Archive for the ‘Residential’ Category
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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Monday, October 31st, 2011
President Barack Obama executed an end run around Congress when he announced a significant retooling of a plan designed to help homeowners who are paying their mortgages, but still underwater, refinance their loans at a more affordable interest rate. Administration officials said the changes will streamline the government’s Home Affordable Refinance Program (HARP) and could dramatically increase the number of borrowers who have refinanced their loans under the program past the current 894,000. They did not specify how many borrowers might be eligible or likely to participate. The program, which is voluntary to lenders, will be available only to homeowners whose mortgages were sold to Fannie Mae and Freddie Mac on or before May 31, 2009, and who have a loan-to-value ratio above 80 percent.
The downside is that hundreds of thousands more could not qualify – primarily because of the previous 125 percent loan-to-value limit on the program or because banks refused to take on the risk. Raising the loan-to-value restrictions may help a limited number of borrowers, according to Jaret Seiberg, an analyst for MF Global Inc.’s Washington Research Group, which analyzes public policy for institutional investors. The difficulty is that mortgage holders still must be up-to-date on their payments for the past six months — with no more than one missed payment in the past year. Additionally, they also must qualify for a new loan.
Qualifying homeowners will be able to refinance their mortgages at the current low rates, which are currently near four percent. Obama’s move comes at a time when there is a fast-growing consensus that the nation’s declining housing market is negatively impacting the economic recovery. Home values are at eight-year lows; and more than 10 million people are underwater, meaning that they owe more than their homes are worth. “It’s a painful burden for middle-class families,” Obama said. “And it’s a drag on our economy.” The administration’s proposal underscores the scale of the problem, as well as the limits of public policy in resolving it. By cutting monthly payments, the Obama administration hopes to make cash available for consumers to spend elsewhere.
According to housing regulators, one million borrowers might be eligible to participate in the program. Unfortunately, that is just 10 percent of the number of homeowners who need help. Although the Obama administration’s estimates say the average homeowner could save $2,500 per year, other projections said savings would be in the range of $312 annually. This depends on the upfront fees the borrower pays, which can include thousands of dollars in closing costs.
Obama promoted the plan under his “We Can’t Wait” campaign, in which he will use the executive branch’s existing tools to improve the economy while Congress debates further legislation. “We can’t wait for an increasingly dysfunctional Congress to do its job,” he said. “Where they won’t act, I will.”
“We know there are many homeowners who are eligible to refinance under HARP and those are the borrowers we want to reach,” said Edward DeMarco, acting director of the Federal Housing Finance Agency (FHFA), which administers Fannie Mae and Freddie Mac. The program expires at the end of 2013. “We believe these changes will make it easier for more people to refinance their mortgage,” DeMarco said. “Breaking this vicious cycle is one of the most pressing issues facing policy makers,” Federal Reserve Bank of New York President William C. Dudley said. The HARP revamp is part of multiple efforts the government is making to boost home prices and consumer spending. “It’s the equivalent of a tax cut for these families,” HUD’s Donovan said.
Mortgage lenders are “particularly gratified” at the revised plan, said David H. Stevens, president and chief executive officer of the Mortgage Bankers Association. “These changes alone should encourage lenders to more actively participate.”
Writing in The Atlantic, Daniel Indiviglio believes that the revised program has potential. “The administration appears to have accounted for all of the major obstacles to refinancing and eliminated them. A home’s value no longer matters. The cost should be less prohibitive to borrowers. Much legal red tape has been cut. Other loans tied to the home won’t stand in the way. Ample time to refinance is provided. This should help to allow at least a million Americans to refinance who haven’t had the opportunity to do so in the past. If this works as hoped, then those consumers will have more money in their pockets each month. Borrowers who see their mortgage interest rates drop from five percent or six percent to near four percent will often have a few hundred dollars more per month to spend or save. If they spend that money, then it will stimulate the economy and create jobs. If they save it or pay down their current debt, then their personal balance sheets will be healthier sooner and their spending will rise sooner than it would have otherwise. The effort may even prevent some strategic defaults, as underwater borrowers won’t feel as bad about their mortgages if their payment is reduced significantly,” Indiviglio said.
Felix Salmon, writing in Reuters, could not disagree more. “For many reasons, it is very difficult to project the number of mortgages that may be refinanced under the enhancements to HARP, including the future path of interest rates, borrower willingness to undertake a refinance transaction and the number of lenders and servicers who choose to offer the program. Given current market interest rates, our best estimate is that by the end of 2013 HARP refinances may roughly double or more from their current amount but such forward-looking projections are inherently uncertain. First, by the end of 2013? Never mind mortgage relief now, we’ll try and get you mortgage relief in two years’ time? Secondly, the current pace of HARP refinancing is pathetic. We’ve been managing to do less than 30,000 HARP refinancing a month. And in the 28-month history of HARP, we’ve managed a grand total of 894,000 HARP refinancing, which works out to about 32,000 per month. The FHFA is projecting that the pace of HARP refinancing won’t increase at all as a result of this plan. We’ll still average out at about 30,000 per month — maybe a bit more, maybe a bit less, but you’re never going to make a dent in the mountain of 11 million underwater mortgages at that rate.”
Tags: congress, Department of Housing and Urban Development, Executive orders, Fannie Mae, Federal Housing Finance Agency, Federal Reserve Bank of New York, foreclosure, Freddie Mac, Gene Sperling, HARP program, Home Affordable Modification Program, Home Affordable Refinance Program, loan-to-value ratio, MF Global Inc.'s Washington Research Group, Mortgage Bankers Association, mortgage modifications, President Barack Obama, Shaun Donovan, underwater, “We Can’t Wait”
Posted in Economics, Financing, General, Residential | 1 Comment »
Wednesday, October 26th, 2011
Federal officials and some of the nation’s largest banks are collaborating on a plan that would make refinancing available to some borrowers whose houses are worth less than their loans, with the caveat that they must be up-to-date on mortgage payments. Typically, these borrowers can’t refinance because they don’t have enough equity in their homes. The plan would apply only to bank-owned mortgages.
Federal officials have been trying to negotiate a deal with the five largest mortgage servicers – Ally Financial, Inc, Bank of America, Citigroup Inc, J.P. Morgan Chase and Wells Fargo & Co. Officials favor a plan that would break a legal impasse with big banks over alleged foreclosure abuses such as robo signing and ease problems in the housing market. Discussions are still underway and the final outcome is not yet known.
Pressure is building in Washington, D.C., to help underwater homeowners with a generous refinance plan. President Barack Obama told Congress that he wants to help “responsible homeowners” refinance, saying it would “give a lift to an economy still burdened by the drop in housing prices.” A bipartisan coalition of 16 senators wrote to the administration urging swift action on a refinance plan.
“A huge floodgate would open up” if underwater refinancing were broadly available, said Fif Ghobadian, a broker at Guarantee Mortgage in San Francisco. “It would provide the help that lowering interest rates cannot do alone. Someone who’s been making payments at 7.5 percent religiously but cannot qualify to refi – boy, would that four percent make a huge difference in their life.”
A program has existed for some time that provides guidelines to lenders for refinancing some Fannie Mae- and Freddie Mac-backed underwater mortgages. The program is called HARP (Home Affordable Refinance Program), it’s two years old and has resulted in approximately 800,000 refinances, far short of the five million originally envisioned. Only a fraction of those homeowners were deeply underwater. HARP’s main impediment has been the lenders themselves. Concerns about issues such as being forced to take responsibility for refinances that default (known in the industry as “buybacks”) has made lenders reluctant to issue HARP mortgages. The proposed new plan would likely expand HARP to make it more acceptable to lenders and more usable by a broader swath of homeowners. “Changes (being contemplated) would address several HARP obstacles,” said Erin Lantz, director of the mortgage marketplace for Zillow. “The industry now makes it hard for people to qualify. The process would be more streamlined.”
According to a recent Harvard study, approximately 11 million homeowners with mortgages are underwater. This accounts for roughly one-fourth of all homes with mortgages in the nation. An additional five percent have near-negative equity (<five percent home equity).
Writing for Reuters, Felix Salmon doesn’t think much of the potential mortgage plan. “It’s pretty weak tea: under the terms of the deal, if (a) you’re underwater on your mortgage, and (b) you’re current on your mortgage payments, and (c) your mortgage is owned by the bank outright, rather than having been securitized, then you would be given the opportunity to refinance your mortgage at prevailing market rates. It’s worth remembering, at this point, that mortgages are by their nature pre-payable. When you write a fixed-rate mortgage, you make a general assumption that if mortgage rates fall substantially, the borrower is going to pay you off and refinance. The underwater questions we’re talking about here were written during the housing boom, when banks simply assumed that house prices always went up; those banks cared massively about prepayment risk at the time, and spent huge amounts of money and effort trying to hedge it. As it happened, mortgage rates did fall substantially — with the result that the banks’ hedges paid off. But then the banks realized that they could make money on both legs of the deal — that they could collect on their mortgage-rate hedges, without having to worry about prepayment. Because now the borrowers are underwater, they’re not allowed to refinance. So the banks continue to cash above-market mortgage payments every month — something they never expected that they would be able to do.
“It’s not inconceivable at all. In fact, wholesale mortgage refinance for underwater borrowers is a major part of Barack Obama’s jobs bill, and the Congressional Budget Office (CBO) has been costing it in various ways. At heart, it’s a way of rectifying a market failure, and thus makes perfect sense. But that’s precisely why I don’t think that this plan deserves a place in the mortgage-settlement talks. For one thing, it’s downright unfair and invidious to allow 20 percent of underwater homeowners to refinance while ignoring the other 80 percent. More to the point, giving homeowners the ability to refinance their mortgages is what you do, if you’re a bank. It’s not some kind of gruesome punishment.”
Tags: Ally Financial, Bank of America, Citigroup Inc, congress, Congressional Budget Office, Fannie Mae, Fixed-rate mortgage, Freddie Mac, Harvard, Home Affordable Refinance Program, Inc., J P Morgan Chase, Mortgage refinancing plan, President Barack Obama, refinancing, underwater mortgages, Wells Fargo & Co., Zillow
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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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