and the reluctance of buyers are enhanced by the realization that house prices can fall – and are falling for the first time in 70 years.”
The idea of owning a home is becoming less attractive as many people realize that it may be many years before prices stop falling and stabilize, let alone revive. As proof, the national homeownership rate has fallen from its late 2009 peak of 69.2 percent to 66.4 percent in the 1st quarter of 2011 – the exact same level as in late 1998. As homeownership loses its luster, rental apartments are gaining. The homeownership rate is likely to continue to decline to its earlier long-term trend of around 64 percent as people continue to separate their abodes from their investments and as the baby boomers age, retire, and downsize. That means approximately 4.5 million new renters in coming years. Apartment construction, which normally totals 300,000 units annually, will be vigorous once surplus vacancies disappear.
Tags: ATMs, CNN “State of the Union” program, CoreLogic, Department of Housing and Urban Development, Distressed homes, Downpayment, Federal tax credits, financial crisis, foreclosures, Great Depression, Housing prices, Inc., National Association of Realtors, S&P/Case-Shiller index, Shaun Donovan
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Thursday, June 23rd, 2011
Homeowners who took out second mortgages, or borrowed against their homes to use the money as a cash advance, may regret their decisions. Close to 40 percent are now underwater on their loans — owing more than their home is worth, according to CoreLogic Data. The data show 38 percent of borrowers who took second mortgages are now under water, compared with 18 percent of mortgage holders who haven’t taken out home equity loans. The study did not examine how the cash was used. This type of negative equity can result from increased mortgage debt, a decline in home value — or both. Additionally, the report found that during the 1st quarter of 2011 the number of underwater homeowners fell to 22.7 percent from 23.1 percent in the 4th quarter of 2010. Although this decrease may seem like good news, it is due to the fact that completed foreclosures lessened the total number of homeowners in the market.
The study illustrates the consequences of easy borrowing amid the housing boom’s inflated prices. Home-equity loans, which total approximately 10 percent of the mortgage market, have been a problem for both homeowners and lenders. Second mortgages are any loan taken out on a property that is in addition to the first mortgage; they include home-equity loans and lines of credit. Second mortgages are taking a toll on a fitful recovery, in which housing has been the weakest spot. The S&P/Case-Shiller National Index recently showed that home prices fell another 4.2 percent nationally in the 1st quarter, its third straight quarter of price declines after a modest recovery in early 2010. Across the country, prices have fallen 34 percent since peaking in 2006. The inventory of unsold homes will take more than nine months to sell, according to the National Association of Realtors. This is approximately 50 percent longer than is considered a healthy market. “When a homeowner’s house is under water, “it’s harder to get a credit card or a car loan, you can’t put your home up for a small business loan,” said Mark Zandi, chief economist at Moody’s Analytics. “There are all sorts of little, pernicious effects that you don’t necessarily think about.”
Writing on the Mortgage Rates &Trends: Mortgage Blog, Michael Kraus says “Unsurprisingly, there is a strong correlation between negative equity and home equity loans. Thirty-eight percent of borrowers with home equity loans are under water. Those with negative equity and HELOCs (home equity lines of credit) are down $98,000 on average, compared to $52,000 for those without HELOCs. Intuitively, this makes a ton of sense and serves to illustrate the danger of using your home equity as an ATM. Hindsight being 20/20, of course. The negative equity problem remains the most acute in all the same places. Nevada leads the nation in negative equity, with an incredible 63 percent of Nevada homeowners with mortgages under water. Fifty percent of mortgaged Arizona homes are upside down, followed by Florida (46 percent), Michigan (36 percent), and California (31 percent). These figures have changed relatively little since the last report on home equity, and negative equity will likely remain a massive problem in these markets for years to come. Also of interest is the amount that the average borrower with negative equity is underwater. Across the country, the average person who has negative equity is $65,000 underwater. The highest average negative equity is in New York ($129,000), followed by Massachusetts ($120,000), Connecticut ($111,000), Hawaii ($98,000), and California ($93,000). These areas typically have the highest home prices, so the high amounts of negative equity make sense.”
Treating your home as an ATM by taking out a second loan puts owners in the position of being more than twice as likely as single-mortgage homeowners to owe more than it’s worth. This scenario isn’t what economic leaders had pictured. During the housing market’s boom years, Federal Reserve chairman Alan Greenspan promoted second mortgages and home-equity loans as a way to tap homeowners’ most valuable asset to pay bills or buy a car. Then the bubble burst. Because home values are still falling, those loans have now become just another burdensome payment.
Tags: Alan Greenspan, ATMs, Cash advances, CoreLogic Data, Federal Reserve, foreclosures, HELOCS, Housing bubble, Moody’s Analytics, mortgages, National Association of Realtors, S&P/Case-Shiller National Index, Second mortgages, Under water
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