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Home prices declined almost 5% in 2011
Home prices decreased 4.7% in 2011 compared to the year before,
marking the fifth consecutive year-end decrease in the CoreLogic
home price index. Excluding distressed sales, home prices
decreased 0.9% last year, which CoreLogic said gives an
indication “of the impact of distressed sales on home prices in
2011.” Home sales last year also show month-over-month
declines. December showed the fifth consecutive monthly decline
with a drop of 1.4%, but rose 0.2% when distressed sales were
removed from the equation.
The December decline followed a much larger drop of 4.3% in
November, compared to November 2010. “While overall prices
declined by almost 5% in 2011, nondistressed prices showed only a
small decrease. Until distressed sales in the market recede, we
will see continued downward pressure on prices,” said Mark
Fleming, chief economist for CoreLogic. While national
statistics may be bleak, a few states posted increases in the
price of homes last year. Montana came in first with 4.4%
appreciation with distressed sales included, followed by Vermont
(+4%), South Dakota (+3.1%), Nebraska (+2.5%) and New York
(+1.7%). Illinois had the biggest 2011 decline in prices, 11.3%,
followed by Nevada at 10.6%. Nevada's peak-to-current decrease
stands at 60% (including distressed homes), compared with a
national decrease of 33.7%.
Employment up
The pace of job creation surged in January, with the US economy
generating 243,000 new positions while the unemployment rate
dropped to 8.3%, according to government data released today.
Both numbers were far better than consensus, which expected a
growth of 150,000 jobs and a steady unemployment rate of 8.5%.
The overall work week remained unchanged at 34.5 hours while
wages rose an average of four cents an hour to $23.29. The
closely watched labor-force participation number, which can skew
the unemployment rate, fell to 63.7%, the lowest since May 1983.
The number of those working part-time for economic reasons rose
1.2%. Job gains have been concentrated primarily in the service
sector, particularly in retail and the food and beverage
industries. Warehousing, manufacturing, mining and health care
also have participated. True to form, services were responsible
for 162,000 of the January swell, with manufacturing payrolls
growing 50,000. Government cuts subtracted 14,000 from the total.
The total number of unemployed fell below 13 million for the
first time since February 2009, while the total amount of
employed Americans rose to 141.6 million, an increase of 847,000
from December. The unemployment rate was last this low in
February 2009. The so-called real unemployment rate, which
measures discouraged workers as well and is referred to as the
U-6, nudged lower to 15.1%.
Long-term unemployment, though, remains a problem, with the
duration dropping from a near-record 40.8 weeks to 40.1 weeks.
Also, the level of discouraged workers surged, rising 7% to its
highest level since December 2010. Job growth remains one of the
two missing pieces of the recovery puzzle, even though the rate
has been on a steady trek lower. In December, the economy
created 203,000 jobs and the unemployment rate slipped to 8.5%,
well off its 10.1% cycle peak. The monthly jobs report generally
draws considerable trader reaction, which as of late has been all
negative.
Olick - rent vs own riles government policy
"Fannie Mae and Freddie Mac, the mortgage giants under government
conservatorship, together owned 182,212 foreclosed properties as
of the end of September. While they aggressively market and sell
these homes to investors and owner-occupants alike, the numbers
are still too high; these number could go far higher, as
foreclosures previously stalled by paperwork issues come back
into process. That’s why the federal regulator overseeing the
two is launching a bulk sale program, offering investors the
chance to buy foreclosed properties at a discount, as long as
those investors turn the properties into viable rentals for a
specified number of years. 'This rental period could provide
relief for local housing markets that continue to be depressed by
the volume of foreclosed properties, and provide additional
rental options to certain markets,' according to a release from
the regulator, the Federal Housing Finance Agency (FHFA).
The FHFA launched the initial phase of pre-qualification.
Investors must prove they have '(a) the financial wherewithal to
acquire the assets; (b) sufficient experience and knowledge in
financial and business matters to analyze and bear the risks of
the investment opportunity; and (c) agreement to keep certain
information about the REO [Real Estate Owned, i.e. bank owned]
and related matters confidential.' That last part is to keep the
prices competitive as the market starts to improve. Giving
investors the opportunity to help clear the massive amount of
distress in the housing market is crucial. The inventory of
foreclosed properties is large, getting larger, and making it
impossible for the overall market to achieve price stability.
Witness a report today from CoreLogic which shows that home
prices in December fell 4.7% year-over-year including sales of
distressed properties. Excluding those properties, home prices
fell less than one%.
Some, however, think the program is a negative: 'People are
brainwashed to think foreclosures are a bad thing for the housing
market. Perhaps four years ago when a million loans all went into
default and Foreclosure at the same time but not today. Today,
1st timers and investors -- with an insatiable appetite for
foreclosures, REO resales, and short sales -- are the bedrock of
this housing market.' – Mark Hanson, Mortgage Analyst
'Foreclosed homes are already meeting strong demand from
investors when they come to market. We think these buyers are
willing to pay a relatively full price, as they know the specific
locations, and a large number of buyers have the ability to bid
on the individual homes (doesn’t require significant
capital)… Additionally, it will be difficult/expensive for
investors to scale up operations given the broad geographic
dispersion of properties vs. more traditional rental units,
potentially limiting participation.' – Dan Oppenheim,
Credit-Suisse
Oppenheim also asks a valid question as to why the government
would offer discounts to large investors buying in bulk, but not
to individual investors buying perhaps a single property. There
are plenty of Americans out there salivating over incredibly
low-priced homes; rental income could be as much of a boon to
them as perhaps a tax cut or a refinance. It was interesting
yesterday, during his speech touting a proposed new government
mortgage refinance program, President Obama, caught up in the
moment, exclaimed, 'No more renting!' Putting aside the public
relations blunder that was, given the fact that the FHFA had
announced its REO to rent program not two hours before, it just
drove home the conflict our government has between what it thinks
Americans want to hear and what our economic reality dictates.
A few simple facts: There is not enough buyer demand to meet the
number of homes for sale. A huge number of the homes for sale are
empty, foreclosed properties. Too many Americans either cannot
afford to buy a home or do not have the credit necessary to
finance a home. Too many Americans cannot afford to sell their
current homes in order to move or step up to a larger home.
Rental demand is therefore strong and getting stronger. While
homeownership may be a tenet of the 'American Dream,' renting is
today’s actuality for a growing number of Americans. Whether it
is large investor bulk programs or single investor incentives,
adding to rental supply, thereby lowering rents, while at the
same time clearing the market of foreclosed properties is a win.
It may not be as politically palatable as offering 'responsible'
borrowers a veiled tax credit in the form of a mortgage
refinance, but it is good medicine for what ails housing."
Pension threat for market investors
It’s no secret that the financial crisis and resulting malaise
has taken its toll on bank stocks, commodities and Treasury
yields. But it may be have triggered another ripple – one that
has gone somewhat unnoticed. Pension funds have become seriously
underfunded. According to a recent report from Credit Suisse some
of the nation’s largest companies owe their pensions more than
25% of their market cap (after taxes). Although the problem is
complex, at its core is simple math. Many firms forecast returns
of 8% annually, and that just hasn't happened. This developing
situation is potentially market moving because it could require
companies to make larger contributions – much larger. And if
contributions ‘do’ go up, the money will have to come from
someplace on the balance sheet.
“A pension accounting change at UPS will result in $527 million
after tax charge in 2011,” says Joe Terranova. "And Sunoco said
they have to contribute $80 million into their pension funds."
In other words, the need to fund pensions could drag down profits
and, in turn, share price. In fact, the pension liability at AK
Steel was cited by BofA as a reason behind their recent decision
to downgrade the stock to ‘Underperform’ from ‘Neutral.”
“I think in 2012 it will be a recurring issue,” Terranova
says. John Ehrhardt of Milliman confirms the thesis. He tells us
that investors should expect record numbers of earnings charges
in 2012. “Record low interest rates result in historically
high liabilities and the only remaining lever may be employer
contributions.” And according to Ehrhardt this may be just the
tip of the iceberg. "These companies are going to need 20-30%
returns to fill the kinds of gaps we're talking about."
WSJ - Ally financial swings to loss
Ally Financial Inc., the US government-owned auto lender, swung
to a $250 million net loss in the fourth quarter after taking a
charge for regulatory penalties stemming from foreclosure
matters. The Detroit-based lender, which provides financing for
General Motors Co. and Chrysler Group LLC dealers and customers,
continued to make money from its auto-lending operations, but the
results were weighed down again by its mortgage unit, which is
saddled with lawsuits over foreclosures and soured mortgage
investments. The loss compares to a year-ago profit of $79
million. It had a core pretax loss, which reflects results from
continuing operations before taxes and other expenses, of $24
million, down from $526 million. Excluding a $270 million
foreclosure-related charge, core pretax income would have been
$246 million.
"One of our key priorities remains aggressively addressing the
risks related to the mortgage business and taking steps to
protect the key franchises at Ally," Michael Carpenter, the
company's chief executive, said in a statement. "This will be
critical to advance plans to repay the US taxpayer." Ally, which
was formerly owned by GM, is one of at least five major mortgage
servicers in discussions with state and federal regulators over a
potential settlement of "robo-signing" and other alleged
foreclosure offenses. Regulators are close to finalizing a deal
worth as much as $25 billion that could also include Bank of
America Corp., Citigroup Inc., J.P. Morgan Chase & Co. and Wells
Fargo & Co. On Tuesday, Ally said it would record the $270
million charge in the fourth quarter for penalties from
regulators and other government agencies related to foreclosure
issues.
The charge was mainly related to its mortgage subsidiary,
Residential Capital, which has been the subject of bankruptcy
speculation for several months. The charge caused a temporary
decline in ResCap's tangible net worth below $250 million,
breaching debt covenants of some of its lenders, Ally said. Ally
has been trying to scale back its mortgage operations as it
focuses on building up its auto business and online retail bank.
In November, the company said it would significantly curtail its
correspondent lending operations, which comprise the bulk of its
mortgage originations.
Mortgage deal closer
With a deadline looming today for state officials to sign onto a
landmark multibillion-dollar settlement to address foreclosure
abuses, the Obama administration is close to winning support from
crucial states that would significantly expand the breadth of the
deal. The biggest remaining holdout, California, has returned to
the negotiating table after a four-month absence, a change of
heart that could increase the pot for mortgage relief nationwide
to $25 billion from $19 billion. Another important potential
backer, Attorney General Eric T. Schneiderman of New York, has
also signaled that he sees progress on provisions that prevented
him from supporting it in the past. The potential support from
California and New York comes in exchange for tightening
provisions of the settlement to preserve the right to investigate
past misdeeds by the banks, and stepping up oversight to ensure
that the financial institutions live up to the deal and
distribute the money to the hardest-hit homeowners.
The settlement would require banks to provide billions of dollars
in aid to homeowners who have lost their homes to foreclosure or
who are still at risk, after years of failed attempts by the
White House and other government officials to alter the behavior
of the biggest banks. The banks — led by the five biggest
mortgage servicers, Bank of America, JPMorgan Chase, Wells Fargo,
Citigroup and Ally Financial — want to settle an investigation
into abuses set off in 2010 by evidence that they foreclosed on
borrowers with only a cursory examination of the relevant
documents, a practice known as robo-signing. Four million
families have lost their homes to foreclosure since the beginning
of 2007. If banks fall short of the multibillion-dollar
benchmarks set out for principal reduction and other benefits for
homeowners, they will have to pay the difference plus a penalty
of up to 40% directly to the federal government, according to Mr.
Madigan. The settlement, if all states participate, will also
include $3 billion to lower the rates of mortgage holders who are
current. Banks will get more credit for reducing principal owed
and helping families keep their homes, and less for short sales
or taking losses on loans that were likely to go bad, like those
that were severely delinquent.
102% tax?
James Ross, 58, is a founder and managing member of Rossrock, a
Manhattan-based private investment firm that focuses on
commercial real estate and distressed commercial mortgages. “I
realize I am very fortunate, and in fact I am a member of the
1%,” Mr. Ross wrote in an email. His résumé is studded with
elite institutions: Yale, Columbia Law School and stints at the
law firms Cravath, Swaine & Moore in New York, and Holland & Hart
in Denver. Since his company fits the category of private equity,
he has even carried interest. Yet Mr. Ross told me that he paid
102% of his taxable income in federal, state, and local taxes for
2010. “My entire taxable income, plus some, went to the
payment of taxes,” Mr. Ross said. “This does not include real
estate taxes, sales taxes, and other taxes I paid for 2010.”
When he told friends and family, they were “astounded,” he
said.
That doesn’t mean Mr. Ross pays more in taxes than he earns.
His total tax as a percentage of his adjusted gross income was
20%, which is much lower than mine. That’s because Mr. Ross
has so many itemized deductions. Since taxable income is what’s
left after itemized deductions like mortgage interest, charitable
contributions, and state and local taxes are subtracted, it will
nearly always be smaller than adjusted gross income and
demonstrates how someone can pay more than 100% of taxable income
in tax. Mr. Ross must hope that his interest expense will pay off
down the road and generate some capital gains. Still, all of Mr.
Ross’s itemized deductions are money out of his pocket, which
is why he’s had to draw on his savings to pay his taxes. Robert
Willens, a tax expert and New York attorney, made the argument
that taxable income, therefore, may be a better basis for
measuring the tax burden. Mr. Ross’s plight illustrates
something that came through in nearly every response and cuts
across nearly all income levels: The disparities of the tax code
don’t just pit rich against poor or middle class. It taxes
people within the same income brackets at grossly unequal rates.
“I cannot help but reflect on the unfairness of the current tax
regime,” Mr. Ross wrote. “Why should I pay 102% of my taxable
income in taxes when others, with far greater wealth than mine,
pay a fraction of that?”
Bulk sales begin soon
The government is starting to shed foreclosed, single-family
homes it owns -- by selling them in bulk to investors, who would
turn them into rental properties. Officials, however, are saying
only that test sales will occur "in the near-term" with a focus
on the areas hardest hit by foreclosures. They declined to
comment beyond a news release they issued. The test comes after
the government in summer 2011 asked for proposals on what to do
with more than 90,000 foreclosed properties it then held. The
government typically sells foreclosed properties one at a time,
but officials specifically asked for ways to move homes in bulk
because of the size of the backlog. About 4,000 groups or
individuals submitted ideas on how the government could unload
the properties. After The Enquirer filed a Freedom of Information
Act request, the government released a list of 423 companies,
groups and individuals that submitted responsive proposals, but
no details on their proposals.
The test sale of the foreclosures and conversion of them into
rental housing is being supervised by the Federal Housing Finance
Agency (FHFA). The agency has acted since 2008 as the federal
conservator for Fannie and Freddie, which are public companies
although they were created by Congress. In a news release
Wednesday, the finance agency said "Fannie Mae will offer for
sale pools of various types of assets including rental
properties, vacant properties and non-performing loans" under the
test. It also asked investors to pre-qualify to participate in
the test. The investors will be required "to rent the purchased
properties for a specified number of years." FHFA officials hope
the rental period will "provide relief for local housing markets
that continue to be depressed by the volume of foreclosed
properties, and provide additional rental options to certain
markets."
To qualify, investors will have to show the financial wherewithal
to buy the assets, sufficient experience and knowledge to bear
the risks and manage of the investment and agree to "keep certain
information about the REO (real estate) and related matters
confidential." Nationwide, the 83,000 homes currently up for
sale and potential conversion into rental units are among more
than 200,000 foreclosures of all kinds that the government holds,
apparently making it the nation's largest owner of foreclosed
properties. The 200,000 is almost a third of foreclosed
properties across the nation. Moving the backlog would get them
off the books of the Federal Housing Administration. It also
would clear the books of Fannie Mae and Freddie Mac, which buy
mortgages, bundle them and then sell mortgage-backed securities
to investors. The FHA, Fannie and Freddie became owners of the
properties as hundreds of thousands of owners defaulted on their
mortgages during the real estate meltdown. Clearing the backlog
would limit the loss to taxpayers, who already have bailed out
Fannie and Freddie at a cost of $169 billion and counting. The
losses are expected to total $220 billion to $311 billion by the
end of 2014, according to latest projections in December by the
Federal Housing Finance Agency.
Greece misses another deadline
Greece let yet another deadline slip on Monday for responding to
painful terms for a new EU/IMF bailout, as German Chancellor
Angela Merkel made clear Europe's patience is wearing thin over
drawn-out negotiations among its feuding political leaders.
Failure to strike a deal to secure the 130 billion euro ($170
billion) rescue risks pushing Athens into a chaotic debt default
which could threaten its future in the euro zone. Merkel turned
up the heat, saying Athens had to come to terms with the "troika"
of lenders - the European Commission, European Central Bank and
IMF - to get the funds it needs to meet big debt repayments in
March. Greek political leaders, positioning themselves for a
likely general election in April, have baulked at accepting
another package of deeply unpopular wage and pension reductions,
job cuts and tougher tax enforcement measures.
US Treasury prices pared gains notched in today's European
session that were a response to the lack of a political agreement
in Greece to make reforms necessary to avoid default. Limiting
gains, traders are preparing for the government's quarterly
refunding auctions, which will include sales of 10-year notes and
30-year bonds . Yields on 10-year notes, which move inversely to
prices, fell 1 basis point to 1.92%. "Treasurys are modestly
higher as discord among Greek coalition members over the terms of
the second bailout raises the threat of default and has sent the
euro and European stocks lower," said bond strategists at RBS
Securities. "We have a very quiet week of economic data up ahead
and the market's focus will be on the Treasury refunding auctions
which begin tomorrow."
New FHA standards increase Ginnie Mae risk
The Federal Housing Administration's (FHA) recently announced
plans to tighten its standards for approving lenders will
increase prepayment risks for investors who own Ginnie Mae-back
securities, say analysts at Barclays Capital. The agency's plans
to eliminate the consideration of a lender's compare ratio when
deciding whether to streamline-refinance its loans will
accelerate refinancing activity, they say, causing higher
prepayment speeds, and, in turn, reduce investor profits. The
compare ratio is the serious delinquency rate of all loans
originated by a lender during a two-year period relative to the
average of all lenders operating in the same region. Higher
coupon and seasoned loans have a weaker credit and greater
default risks, therefore, streamline-refinancing them could lift
ratio passed 150%. And if it does, the lender could lose the
ability to originate FHA-backed loans. The change is part of a
larger attempt by the FHA to protect its Mutual Mortgage
Insurance Fund, which many say is in danger of requiring a
multibillion dollar government bailout.
Disregarding a lender's compare ratio calculation creates an
incentive for streamline-refinancing higher-risk borrowers,
analysts say. This will speed up Ginnie Mae prepayments,
particularly on higher coupons and pre-2009 originations since
these have the worst credit quality. "That said, we expect the
effect on speeds to be modest," they say. "We believe that this
plan will be implemented and has the potential to raise GNMA
speeds by a few CPR." The effect should be even less for
pre-2010 vintages because their much better credit quality
suggests they have not been constrained by the compare ratios.
Data from the Department of Housing and Urban Development (HUD)
suggest that the compare ratios of most national lenders are now
significantly below the 150% threshold. In December, HUD
Secretary Shaun Donovan, said as a result of an October analysis
by an independent actuary of FHA's insurance fund, HUD plans to
announce how it will address premium prices in its fiscal year
2013 budget proposal. Since then, Congress has enacted a 10
basis-point increase to the FHA annual
mortgage-insurance-premium, and President Barack Obama has called
on the FHA to shoulder a larger role in helping responsible home
owners and the housing market. "Given the circumstances, we
think more changes to the FHA program could be in the works, and
since the budgetary proposal should be released over the next few
weeks, the timing is peculiar," they said. "Therefore, Ginnie Mae
faces heightened risks in the near term."
Washington state considers short sale protection
Banks could soon be barred from pursuing deficiency judgments
against Washington state borrowers after a short sale. A Senate
committee in the Washington State Legislature will hold a hearing
over H.B. 2718, which states that if a bank "writes off debt from
the short sale, they can't then subsequently collect this debt
from the seller. The bill was modeled after similar action passed
in Oregon last summer. The bill if passed does not require the
lender to accept a short sale offer. It would go into effect with
90 days of being passed. According to a Washington Realtors
alert put out late last week, a borrower would report the write
off to the Internal Revenue Service and take a tax deduction for
the loss. This same amount is also counted as taxable income for
the seller. "Providing certainty and consumer protections for
short sale sellers is critical in the current real estate
market," the trade group said. "Successful short sales often
prevent foreclosures that would harm consumers, tax revenue and
economic recovery." After the Oregon bill took effect in June,
REO numbers became choppy and then began to fall at the end of
the year. In September, repossessed homes totaled 1,420,
according to RealtyTrac. That number increased to 2,057 the
following month then slid to 936 in November and 874 in December.
Some of that could be due to seasonal trends. Most lenders put
repossessions on hold during the holiday season, but the December
total was down 29% from the same month one year earlier.
S&P warns of rate cuts over health costs
Ratings agency Standard & Poor's warned it may downgrade "a
number of highly rated" Group of 20 countries from 2015 if their
governments fail to enact reforms to curb rising healthcare
spending and other costs related to aging populations. Developed
nations in Europe, as well as Japan and the United States, are
likely to suffer the largest deterioration in their public
finances in the next four decades as more elderly strain social
safety nets, S&P said in a report. "Steadily rising healthcare
spending will pull heavily on public purse strings in the coming
decades," S&P analyst Marko Mrsnik wrote in the report. "If
governments do not change their social protection systems, they
will likely become unsustainable." If no reforms are adopted,
healthcare-related credit downgrades would likely start within
three years, eventually leading to an increase in the number of
junk-rated countries as of 2020, the study showed.
Olick - US Treasury forcing principal forgiveness
"Late Friday the US Treasury Department announced a major
expansion of its Home Affordable Modification Program (HAMP).
The three-year-old program has been largely deemed unsuccessful,
as it has provided just about 750,000 borrowers with permanent
loan modifications. The initial expectation from government
officials was that it would help three to four million borrowers.
'Clearly the initial program erred on the side of making sure
taxpayers were protected, but it didn’t do enough to help the
overall economy,' said Michael Barr, former Asst. Treasury
Secretary for Financial Institutions and one of HAMP’s original
architects. Now taxpayers will pony up the cash, as Treasury is
tripling the financial incentives to lenders and opening the
program up to Fannie Mae, Freddie Mac and investors in rental
properties. The money would come out of TARP funds, i.e. from the
taxpayers. We still don’t know if Fannie and Freddie will
participate, since their conservator, the FHFA’s Ed DeMarco,
has been actively fighting principal write down for years. A week
ago he sent a letter to members of congress explaining the math
behind his argument.
But the Treasury may be forcing DeMarco’s hand. He claimed that
writing down mortgage principal would cost $4 billion more than
the modifications that Fannie and Freddie are doing now. Those
involve interest rate reduction and principal forbearance. The
newly expanded HAMP, however, with its triple- sized cash
incentives, would shore up that $4 billion hole. Funny how he
mentioned that hole on Monday, and the Treasury announced the new
plan Friday. 'If he [DeMarco] doesn’t get to yes, then he has
no political leg to stand on,' says FBR’s Ed Mills, who
estimates the enhanced program could add one million borrowers to
its ranks. Mills says a ‘no’ from DeMarco would enable the
Obama Administration to replace him, which it tried to do once
before, only to be blocked by members of Congress. 'It would be
an appropriate response for him to do it,' says Barr of DeMarco.
'I do think they should participate.' I asked Barr why the
Treasury waited three years to use the TARP funds for principal
reduction. The obvious answer is that this is presidential
election year, and the housing market is still floundering, but
Barr claims the Treasury was just being careful. 'It’s a use
of taxpayer funds, and you want to make sure you’re not
providing more of an incentive than is required,' he said. 'One
person’s successful program is another person’s bailout.'"
Treasury department stirs the pot
The Treasury Department is investigating a report that Freddie
Mac, the mortgage giant, bet against homeowners’ ability to
refinance their loans even as it was making it more difficult for
them to do so, Jay Carney, the White House spokesman, said
yesterday. ProPublica and National Public Radio reported that
Freddie Mac, which maintained slightly tighter restrictions than
Fannie on homeowners’ eligibility to refinance, had a
multibillion-dollar investment whose value hinged on borrowers
continuing to pay higher interest rates. Beginning in 2010,
Freddie bought several billion dollars’ worth of “inverse
floater” securities — essentially the interest-paying portion
of a bundle of mortgages — for its investment portfolio while
selling the far less risky principal portion. Fannie and Freddie
are supposed to be decreasing the size of their investment
portfolios. There is no evidence that Freddie tailored its
refinancing standards to its investing strategy, but “inverse
floaters” make less money if the loans they cover refinance to
a lower interest rate. Freddie issued a statement yesterday
defending its commitment to helping homeowners. “Freddie Mac is
actively supporting efforts for borrowers to realize the benefits
of refinancing their mortgages to lower rates,” it said. The
company said refinancing accounted for 78% of its loan purchases
in 2011.
HAMP 2.0
The expansion of the Home Affordable Modification Program (HAMP)
by the Treasury Department is expected to benefit special
mortgage servicers, mortgage insurers and nonagency
mortgage-backed securities holders, while having no material
effect on agency MBS, Keefe, Bruyette & Woods said yesterday.
Previously, if a borrower's first-lien monthly mortgage payment
was lower than 31% of income, the borrower was ineligible for
HAMP. Factoring other debts to the evaluation will expand the
pool of borrowers who can now qualify for HAMP. Investors also
were given new incentives for accepting principal write-downs,
with the financial benefits for such an action increasing from a
range of 6 to 21 cents on the dollar to 18 to 63 cents. The
Obama administration also extended the HAMP program deadline
through December 2013. "We believe that the more flexible
debt-to-income ratio and the inclusion of some investor
properties will have a positive impact on modification activity,"
KBW analysts said in its research note. "The impact of the
increased principal reduction incentives remains unclear.
While it should help the nonagency sector, the impact would be
far greater if there was GSE participation. The response from
FHFA on Friday afternoon suggests that the GSEs might not
participate," according to KBW analysts. The research firm
expects the changes to have "no material impact on agency MBS
prepayment speeds." However, special servicers in the mortgage
industry are expected to benefit from the modifications. Ocwen
Financial Corp. earned $28.3 million in HAMP incentive fees in
the first nine months of 2011, and KBW believes other firms also
will benefit from an expanded HAMP program. Barclays Capital
analysts also see the changes as having no significant impact on
agency MBS. "The reason is that the vast majority of debt
forgiveness will be on delinquent loans, which are typically
already bought out of the agency MBS trust," Barclays wrote.
"The only effect might be from the moral hazard side: if
underwater borrowers in agency MBS pools start going delinquent
on purpose to qualify for debt forgiveness, speeds will obviously
rise. But we think this is unlikely to have a significant effect
on agency speeds."
OC Register - investors are the answer
"According to a foreclosure sales report by RealtyTrac,
foreclosure-related homes are still being gobbled up -- they
represent 20% of total transactions in 2011 Q3. Foreclosures are
usually viewed as a supply and price issue. High foreclosures
keep home prices down, creating negative equity — and declining
home prices keep foreclosures coming. This is a seemingly vicious
cycle that feeds into the "shadow supply" problem and looks
potentially like a never ending story. But all vicious cycles
eventually come to an end in a capitalist market system.
Ironically, it is the enthusiastic response of investors and
regular buyers to low-priced foreclosed homes, which could
eventually break the foreclosure cycle. Foreclosure-related home
sales were one-fifth of total US home sales in the third quarter
vs. 22% in the quarter before and 30% during the third quarter of
2010.
The decline in the market share of foreclosure-related home sales
is partially explained by various hurdles to the efficient
conclusion of the foreclosures process, but "even with the
hurdles to selling foreclosures, foreclosure sales continue to
represent a historical high percentage of all sales," says
RealtyTrac. Foreclosures' shrinking share could also be caused by
declining mortgage delinquencies, which have been dropping
relatively quickly in California, according to the Mortgage
Bankers Association. In California, the share of foreclosure
related sales was 44% in the third quarter. California has one of
the most efficient foreclosure recycling processes in the nation,
so temporary supply constraints are not that big of an issue as,
for example, they may be in Florida. Strong demand may be
stabilizing the average sales price of home in foreclosure, too,
which was up 1% from the previous quarter and down just 3% for
the third quarter in 2010. The reported average discount for
foreclosed properties relative to regular homes was 34% -- but I
wouldn't read too much into these numbers because they are not
quality adjusted. Still, declining mortgage delinquencies and
strong demand for foreclosure product could mean that the end may
soon be here for the foreclosure business — and what's lurking
in the shadows."
Income up, spending down
The Commerce Department said today that spending was the weakest
since June and followed a 0.1% gain in November. Economists
polled by Reuters had expected spending, which accounts for more
than two-thirds of US economic activity, to nudge up 0.1% last
month. For all of 2011, spending rose 4.7%, the largest increase
since 2007. When adjusted for inflation, spending dipped 0.1%,
breaking three straight months of gains. It increased 0.1% in
November. The government reported on Friday that consumer
spending grew at a 2.0% annual pace in the fourth quarter,
helping to lift gross domestic product 2.8% — acceleration from
the third-quarter's 1.8% rate. Part of the spending, which has
been concentrated in motor vehicles, has been funded from savings
and credit cards as high unemployment constrains wage growth.
Wages rose last month, helping to prop-up incomes. Income
advanced 0.5%, the largest gain since a matching increase in
March, and followed a 0.1% rise in November. Economists had
expected income to rise 0.4%. Consumer spending is closely
watched because it accounts for 70% of economic activity.
Unemployment stands at 8.5% — its lowest level in nearly three
years after a sixth straight month of solid hiring. For the
final three months of 2011, Americans spent more on vehicles, and
companies restocked their supplies at a robust pace. Still,
overall growth last quarter — and for all of last year — was
slowed by the sharpest cuts in annual government spending in four
decades. And many people are reluctant to spend more or buy
homes, and many employers remain hesitant to hire, even though
job growth has strengthened.
LPS - 2010-2011 originations good quality
The December Mortgage Monitor report released by Lender
Processing Services shows mortgage originations continued their
decline from 2011’s September peak, down 10.1% from the month
before. At the same time, those loans originated over the last
two years have proven to be some of the best quality originations
on record. Likely a result of tighter lending requirements,
2010-11 vintage originations showed 90-day default rates below
those of all other years, going back to 2005. December
origination data also shows that recent prepayment activity – a
key indicator of mortgage refinances – has remained strong,
with 2008-09 originations, high credit score borrowers and
government-backed loans having benefited the most from recent,
historically low interest rates.
Looking at judicial vs. non-judicial foreclosure states, LPS
found that half of all loans in foreclosure in judicial states
have not made a payment in more than two years. Foreclosure sale
rates in non-judicial states stood at approximately four times
that of judicial foreclosure states in December. Still, on
average, pipeline ratios (the time it would take to clear through
the inventory of loans either seriously delinquent or in
foreclosure at the current rate of foreclosure sales) have
declined significantly from earlier this year.
The December mortgage performance data also showed that
foreclosure starts continued to decline, remaining at multi-year
lows as of the end of 2011; down 3.7% for the month, and nearly
40% for the year. As reported in LPS' First Look release, other
key results from LPS' latest Mortgage Monitor report include:
Total US loan delinquency rate: 8.15%
Month-over-month change in delinquency rate: 0.0%
Total U.S foreclosure pre-sale inventory rate: 4.11%
Month-over-month change in foreclosure pre-sale inventory:
-1.3%
States with highest percentage of non-current loans: FL, MS, NV,
NJ, IL
States with the lowest percentage of non-current loans: MT, WY,
SD, AK, ND
Big banks hedge against EU
Five large American banks, including JPMorgan Chase and Goldman
Sachs, have more than $80 billion of exposure to Italy, Spain,
Portugal, Ireland and Greece, the most economically stressed
nations in the euro currency zone, according to a New York Times
analysis of the banks’ financial disclosures. But these banks
have made extensive use of a type of financial insurance, called
credit default swaps, to help them offset any losses that might
occur if defaults swamped the five troubled nations. Using these
swaps, along with other measures, the five banks have cut their
theoretical exposure to the troubled countries by $30 billion, to
$50 billion. The analysis also shows that Citigroup has the
greatest percentage of its exposure potentially protected at 47%,
while Bank of America has bought the least protection at 12%.
Big banks have reduced their sovereign debt exposure, but they
still have tens of billions of dollars of it. Credit-default
swaps have functioned well for big bankruptcies, but they were
also a big source of systemic weakness in 2008, when the American
International Group nearly collapsed because it could not make
payments on its side of its swaps contracts. Some market
participants now doubt they would work properly during periods of
great financial instability. “The likelihood of actually
getting paid out from owning a credit default swap would be
troubling to me if this were my hedge against a systemic shock
— especially in a political environment unfriendly to more Wall
Street bailouts,” Mark Spitznagel, chief investment officer at
Universal Investments, a hedge fund, said through a spokesman.
Olick - foreclosure pipeline swells
"The number of new foreclosures in 2011 dropped nearly 40%,
according to year-end numbers just released by Lender Processing
Services (LPS); there is, however, little cause for celebration.
The fall is largely due to moratoria and process reviews stemming
from the so-called 'robo-signing' foreclosure paperwork scandal.
Mortgage delinquency rates were largely unchanged from last year,
which means all that distress will be pushed forward to 2012 and
beyond. To give you an idea of just how much the 'robo' scandal
is toying with the numbers, LPS compared states that require
foreclosures to go through the courts versus states that don’t
(judicial versus non-judicial) and found the following:
- 50% of loans in foreclosure in judicial states have not made a
payment in two years, as opposed to 28% in non-judicial states.
- Foreclosure sale rates in non-judicial states are about four
times those in judicial states.
'Nationally, foreclosure pipelines remain at historic highs, but
they are clearing at very different rates depending upon state
procedures,' says Herb Blecher of LPS Applied Analytics. With
the nation essentially split between judicial and non-judicial
foreclosure states, it’s safe to say the foreclosure crisis
will linger longer than anyone expected, especially with
negotiations for a settlement between big banks and state
attorneys general hitting yet another roadblock. California
Attorney General Kamala Harris rejected the latest proposal this
week, calling it inadequate. 'Our state has been clear about
what any multistate settlement must contain: transparency, relief
going to the most distressed homeowners, and meaningful
enforcement that ensures accountability. At this point, this deal
does not suffice for California,' she wrote in a statement. Bank
sources say that without California the value of the settlement
would drop by billions and banks would still have major liability
for foreclosure fraud. About one fifth of the nation's
foreclosures are in California."
Replacements to help drive economy
Four years after the downturn began, the replacement cycle shows
signs of kicking into a higher gear in the United States even
among small businesses, and it could give an unexpected boost to
growth and employment this year. In the United States, large
corporations have already dug into huge cash piles to upgrade
plant and equipment, adding incrementally to an economy that grew
by 2.8% in the fourth quarter. Now small businesses, which drive
about half of US economic growth and a big chunk of job creation,
are increasing their spending on equipment, too, an important
precursor to stronger hiring. For the early signs of this small
business revival, Ian Shepherdson, chief US economist at High
Frequency Economics, points to two factors: access to credit has
improved markedly as shown by a surge in banks' commercial and
industrial lending, and an index of capital expenditure
intentions, as measured by the National Federation of Independent
Business (NFIB), is climbing. NFIB policy analyst Holly Wade said
anecdotally she hears of more businesspeople talking of
increasing their budgets. "They have stretched out their
machinery and equipment and would have normally invested in
replacement, but they were waiting as long as possible. Now they
are starting to see better sales and earnings, and they are more
comfortable investing some of those dollars in capex," she said.
"In the next three to six months, it wouldn't be surprising to
see the same rate of growth in capital outlays we have seen
recently."
FHA - originations down, delinquencies up
The serious delinquency rate for Federal Housing Administration
(FHA) mortgages reached 9.6% in December, the highest level in
more than two years, the Department of Housing and Urban
Development (HUD) said. More than 711,000 FHA-insured loans were
seriously delinquent, up 18.9% from one year earlier, according
to the HUD report. It's also a 3.2% increase from the month
before. The delinquency rate has been steadily increasing since
passing 8.2% last summer. Meanwhile, originations are down. In
December, the FHA insured 93,700 mortgages, a nearly 30% decline
from the 133,000 insured in December 2010. In its fiscal year
2011, the FHA Mutual Mortgage Insurance Fund slipped to a 0.24%
capital ratio from 0.5% the year prior. By law, the fund must
remain above 2%. FHA officials attempted to temper fears that
the fund would need a bailout. An independent study done showed
home prices would have to deteriorate significantly before an
injection of tax dollars would be needed.
"It would take very significant declines in home prices in 2012
to create a situation where FHA would need additional support,"
said FHA Acting Commissioner Carole Galante when the projections
came out. American Enterprise Institute Fellow Edward Pinto
isn't convinced. His study claimed that FHA is actually
undercapitalized by as much as $53 billion using more traditional
accounting rules. The FHA put new guidelines in place this week
that would tighten restrictions on lenders seeking approval to
write FHA mortgages. Also, the changes would force more firms to
buyback defaulted home loans and reduce seller concessions, which
Pinto said would have the most impact, according to Pinto. "We
need to get back to where the mortgages themselves stand on their
own regardless of what happens with house price inflation or
deflation," Pinto said.
Bakersfield.com - no kudos for the POTUS
President Obama's announcement in last week's State of the Union
address that he has created a new unit to probe mortgage abuse
earns no cheers from us. Instead, we are reminded how shamefully
little has been done to address the housing crisis that continues
to plague so many Americans. The Making Home Affordable mortgage
relief program has been an utter flop. An attempt by the
Department of Justice to broker a multistate settlement with
major banks over foreclosure abuses that would fund relief for
struggling homeowners has gone nowhere. There have been no
meaningful prosecutions, no significant relief for homeowners and
few new fraud protections. Now, what little break has been
granted to troubled homeowners -- in the form of tax relief on
canceled mortgage debt -- is due to expire at year's end and too
few seem aware of the looming deadline.
Normally, debt that is forgiven or canceled by a lender in a
foreclosure or short sale must be included as income on tax
returns and is taxable. However, the Mortgage Forgiveness Debt
Relief Act of 2007 excluded the reporting of up to $1 million in
canceled debt on a primary residence for tax purposes. But not
for long. Local real estate agents report no frenzy of calls or
uptick in clients wanting to carry out short sales. Scott Tobias,
president of the Bakersfield Association of Realtors, told The
Californian last week that "I think, basically, homeowners don't
know about" the tax relief expiring on Dec. 31, 2012. With
nearly half of all Bakersfield mortgages underwater, it's
essential for people to know of the upcoming tax break
expiration, especially considering that it can take months to
close a short sale. The housing market is nowhere near recovery;
Congress ought to extend the tax relief. But no one should rely
on Congress to act. It's imperative for underwater homeowners to
understand their options and be informed about the looming tax
deadline.
60 BOA short sales in Florida
Only 60 Floridians have received cash from a Bank of America
(BOA) program that pays up to $20,000 to homeowners who sell
distressed properties in a short sale. The lender still expects
thousands more in the Sunshine State to collect the money before
the pilot program ends in August. Bank spokesman Richard Simon
said it's too early to judge the results. "There are some
encouraging signs in this early stage," he said. "This is just
the start of the process." Several Realtors and title agents
around Tampa Bay said deals are in the pipeline, but none has
finalized any of the sales. Real estate agents say some lenders
have been closing the deals in 45 to 60 days instead of a year or
longer. Bank of America had targeted 20,000 of the 1.1 million
mortgages it services in Florida. In the program, qualified
homeowners would get 5% of the unpaid mortgage balance as of
August 2011, with a minimum payout of $5,000. And so on up to a
maximum of $20,000. The sales price does not impact the payout.
By offering the incentive, Bank of America saves attorney fees,
court costs and property taxes by avoiding foreclosure. It also
speeds the process of getting bad loans off its books and gets
the properties back on the market faster. To sweeten the deal
further, the lender said it would consider waiving the deficiency
on the mortgages, which would allow homeowners to sell the house
for less than they owe for it without having to make up the
difference to the bank. The bank tested the program only in
Florida because of the higher foreclosure rates.
Asia to drive natural gas demand
Despite natural gas prices falling to near 10-year lows last
week, Royal Dutch Shell's CEO Peter Voser says demand for gas
will be much higher than oil in the long term with the
Asia-Pacific region driving the sector's growth. "I think you
cannot travel around Asia at the moment without getting the
question, 'can you sell us some LNG (liquefied natural gas)?'"
Voser at the World Economic Forum in Davos. Low demand and high
inventory levels in the US has deterred some companies from
future investments, but according to Voser, America's waning
demand doesn't reflect what is happening in the rest of the
world. "If you're talking about North American gas, clearly the
current price levels are not sufficient to actually bring all the
developments forward. You have seen a lot of companies starting
to cut their production." With oil and gas production normally
taking seven to eight years to come on stream, Voser says Shell
is sticking to its long-term strategy to produce more natural
gas. "We produce more gas in 2012 now, 52% versus 48% oil," he
said. "Clearly Asia-Pacific, that's going to be the driver."
WSJ - mortgage rates rise
Rates for fixed mortgages moved higher over the past week amid
positive signals from the long-suffering US housing market,
according to Freddie Mac’s weekly survey of mortgage rates.
“Fixed mortgage rates ticked up this week as the housing market
ended 2011 on a high note,” said Freddie Mac Chief Economist
Frank Nothaft, noting encouraging data like a report that
existing home sales rose 5% at the end of the year to 4.61
million houses, the largest amount since May 2010. The 30-year
fixed-rate mortgage averaged 3.98% for the week ended Thursday,
up from 3.88% the previous week, though below 4.8% a year ago.
Rates on 15-year fixed-rate mortgages averaged 3.24%, up from
3.17% last week and below 4.09% a year earlier. Five-year
Treasury-indexed hybrid adjustable-rate mortgages, or ARM,
averaged 2.85%, up from 2.82% last week and below 3.7% a year
ago. One-year Treasury-indexed ARM rates averaged 2.74%, matching
the prior week and below 3.26% last year. To obtain the rates,
30-year and 15-year fixed-rate mortgages required an average 0.7
percentage point and 0.8 percentage point payment, respectively.
Five-year and one-year adjustable rate mortgages required an
average 0.7 percentage point and 0.6 percentage point payment,
respectively. A point is 1% of the mortgage amount, charged as
prepaid interest.
Growth up in Q4
US gross domestic product expanded at a 2.8% annual rate, the
Commerce Department said on Friday, a sharp acceleration from the
1.8% clip of the prior three months and the quickest pace since
the second quarter of 2010. It was, however, a touch below
economists' expectations for a 3.0% rate. Consumer spending,
which accounts for about 70% of US economic activity, stepped to
a 2% rate from the third-quarter's 1.7% pace - largely driven by
pent-up demand for motor vehicles. Spending was also lifted by
moderate inflation. A price index for personal spending rose at
a 0.7% rate in the fourth-quarter, the slowest increase in 1-1/2
years, after rising at a 2.3% pace in the July-September period.
A core inflation measure, which strips out food and energy costs,
increased at a 1.1% rate after rising 2.1% in the third quarter.
The increase last quarter was the smallest in a year and put this
measure well below the Fed's 2% target.
Growth in the fourth quarter got a temporary boost from the
rebuilding of business inventories, which was the fastest since
the third quarter of 2010, after they declined in the
third-quarter for the first time since late 2009. Inventories
increased $56.0 billion, adding 1.94 percentage points to GDP
growth. Excluding inventories, the economy grew at a tepid 0.8%
rate, a sharp step-down from the prior period's 3.2% pace. The
robust stock accumulation suggests the recovery will lose a step
in early 2012. Also pointing to slower growth, business spending
on capital goods was the slowest since 2009, a sign the debt
crisis in Europe was starting to take its toll. Expectations of
soft growth led the Federal Reserve on Wednesday to say it
expected to keep interest rates at rock bottom levels at least
through late 2014. Fed Chairman Ben Bernanke said the central
bank, which forecast growth this year in a 2.2% to 2.7% range,
was mulling further asset purchases to speed up the recovery.
The Fed warned the economy still faced big risks, a suggestion
the euro zone debt crisis could still hit hard.
Absorption rates to improve in 2012?
Net absorption rates in the US turned positive during 2011 for
all major property types, according to CBRE Econometrics, which
expects the trends to continue in 2012 on the heels of employment
growth and then accelerate in 2013. The absorption rate is the
percentage of units expected to be rented or purchased over a
period of time. After a downturn across all property types,
annualized apartment absorption turned positive at the beginning
of 2010, office by mid-2010, industrial in 2010, and finally
retail in mid-2011, analysts at Barclays Capital said. In the
apartment sector, CBRE forecasts a 0.7% absorption rate in 2012
and then 1.2% in 2013. Office property, the company said, will
experience a 0.6% rate in 2012 and 1% in 2013, while the
industrial sector should see a 1.1% rate in 2012 and 1.5% in
2013. Retail property will have a 0.7% absorption rate in 2012
and then 1.2% in 2013. Grubb & Ellis said the overall outlook
for the office market is stronger for 2012. The real estate
services firm also expects the industrial sector to experience
increased demand this year with total net absorption of 110
million square feet. Net absorption rates usually follow
employment growth. An exception came during the recent downturn
when each property type outperformed relative to the levels of
job losses suffered during 2008 and 2009. Given the positive net
absorption across property types and almost no new construction,
occupancy rates, or the number of occupied units at a given time,
began to improve in the third quarter. According to CBRE,
apartment occupancy rose 0.8% from a year earlier to 95%. Office
occupancy increased 0.6% to 83.8%, while the industrial sector
inched higher 0.9% to 86.3%. Retail, the only laggard, is down
0.1% from a year earlier to 86.8%.
2012 to be the best year for short sales?
The Mortgage Debt Forgiveness Act of 2007 allows an income tax
exemption for a homeowner whose mortgage debt is partly or
entirely forgiven by a bank. It's set to expire Dec. 31, 2012.
Matt Alegi, a partner with the Potomac law firm Shulman Rogers
and chair of the firm's residential real estate practice group,
says the tax break has meant a savings in the tens of thousands
of dollars for individuals. Typically, if someone were to have
$150,000 forgiven by the bank, Alegi says, "you just made another
$150,000 of income for tax purposes in that year." So, say
someone makes $50,000 but had $150,000 forgiven by the bank. That
person is now paying taxes on a $200,000 income, and included in
a much higher tax bracket. The loss of the relief will plunge
homeowners further into debt, Alegi says.
He also thinks the expiration of the Debt Forgiveness Act will
have an impact on short sales themselves. Homeowners could try to
push the short sale through this year to take advantage of the
tax break. Alegi believes there will be strong lobbying to
extend the tax break. If it isn't extended, the appeal of a short
sale could greatly diminish for the homeowner. To take advantage
of the Debt Relief Act, you need to fall under very specific
guidelines outlined by the IRS. For example, the debt forgiven
is only for primary residences and the debt must have been used
to buy, build or substantially improve your principal residence
and be secured by that residence. Alegi says homeowners who
spent the forgiven money on education or other bills do not
qualify.
Gridlock an Obama strategy?
When President Obama outlines his goals for 2012 during
Tuesday’s State of the Union address, he shouldn’t expect a
lot of cooperation from Republicans, senate Minority Leader Mitch
McConnell (R-Ky.) said yesterday. “With the Obama economy
established now…unemployment is still at 8 ½%,” McConnell
said. “It didn’t work, and we’re not interested in doing
more of the things that don’t work.” He said Obama was
“AWOL” last year on his bus tour when Republicans wanted to
tackle tax reform and entitlements, and he expects more of the
same this year. “He was not involved whatsoever,” McConnell
said. “So I’m not optimistic, frankly, that in an election
year that he’s likely to be any more engaged than he was last
year.” What’s more, he thinks the logjam in the nation’s
capital is part of Obama’s agenda. “That’s his
strategy…to demonize Congress, to complain because he can’t
continue to get everything he wants, like he did the first two
years,” he said. “It’s all about his re-election and not
about the country.” One thing that McConnell thinks will get
done is the payroll tax cut extension, which was extended for
only two months in December when Congress couldn’t come to an
agreement. “We’ll be back at trying to figure out how to do
that for the balance of the year and how to pay for it,” he
said. “We don’t want to add to the deficit.”
What the $25 billion bank deal means
According to an Associated Press report, five major banks -- Bank
of America, JPMorgan Chase, Wells Fargo, Citibank and Ally
Financial -- and US state attorneys general could adopt the
agreement within weeks. It's expected President Barack Obama will
mention new developments in the negotiations in his State of the
Union address today. A settlement between the banks and the
states doesn't mean homeowners who lost their homes to
foreclosure will get them back. In fact, they're unlikely to
benefit much at all financially, though the total financial
settlement could be as high as $25 billion. What's worse is the
settlement does not apply to loans held by Fannie Mae or Freddie
Mac. Since Fannie and Freddie own about half of all US mortgages
- or 31 million US home loans - that means a lot of homeowners
who have been hurt by the banks' deceptive foreclosure practices
won't be getting much-needed assistance. Nearly 11 million
people - one in four homeowners - owe more than their home is
worth. According to current guidelines, these underwater
homeowners have few options and little chance at refinancing.
Here's how the settlement could shape up:
- $17 billion would go toward reducing the principal balance
struggling homeowners owe on their mortgages.
- $5 billion would be put into a reserve account for various
state and federal programs. A portion of this money would cover
the $1,800 checks that would be sent to homeowners affected by
deceptive practices. Only about 750,000 Americans, or half of the
households who might be eligible for assistance under the deal,
will likely receive checks.
- About $3 billion would be used to help homeowners refinance at
5.25%, far below current mortgage interest rates.
If the proposed settlement terms are accepted, roughly 1 million
of these homeowners could see the principal amount of their
mortgages reduced by an average of $20,000. That's good news for
some, but bad news for the other 10 million homeowners who would
like to claim a principal reduction but won't qualify. The
better news is this settlement has the potential to reshape
long-standing lending guidelines and make things easier for
at-risk and underwater homeowners across the board. But critics
say it doesn't do enough. Sen. Sherrod Brown (D-Ohio) tells the
Associated Press: "Wall Street is again trying to pass the buck.
Instead of criminal prosecutions, we're talking about something
that's not more than a slap on the wrist." Some states have
disagreed over what to offer banks, with states like New York,
Delaware, Nevada and Massachusetts arguing banks should not be
"protected from future civil liability." The deal will not fully
release banks from future criminal lawsuits by individual states,
and a few of those states' attorneys general have already
promised to pursue their own investigations. Bank officials have
argued few, if any, foreclosures wrongfully took place as a
result of documentation issues. Ally Financial CEO Michael
Carpenter has been among the most vocal, claiming the company
found no instances of wrongful foreclosure after its own internal
audit. Carpenter has said he will fight the government in court
if need be.
US Treasurys edge higher after Greek setback
US Treasurys edged higher today, after euro zone finance
ministers rejected an offer by private creditors to restructure
Greek debt, keeping alive fears of a default. Benchmark 10-year
note's yield was at 2.06%, compared with 2.058% in late US trade
on Monday. The yield rose as high as 2.094% on Friday, its
highest since early December. The 30-year bond yield was at
3.14%. Demand for safe-haven US debt was further boosted after a
report rekindled fears that Portugal, seen as the second most
risky country in the euro zone, could be the next potential
default candidate after Greece. Further dousing optimism,
Germany denied a report that it was ready to boost the combined
firepower of the euro zone's rescue funds to 750 billion euros
($979 billion). During its two-day policy meeting starting on
Tuesday the Federal Reserve is expected to push out expectations
on when it will next raise interest rates until at least 2014,
and the meeting will also be closely watched for any hints of new
QE, which analysts expect would focus on mortgage-backed bonds.
The Treasury Department will sell four-week bills and two-year
notes later in the day. The Treasury will sell a total of $99
billion in new two-year, five-year, and seven-year notes this
week.
Mortgage writedowns to cost taxpayers $100 billion
Forgiving mortgage debt on Fannie Mae and Freddie Mac loans would
cost the taxpayer-funded companies almost $100 billion, their
regulator said. The Federal Housing Finance Agency (FHFA) said
that as of June 30, the companies guaranteed nearly 3 million
mortgages on single- family homes that are underwater, or worth
less than the loans they secure. "FHFA estimates that principal
forgiveness for all of these mortgages would require funding of
almost $100 billion," FHFA Acting Director Edward J. DeMarco said
in a Jan. 20 letter to Representative Elijah Cummings, a Maryland
Democrat who had threatened to subpoena the information. The FHFA
posted the letter on its website today. Nearly 80% of the Fannie
Mae and Freddie Mac borrowers with negative equity were current
on their payments, DeMarco said.
DeMarco, whose agency was created by Congress to minimize losses
at Fannie Mae and Freddie Mac and is independent of President
Barack Obama's administration, has maintained that principal
forgiveness would increase the size of the government's bailout
of the companies, which have cost taxpayers more than $153
billion since they were taken under government control in 2008.
The agency compared the cost of principal forgiveness to the
companies' current practice of forbearance, which allows
delinquent borrowers to defer payments. "Given that any money
spent on this endeavor would ultimately come from taxpayers and
given that our analysis does not indicate a preservation of
assets for Fannie Mae and Freddie Mac (FMCC) substantial enough
to offset costs, an expenditure of this nature at this time
would, in my judgment, require congressional action," he said.
WSJ - EU tries to revive Greek talks
European Union finance ministers today piled pressure on Greece
and its private-sector creditors to do more to ensure that a
proposed deal to restructure Greece's private-sector debt will be
enough to put the country back on a firm fiscal footing. The
International Monetary Fund (IMF) and the euro zone's four
triple-A-rated countries-—Germany, the Netherlands, Finland and
Luxembourg—are pushing for a low average interest rate on new
bonds to be issued as part of the restructuring, in order to
ensure the government can pay its debts in the future. But as
they were heading to a meeting Tuesday, EU finance ministers also
urged Greece to implement tough austerity and structural reforms
and provide more written assurances to its partners that it would
commit to its pledges before further aid can be released.
Austrian Finance Minister Maria Fekter said she's "not pleased"
with progress so far. "We're sending a very direct message to
Greece that the community expects more, also in terms of
structural reform," she told reporters. "We're not pleased and
only when there's a written message on the table in front of us,
can further assistance be discussed."
Greece's debt restructuring is planned to take the form of a bond
exchange in which creditors holding some €200 billion ($260.32
billion) in debt would swap their securities for new instruments
with half the face value. The key sticking point is how much
interest the new bonds should pay. The restructuring is part and
parcel of the second bailout program for Greece amounting to
€130 billion. Without this loan, Greece will default on a
€14.4 billion bond maturing March 20. But talks in Athens with
the Institute of International Finance, which represents the
majority of Greece's private-sector creditors, have dragged on
for three weeks and stalled over the weekend. Private-sector
creditors said in a final offer that they won't accept an average
interest rate of less than 4%. The IMF voiced concerns yesterday
that the deal being discussed by Greece and the creditors would
leave the country with a higher-than-expected debt burden in the
years ahead, people familiar with the matter said. That sets up
a difficult choice: press bondholders to accept more losses, or
accept that Greece's peers and the IMF will have to kick in more
support.
Olick - foreclosure investors a double edged sword
"The best and most expeditious way to clear the vast inventory of
foreclosed properties weighing down today’s housing market is
to get more investors in and sell them these properties at bulk
discounts. That’s what the Obama administration and Federal
regulators are currently considering for the thousands of homes
currently owned by Fannie Mae, Freddie Mac and the FHA. While
big private equity funds are still largely in a very tedious
deal-making stage with banks or waiting on the sidelines for a
government program, smaller individual investors are getting in.
Nearly 23% of home purchases in December were by investors,
according to a new survey from Campbell/Inside Mortgage Finance.
That is a slight increase from November, but the share has
remained largely unchanged for the past year. What has changed
dramatically is how many of these investors are using
all-cash…74% according to the survey, which also found that,
'cash buyers are able to bid significantly lower—and
successfully—on many properties because they offer a shorter
and more reliable closing timeline.' That is precisely what
mortgage servicers want.
'While investor bids may not be the first offers accepted, they
often end up winning properties after other homebuyers are
eliminated because of mortgage approval or timeline problems,'
according to the survey authors. 'Appraisals below the contracted
price are a common reason for mortgage denials. Most mortgage
financing timelines are now in excess of 30 days.' There has
been a lot of concern among industry analysts that bulk
foreclosure sales would push home prices down further, but it
appears that is already happening, as investors usually offer
10-20% below list price, while first time home buyers and current
homeowners are generally offering list. If the offers are
competitive, cash will prevail."
Existing home sales up
The National Association of Realtors said Friday that sales
increased 5% last month to a seasonally adjusted annual rate of
4.61 million, the best level since January 2011 and the third
straight monthly increase. For the year, sales totaled only 4.26
million. While that's up from 4.19 million the previous year,
it's below the 6 million that economists equate with healthy
housing markets. Sales are increasing at a time when the market
is flashing other positive signs. Mortgage rates are at
record-low levels. Homebuilders have grown slightly less
pessimistic because more people are saying they might be open to
buying a home this year. And home construction picked up in the
final quarter of last year. The median sales price rose 2.3% to
$164,500 in December. Still the housing market has a long way to
go before it is fully recovered from the housing bust four years
ago. In the last four years, home sales have slumped under the
weight of foreclosures, tighter credit and falling price. Fewer
first-time buyers, who are critical to a housing recovery, are in
the market for a home. Purchases by that group fell last month to
make up only 31% of sales. That's down from 35% in November. In
healthy markets, first-time buyers make up at least 40%. At the
same time, homes at risk of foreclosure made up a third of all
sales last month. In healthy markets, they comprise 10% of sales.
Investors are increasingly buying homes priced under $100,000.
Still, Sales rose across the country in December. They increased
on a seasonal basis by more than 10% in the Northeast, 8.3% in
the Midwest, 2.9% in the South and 2.6% in the West. The glut of
unsold homes declined to 2.38 million homes. At last month's
sales pace, it would take a nearly 7 months to clear those homes.
Analysts say a healthy supply can be cleared in about six
months.
US and Europe to face more ratings cuts?
The string of sovereign debt downgrades in recent months could be
just the beginning. The US, Europe—even Germany—could face
further ratings cuts over the next three years, according to a
lengthy analysis this week by Citigroup. The European Union got
a slight reprieve late Friday as Standard & Poor's backed it's
triple-A/A-1+ rating on the EU. It had been under review and at
risk of a downgrade. The outlook remains "negative." In
announcing its decision, S&P said the EU "benefits from multiple
layers of debt-service protection sufficient to offset the
current deterioration we see in member states' creditworthiness."
The US is at the top of Citi's list for possible downgrades
because its debt and deficit troubles are unlikely to be resolved
with the political infighting in Washington. Some of the other
usual suspects also are on Citi’s list – the European
peripheral nations in particular such as Greece and Spain. But
even mighty Germany, seen as the continent’s most secure
economy, could face a downgrade as the sovereign debt crisis
escalates and a European recession spreads through the region.
“We expect a string of further ratings downgrades for
advanced-economy sovereign debt, and do not expect any ratings
upgrades,” Citi analysts Michael Saunders and Mark Schofield
wrote. That includes American debt, which Standard & Poor’s
downgraded in August in a move that set off a more than 600-point
one-day selloff in the Dow industrials.
Citi said it is keeping its outlook unchanged on US debt in the
near term but sees trouble looming for the American rating over
the next two to three years. Indeed, the list of potential
downgrades is ominous and serves as a reminder that while the US
equity markets seem conveniently to have forgotten about the
world’s debt troubles, some stern and punitive reminders are on
the way. Further downgrades for the US, and the initial
downgrade for Germany, could be a few years away. But in the
next six months, the ratings agencies are likely again to start
rattling their sabers, starting with the declaration of a Greek
default that is approaching a near-certainty in March. In fact,
in the next six months, Citi expects Moody’s to cut ratings for
Italy, Spain, Portugal and Greece, with the nascent recovery in
Ireland allowing it to be the only one of the “PIIGS” nations
to escape the downgrade scalpel. Additionally, France and
Austria are deemed likely for a “negative outlook,” while
Greece will be placed into either “selective default” or
“outright default.” Going out further, the next two to three
years are likely to see downgrades not only to the US but also to
Japan, France, Italy, Spain, Austria, Belgium, Finland, the
Netherlands and Portugal.
DSNews.com - FHA steps up lender requirements
The Federal Housing Administration (FHA) on Friday announced new
measures to strengthen standards for the lenders it works with
– measures the agency says will help it better manage the risk
that comes with insuring mortgages against default. The new
regulations institute tighter requirements for lenders authorized
to insure mortgages on the agency’s behalf under the Lender
Insurance mortgagee program.FHA says these institutions will be
required to meet stricter performance standards to obtain and
maintain their approval status. More than 80% of all FHA forward
mortgages are insured through lenders participating in the Lender
Insurance program. FHA’s second mortgagee program – the
Direct Endorsement program – requires the agency’s approval
for endorsement. In order to be eligible to participate in the
FHA single-family programs as a Lender Insurance mortgagee, a
lender must be an unconditionally approved Direct Endorsement
mortgagee that is high performing. Under the new rule, a Lender
Insurance mortgagee must demonstrate a two-year seriously
delinquent and claim rate at or below 150% of the aggregate rate
for the states in which the lender does business. HUD and FHA
will review Lender Insurance mortgagee performance on an ongoing
basis to ensure participating lenders continue to meet the
program’s eligibility standards. The new rule also establishes
a process by which new HUD-approved lenders created through
corporate mergers, acquisitions, or reorganizations may be
considered for Lender Insurance authority. In addition, FHA has
shored up its processes for requiring lenders to cover potential
losses from insurance claims paid on mortgages that involve fraud
or that are found not to meet the agency’s underwriting
guidelines, which could force lenders to buy back more defaulted
loans. For those loans insured by Lender Insurance lenders, HUD
may require indemnification for “serious and material”
violations of FHA origination requirements and for fraud and
misrepresentation. In a separate notice to be published soon,
FHA plans to propose to reduce the maximum amount allowed for
seller concessions, in which the seller contributes a share of
the purchase price toward the buyer’s closing costs.
FHA says it will bring the maximum allowable amount to a level
more in line with industry norms. The current level exposes FHA
to excess risk by creating incentives to inflate appraised value,
the agency explained in a press statement. FHA says these
measures will help to protect and strengthen its Mutual Mortgage
Insurance Fund, which has fallen below the level mandated by
Congress, while enabling the agency to continue to fulfill its
mission of providing qualified borrowers with access to
homeownership. “Taken together, the changes announced today
will protect FHA’s insurance fund from unnecessary and
inappropriate risks while offering clear guidance to lenders
regarding HUD’s underwriting expectations,” said Carol J.
Galante, FHA’s acting commissioner. “FHA must continue to
strike a balance between managing risks to its insurance funds
and ensuring that FHA products are offered as widely as possible
to qualified borrowers,” Galante continued. “We hope that the
added clarity and certainty provided through these rules will
enable lenders to extend financing opportunities to larger
numbers of American families.”
Growth but few jobs
The National Association for Business Economics' industry survey
found that two-thirds of respondents expected no change in
employment at their companies over the first half of the year.
That was the highest share in recent quarters. Although the US
jobless rate fell to a near three-year low of 8.5% in December,
fewer businesses said they would hire more workers, compared with
the previous industry poll. The survey, which was conducted
between December 15 2011, and January 5 2012, found that 65% of
respondents expect gross domestic product growth to exceed 2%
between the fourth quarter of last year and the last quarter of
2012. That was higher than the 1.6% growth rate economists
polled by Reuters found. About two-thirds of the companies
surveyed said the European debt crisis would have little impact
on their sales over the first half the year, while 27% of
respondents said they expected to see a decline in sales of 10%
or less.
CMBS delinquency rate higher than 9% in 2011
The delinquency rate of loans in commercial mortgage-backed
securities (CMBS) bounced higher in December and remained above
9% all year. Delinquency rates were mixed across the five
commercial property types in December with hotel and multifamily
rates declining while office, retail and industrial rose.
Moody's Investors Service said the rate rose to 9.32% last month
from 9.27% in November and from 8.79% a year earlier. The
ratings agency said there were $3.7 billion of newly delinquent
loans in December, including Bank of America Plaza in Atlanta,
while $3.5 billion were resolved or worked out. The $1.4 billion
of new CMBS deals was more than offset by $5.5 billion of
seasoned loan dispositions and payoffs, pushing the CMBS universe
to $582.8 billion, analysts said. The $363 million loan that
went into arrears in Atlanta is the seventh largest delinquent
loan overall, according to Moody's. The delinquent rate in the
hotel sector fell to 12.96% from 13.54% a month earlier, while
multifamily declined to 14.44% from 14.88%, which remains the
highest rate among the core asset classes, Moody's said. Retail
delinquencies rose to 7.22% from 6.97% in November; industrial
climbed to 12.09% from 11.5%; and office increased to 8.65% from
8.39%. Moody's specially serviced loan tracker fell to 11.97% in
December from 12.1% the prior month.
Olick - robo signings turned political
"For over a year now, state attorneys general have been
negotiating some kind of settlement deal with the nations four
largest lenders, as well as several smaller ones. The settlement
pertains to faulty foreclosure processing, first uncovered in
October of 2010 and now commonly referred to as 'Robo-signing.'
Rather than dozens of lawsuits, the states initially were looking
to assess one great punishment on the lenders and thereby appease
borrowers who felt they were wronged. The banks were looking for
wider immunity from securitization issues, and that is largely
what has held up the negotiations for so long.
Now, suddenly, after umpteen 'we’re close to a deal's,
apparently we’re now really close to a deal, largely because
the State of the Union address is next Tuesday, and this is an
election year. So at a meeting of Mayors Wednesday, the Secretary
of Housing and Urban Development, Shaun Donovan, mentioned that a
settlement would include principal reduction for about a million
borrowers. 'With few other tools to help housing, the
administration sees the deal as a way to take credit for helping
underwater borrowers without exposing taxpayers to loss,' says
Jaret Seiberg at Guggenheim partners, noting that the deal may
not fully be in place by Tuesday, but a 'framework' could be
announced. 'If this deal does score enough political points, then
it will dampen calls for the administration to roll out more
housing help such as a mass refinancing. As we remain dubious
about the real impact of a deal, our view is that the
administration will face pressure this spring to do more. That
means more refinancings of GSE loans will still be on the table,'
he adds.
Of course we already know the basic framework of the deal, which
would involve up to $25 billion from the banks, though only a
small portion of that would be a cash settlement. The bulk of the
money would be used to do principal write downs, short sales, and
more aggressive loan modifications. Unfortunately, several key
states, including Massachusetts, California, New York, Delaware
and Nevada have expressed serious concerns about the deal
currently on the table, and some bank sources are telling us that
without California and New York, it’s hard to see how there
would be a deal. If there is a deal, beyond the politics, it
could have a larger effect on the state of the housing market and
its recovery.
Remember, this deal is about foreclosure processing, which has
been nearly stalled in many states. 'To that end, it will give
banks some increased certainty about their ability to foreclose
in those states that sign on to the agreement. As a result, we
may see foreclosures ramp up fairly quickly in those states,'
says Josh Rosner of Graham-Fisher. Rosner calls the deal
'somewhat nonsensical,' even without knowing the full details, as
he believes it offers no assurances to any state regarding
specific amounts of relief, not to mention leaving questions
about the credibility of the monitoring, oversight, compliance
and enforcement of the deal terms. 'The expected political
calculus is that the public will see the headline and will not
bother to watch the operationalization or follow-through,' says
Rosner.
My concern is about this principal reduction headline. Yes, the
banks processed foreclosures using improper methods, having one
person sign off on thousands of documents that were never read.
Yes, there was a huge breakdown in accountability and a huge lack
of attention paid to struggling borrowers. The trouble is, after
going over these cases, the bottom line is that the vast majority
of the foreclosures were and are valid. People didn’t pay their
mortgages. So now you’re offering cash back to these borrowers,
perhaps even their homes back, while others in the very same
position, who may have had their foreclosures processed
correctly, get nothing."
Will the Keystone pipeline get built after all?
Is the political controversy over the Keystone XL oil pipeline
project just a lot of hot air? Yesterday, after President Obama
rejected the project—which would carry oil from Canada to US
refineries in the South—the political finger-pointing in
Washington kicked into high gear. Republican Presidential
candidate Mitt Romney called the decision a “shocking” one
that will cost jobs and was just out to please environmentalists.
Fellow candidate Newt Gingrich went so far as to call it
“stunningly stupid.” analysts are suggesting, however, that
once the project’s builder, TransCanada, reapplies for the
permit with a new route, the pipeline will come online in 2014 as
the company expected all along—with no construction jobs lost.
“We view this announcement as politically driven and do not
believe that it precludes Keystone XL from eventually receiving a
Presidential Permit in early-2013, as the company previously
expected,” said Linda Ezergailis of TD Securities, in a note to
clients. “TransCanada continues to believe that Keystone XL
could enter service in late-2014. We note that this timeline is
unchanged from what the company presented at its investor day in
November 2011.” It's hard to see why a president would go
ahead with plans to mothball the pipeline when the alternative is
oil from the middle east, so maybe TranCanada has a point?
Homeowners not out of the woods
While housing reports this year have generally pointed to an
improving recovery in the real estate market, the growth remains
at an anemic pace, translating into choppy moves for housing
stocks for the foreseeable future. Homebuilders declined in 2011
for the third consecutive year amid disappointing real estate
market conditions. Following the decline, some analysts are
betting that the dismal performance would leave room in the New
Year for an eventual recovery. Meanwhile, homebuilders took a
breather Thursday, hurt by a weaker-than-expected housing starts
data, overshadowing the previous session's rally helped by a
strong builder sentiment index, as the market struggled to digest
and make sense of the industry's mixed results. The seasonal
trade for homebuilders typically takes place in November through
March. Meanwhile, UBS lowered its rating on D.R. Horton, Lennar
and Toll to “neutral” from “buy,” while slashing KBHome
and Meritage to “sell” from “neutral,” adding that the
rate of housing recovery won't be sufficient enough to justify
the sector upside. “Housing seems to be in recovery, but
it’s just not fast enough given what’s baked into the stocks
at this point,” said David Goldberg, analyst at UBS who
initiated the downgrades. For “more optimistic” investors,
however, UBS suggested focusing on higher beta names such as
Pulte Homes and Standard Pacific.
Markets wait for Greek talks
Financial markets were cautious Friday ahead of another round of
debt-reduction talks between Greece and its private creditors
that could determine whether Europe's debt crisis flares up
again. While meeting with debt inspectors from the European
Union, the European Central Bank and the International Monetary
Fund, the Greek government is also holding a third day of talks
with creditors over a deal to get them to reduce the value of
their Greek bond holdings. Greece is seeking to get creditors to
agree a euro100 billion ($129 billion) writedown. Heads of the
inspection team are meeting with Finance Minister Evangelos
Venizelos ahead of the next round of discussions with the
creditors. A deal is necessary if Greece is to get the next batch
of bailout cash that would prevent a devastating debt default —
Greece does not have enough money to cover a euro14.5 billion
bond repayment in March. Last October, Greece's partners in the
eurozone sanctioned a deal whereby private creditors would take a
cut in the value of their bond holdings to help lighten the
country's debt burden. Hopes for such a deal as well as a run of
successful European bond auctions and solid economic and
corporate news, not least from the US and China, have helped
shore up market sentiment in recent days. Many stock indexes have
risen to five-month highs, while the euro has clambered off
17-month dollar lows.
LPS "first look" mortgage report
Lender Processing Services, Inc. (NYSE: LPS), a leading provider
of integrated technology, data and analytics to the mortgage and
real estate industries, reports the following “first look” at
December 2011 month-end mortgage performance statistics derived
from its loan-level database of nearly 40 million mortgage
loans.
- Total US loan delinquency rate (loans 30 or more days past
due, but not in foreclosure): 8.15%
- Month-over-month change in delinquency rate: 0.0%
- Year-over-year change in delinquency rate: -7.7%
- Total US foreclosure pre-sale inventory rate: 4.11%
- Month-over-month change in foreclosure presale inventory rate:
-1.3%
- Year-over-year change in foreclosure presale inventory rate:
-1.0%
- Number of properties that are 30 or more days past due, but
not in foreclosure: (A) 4,101,000
- Number of properties that are 90 or more days delinquent, but
not in foreclosure: 1,792,000
- Number of properties in foreclosure pre-sale inventory: (B)
2,066,000
- Number of properties that are 30 or more days delinquent or in
foreclosure: (A+B) 6,167,000
- States with highest percentage of non-current* loans: FL, MS,
NV, NJ, IL
- States with the lowest percentage of non-current* loans: MT,
WY, SD, AK, ND
Easing could cost $1 trillion
The Federal Reserve is likely to step in with $1 trillion worth
of easing that could be announced as soon as this month,
according to a growing consensus of economists who see the recent
uptick in economic growth as unsustainable. With the Fed’s
Open Market Committee set to meet next week, expectations are
rising that the languishing housing market will drive the central
bank to buy up mortgage-backed securities. The goal of the
purchases will be to drive down interest rates even further from
current record-low levels, and, less obviously, to spur
confidence that more monetary tools remain to stimulate the
economy. Just a few months ago, market observers speculated that
another round of quantitative easing — QE3, in this case —
would be politically infeasible and probably unnecessary given
hopes for better growth in 2012. But with housing stuck in
neutral and a European recession on the horizon, economists
believe QE3 is all but certain.
Mortgage originations down 20% in 2011 at the four big banks
Mortgage originations by the nation's largest four banks fell
20.4% in 2011 to a combined $717 billion from $902 billion in
2010, according to HousingWire analysis of the company's
financial statements. Excluding Bank of America, overall mortgage
production among the big banks fell 6.3% in 2011. Citigroup's
home loan production remained flat throughout the year as it
wrote $63 billion worth of mortgages in 2011 after writing $62
billion in 2010. The 2% increase makes Citigroup the only bank of
the top four to increase mortgage origination throughout the
year. JPMorgan Chase's mortgage originations fell 6.4% to $146
billion from $156 billion in 2010. Wells Fargo, the nation's
largest mortgage lender, experienced a 7.5% slowdown in
production to $357 billion from $386 billion in 2010. BofA's
mortgage production cratered 49.1% to $152 billion from $298
billion in 2010. The Charlotte, N.C.-based bank reported $1.4
billion in profit for 2011, down 36% from earnings of $2.2
billion the prior year. The bank said the closing of its
correspondent lending channel and a declining market share cut it
into its production earnings.
Credit conditions in the US are loosening as 2012 begins,
according to Capital Economics. "We expect this to continue,
supporting home sales and putting a floor under house prices,"
analysts at the Toronto-based research firm said. "But any
improvement in credit conditions won’t be significant enough to
generate actual house price gains and could be rapidly reversed
if the fallout from a eurozone break-up is worse than we anticipate."
The nation's fifth largest bank, Ally Financial, has yet to report
fourth-quarter and 2011 results.
San Diego foreclosures and short sales in 2011
December home sales numbers in San Diego are a reflection of how
the market performed all year. About a third of all sales
involved foreclosures. Another 20 percent of transactions were
short-sales, homes sold for less than was owed on the mortgage.
The overall sales numbers were higher than a year ago, but still
more than 20 percent below the average number of transactions for
the month. There was a small burst of sales activity in December,
but not enough to boost the value of homes in the region. San
Diego has nearly 4 percent more sales when compared with December
a year ago, but the average price was down almost 5.5 percent.
"Prices continue to be weak because of the weak job growth and
the difficulties a lot of people have getting a loan to buy a
home," said Andrew LaPage of the real estate tracking firm Data
Quick. "There's still an emphasis in the market toward the lower
cost distressed properties." The median San Diego home price
fell just over 5 percent from December a year ago. The average
price was $315,000. That's down from $333,000 a year ago. "We
think there's still a lot of people sitting tight, waiting for
something to happen. Either a clear sign that prices have hit
bottom. Or the opportunity to qualify for financing," said
LaPage.
PPI down, core up
The U.S. producer price index (PPI) fell in December as companies
paid less for gasoline and vegetables, although higher prices for
light motor trucks pushed a measure of underlying inflation
higher. The PPI measures price changes before they reach
consumers, declined 0.1 percent in December. That follows a 0.3
percent rise the previous month and is the first drop since
October. Headline PPI actually fell 0.1 percent for the month,
but the core, which strips out volatile food and energy prices,
rose 0.3 percent, the most since July 2011. Excluding volatile
food and energy costs, so-called core wholesale prices rose 0.3
percent. It was the largest increase in five months. Higher
prices for pickup trucks, cars, and pharmaceuticals drove the
increase. Still, wholesale prices are trending lower. They
increased 4.8 percent in December compared to the same month a
year ago. That's the slowest annual increase since January and
down from a recent peak of 7.1 percent in July. The Fed projects
consumer price inflation will fall from about 2.8 percent in 2011
to roughly 1.7 percent this year. That's in the Fed's preferred
range for core inflation of about 1.7 percent to 2 percent.
Wholesale price inflation peaked last year and most economists
expect that it will continue to moderate. The prices of oil and
agricultural commodities such as cotton and corn have fallen
after spiking in early 2011. The decline in commodity prices
pushed down gas prices and enabled retailers to offer discounts
on many goods. That helped boost consumer spending, which makes
up 70 percent of economic activity. Consumer spending likely
grew at the fastest pace in a year in the final three months of
2011. Some economists estimate that it rose at a 3 percent annual
pace in the October-December quarter, up from a 1.7 percent rate
in the third quarter. As a result, overall growth may top 3
percent in the fourth quarter. That would be an improvement from
the 1.8 percent annual pace in the July-September quarter and 0.9
percent in the first six months of the year.
MBA - mortgage applications up
Mortgage applications increased 23.1 percent from one week
earlier (last week’s results included an adjustment for New
Year’s Day), according to data from the Mortgage Bankers
Association’s (MBA) Weekly Mortgage Applications Survey for the
week ending January 13, 2012. The Market Composite Index, a
measure of mortgage loan application volume, increased 23.1
percent on a seasonally adjusted basis from one week earlier. On
an unadjusted basis, the Index increased 38.1 percent compared
with the previous week. The Refinance Index increased 26.4
percent from the previous week to its highest level since August
8, 2011. The seasonally adjusted Purchase Index increased 10.3
percent from one week earlier to its highest level since December
12, 2011. The unadjusted Purchase Index increased 28.4 percent
compared with the previous week and was 2.2 percent higher than
the same week one year ago.
The four week moving average for the seasonally adjusted Market
Index is up 5.99 percent. The four week moving average is up
1.96 percent for the seasonally adjusted Purchase Index, while
this average is up 7.00 percent for the Refinance Index. The
refinance share of mortgage activity increased to 82.2 percent of
total applications from 80.8 percent the previous week. This is
the highest refinance share since October 22, 2010. The
adjustable-rate mortgage (ARM) share of activity increased to 5.6
percent from 5.4 percent of total applications from the previous
week. “Interest rates dropped last week due to continuing
anxieties regarding the fragile economic situation in Europe,”
said Michael Fratantoni, MBA’s Vice President of Research and
Economics. Fratantoni continued, “With mortgage rates reaching
new lows, refinance volume jumped and MBA’s refinance index
reached its highest level in the last six months. Purchase
activity also increased as buyers returned to the market after
the holiday season.”
Natural gas prices down
Natural gas futures slumped to a 10-year low, as warm winter
weather dampens demand and pressures prices that are already
falling on record supplies. “This is a classic case of
oversupply,” said Daniel Yergin, chairman of IHS CERA. Natural
gas on the Nymex fell 6.8 percent Tuesday, finishing the day at
$2.4880 per million BTUs, its lowest settle since March, 2002.
“We’re behind on degree days. It’s been above normal in
terms of the temperature, and that has just collided with a
record amount of supply being produced and in storage. We’re
going to end the season with a record amount of gas in storage,
yet again,” said John Kilduff of Again Capital. Kilduff said
the storage estimates for the winter season’s end, March 31,
range from about 2 to 2.4 trillion cubic feet, well above the
average 1.5 trillion cubic feet. The Energy Department last week
reported natural gas supplies 17 percent above the 5-year
average. At the same time, December’s temperatures were well
above normal and milder-than-normal temperatures are expected to
return.
Housing recovery unclear
The housing market is improving but it's not clear whether it has
hit its low yet, Wells Fargo Chief Financial Officer Timothy
Sloan said. Unlike JPMorgan Chase CEO Jamie Dimon, who said last
week the housing market has bottomed out, Sloan said "It's not
clear" whether that has happened but "I hope that is the case."
Earlier Tuesday, Wells reported earnings that beat expectations
on lower loan losses. Wells Fargo is the largest originator of
home loans in the U.S. Its mortgage banking income increased to
$2.4 billion in the fourth quarter, up from $1.8 billion in the
third, but down from $2.8 billion a year ago, as the bank
benefited from an increase in home loan refinancings. Loan
growth was broad-based, Sloan said, including in commercial
banking, commercial real estate, corporate banking and consumer
auto loans and credit cards. The bank's investment banking
business also had a strong quarter. "Your guess is as good as
mine in terms of where the markets are going to go," he said. "We
just want to make sure the right people are in front of our
clients to give real value to them...We need to be able to
demonstrate that we can deliver for our customers and
shareholders in any kind of market."
Obama's jobs panel pushes corporate tax
President Barack Obama's jobs council called yesterday for a
corporate tax overhaul, expanded domestic drilling and new
regulatory reforms, a set of proposals unlikely to provide a
quick fix for high unemployment or gain much traction in an
election year. Obama's Council on Jobs and Competitiveness has
generated dozens of ideas, many of them modest in scope, since it
was created last February. The president has acted on many of
them through his use of executive powers, but some of the larger
recommendations have lagged and the overall benefits remain
uncertain. While the council used two earlier reports to present
specific, mostly narrowly focused jobs proposals, the latest —
with the lofty title "Road Map to Renewal" — lays out a broader
strategy to promote manufacturing, education and innovation.
"Investing in our future, building on our strengths, and playing
to win — these are mantras we must adopt, along with the
specific policies and initiatives that back them up, if we are
going to renew our competitiveness," the report states.
Republicans, who accuse Obama of pursuing "job-killing" policies,
made clear they see the presidential panel as "job-creators"
echoing their own themes on taxes, energy and regulations. But
given the level of dysfunction in Washington, that may not
translate into legislative action any time soon. "With this
report, President Obama's own panel of experts has endorsed the
approach to job creation House Republicans have been pursuing for
more than a year," Republican House Speaker John Boehner said in
a statement.
Orlando short sales 12% higher price
The median price of homes sold in Orlando during December 2011
($118,000) was 12.38 percent higher than the median price in
December 2010 ($105,000). During 2011, Orlando's median price
climbed 24.34 percent from a low of $94,900 in January to a high
of $118,000 in December. The median price of "normal" sales that
closed in December 2011 was $159,900 (representing a decrease of
0.06 percent compared to December 2010). The median price for
short sales in December 2011 was $105,000 (an increase of 10.53
percent compared to December 2010), and the median price for
bank-owned sales in December was $80,000 (an increase of 6.67
percent compared to December 2010). Orlando Regional Realtor
Association (ORRA) members participated in 13.86 percent less
home sales in December of this year than in December of 2010:
2,125 and 2,467, respectively. At year's end, the number of
sales for all of 2011 (27,703) was 3.48 less than in all of 2010
(28,701).
In month-over-month comparisons, sales of foreclosed homes
declined 56.29 percent in December 2011 compared to December
2010. Short sales and "normal" sales both increased (by 24.41
percent and 14.15 percent, respectively) in December 2011
compared to December 2010. Normal sales (871) accounted for
40.99 percent of all transactions in December 2011, while short
sales (785) accounted for 36.94 percent and bank-owned sales
(469) made up the remaining 22.07. The Orlando average interest
has dropped to a new low once again. Buyers who purchased an
Orlando area home in December paid an average interest rate of
3.99 percent, which is the lowest since the ORRA began tracking
the statistic in January of 1995. Homes of all types spent an
average of 103 days on the market before coming under contract in
December 2011, and the average home sold for 92.40 percent of its
listing price. In December 2010 those numbers were 97 days and
94.45 percent, respectively.
New York's factory index up
The New York Fed's "Empire State" general business conditions
index rose to 13.48 from a revised 8.19 in December, topping
economists' expectations of 11.0. It was the highest level since
April 2011. New orders climbed to 13.70 from a revised 5.99,
while inventories also gained to 6.59 from minus 3.49. The
survey of manufacturing plants in the state is one of the
earliest monthly guideposts to U.S. factory conditions.
Employment gauges showed strength. The index for the number of
employees rose to 12.09 from 2.33 and the average employee
workweek index climbed to 6.59 from minus 2.33. Manufacturers
were also more optimistic about their outlook with the index of
business conditions six months ahead rising to its highest level
since last January at 54.87 from 45.61.
More failed HAMP trials
Mortgage servicers are putting more failed Home Affordable
Modification Program (HAMP) trials through foreclosure than they
were one year ago. According to Treasury Department data
released last week, 10.6% of the more that 615,000 canceled HAMP
trials completed the foreclosure process as of Nov. 1. That's
more than double the 4.4% of failed HAMP trials foreclosed on as
of November 2010. While foreclosures are increasing, alternative
modifications on these loans are dropping. Of the canceled HAMP
trials, 39.7% went through the bank's own private programs, down
from 45.4% over the same time period, according to Treasury data.
Foreclosure completions as a percentage of borrowers never
accepted into HAMP trials are lower but still increasing as well.
Of the 1.8 million borrowers denied a HAMP trial, 7.6% completed
the foreclosure process as of Nov. 1, up from 5% one year before.
Roughly 26.5% of these borrowers received alternative
modifications, which held flat over the last year.
The increase in more foreclosure completions on failed HAMP
trials occurred at nearly every large servicing shop
participating in the program. Citigroup saw the highest jump. Of
the 71,808 HAMP trials it canceled, roughly 13.5% completed the
foreclosure process as of Nov. 1, up from 3.1% one year ago. At
Ally Financial, the percentage increased to 12.8% from 6.4% over
the same period. At JPMorgan Chase, the increase went to 11.3%
from 6.2%. And at Bank of America, the largest servicer in the
program, 9.3% of failed HAMP trials went through foreclosure
compared to just 1.9% the year before. The highest percentage is
currently held by OneWest Bank. It foreclosed on more than 19% of
its roughly 20,000 failed HAMP trials, up from 10% last year.
Interestingly, Wells Fargo has one of the lowest percentages of
completed foreclosures on these mods at 6.7%, almost the exact
same percentage one year before.
According to the Office of the Comptroller of the Currency, 17%
of the 108,000 HAMP modifications began in the second quarter of
2010 went 60 or more days delinquent within one year. That's
compared to a 31% redefault rate for other private programs. D.
Corwyn Jackson, whose company The Corwyn Group helps to train
housing counselors for foreclosure prevention, said servicers are
getting mixed signals from the government-sponsored enterprises
Fannie Mae, which administers HAMP, Freddie Mac and other
stakeholders across the country. "The servicers are mandated to
stick to the agreed upon foreclosure time lines by state,"
Jackson said. "But other stakeholders such as nonprofit housing
counseling agencies across the nation are requesting servicers
during the negotiation to exhaust their loan workout options
before starting the foreclosure process."
The GSEs charge servicers for taking too long to complete the
foreclosure process under specific, state-by-state guidelines.
Servicers are expected to still consider the borrower for the GSE
programs, but time is of the essence. BofA, for example had to
pay Fannie and Freddie $1.3 billion in foreclosure delay
penalties in the first nine months of 2011. GSE policies and the
failed HAMP trial foreclosure rates is beginning to show in the
overall economy. Over the same time period covered by the
Treasury data, the shadow inventory of homes in foreclosure or on
the verge it has been declining. According to CoreLogic, roughly
1.6 million homes sit in this inventory, down from 2.1 million in
November 2010.
DOJ steps up ratings probe
The Justice Department (DOJ) has stepped up its investigation of
Standard & Poor's (S&P) mortgage bond ratings during the
financial crisis, the Wall Street Journal reported today. At
least five former S&P analysts have been contacted by federal
prosecutors in recent weeks, after some had not heard from
investigators for more than six months, the newspaper said. The
McGraw-Hill Cos Inc unit disclosed in September it had received a
Wells notice from the Securities and Exchange Commission
indicating it could face civil charges for its ratings of a 2007
mortgage bond deal called Delphinus 2007-1. It has not yet
disclosed any investigation by the DOJ, which the WSJ reported is
a civil probe. Prosecutors are examining whether S&P managers
pushed to weaken standards the company had set for rating the
mortgage deals, and whether the company followed its established
criteria in assigning ratings. The recent interviews lasted two
to three hours, and the former employees were told they would
likely by contacted again, the Wall Street Journal said.
DSNews.com - vacant foreclosures cost money
A recent study from the Government Accountability Office (GAO)
found that non-seasonal vacant properties across the United
States rose 51 percent over the span of a decade, from nearly 7
million in 2000 to 10 million in April 2010. Ten states saw
vacancies go up by 70 percent or more as a result of high
foreclosure rates. Those with the largest increases over the last
decade were Nevada (126 percent), Minnesota (100 percent), New
Hampshire (99 percent), Arizona (92 percent), and Florida (90
percent). Georgia, Michigan, Colorado, Rhode Island, and
Massachusetts also experienced increases above 70 percent. The
elevated number of vacant homes carries with it a hefty price tag
for lenders that must resume ownership after foreclosure. GAO
found that in 2010, Fannie Mae and Freddie Mac reimbursed
servicers and vendors over $953 million for property maintenance
costs. However, it’s local governments, many of which are
already dealing with depleted funds, that are feeling
“significant” pressures from the rise in home vacancies,
according to GAO.
The agency notes that other studies have concluded vacant
foreclosed properties may reduce prices of nearby homes by as
much as $17,000 per property. As a result, municipalities report
being out millions of dollars in lost tax revenues. That’s in
addition to extra expenditures to put staff, systems, and
programs in place to ensure local property ordinances are met, as
well as costs associated with addressing public safety issues
posed by extended periods of vacancy or improper property
maintenance. GAO says the localities it studied are all engaged
in multiple strategies to try to minimize the costs and other
negative impacts that vacant properties create for their
communities.
Efforts range from simple data-gathering to more precisely
identifying vacant properties, to acquisition and rehabilitation
or, in some cases, demolition of abandoned properties. In
addition, some local governments have tasked servicers with
additional responsibilities for maintaining properties, amended
their code enforcement rules to establish greater incentives for
property maintenance, and established specialized housing courts
to address vacant property and other housing issues. These
strategies, however, face various challenges, particularly the
lack of financial support to effectively address such a
large-scale problem, according to GAO. As a result, governments
in many of the communities GAO examined are reaching out to
members of the community – including neighborhood groups and
private developers – in an attempt to leverage all available
resources. In addition, local governments have called for
increased federal funding and greater attention by federal
regulators to servicers’ role in managing vacant properties.
Foreclosures to take longer
Reviews of hundreds of thousands of foreclosure cases ordered by
regulators last year will take months longer to complete than
first expected, according to documents filed with federal banking
regulators. The delays could postpone compensation for some
homeowners harmed by improper foreclosure actions. The reviews
cover foreclosure actions in 2009 and 2010 by the nation’s 14
largest mortgage servicers, which handle payments for about 65%
of US mortgages. They are required by enforcement orders
announced by federal regulators in April. Under the deadlines
set in April, the reviews — which are being done by independent
consultants hired by servicers — should have been completed
this month. But reviews of Bank of America’s (BOA) foreclosure
cases could take until November, a letter that BOA’s consultant
filed with the Office of the Comptroller of the Currency (OCC)
indicates. BOA is the nation’s largest mortgage servicer, and
the Promontory Financial Group is its consultant. JPMorgan
Chase’s consultant, Deloitte & Touche, indicated it may need
about the same amount of time, according to its letter.
Review time frames have lengthened for other servicers, too,
because the detail, scope and complexity of the reviews weren’t
fully known in April, says OCC spokesman Bryan Hubbard. Some
companies may finish before others. Some may beat the timelines
in their letters. Some deadlines may get longer, Hubbard says.
The OCC says servicers should not wait until all reviews are done
to compensate homeowners. While 4 million cases are eligible for
reviews, consultants will sample only some for errors such as
unlawful foreclosures and excessive fees. Borrowers who faced a
foreclosure action on their primary home by one of the 14
servicers in 2009 or 2010 are eligible for reviews. Anyone
eligible who asks for a review by the April 30 deadline will get
one, the OCC says.
Consumer sentiment up
The Thomson Reuters/University of Michigan preliminary January
reading on its overall index of consumer sentiment rose to 74.0
from 69.9 in December for the fifth month of gains and the
highest level since May 2011. The report topped expectations of
71.5 and was in contrast to December's weaker-than-expected
retail sales reported on Thursday. Thirty-four% of consumers
polled in the consumer confidence survey said they had heard of
recent job gains, a record high in the survey's history and well
above December's 21%. "The data suggest a stronger consumer
spending outlook, rising to about a 2.1% gain in 2012," survey
director Richard Curtin said in a statement. But consumers still
lacked confidence in government economic policies with the
majority rating policies unfavorably for the sixth month in a
row. Americans also remained dour on their personal finances
with just 24% expecting their finances to improve in January,
slightly below 25% last month. The survey's barometer of current
economic conditions rose to the highest since February at 82.6
from 79.6, while its gauge of consumer expectations gained to
68.4 from 63.6.
2013 for housing recovery?
A poll of 23 economists and analysts found a consensus for no
change in the S&P/Case-Shiller home price index in 2012, compared
with a median 0.3% decline that was forecast in the last poll in
November. Many say that a recovery in the housing market is a
key requirement for any vigorous rebound in the world's largest
economy. The spectacular collapse in US housing, which sent
average prices plummeting by a third, was the trigger for the
2008-09 financial crisis and subsequent recession. The meager
1.5% gain expected in 2013 will offer little comfort to the
millions of Americans trapped in negative equity — owing more
to their mortgage lender, and in some cases much more, than their
houses are worth. "I think we are seeing stabilization, but
unfortunately it's stability at the bottom," said Lindsey Piegza,
economist at FTN Financial, describing the grinding halt to
several years of relentless price declines. The average price of
a US home is currently around where it was nine years ago, and
the most recent data, from October, showed price declines still
accelerating.
The market is still under pressure from an excess of homes up for
sale. Fifteen of 20 respondents said monthly foreclosures should
subside this year, while five didn't see any let-up until 2013.
Among 20 respondents, 15 said they expect foreclosures to ease
some time this year, while five said it would not happen until
2013. Gains in home sales and new home construction in November,
and recent improvement in homebuilder sentiment, added only a
touch of optimism at the end of last year. Still, while the gain
expected over the next two years is tiny compared with the more
than 30% plunge from the peak in 2006, it is still a more cheery
outlook than in some other parts of the world. A recent Reuters
poll predicted British home prices, which have not dropped
anywhere near as far as they have in the US, will slip 1.7% this
year. In China, they are expected to fall 10 to 20%.
Excess regulations hamper economy
Regulatory policies are badly undermining the economic objectives
of governments around the globe by hampering bank activity,
JPMorgan Chase chief executive Jamie Dimon said in a conference
call discussing fourth-quarter earnings Friday morning.
“Regulatory policy is completely contradictory to government
objectives,” Dimon said, citing restrictions on trading and new
capital regulations as regulatory sources of slower economic
growth. Dimon said that although regulators have provided
additional clarity on new capital rules, the clarifications are
have demonstrated that the capital rules are “bad.” He noted
that higher capital requirements have made risk weighting even
more important for banks. Under international capital standards,
different kinds of bank assets receive different capital
treatment, a practice known as risk weighting.
Dimon also criticized the so-called Volcker rule banning
proprietary trading. He warned that if the rule is not carefully
crafted, it could limit not just prop trading but market making.
“The United States has the widest and deepest and most
transparent capital markets in the world,” Dimon said. “And
the most liquid. If you lose liquidity because you lose market
making, you cost investors money.” He said that pension funds,
retirees, and other large investors could lose out if
restrictions on trading go too far. “We have to be very
careful that we don’t destroy that [market making] as we try to
limit — put a fair limit — on proprietary trading,” Dimon
said.
Fitch downgrades Merrill mortgage securities
Fitch Ratings downgraded four classes of Merrill Lynch Mortgage
Trust securities certificates backed by commercial real estate
because the underlying loans are expecting losses. At the same
time, 17 classes of loans in the same series of securities were
affirmed by the ratings giant. Fitch specifically classified 76
loans as mortgages of concern. About 25 of those 76 are specially
serviced loans. The entire loan pool subjected to the downgrade
had an aggregate principal balance of $2.2 billion at the end of
December, compared to $2.5 billion at issuance. Of those loans
in special servicing, 16 are real-estate owned, three are in
foreclosure, another three are delinquent and 1% are current.
One of the largest contributors to the expected losses in the
pool is a three-story office building in Scottsdale, Ariz. The
loan was moved into special servicing in October of 2009 when a
large tenant that fully occupied one of the buildings terminated
its lease and vacated the premises. As of mid-last year, the
building's occupancy rate stood at 62%. A hotel located in
Tampa, Fla., also is contributing to uncertainty over the pool of
loans with a special servicer saying it would like to pursue a
foreclosure.
Pushback on Massachusetts bill.
Homeowners facing foreclosure in Massachusetts should have a day
in court before banks cast them out of their homes, advocates
argued Wednesday, calling on lawmakers to make Massachusetts the
last New England state that requires judicial review of
foreclosures. But real estate attorneys pushed back, contending
that the Massachusetts court system is already overburdened –
the victim of repeated budget cuts and increased caseloads –
and adding foreclosure cases to its docket would be overwhelming.
Christopher Pitt of the Real Estate Bar Association of
Massachusetts said that the state Land Court processed 30,000
cases in 2010. If the court were required “to hold a mandatory
judicial proceeding as a precondition to every mortgage
foreclosure,” he said, the backlog would “overwhelm the
court’s ability to handle these cases in a timeframe that is
acceptable to anybody.” He also noted that tenants could use
the process to delay foreclosure, taking issue with every aspect
of a bank’s petition. “There are not the resources on any
level of the trial court to handle that level of flooding,”
Pitt said. The resistance from the attorneys – whose arguments
were echoed by Massachusetts bankers – underscored a challenge
facing lawmakers, who have slashed the judiciary’s budget but
have also cast themselves as protectors of homeowners who have
been taken advantage of by predatory lenders. The debate played
out at a hearing of the Judiciary Committee at in a basement
hearing room at the capitol.
Jobless claims up
The Labor Department said today that applications jumped by
24,000 to a seasonally adjusted 399,000, the most in six weeks.
That followed three months of steady declines that brought
applications to the lowest level in more than three years.
Applications typically soar in the first two weeks of the year.
That's because many companies lay off temporary workers who were
brought on to help during the holidays. The department tries to
adjust for those patterns. But the task is difficult because the
data can be volatile. The four-week average, which attempts to
smooth such fluctuations, also rose, to 381,750. It had fallen in
the previous week to a three-and-a-half-year low. When
applications drop below 375,000 — consistently — that
generally signals hiring is strong enough to reduce the
unemployment rate. Prior to last week's spike, applications had
been below 375,000 for three of the past four weeks. The
unemployment rate fell in December to 8.5 percent, a three-year
low. Employers added 200,000 net jobs, double November's 100,000
gain. The economy gained 1.6 million jobs last year, up from
940,000 in 2010. Economists forecast roughly 1.9 million more
jobs will be added this year, according to a survey by The
Associated Press.
Foreclosures down in 2011
RealtyTrac said in a report today that foreclosure filings, which
include default notices, scheduled auctions, and bank
repossessions, slid by 34 percent in 2011, the lowest level since
2007, just as the housing market was starting to crumble.
RealtyTrac said there were filings on 1,887,777 homes last year.
Bank seizures of homes fell to 804,423 from 1,050,500 in 2010,
also marking the lowest level in four years. Nevada ranked as
the state with highest foreclosure rate for the fifth year in a
row, with one in 16 Nevada homes receiving at least one
foreclosure filing in 2011. Even so, Nevada saw a 31 percent
decrease in foreclosure activity for the year. The length of
time for foreclosure processing continued to increase in the
final quarter of the year. Homes took on average 348 days to move
through the process, up from 336 days in the third quarter and
305 days in the fourth quarter of 2010. Foreclosures took the
longest in New York state, where homes foreclosed in the fourth
quarter took an average 1,019 days to complete the process.
RealtyTrac also released foreclosure activity for December, which
fell to a 49-month low of 205,024 homes, down nearly 9 percent
from November. But bank repossessions rose 10 percent to 61,774.
IRS accused of "bait and switch"
The Internal Revenue Service has persuaded U.S. taxpayers to
disclose hidden offshore bank accounts but then sometimes failed
to cap the penalties, as promised, an agency watchdog said on
Wednesday, accusing the IRS of "bait and switch." The Taxpayer
Advocate Service, an oversight arm of the IRS, wrote in its
annual report to Congress that a series of IRS voluntary
disclosure programs allowing wealthy Americans to come forward
and disclose their hidden accounts in exchange for reduced
penalties had caused some taxpayers to pay more than they had
been led to believe was required. Such taxpayers are typically
those who have inherited accounts or work overseas. "The IRS's
offshore voluntary disclosure program bait and switch may
undermine trust for the IRS and future compliance programs," Nina
Olson, the national taxpayer advocate who heads the service,
wrote in the report. In reply, IRS spokesman Dean Patterson said
the IRS strongly disagreed with what it said were inaccurate
"bait and switch" characterizations. "If at any time during the
certification process, a taxpayer disagreed with the results
provided for under the program the taxpayer could opt out of the
program and make their case for lower penalties. This option is
still available today."
On Monday, the IRS said it was reopening a voluntary disclosure
program for taxpayers hiding money in offshore bank accounts,
many in Switzerland, the global capital of offshore wealth.
Previous IRS programs, in 2009 and 2011, brought in more than
$4.4 billion in unpaid taxes and penalties from 33,000 taxpayers.
Tax lawyers see the renewal of the program as a sign that the
agency is again preparing to receive scores of names of wealthy
Americans who are clients of Swiss banks, under a broad
investigation of the Swiss banking industry. Olson wrote that
ordinarily the penalty on taxpayers for nonwillful, meaning
accidental, failure to file a record of foreign bank and
financial accounts, or Fbar, was capped at $10,000. By contrast,
willful failure to file an Fbar ordinarily carries a draconian
penalty, of 50 percent of the highest account balance for each
year covered. During the first voluntary disclosure program in
2009, the IRS offered a break, capping the maximum penalty at 20
percent. A program in 2011 raised the cap to 25 percent. The
problem, Olson wrote, is that in 2009, in a written comment known
throughout the tax world as "FAQ 35," the IRS also said it would
never assess a penalty greater than what the law would permit.
Then in February 2011, the IRS said it would no longer entertain
arguments from taxpayers that their compliance was not willful.
Scott Michel, a tax lawyer at Caplin & Drysdale, said many tax
lawyers representing Americans with hidden accounts had
interpreted the original comment to mean that if a taxpayer
argued that he had not willfully, or intentionally, violated the
law, he would not have to pay even the reduced penalties of 20
percent or, later, 25 percent but instead would pay the maximum
of $10,000. Scores of taxpayers, many with inherited
Holocaust-era accounts, made the argument, he said. But the
February 2011 provision halted that activity, he said. "IRS
agents would even tell you that if you raised the non-willfulness
argument, you were in substance dropping out of the program,
leaving them free to impose maximum penalties," Michel said. "So
pretty much from the beginning, practitioners viewed FAQ35 as an
empty promise."
CFPB releases standards
The Consumer Financial Protection Bureau (CFPB) released details
yesterday on how its examiners will assess the underwriting risk
of mortgage lenders that offer non-traditional or subprime loan
products. The agency outlined the procedures that its examiners
will perform to evaluate bank and non-bank mortgage
originators’ policies and procedures, assess whether
originators are compliant with applicable laws and identify risks
to consumers. If a lender offers non-traditional or subprime
loan products and also offers loans that have two or more risky
characteristics, the examiners must determine whether the
increased risks are taken into account as part of the
underwriting policies. They must also examine whether any
mitigating factors are required for approval and whether actual
underwriting practices conform with policies.
According to the examiner guidelines, risky characteristics
include: limited or no documentation of income, assets and/or
employment; simultaneous second lien; negative amortization,
option payment or interest-only features; introductory rate 200
basis points or more below fully-indexed rate; and balloon
clauses. "The mortgage market cannot work well for consumers if
the spotlight shines only on one part of it, while the rest is
left in darkness," said CFPB director Richard Cordray said in a
statement. "Our supervision program will illuminate the entire
marketplace by making nonbanks play by the same rules as the
banks." The Dodd-Frank Wall Street Reform and Consumer
Protection Act significantly reformed gaps in federal supervision
of the mortgage market by providing the CFPB with authority to
supervise a range of mortgage participants. Other details that
examiners must investigate are whether the compensation systems
for underwriters (whether in-house or contracted) affects their
incentives concerning the speed and quality of their
underwriting. In addition, they must determine whether the lender
frequently uses exceptions to override underwriting decisions in
order to allow a greater volume of loans into the pipeline.
BOA short sale program to expand?
Bank of America's (BOA) cash-back incentive, which tempted
delinquent borrowers to do a short sale over a lengthy
foreclosure, ended Dec. 12 with mixed reviews. The Florida-only
program offered between $5,000 and $20,000 in relocation expenses
to qualified homeowners who agreed to vacate their homes through
a short sale in lieu of the average two-year foreclosure process.
But as of early December, only about 3,000 homeowners of 20,000
solicited by the bank had expressed interest in the plan, which
one real estate consultant said was unthinkable before the
robo-signing scandal heightened the foreclosure chaos. "A year
ago, banks weren't making offers like this. Now, it's a complete
reversal in that they are proactively soliciting short sales,"
said Jack McCabe, chief executive of McCabe Research & Consulting
in Deerfield Beach. "They are offering unbelievable deals."
Realtors say banks, including Wells Fargo and JPMorgan Chase,
began offering cash incentives about six months ago to homeowners
who agree to do short sales. With foreclosures taking an average
of 749 days in Florida, according to a November RealtyTrac
report, it's cheaper to pay off an owner than take them to court,
Realtors say. BOA spokeswoman Jumana Bauwens said she couldn't
comment on concerns unless they dealt with a specific case, but
that the company was "pleased" with the homeowner response.
Bauwens said Florida was chosen to test the program because of
its high number of foreclosures. If it's ultimately deemed
successful, it could be expanded to other states. To qualify,
homeowners had to submit their short sales for approval by Dec.
12 - an extended deadline from an original Nov. 30 date. The
homes could not have offers on them already, and the closing
needed to occur before Aug. 31.
Ford hits 2 million mark in 2011
The Ford brand passed the 2-million mark, said Erich Merkle, Ford
US sales analyst. Ford's small cars sales posted an increase of
more than 20% this year, while its utility vehicles hit a
30-percent gain, the company said. Overall, including its
Lincoln luxury brand and now-defunct Mercury brand, Ford company
sales were up about 11% through November, and the Ford brand's
sales were up about 18%. As gasoline prices rose in 2011,
customers continued to move toward smaller, more fuel-efficient
vehicles. In recent years, Ford has emphasized fuel efficiency,
including adding its "EcoBoost" engines that include
turbocharging and fewer cylinders, particularly on utility
vehicles and pickup trucks. US auto sales in December are
expected to top 13 million on an annual rate, J.D. Power and
Associates and LMC Automotive said. Once again, as it has each
year for more than three decades, the Ford F-Series pickup trucks
are the best-selling vehicle in the US market. Through November,
Ford sold 516,639 F-Series pickup trucks, according to Autodata.
Olick - housing's new hope
"I'm not sure if it's that usual New Year's Eve optimism evoked
by the generic philosophy that the grass is always greener on the
other side of the calendar year, or perhaps the emotional need to
dig ourselves out of what has surely been one of the more
lugubrious periods in the US economy, but there is some hope in
housing. A few positive readings in home sales and housing
starts recently, topped off by today's 7.4% monthly jump in
contracts to buy existing homes, are fueling what I dare say is a
spark, albeit not a fire. They are also managing to trump what
was a particularly opposing reading in home prices from the
number crunchers at S&P/Case-Shiller this week. Don't worry, I'm
not going to dump a bunch of coal on the numbers and claim
they're all spurious in some way; I'm all prepared to be
munificent, while chary (did I mention my new year's resolution
is to improve my family's vocabulary, as well as banish 'like'
from my kids' lexicon.) I will note that even the Realtors, while
touting affordability and pent-up demand, note that many of these
new signed contracts are the result of delayed transactions.
'Contract failures have been running unusually high,' notes
National Association of Realtors chief economist Lawrence Yun.
'Some of the increase in pending home sales appears to be from
buyers recommitting after an initial contract ran into problems,
often with the mortgage,' he said.
Then there is a big story in the Wall Street Journal [on Friday]
of hedge funds putting their money back in housing, suggesting
that while the numbers aren't all there for a big win, these
funds are usually ahead of big market shifts, so the housing
surge must be on its way. I've spoken to some of these hedge fund
types as well, and they seem to be playing on the surging rental
market for now, getting the bargains but not expecting any big
'flipping' returns any time soon. 'Bottom line, whether due to
even lower prices, historically low mortgage rates, falling
inventory and a better tone to the labor market or a combination
of all, the housing market is showing signs of stabilizing,' says
Peter Boockvar at Miller Tabak. 'I say stabilize instead of
bottom, as its too early to make that claim just yet with still a
huge amount of foreclosures that hasn't worked its way through
the judicial system and prices that haven't likely stopped going
down as a result.' Some are predicting that foreclosures will
push home prices down another five to ten% before hitting a true
bottom.
In addition, those rock-bottom mortgage rates that everyone is
touting this week may be heading up, as the conservator of Fannie
Mae and Freddie Mac today directed the two mortgage behemoths to
inform servicers that guarantee fees would rise ten basis points
next week. That, if you recall, is to pay for the temporary
extension of the payroll tax cut. Yep, that money heads to the US
Treasury, not to the troubled balance sheets of Fannie and
Freddie. This accused nostrum will likely raise rates a tad, but
rates are still close to historical lows. And we should remember
that. It's all relative. Are things getting a bit better?
Probably. I heard (or read…can't remember) someone today say
that housing has gone from a negative to a nothing for the US
economy. So when we tout and rave about today's pending home
sales numbers, we mustn't forget where we've been: 'It’s not
going to keep 2011 from being the worst on record for new home
sales, for single family permits and single family housing
starts. Next year is going to be better, but that’s not saying
much because this has been the worst year, probably since 1945,'
said IHS Global Insight's Patrick Newport. In other words,
housing ain't exactly fecund, but it's at least inching off life
support."
Employers offer weird benefits
Pet insurance, at-your-desk meditation services, jewelry
discounts and funeral planning — from the quirky to the somber,
workplaces are providing a range of unique benefits in 2012. The
options come as many firms try to placate employees frustrated by
pay cuts, heavy workloads, high health insurance costs and
reduced 401(k) matches. "Companies are trying to have it feel
like it's not one big take-away," said John Bremen, a managing
director at employer consultancy Towers Watson. "They are trying
to find ways to appeal to the workforce." Many voluntary
benefits — such as reduced-price computers and pet insurance
due to group-buying discounts — won't gouge a corporate budget.
"On the employer side, there's a recognition that they can't
always add to the benefits program in a way they have in the
past," said Ronald Leopold, national medical director at MetLife.
"But they want to offer employees different things and a broader
set of (choices)."
Among the many options offered: free tickets to theme parks,
cellphone plan discounts and at-work massages. Benefits at drug
manufacturer Allergan include adoption assistance and auto
insurance discounts. It also has a free concierge service for
workers to acquire theater tickets, drop off laundry and get
restaurant reservations. Firms such as S.C. Johnson, TD Bank and
Travelocity provide discounted health coverage for workers' pets
through Petplan Pet Insurance. Petplan "has seen tremendous
growth in this area of voluntary benefits," co-CEO Chris Ashton
said. "In this struggling economy, employers are increasingly
looking for low-cost options to keep their employees happy."
WSJ - 2011 ends with near record mortgage rate lows
Average fixed mortgage rates in the US over the past week
finished the year near all-time lows, with the 30-year home loan
at 3.95%. According Freddie Mac's weekly survey of mortgage
rates, the rate for a 30-year fixed-rate mortgage has been at or
below 4% for the past nine consecutive weeks and only twice in
2011 did it average above 5%. The 30-year fixed-rate mortgage
averaged 3.95% for the week ended Thursday, up from 3.91% the
previous week and below 4.86% a year ago. Rates on 15-year
fixed-rate mortgages averaged 3.24%, up from 3.21% last week and
below 4.20% a year earlier. Five-year Treasury-indexed hybrid
adjustable-rate mortgages, or ARM, averaged 2.88%, up from 2.85%
yet below 3.77% of a year ago. One-year Treasury-indexed ARM
rates averaged 2.78%, up from 2.77% in the prior week and below
3.26% last year. To obtain the rates, 30-year and 15-year
fixed-rate mortgages required payments of 0.7 percentage point
and 0.8 percentage point, respectively. Five-year and one-year
adjustable rate mortgages required an average payment of 0.6
percentage point. A point is 1% of the mortgage amount, charged
as prepaid interest.
See you at the top!
Chris McLaughlin
**************
Copyright Loss Mitigation Institute LLC 2011.
All Rights Reserved.
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About the author:
Chris McLaughlin is widely known as America’s top
Real Estate Attorney and Investment Consultant.
* As the top Florida foreclosure and pre-
foreclosure expert, he oversees more than
100 short sale & REO closings each month
* Long-time authority on real estate investing
and rapid reselling of distressed homes. Owns
portfolio of nearly 150 high-value, high-profit
properties
* Owner of one of Florida's largest Real Estate firms,
running 4 different offices, supporting over
420 agents, uniquely positioning him to help
thousands of investors make money in the
biggest market opportunity ever!
* In 2010, Chris' 4 Central Florida real estate offices
closed 2,786 sides for a closed sales volume of
$392,912,927!
* Highly sought-after speaker, consultant, and
seminar leader for current trends and hot topics
in Real Estate Investing, Entrepreneurship, and
Wealth Building
Foreclosures up in New York
In the New York metro area, the foreclosure rate rose to 7.5% in
June, up 2.1 percentage points from the previous peak in December
2009, according to Foreclosure-Response.org, a joint project by
the Local Initiatives Support Corp., the Urban Institute and the
Center for Housing Policy. The rate is up 3.7 percentage points
from March 2009, when the group started tracking the data in 100
US metro areas. “New York is a judicial state, so it takes a
long time for properties that enter foreclosure to exit the
process,” said Rob Pitingolo, a research assistant for Urban
Institute. “The backlog of foreclosures in the system is
driving the foreclosure rates up.” Judicial states require a
lengthy and formal court proceeding to carry out a foreclosure,
and in New York that process can take up to two years for a loan
to complete foreclosure, according to experts. "At the current
pace of foreclosure sales, we are looking at a process that could
take decades to complete,” said Leah Hendey, a research
associate at Urban Institute, in a statement. “It is critical
that the status of these properties be resolved quickly if we
want to stabilize communities and housing markets."
The increasing foreclosure rate contributed to New York's serious
delinquency rate of 10.8% in June, much higher than the average
9.3%. In fact, while the serious delinquency rate has improved
across the largest metro areas in the nation, falling 1.1
percentage points from its December 2009 peak of 10.4%,
delinquency got worse in New York, where the rate rose 0.6
percentage points. The serious delinquency rate covers first-lien
mortgages in foreclosure as well as loans that are delinquent for
90 or more days. The good news is fewer homeowners in the New
York metro area are falling behind on their mortgage payments,
according to the data. The New York area's 90-day-plus
delinquency rate dropped 1.2 percentage points to 3.4% in June,
compared with the same time a year ago. Delinquent loans in the
New York metro area came in slightly below the average rate of
3.7%. The 90-day-plus delinquency rate represents the percentage
of all mortgages that have not yet entered a foreclosure but are
90 or more days overdue.
Treasury to charge banks for risk monitoring
The US Treasury Department plans to start charging large banks a
fee to cover the costs of the financial risk council it leads and
a research office tasked with measuring threats to financial
markets. The Financial Stability Oversight Council and the
Office of Financial Research were created by the 2010 Dodd-Frank
financial oversight law, which instructs the government to bill
banks for their operations. On Thursday the Treasury Dept.
released a proposed rule that would apply to banks with more than
$50 billion in total assets, starting in the middle of next year.
The department is proposing charging these banks a flat rate
that would be applied to an institution's total consolidated
assets, and would be collected twice a year. The department has
yet to announce the specific fee banks will be charged because
the budget for the council and research office will not be known
until President Barack Obama releases his fiscal 2013 budget
proposal early next year. The Treasury Dept. said it plans to
have a final fee rule out no later than the end of May and will
let banks know what their tab is in June. The fees will first be
collected in July. Treasury said the collected fees will be
enough to cover six months of OFR and FSOC operating expenses and
12 months of capital expenses. The proposed rule will be subject
to 60 days of public comment.
Olick - housing's new hope
"I'm not sure if it's that usual New Year's Eve optimism evoked
by the generic philosophy that the grass is always greener on the
other side of the calendar year, or perhaps the emotional need to
dig ourselves out of what has surely been one of the more
lugubrious periods in the US economy, but there is some hope in
housing. A few positive readings in home sales and housing
starts recently, topped off by today's 7.4% monthly jump in
contracts to buy existing homes, are fueling what I dare say is a
spark, albeit not a fire. They are also managing to trump what
was a particularly opposing reading in home prices from the
number crunchers at S&P/Case-Shiller this week. Don't worry, I'm
not going to dump a bunch of coal on the numbers and claim
they're all spurious in some way; I'm all prepared to be
munificent, while chary (did I mention my new year's resolution
is to improve my family's vocabulary, as well as banish 'like'
from my kids' lexicon.) I will note that even the Realtors, while
touting affordability and pent-up demand, note that many of these
new signed contracts are the result of delayed transactions.
'Contract failures have been running unusually high,' notes
National Association of Realtors chief economist Lawrence Yun.
'Some of the increase in pending home sales appears to be from
buyers recommitting after an initial contract ran into problems,
often with the mortgage,' he said. Then there is a big story in
the Wall Street Journal today of hedge funds putting their money
back in housing, suggesting that while the numbers aren't all
there for a big win, these funds are usually ahead of big market
shifts, so the housing surge must be on its way. I've spoken to
some of these hedge fund types as well, and they seem to be
playing on the surging rental market for now, getting the
bargains but not expecting any big 'flipping' returns any time
soon. 'Bottom line, whether due to even lower prices,
historically low mortgage rates, falling inventory and a better
tone to the labor market or a combination of all, the housing
market is showing signs of stabilizing,' says Peter Boockvar at
Miller Tabak. 'I say stabilize instead of bottom, as its too
early to make that claim just yet with still a huge amount of
foreclosures that hasn't worked its way through the judicial
system and prices that haven't likely stopped going down as a
result.' Some are predicting that foreclosures will push home
prices down another five to ten% before hitting a true bottom.
In addition, those rock-bottom mortgage rates that everyone is
touting this week may be heading up, as the conservator of Fannie
Mae and Freddie Mac today directed the two mortgage behemoths to
inform servicers that guarantee fees would rise ten basis points
next week. That, if you recall, is to pay for the temporary
extension of the payroll tax cut. Yep, that money heads to the US
Treasury, not to the troubled balance sheets of Fannie and
Freddie. This accused nostrum will likely raise rates a tad, but
rates are still close to historical lows. And we should remember
that.
It's all relative. Are things getting a bit better? Probably. I
heard (or read…can't remember) someone today say that housing
has gone from a negative to a nothing for the US economy. So when
we tout and rave about today's pending home sales numbers, we
mustn't forget where we've been: 'It's not going to keep 2011
from being the worst on record for new home sales, for single
family permits and single family housing starts. Next year is
going to be better, but that's not saying much because this has
been the worst year, probably since 1945,' said IHS Global
Insight's Patrick Newport. In other words, housing ain't exactly
fecund, but it's at least inching off life support."
Oil up
Oil prices inched higher toward $100 a barrel Friday amid
encouraging signs the US economy is slowly improving and
continuing tensions between Western powers and Iran. By early
afternoon in Europe, benchmark crude for February delivery was up
13 cents to $99.78 a barrel in electronic trading on the New York
Mercantile Exchange. The contract added 29 cents to settle at
$99.65 in New York on Thursday. In London, Brent crude was down
48 cents at $107.53 a barrel on the ICE Futures exchange. Crude
has traded near $100 since mid-November after jumping from $75 in
October as investors eye growing evidence the US economy could
avoid a recession next year. The government reported Thursday
that claims for jobless benefits fell to a four-week average of
375,000, the lowest level in three and a half years.
Energy trader Blue Ocean Brokerage said oil prices would likely
eventually jump by about $50 if Iran, OPEC's second-biggest crude
exporter, tried to close the strait. "Let's start with an easy
$20 spike, then add in a risk premium for insurance costs,
delays, costs to push oil through alternative routes and the
obvious loss of 3.5 million barrels a day from Iran," energy
trader Blue Ocean Brokerage said in a report. "Crude oil prices
have managed to outperform the commodity complex this year, with
geopolitical risk premiums and seemingly resurgent US economy
offsetting a worsening situation in the eurozone," said analysts
at Sucden Financial in London. "With regard to Iranian tensions
specifically, an EU foreign ministers' meeting on Jan. 30 to
consider further sanctions on the country will likely prove an
important focus in early 2012 trade." Trading volume was low
this week as many investors take vacations around the Christmas
and New Year's Day holidays. In other Nymex trading, heating oil
rose 0.4 cent to $2.9241 per gallon and gasoline futures lost 0.7
cents at $2.6624 per gallon. Natural gas futures were down 2.2
cents to $3.005 per 1,000 cubic feet.
NAR - pending home sales up
Pending home sales continued to gain in November and reached the
highest level in 19 months, according to the National Association
of Realtors (NAR). The Pending Home Sales Index (PHSI), a
forward-looking indicator based on contract signings, increased
7.3% to 100.1 in November from an upwardly revised 93.3 in
October and is 5.9% above November 2010 when it stood at 94.5.
The October upward revision resulted in a 10.4% monthly gain.
The last time the index was higher was in April 2010 when it
reached 111.5 as buyers rushed to beat the deadline for the home
buyer tax credit. The data reflects contracts but not closings.
The PHSI in the Northeast rose 8.1% to 77.1 in November but is
0.3% below November 2010. In the Midwest the index increased 3.3%
to 91.6 in November and is 9.5% above a year ago. Pending home
sales in the South rose 4.3% in November to an index of 103.8 and
remain 8.7% above November 2010. In the West the index surged
14.9% to 121.2 in November and is 2.9% higher than a year ago.
The Pending Home Sales Index is a leading indicator for the
housing sector, based on pending sales of existing homes. A sale
is listed as pending when the contract has been signed but the
transaction has not closed, though the sale usually is finalized
within one or two months of signing. The index is based on a
large national sample, typically representing about 20% of
transactions for existing-home sales. In developing the model for
the index, it was demonstrated that the level of monthly
sales-contract activity parallels the level of closed
existing-home sales in the following two months.
Foreclosure backlog to take "decades" to clear
The number of seriously delinquent mortgages in the nation's
largest metropolitan areas slowed this year, according to a new
study from the Urban Institute. But foreclosures remain a burden
on the housing market, prompting the policy research group to
call for a resolution to the housing crisis to ensure the
foreclosure backlog is cleared out in a reasonable time period.
The institute said the serious delinquency rate in the 100
largest metro areas slowed to 9.3% in June from 10.4% in December
2009, according to data from Foreclosure-Response.org. The Urban
Institute said the serious delinquency rate is classified as the
share of loans in foreclosure, plus all of those that are more
than 90 days in arrears. "The foreclosure inventory that is
building up is going to take an incredibly long time for lenders
to clear," said Leah Hendey, research associate at the Washington
firm. "At the current pace of foreclosure sales, we are looking
at a process that could take decades to complete. It is critical
that the status of these properties be resolved quickly if we
want to stabilize communities and housing markets." This decline
was driven by a drop in delinquent loans, which fell to 3.7% in
June from 5.5% in December 2009.
In hard-hit areas like Riverside and Stockton, Calif., the
foreclosure rate declined significantly, dropping 1.9 percentage
points and 1.7 percentage points from the peak two years ago.
Florida, New York and Illinois experienced a different shift in
the market with foreclosure rates climbing in cities throughout
those states. In Tampa, the foreclosure rate jumped 2.8
percentage points, and in Chicago, it grew 2.3 percentage points.
Those three states are judicial foreclosure states, which force a
court to make a final decision before a property can leave the
process. This leads to a growing backlog, the Urban Institute
said. Mortgage originations are down in all of the 100 metro
areas surveyed, as well. Some of the largest drops occurred in
Buffalo, N.Y., where originations fell 39% this year, and Miami,
where new home loans fell 82%, the report said.
RealtyTrac: 2012 - the year of the streamlined short sale
RealtyTrac is calling 2011 the year of foreclosure litigation,
strategic default, failing foreclosure law firms and shadow
inventory. It also was a year of infighting between regulators,
underwater mortgages and the year when Mortgage Electronic
Registration Systems faced suits over everything from its
business model to its assignment procedures. Joel Cone, staff
writer for RealtyTrac's Foreclosure News Report, released a
lengthy report on what this year brought for the mortgage, real
estate and default servicing industries. So what did we learn in
2011? Cone says more borrowers learned to lean on strategic
default, choosing to walk away from distressed or underwater
loans instead of continuing to make payments on their mortgages.
Other borrowers discovered the system is moving at a snail's
pace, giving them more room to float by without making payments
on mortgages. As banks struggled to catch up from 2010's
robo-signing-induced foreclosure moratorium, Cone says borrowers
learned to gain a strategic advantage from the delays. Cone
writes that "armed with knowledge that the financial institutions
are so far behind the eight ball playing catch-up with the
delayed foreclosures, homeowners have no motivation to move on."
He added, "There are documented cases now of homeowners who are
simply staying in their homes without making a mortgage payment
for as long as three years, figuring they can stay until the bank
gets around to foreclosing on them. In the meantime, they are
living rent-free."
RealtyTrac data shows it took on average 336 days to complete a
foreclosure on properties that made it through the process in the
third quarter of 2011, that's up 180% from the first quarter of
2007 when it took an average 120 days, Cone said. The states
with the longest foreclosure timelines include New York, where it
takes an average of 986 days to foreclose; New Jersey, where it
takes about 974 days; and Florida, where it can take up to 749
days to complete a foreclosure. As homeowners and foreclosure
firms continue to sort through the mess, Cone noted several major
foreclosure law firms shut down and others to pick up new
business. Casualties included heavy hitters David J. Stern in
Plantation, Fla., the Amherst, New York-based law firm Steven J.
Baum PC (which paid $2 million to settle allegations from a
Department of Justice probe into its allegedly misleading
foreclosure documents), and Fort-Lauderdale, Fla.- based Ben-Ezra
& Katz, which shuttered its foreclosure practice.
While some firms stumbled, others saw an opportunity to grab
market share. Cone quotes Law.com data, which shows Atlanta-based
McCalla Raymer opening new branches and adding foreclosure
divisions in the Southeast to handle up to 5,000 transfer files
from foreclosure giants that have shuttered their doors. So
what's Cone's take on 2012? He believes short sales will play a
huge role. "The dysfunctional and delayed foreclosure process
may finally be leading lenders to usher in the much-anticipated
'year of the streamlined short sale' in 2012," he wrote.
Stock losses hit public pensions
Total investments held by pension systems administered by state
and local governments fell 8.5% from the second quarter, although
investments did inch up 1.1% from the same period a year earlier.
The total holdings reached $2.5 trillion in what was the eighth
consecutive quarter of year-on-year growth. After being battered
by the financial crisis and recession, public pensions had seen
four straight quarterly increases starting in 2010. But in the
third quarter, pensions' corporate stock holdings fell 14.9% from
the second quarter to $134.7 billion. That marked a 6.6% drop
from the third quarter of 2010. And international securities
declined for the first time since the second quarter of 2010,
falling 14.2% from the second quarter to $448.9 billion. It was
the largest decline in international securities since the fourth
quarter of 2008, in the midst of the Great Recession, according
to the Census.
Public retirement systems depend on contributions from employees
and employers to pay benefits, but the lion's share of their
revenue comes from investment returns. A year ago, concerns
about public pensions' soundness reached a fever pitch.
Conservative members of the US Congress called for the systems to
lower their expected rates of return — a metric that is used to
determine the systems' abilities to meet their obligations —
and for states to have the unprecedented option of filing for
bankruptcy to escape public employee contracts. The bankruptcy
idea has largely disappeared, although earlier this month a
leading Republican US senator, Jim DeMint of South Carolina,
hinted other legislation changing public pensions could be coming
soon.
Equator sees 1.17 million short sales
Default servicing technology company Equator says nearly 1.2
million short sales were initiated through its module over the
past two years. The company tracks this data through its default
servicing platform, which helps mortgage industry clients deal
with loan modifications, short sales, deeds-in-lieu, foreclosure
processing and REOs. Los Angeles-based Equator said Wednesday
that more than $150 billion in assets have been sold using its
technology platform over the past eight years. Analyzing trends
from the recent fourth quarter, Equator said servicers heading
into 2012 are focused on compliance issues. "The needs of our
clients have focused on the demands for stricter compliance and
infrastructure security,” said Chief Operating Officer John
Vella. As the firm transitions into 2012, it's prepping the
launch of the REvolution software program, which will provide
real estate professionals with a system to track both distressed
and traditional properties. The company said the software gives
agents enough flexibility to automate their daily work-flow
cycles from a single portal, removing the need for agents to
employ more than one software system to handle various asset
types and sales functions.
Jobless claims up
Initial jobless claims rose last week after a few weeks of
declines and remain at levels last since in 2008. The Labor
Department said the seasonally adjusted figure of actual initial
claims for the week ended Dec. 25 increased to 381,000 from
366,000 the previous week, which was revised upward 2,000.
Analysts surveyed by Econoday expected 372,000 new jobless claims
last week with a range of estimates between 370,000 and 383,000.
Most economists believe weekly claims lower than 400,000 indicate
the economy is expanding and jobs growth is strengthening.
Initial claims have been lower than this threshold for most of
the past two months. The four-week moving average, which is
considered a less volatile indicator than weekly claims, declined
by 5,750 claims to 375,000 — the lowest in more than three
years — from the prior week's slightly revised 380,270. The
seasonally adjusted insured unemployment rate for the week ended
Dec. 17 inched higher to 2.9% from 2.8% the previous week,
according to the Labor Department. The total number of people
receiving some sort of federal unemployment benefits for the week
ended Dec. 10 rose to 7.23 million from 7.15 million the prior
week.
WSJ - cracked foundation threatens housing recovery
A house is only as good as its foundation. The same is true of
the housing market. Unfortunately, its foundation, the
housing-finance system, still has big cracks in it. Until those
are fixed, any hoped-for recovery may prove difficult to sustain.
That isn't to say housing won't show signs of improvement.
Recent data, such as new-home starts and existing-home sales,
have offered some glimmers of hope. Tuesday's release of the
S&P/Case-Shiller index for October is likely to show further
slippage of prices. But the rate of decline in the index, which
tracks home prices in 20 metropolitan areas, is expected to
continue slowing, to less than 3% year over year. That trend,
some economists expect, presages prices finding a floor in 2012.
Meanwhile, mortgage rates hit a new low last week; Freddie Mac
said the average for a 30-year fixed-rate loan was 3.91%. Such
super-low rates and the resulting increased affordability of
homes may spur more housing activity.
Still, the challenge of housing-finance overhaul remains a
long-term headwind. As things now stand, housing finance remains
almost completely dependent on government support via proxies
like Fannie Mae and Freddie Mac. That isn't likely to change
soon. Both Congress and the administration essentially punted in
2011 on hard decisions about the future of those firms and are
likely to do so again in the coming presidential-election year.
Washington's inaction is somewhat understandable, if
disappointing. Any overhaul will force the government to decide
if it wants a housing market where risk is taken by home buyers
and private investors, or by the taxpayer. Any action also may
threaten the existence of 30-year, fixed-rate mortgages with a
prepay option and require a rethink of subsidies such as the
deductibility for tax purposes of mortgage interest.
But the dithering isn't only over big issues. Many small
decisions about changes to housing-finance rules haven't been
finalized. Regulators, for example, have yet to give banks
concrete guidance about how they will have to handle mortgages if
they want to sell them to private investors. Speaking at a
conference earlier this month, J.P. Morgan Chase Chief Executive
James Dimon lamented such a lack of progress saying it is
"holding back the mortgage market." Continued delay means that
any gains in housing may be built on shaky ground.
Expanding government role in mortgages
Washington lawmakers, who began 2011 with sweeping plans to
shrink the US government's role in mortgage finance, are heading
into 2012 after enacting policies that expand it. An 11th-hour
payroll tax cut extension signed into law last week would for the
first time divert funds directly from Fannie Mae and Freddie Mac,
the two mortgage-finance companies under US conservatorship, to
pay for general government expenses. That move came after two
others that also are expected to increase government involvement:
Lawmakers allowed a tax break on private mortgage insurance to
expire and raised loan limits for mortgages insured by the
Federal Housing Administration. Advocates of private mortgage
finance say they are concerned that using fees from Fannie Mae
and Freddie Mac is setting a precedent that will keep the
government in the mortgage business for a decade or more. Fannie
Mae, Freddie Mac and the FHA currently back more than 90% of loan
originations, about double what they did during the subprime
lending boom, according to Inside Mortgage Finance, a trade
publication.
Earlier in the year, both the Obama administration and members of
Congress outlined plans to reverse that trend. In February, US
Treasury Secretary Timothy F. Geithner released three options for
reducing government's role in housing finance. Shortly afterward,
Republicans introduced bills to wind down Fannie Mae and Freddie
Mac, which have cost taxpayers about $153 billion since 2008
because of defaults on loans they guaranteed. The legislation
never moved forward because there was no agreement even within
the Republican caucus on the best way to proceed. In December,
pushing to find about $36 billion in revenue to offset the
payroll tax cut for two months, Congress instituted a decade-long
increase in the premiums that Fannie Mae and Freddie Mac charge
lenders, known as "g fees," to guarantee principal and interest
on home loans. Lenders typically pass on the cost of the fees to
borrowers as higher interest rates. The move is drawing
criticism: It relies on long-term revenues from entities both
Democrats and Republicans want to shrink, and the money won't be
spent to offset the risk of loan defaults. "In effect, this is a
tax on Fannie and Freddie mortgages," said Bert Ely, a banking
consultant in Alexandria, Virginia. "When you go to privatize or
take any action to wind them down, you have a budget effect that
you didn't have before."
Fewer delinquencies, more foreclosures coming
Real estate research and marketing firm Trulia said employment
figures improved slightly at the end of 2011, making it possible
for more borrowers to pay their mortgages next year. While
Trulia says this trend could reduce 2012 delinquencies, the
company expects foreclosures to continue to climb as banks sort
through a backlog of distressed properties and foreclosures that
stalled in the wake of robo-signing and increased regulatory
oversight. The firm says once a settlement between mortgage
servicers and state attorneys general is finalized, many delayed
defaults will plunge through the process. As for what this means
for real estate agents, Trulia said an increase in "foreclosures
will depress prices for several reasons — foreclosed homes are
often sold at a discount and used as comps for non-distressed
homes." In turn, this will kill seller motivation even though
buyers stand to benefit from affordable pricing structures.
"Agents should be gearing up with competitive pricing strategies
to catch buyers and preparing to counsel their traditional
seller-clients about the depressed prices to come in
high-foreclosure areas," Trulia said. For those Americans now
confined to the rental market, costs will be rising in 2012 as
people losing their homes move toward the rental model. To
resolve the issue, high-cost cities need to address the rental
shortage directly by having local governments get rid of
restrictions and permitting processes that are too stringent,
according to Trulia.
************************************************************
WSJ - tracking down alleged victims
The Justice Department faces the daunting task of tracking down
more than 210,000 alleged victims and determining how to
compensate them, following last week's $335 million fair-lending
settlement with Bank of America Corp.'s Countrywide unit.
Minority borrowers who suffered the greatest harm from
Countrywide's allegedly discriminatory mortgage-lending practices
could be the most difficult to locate, observers say, because
they are the victims most likely to have lost their homes to
foreclosure and subsequently moved several times. The landmark
case is also the first by the Justice Department that accuses a
lender of steering borrowers to more costly mortgages, creating
novel and possibly difficult questions on setting monetary
payments for some victims. For example, how should the government
compensate a family that both lost its home and was unfairly
steered into a more costly subprime loan?
The agreement, announced last Wednesday, was the largest
residential fair-lending settlement in history. It resolved
allegations that Countrywide and its subsidiaries engaged in a
widespread pattern of discrimination against black and Hispanic
borrowers from 2004 to 2008. Home borrowers allegedly were
charged higher fees and costs. Others allegedly were steered into
costly subprime loans, even though they could have qualified for
a prime mortgage, the type of loan offered to borrowers with the
best credit histories. Bank of America said it reached the
settlement "to resolve issues about Countrywide's alleged
historic practices" before it acquired the company in 2008. The
bank also said it discontinued Countrywide products and practices
that "were not in keeping" with its commitment to fair and equal
treatment of customers.
As the Justice Department's settlement administrator begins to
track down victims, the recent experience of the Federal Trade
Commission, which inked its own settlement with Countrywide last
year, offers a possible road map. Bank of America paid the FTC
$108 million to settle charges that Countrywide took advantage of
more than 450,000 distressed homeowners by inflating the cost of
services relating to their defaults. The FTC began mailing
refund checks this summer, but 18 months after the agreement, the
agency still holds about 25% of the money because it can't find
some people. Officials there are also concerned that at least
some victims haven't cashed the checks out of worries the refunds
are part of a scam. The agency is preparing to conduct another
round of searches for remaining victims. The Justice Department
is confident its settlement administrator "will be successful in
locating the vast majority of the victims and is committed to
ensuring that best efforts are made to do so," spokeswoman
Xochitl Hinojosa said.
SEARS to close 120 stores
Sears Holdings said today that between 100 and 120 Sears and
Kmart stores will be closed after terrible holiday sales during
what is the most crucial time of the year for retailers. Sears
has yet to determine which stores will be closed, but there has
been a clear shift in where the retailer will devote its
resources. The company is moving away from its practice of
propping up "marginally performing" stores in hopes of improving
their performance. Sears said it will now concentrate on
cash-generating stores. "Given our performance and the difficult
economic environment, especially for big-ticket items, we intend
to implement a series of actions to reduce ongoing expenses,
adjust our asset base, and accelerate the transformation of our
business model," said CEO Louis D'Ambrosio. "These actions will
better enable us to focus our investments on serving our
customers." Sears would not discuss how many, if any, jobs would
be cut. Sears Holdings has more than 4,000 stores in the US and
Canada.
Housing sector lifted by rent demand
The percentage of Americans who own their home dropped from a
peak of 69.2% in late 2004 to a 13-year low of 65.9% in the
second quarter. It edged up to 66.3% in the third quarter of
this year. On the flip side, the percentage of rental properties
that are empty fell to 9.8% in the third quarter from 10.3% a
year earlier. In a recent report, Oliver Chang, an analyst at
Morgan Stanley, dubbed 2012 "The Year of the Landlord." "Rents
are rising, vacancies are falling, household formations are
growing and rental supply is limited," the Morgan Stanley report
stated. "We believe the demand for rental properties will
continue to grow." Groundbreaking for new housing jumped 9.3% in
November to the highest level in 19 months, fueling optimism that
the battered housing market was regaining its footing. The
gains, however, were almost solely in multifamily housing.
Groundbreaking for structures with five or more units shot up
more than 30% from October to now stand at nearly double the
year-ago level. Prices reflect the shift in demand. Rental costs
are up 2.4% over the last year, compared with an increase of just
0.6% in 2010. Steve Blitz, senior economist at ITG Investment
Research, says the lure of higher returns is spurring the
development of apartment buildings. He argued the next "boom" in
residential construction has already started. "The reason rents
were rising is that through the past 15 years there has been an
under-building of rental properties because typical renters were
increasingly able to garner cheap financing to buy a house," he
wrote in a research note.
Double dip for big pharma
Pharmaceutical giants’ profits could take a "double-dip" hit
next year from patent expirations on blockbuster drugs and
President Barack Obama’s healthcare reforms, according to a
report from CreditSights, a credit market research firm. Patent
expiries are set to cost pharmaceutical firms $54 billion in
sales between 2011 and 2012, with the cost reaching over $255
billion by 2016, according to EvaluatePharma, a research firm.
“We could see a double-dip effect in 2012, due to lower sales
and earnings from loss of exclusivity, and healthcare reform
costs that have not yet been reduced,” said Diya Sawhny senior
pharmaceuticals analyst at CreditSights. “A significant slate
of prescription products lose patent protection in 2011 and 2012,
and their sales will decline,” she added.
Obama’s healthcare reforms include increases to the sales taxes
pharmaceutical firms pay for their drugs used in government
health programs. Those taxes are based on prior year sales, so
firms with blockbusters going off-patent in 2012 may face both
higher taxes and a drop-off in sales. Obama’s Affordable Care
Act was enacted in March 2010 with the intention of improving
healthcare for the uninsured. Changes include expanding the
number of people who are eligible for Medicaid, the state-run
insurance program aimed at low-income individuals, with 16
million extra enrollees expected by 2019. A pre-existing tax on
prescription drugs sold to Medicaid recipients was increased from
15.1% to 23.1%, and was expanded to include drugs given in care
organizations. Between 2011 and 2018, pharmaceutical firms must
pay an additional federal tax based on their market share of
sales to government health programs. The cost of the tax to the
pharmaceutical sector is fixed by law, and rises from $2.5
billion in 2011 to $3 billion from 2012 until 2016.
Home prices fall in most major cities
Home prices in October declined in 19 American cities, as the
Standard & Poor's/Case Shiller home price index showed drops in
both the 10-city and 20-city composites. According to the latest
S&P report, home prices declined 1.1% and 1.2% for the 10- and
20-city composite indexes. "There was weakness in the monthly
statistics, as 19 of the cities posted price declines in October
over September," said David Blitzer, chairman of the Index
Committee at S&P Indices. "Eleven of the cities and both
composites fell by 1.0% or more during the month. And even though
some of the annual rates are improving, 18 cities and both
composites are still negative. Nationally, home prices are still
below where they were a year ago. The 10-city composite is down
3.0% and the 20-City is down 3.4% compared to October 2010." S&P
said fourteen of 20 metropolitan statistical areas and both the
10 and 20-city composite indexes had improved annual returns up
from September.
Miami experienced no change in annual returns in terms of pricing
during the month of October, while Atlanta, Detroit, Las Vegas,
Los Angeles and Minneapolis saw their annual rates worsen.
Atlanta experienced the lowest annual pricing return, with prices
down 11.7%. "Atlanta and the Midwest are regions that really
stand out in terms of recent relative weakness. Atlanta was down
5% over the month, after having fallen by 5.9% in September," the
report said. "It also has the weakest annual return, down 11.7%.
Chicago, Cleveland Detroit and Minneapolis all posted monthly
declines of 1.0% or more in October. These markets were some of
the strongest during the spring/summer buying season. However,
Detroit is the healthiest when viewed on an annual basis. It is
up 2.5% versus October 2010." The only metropolitan statistical
area to record a positive monthly change was Phoenix, which saw
home prices edge up 0.3% from September to October.
***************************************************
Short sales increase in Florida and California
Short sales made up 73% of the pending sales last month in the
core Orlando market, up from 64% a year ago, according to a
report released Wednesday by the Orlando Regional Realtor
Association. Sales of these "underwater" houses constituted
about a third of the 1,950 November closings reported by Realtors
in the core market, which consists mainly of Orange and Seminole
counties. Sales of "ordinary" existing homes constituted about
40% of the market, while bank-owned properties made up about a
quarter of the month's sales. Short-sale prices have also risen
during the past year, from $99,000 in November 2010 to $106,000
last month. But the median price of "normal" resales has declined
8% during the same 12 months.
Over the past year, short sales and foreclosures, key indicators
of the health of the housing market, have dramatically increased
in California too. Originally, foreclosures and short sales were
occurring in the Inland Empire, Lancaster and northern Los
Angeles County, but now they’re creeping south. From Jan. 1 to
Dec. 1, 2010, 59 short sales were recorded in Sherman Oaks. This
year during the same period, 92 homes sold in short sales with
another 36 pending sales and 22 actively listed, for a total of
150 properties, a 154% increase. Meanwhile, foreclosures sold
during the same months last year totaled 48, compared to 51
foreclosure sales closed, four pending and another nine on the
market, for a total of 64 homes, a 33% increase. About a third
of the short sales and the majority of foreclosures occurred in
pricey neighborhoods north of Ventura Boulevard. Although home
prices in the southern San Fernando Valley, including Sherman
Oaks, slid down about 26% to 35% during the economic downturn,
they were still less than the 40% to 60% price declines recorded
in other locales.
Jobless claims down
Government reports on weekly jobless claims and manufacturing
activity in the Northeast for December released Thursday offered
fresh evidence the US economic recovery is picking up steam. New
US claims for unemployment benefits dropped to a 3 1/2 year low
last week, a government report showed on Thursday, suggesting the
labor market recovery was gaining speed. Initial claims for
state unemployment benefits dropped 19,000 to a seasonally
adjusted 366,000, the Labor Department said. That was the lowest
level since May 2008. The prior week's claims data was revised
up to 385,000 from the previously reported 381,000. Economists
polled by Reuters had forecast claims rising to 390,000 last
week. The unexpected drop in claims last week pushed them closer
to the 350,000 mark that analysts say signals labor market
strength. The four-week moving average of claims, considered a
better measure of labor market trends, fell 6,500 to 387,750 —
the lowest since mid-July 2008. The number of people still
receiving benefits under regular state programs after an initial
week of aid edged up 4,000 to 3.6 million in the week ended Dec.
3. Economists had forecast so-called continuing claims rising to
3.63 million from a previously reported 3.58 million. The number
of Americans on emergency unemployment benefits increased 254,642
to 3.05 million in the week ended Nov. 26, the latest week for
which data is available. A total of 7.45 million people were
claiming unemployment benefits during that period under all
programs, up 874,670 from the prior week.
WSJ - foreclosures slow, build for next year
Declines in foreclosure filings slowed in November from a year
earlier, suggesting a new wave of foreclosures could hit the
market early next year, according to a new report by RealtyTrac.
The online marketplace for foreclosure properties said
foreclosure filings in November dropped 14% from last year and 3%
from October. Yet the year-over-year decrease represented the
smallest annual decline over the past 12 months, and some states
actually posted year-over-year increases in foreclosure activity.
Also, despite the seasonal slowdown in foreclosure filings,
RealtyTrac said its research suggests that a new wave of
foreclosures could come next year. RealtyTrac measured
foreclosure filings though default notices, foreclosure auctions
and bank repossessions. It said default notices were down 9% from
last year, while bank repossessions and foreclosure auctions both
dropped 17%.
California had some of the worst foreclosure statistics, as nine
out of the top 10 highest foreclosure rates in metropolitan areas
were in the Golden State. California, along with Florida and
Michigan, had the highest total foreclosure filings in November,
with California making up 28% of the national total, the most of
any state. Nevada, California and Arizona had the highest
foreclosure rates, with Nevada topping the chart. One in every
175 Nevada housing units were involved in a foreclosure filing in
November, more than three times the national average. On the
opposite side, North Dakota, Vermont and West Virginia had the
lowest foreclosure rates. According to a recent study from
TransUnion, the highest mortgage delinquency states or districts
in 2012 are expected to be Florida, Nevada and the District of
Columbia, while North Dakota, South Dakota and Wisconsin should
have the lowest rates.
New York factory orders up
A gauge of manufacturing in New York State showed growth
accelerated in December to its highest level since May as new
orders improved, the New York Federal Reserve said in a report
today. The New York Fed's "Empire State" general business
conditions index rose to 9.53 from 0.61 the previous month.
Economists polled by Reuters had expected a reading of 3.00. New
orders rose to 5.10 from minus 2.07, while inventories gained to
minus 3.49 from minus 12.20. New orders were also at their
highest level since May. The survey of manufacturing plants in
the state is one of the earliest monthly guideposts to US factory
conditions. The gain in December added on to improvement last
month that pulled the index out of a five-month contraction.
Employment gauges continued to be mixed. The index for the number
of employees perked up at 2.33 from minus 3.66, but the average
employee workweek index fell to minus 2.33 from 2.44.
The Federal Reserve has long maintained that inflation will
settle at levels at or below those consistent with its price
stability mandate. Last month, wholesale prices were pushed up
by a 1% rise in food prices. Vegetables accounted for more than
half of the increase in food prices last month. Food prices rose
0 .1% in October. Gasoline prices edged down 0.1% after falling
2.4% in October. In the 12 months to November, producer prices
increased 5.7% after rising 5.9% the prior month. Wholesale
prices outside of food and fuel were bumped up by passenger car
prices, which are on the rise again after floods in Thailand
disrupted supply chains. Motor vehicle production was earlier
this year disrupted by the earthquake and tsunami in Japan.
Passenger car prices rose 0.6% after falling 0.8% in October.
Prices for light motor trucks fell 0.2% after dropping 1.6% in
October.
Olick - the politics of housing
"Housing may have been the catalyst for the Great Recession, but
it is not number one on America’s fix-it list for our next
President. Fixing the economy should come before housing policy,
according to a new survey by real estate website Trulia.com.
Americans first want to see lower unemployment, more employment
growth and reducing the federal budget deficit. 'The partisan
split in Washington and the recent housing policy debates are not
what Americans want from their government,' said Trulia’s chief
economist Jed Kolko. 'Although Washington and lobbyists have been
debating the conforming loan limit, Americans would rather see
more action to make refinancing easier and to deal with vacant
homes.' Still, those same respondents, 72% of them, said
government policies should encourage home ownership. Wasn’t
that 'encouragement' kind of what got us into this mess? The
Trulia survey seeks to draw distinctions between what Republicans
want from housing policy and what Democrats want, but the answers
don’t differ all that much, except when it comes to helping
troubled borrowers. 74% of Democrats want government to encourage
mortgage loan modifications that reduce principal balances. Just
61% of Republicans support that.
For respondents from both political parties, the number one sign
of housing recovery would be fewer defaults and foreclosures; at
the bottom of the list is rising homeownership. This is perhaps
the most troubling finding for the near future of the housing
market, because we are going to see more foreclosures in the
first half of 2012, as banks work through the enormous backlog of
delinquent loans that were on hold this year due to the so-called
'robo-signing' foreclosure paperwork mess. Since consumer
confidence is going to be the driving factor in housing’s
recovery, increased foreclosures and the headlines that go with
them, regardless of where they are locally, will have an overall
impact on home buying nationally. Sales have been stabilizing
slightly this Fall, but likely only because foreclosures had been
stalled, so the distressed share of the market was not so
blatant; that’s about to change. Most analysts are predicting
that the big pain will be in the first half of 2012, and as those
foreclosures are supposedly quickly absorbed into the market,
organic home buyers and sellers will come back. However, more
than half of those surveyed by Trulia said they were not at all
confident that the President can stabilize the housing market in
the next year. This is a notable increase since he took office."
Sales outlook brighter
The National Retail Federation said it now expects holiday sales
to rise 3.8% to a record $469.1 billion. That is up from the
group's October forecast, which called for growth of 2.8%. The
new forecast is still lower than the 5.2% growth seen last year,
but is above the 10-year average increase of 2.6%. The reason
for the updated forecast is that NRF, a retail industry trade
group, found that industry sales for November rose 4.5%
year-over-year, and that the average American has completed far
less of their holiday shopping than in previous years — an
indication that many shoppers bought for themselves in November
and have lots of shopping left to do. While retailers are
"cautiously optimistic" that the season will turn out better than
initially expected, NRF President Matthew Shay said "a number
factors, including the debt crisis in Europe and continued
political wrangling in Washington, could impact consumer spending
this holiday season and into 2012." The NRF's figures compare
sales at retail stores with the year-earlier period and exclude
restaurants, gasoline, automobiles and online sales. That is why
its results look different than those announced by the US
Commerce Department, which said US retail sales grew a weaker
than expected 0.2% in November.
WSJ - Chicago sued by Fannie and Freddie
The federal regulator overseeing Fannie Mae and Freddie Mac sued
the city of Chicago on Monday over an ordinance that makes
mortgage creditors liable for the upkeep of vacant properties.
Lenders are liable for daily fines of as much as $1,000 if they
don't mow lawns and provide basic maintenance on vacant buildings
under an ordinance signed into law by Mayor Rahm Emanuel. Lenders
especially opposed the requirement they maintain properties they
hadn't yet taken back through foreclosure. After lenders
threatened to sue, the city revised the ordinance in November by
dropping a provision that had defined creditors as property
owners. But those changes didn't satisfy the Federal Housing
Finance Agency, which sued Monday.
Chicago has one of the biggest foreclosure backlogs in the US,
delays thanks in part to state requirements that lenders take
back homes through the courts Banks and courts have been
overwhelmed by the volume of cases, that have exacerbated the
problem of neglected vacant buildings. The agency said the
ordinance was unfair because it imposed all of the costs of
ownership without any of the benefits, such as the right to sell
or lease the property. The lawsuit also said the ordinance
overstepped federal law by subjecting Fannie and Freddie to
regulation that is the jurisdiction of the FHFA. The ordinance
requires mortgage owners to pay a $500 fee to register vacant
properties and to conduct monthly inspections of properties to
determine if they are vacant. In a statement, the FHFA said that
registration fee "represents a tax" on Fannie and Freddie. "We
are looking into the details of the lawsuit, but this type of
action demonstrates the need for swift action" by the state "to
hold lenders responsible for securing vacant properties," said a
spokesman for Mr. Emanuel. "During the passage of the compromise
ordinance, we negotiated with national and local lenders, who
then stood alongside the mayor to announce the agreement to
secure vacant properties in Chicago."
The lawsuit could help head off copycat ordinances. Las Vegas
last week passed a similar measure that would require banks to
pay a $200 registration fee for properties with defaulted
mortgages. Bank officials could face fines or jail time for homes
in disrepair. Consumer advocates and community groups have
criticized banks for delaying foreclosures or, in extreme cases,
abandoning them in order to avoid picking up the tab for shabby
homes once owners or tenants vacate them. Researchers at the
nonprofit Woodstock Institute estimated that nearly 1,900 vacant
properties in Chicago are stuck in the foreclosure process at a
cost of $36 million in upkeep costs borne by the city. "By in
many cases ignoring these properties you're doing a disservice to
the community and a disservice to the investor," said Tom
Feltner, vice president of the Woodstock Institute. Fannie and
Freddie were taken over by the government three years ago, and
today they answer to their regulator, the FHFA, which is charged
with conserving the firms' assets. The rescues of both companies
have cost taxpayers $151 billion and counting. Monday's lawsuit
was filed in US District Court for the Northern District of
Illinois.
See you at the top!
Chris McLaughlin
**************
Copyright Loss Mitigation Institute LLC 2011.
All Rights Reserved.
http://www.shortsalesriches.com
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(subscribe to this newsletter)
*************************************************
About the author:
Chris McLaughlin is widely known as America’s top
Real Estate Attorney and Investment Consultant.
* As the top Florida foreclosure and pre-
foreclosure expert, he oversees more than
100 short sale & REO closings each month
* Long-time authority on real estate investing
and rapid reselling of distressed homes. Owns
portfolio of nearly 150 high-value, high-profit
properties
* Owner of one of Florida's largest Real Estate firms,
running 4 different offices, supporting over
420 agents, uniquely positioning him to help
thousands of investors make money in the
biggest market opportunity ever!
* In 2010, Chris' 4 Central Florida real estate offices
closed 2,786 sides for a closed sales volume of
$392,912,927!
* Highly sought-after speaker, consultant, and
seminar leader for current trends and hot topics
in Real Estate Investing, Entrepreneurship, and
Wealth Building
***********************************************************
NAR- housing and jobs are voters' main concerns
A recent survey by Houselogic.com, the consumer website from the
National Association of Realtors (NAR), finds that jobs and the
housing market will be two of the most important issues for
voters in the 2012 election. Nearly one-third of respondents said
housing will be the top issue on their mind when they head to the
polls next November. Respondents were asked “What issue area
will have the greatest impact on your vote in 2012?” National
security, healthcare, and energy/environment trailed housing and
unemployment by wide margins. With unemployment still high, it
is easy to see why so many Americans are concerned about the job
market. However, employment and the housing market are
inextricably linked because economic growth and job creation
cannot occur without a housing recovery.
Housing accounts for more than 15% of the US. Gross Domestic
Product – it’s a key driver of the national economy. Home
sales generate jobs. NAR estimates that for every two homes sold,
one job is created. New spending on homebuilding products,
furniture, and other residential investments also have a
significant economic impact. Some recent indicators show that
the economy might be starting to rebound, with pending home sales
rising strongly in October, according to NAR’s Pending Home
Sales Index. However, any changes to current programs or
incentives must not jeopardize a housing and economic recovery.
Unemployment, consumer confidence and consumer spending will not
rebound until a number of issues are addressed.
Shopping strong into December
For the week ending Dec. 9, consumers spent $5.9 billion online,
up 15% from the same period a year earlier, according to
comScore, which tracks Internet activity. E-commerce spending
for the first 39 days of the 2011 holiday season reached $24.6
billion, also up 15% versus the corresponding days last year,
comScore added. Earlier in the season, the day that has become
known as "Cyber Monday" saw a record $1.25 billion spent online
in the United States, up 22% from last year. Other early season
shopping days were also strong, with "Black Friday" e-commerce
sales jumping 26% from a year ago. That sparked concern that
sales could weaken later in the season, but so far that has not
happened, comScore Chairman Gian Fulgoni said on Sunday. "These
highlights represent another very positive sign for the holiday
shopping season, as the week following 'Cyber Week' often
experiences relative softness in spending momentum due to
retailers pulling back on their promotional activity," he said.
BOA develops rental program
Bank of America is looking at a new program to rent a home back
to the borrower after foreclosure. "There are programs that we
are quite interested in," said Ron Sturzenegger, who leads the
bank's legacy asset servicing division. "We are talking with
investors that would come in and buy these houses and would lease
them back to who would now be the now tenant." In February, BOA
formed the division to handle the servicing for delinquent
mortgages, loans no longer being written, and to sort out
outstanding representation and warranty claims. Currently, more
than 35,000 employees at the bank are sorting through 1.1 million
loans 60 days delinquent or worse, according to its third-quarter
financial statement. The Federal Housing Finance Agency (FHFA)
is working on an REO rental program for Fannie Mae and Freddie
Mac. It received more than 4,000 ideas on how to do it. But
private banks own $50.4 billion worth of REO properties, too,
according to the Federal Deposit Insurance Corp., and millions of
these homes are sitting vacant. Sturzenegger described how their
idea would work.
"We are looking at programs where you can capture somebody before
the REO process and offer a deed-for-lease. We would go to the
customer and say, 'We'll do a short sale. Will you be interested
in leasing your property back? We're still going to sell the
property. You will no longer be the owner. But you can be a
tenant now in that same property and save you from moving on,'"
he said. Sturzenegger stressed the bank would still sell the REO
as before in areas where there is a market for them and they can
still get reasonable bids. But some areas are so saturated with
inventory, there isn't enough investor or homebuyer demand and
properties can sit for years uninhabited. Rick Sharga, the
executive vice president at Carrington Mortgage Holdings, said in
an interview that many firms, including Carrington are preparing
to participate. "We already have the infrastructure and assets
in place to participate effectively," he said. "Everyone is
waiting on final direction from the FHFA." Sturzenegger stressed
the private program at BOA is in its infancy. "It's in the very
early stages," he said.
US stocks down
US. stocks fell Monday after Moody's Investors Service said last
week's European fiscal pact will not deter it from reconsidering
the credit ratings of all European Union nations. The Dow Jones
industrial average fell 170 points in the first hour of trading.
The euro weakened against the dollar and the yields on Italian
and Spanish government bonds rose as investors became more
nervous about holding the debt of those countries. European stock
indexes fell broadly. Moody's said that last week's summit of
European leaders produced "few new measures" and that Europe's
financial crisis remains in a "critical and volatile stage." The
17 nations that use the shared currency and the region in general
remains "prone to further shocks and the cohesion of the euro
under continued threat," Moody's said. As a result, the agency
said it would still review the creditworthiness of European
countries in the first three months of 2012. The warning from
the credit rating agency deflated optimism about last week's
pact, which called for tougher fiscal discipline in countries the
euro and greater oversight of national budgets by a central
authority.
Hot markets to cool
Top real estate markets in the United States are beginning to
cool down, according to Clear Capital, a provider of housing data
and valuation services. The markets are still growing and
improving, its latest report finds, but not at the rates seen in
recent memory. "Even though as a whole, this group hasn’t
experienced returns this low since June 2011, each of the 15
markets continued to post quarterly gains," the Clear Capital
report states. "The overall performance of the group has
stabilized and tightened, with only 3.1% separating the highest
performing market, Washington, D.C., from the 15th place market,
Cleveland." Four Florida markets — Orlando, Tampa,
Jacksonville and Miami — continue to keep their positions among
the highest performing markets quarter-over-quarter, rebounding
from the steep drops and high levels of foreclosures they
experienced over the past two years, the report states.
According to Clear Capital, Orlando and Miami also show strong
year-over-year performance, topping the list with 5.9% and 5.4%
growth respectively. "The strong upward price movement for these
Florida markets has correlated with a 12% drop in REO saturation
over the last year at the state level," the report says. "The
growth in Florida’s MSAs must be described in proper
perspective against the state’s precipitous -59.1% drop in
prices from peak values in 2006 to today." Atlanta is now the
market feeling the most acute drop in housing. The city is down
nearly 20% year-over-year and the REO saturation rate is reaching
43%, second only to Las Vegas and Detroit.
Home prices fall
According to the CoreLogic Home Price Index (HPI), national home
prices, including distressed sales, also declined by 3.9% on a
year-over-year basis in October 2011 compared to October 2010.
This follows a decline of 3.8% in September 2011 compared to
September 2010. Excluding distressed sales, year-over-year
prices declined by 0.5% in October 2011 compared to October 2010
and by 2.1% in September 2011 compared to September 2010.
Distressed sales include short sales and real estate owned (REO)
transactions.
Highlights as of October 2011
- Including distressed sales, the five states with the highest
appreciation were: West Virginia (+4.8%), South Dakota (+3.1%),
New York (+3.0%), District of Columbia (+2.4%) and Alaska
(+2.1%).
- Including distressed sales, the five states with the greatest
depreciation were: Nevada (-12.1%), Illinois (-9.4%), Arizona
(-8.1%), Minnesota (-7.9%) and Georgia (-7.3%).
- Excluding distressed sales, the five states with the highest
appreciation were: South Carolina (+4.6%), Maine (+3.1%), New
York (+3.1%), Alaska (+2.9%) and Kansas (+2.8%).
- Excluding distressed sales, the five states with the greatest
depreciation were: Nevada (-8.8%), Arizona (-7.0%), Minnesota
(-5.7%), Delaware (-3.9%) and Georgia (-3.6%).
- Including distressed transactions, the peak-to-current change
in the national HPI (from April 2006 to October 2011) was -32.0%.
Excluding distressed transactions, the peak-to-current change in
the HPI for the same period was -22.4%.
- Of the top 100 Core Based Statistical Areas (CBSAs) measured
by population, 78 are showing year-over-year declines in October,
two fewer than in September.
Citigroup plans layoffs
Citigroup is cutting 4,500 jobs worldwide, Chief Executive Vikram
Pandit said on Tuesday, becoming the latest large bank to trim
staff. Pandit, speaking at the Goldman Sachs Financial Services
Conference, said the bank would record a $400 million charge in
the quarter for severance and other expenses related to the
layoffs. The cuts are equal to about 2% of Citi's workforce of
267,000 employees at the end of third quarter 2011. Pandit said
the cuts would be completed over "the next few quarters" and
would come from a range of businesses. Citi joins other banks
worldwide that have cut more than 120,000 jobs as regulations
have imposed tighter industry rules and the economy remains weak.
Pandit said Citi's reductions would involve its proprietary
trading units, which are being wound down. The 2010 Dodd-Frank
financial reform law features a provision known as the Volcker
Rule that limits banks from betting their own capital in the
market. Pandit also said Citi's expense previously disclosed
expense reduction program generated $1.4 billion in savings so
far this year, nearly 4% of the bank's $37.72 billion of
operating expenses in the first three quarters.
MBA - mortgage applications increase
Mortgage applications increased 12.8% from one week earlier
(which included the Thanksgiving holiday), according to data from
the Mortgage Bankers Association’s (MBA) Weekly Mortgage
Applications Survey for the week ending December 2, 2011. The
Market Composite Index increased 12.8% on a seasonally adjusted
basis from one week earlier. On an unadjusted basis, the Index
increased 60.2% compared with the previous week. The Refinance
Index increased 15.3% from the previous week. The seasonally
adjusted Purchase Index increased 8.3% from one week earlier to
its highest level since August 5, 2011. The unadjusted Purchase
Index increased 47.2% compared with the previous week and was
0.8% lower than the same week one year ago. “Coming out of the
Thanksgiving holiday, applications increased significantly as
mortgage rates dropped to their lowest levels in about two
months,” said Michael Fratantoni, MBA's Vice President of
Research and Economics. “In particular, refinance applications
increased sharply, with some lenders seeing refinance volume
double. Despite this surge, aggregate refinance activity is still
below levels reported two weeks ago. Some lenders indicated they
are beginning to see an increase in HARP loans, but that increase
is still a small portion of the move this week."
The four week moving average for the seasonally adjusted Market
Index is down 3.20%. The four week moving average is up 3.33% for
the seasonally adjusted Purchase Index, while this average is
down 5.13% for the Refinance Index. The refinance share of
mortgage activity increased to 76.0% of total applications from
73.9% the previous week. The adjustable-rate mortgage (ARM) share
of activity decreased to 5.7% from 5.8% of total applications
from the previous week. In November 2011, among refinance
borrowers, 52.9% of applications were for fixed-rate 30-year
loans, 26.2% for 15-year fixed loans, and 5.8% for ARMs. The
share of refinance applications for “other” fixed-rate
mortgages with amortization schedules other than 15 and 30-year
terms was 15.1% of all refinance applications. The shares for
30-year fixed and the “other” fixed category increased from
the previous month, while the 15-year fixed and ARM shares
decreased from last month. For applications for home purchase,
85.5% were for fixed-rate 30-year loans, 6.8% for 15-year fixed
loans, and 5.9% for ARMs. This is the second lowest ARM share for
purchases since January 2011.
Stock market in for a beating?
Robert Prechter, founder and president of Elliott Wave
International, says there's a big storm coming our way. Prechter
compares the current phase of the market to the late stages of
the 1929 - 1933 period in US history; a time marked by extreme
volatility eventually ending in tears. "One of the things that
happened in 1929 was that a consortium of the biggest banks in
the country tried to stop the market from going down," notes
Prechter. Those banks failed of course, just as Prechter says
they did when the Central Banks tried to prevent the coming
financial meltdown in 2008 by offering essentially free credit.
The timing is only different, he says, because "banks these days
are much bigger than they were in 1929." In the 20's institutions
were reliant on client money to lead their bailout attempts.
Today Central Banks have the ability to call on future, often
overstated, tax revenues and are unencumbered by anything such as
a gold standard when attempting to ward off the human desire to
hide under the covers, financially speaking.
Prechter also draws parallels to April of 1930, 1937, and other
periods in which relatively brief recoveries dissolved. Pick a
tool, any tool, and Prechter says it suggests a stock market
going lower. "Patterns, sentiment indicators, or momentum are all
saying the same thing: This is a bear market rally." According
to Prechter, not all the Central Banks in the world trump
international trends towards a cautious, negative mood already
impacting all things financial. This trend, the inverse of those
giddy days of the 1990's when all things seemed possible (even
Internet stocks and the Euro!), causes predictable behaviors in
the masses. They tend to sell stocks, stop spending, and start
revolting against current leadership; all of which should sound
familiar to those who read the newspaper. It's an environment
confounding to bulls and bears alike. At the beginning of 2011,
Prechter notes, the bulls were betting on a sharp recovery in
stocks and "got hurt quite a bit." Commodities were a bad bet,
hurting "hyper-inflationist" bears. Let's remember that real
estate isn't in the stock market.
Olick - two housing markets?
"As we head toward the end of the year, for some reason the
drumbeat to claim that housing has bottomed is growing louder.
There were a few positive indicators in September, rising housing
starts and rising home sales, that gave some analysts fodder for
optimism, but the readings on prices are far less rosy, and alas
far more complicated. Two reports out today show home prices are
falling again after seeing some gains in the Spring and Summer.
Lender Processing Services says they're down 3.7% annually in
September, erasing the gains of the Spring, and they say all of
the 13,500 zip codes it tracks are in the negative. Meanwhile
CoreLogic says prices fell 3.9% in October, but when you take out
foreclosures and short sales (the latter when the home is sold
for less than the value of the mortgage), home prices are down
just 0.5% annually. The vaunted S&P/Case-Shiller home price index
was down 3.9% in September, and that's a three month running
average including distressed and non-distressed property sales.
So why are analysts now predicting a house price recovery?
Goldman Sachs put out a report late last week predicting that
S&P/Case-Shiller would drop 2.5% further and then bottom,
probably in the summer of 2012. This when the S&P/Case-Shiller
folks themselves predict a 3.5% drop and a bottom later in 2012.
The Goldman theory is based on some kind of 'equilibrium' price
model for each market. They also claim that homes no longer
appear 'expensive.' when you look at price/rent ratios, and that
historical models suggest that income and population, as always,
will drive improved demand. Then this week analysts at Barclays
Capital honed in on the difference in price drops between
distressed and non-distressed properties. They claim the
non-distressed market is stabilizing, so that must mean that a
foreclosure or short sale is, 'increasingly being seen as a poor
substitute for a non-distressed home,' according to analyst
Stephen Kim. He claims the disparity will in fact widen over
time.
So are we just supposed to ignore the distressed market? What
about the fact that in some cities more than half of the
properties selling are distressed? And what about the fact that
there are more distressed properties coming to market, as the
banks ramp up the long-stalled foreclosure process? And how about
appraisers using distressed properties as comps to non-distressed
properties? I realize many of you think I'm too bearish on
housing's recovery, but trust me, nobody's more sick of reporting
the same lousy numbers than I am. The problem is that while sales
are improving slightly, and consumer sentiment may be settling a
bit, the mess left to clean up from the past is still weighing
heavily on the future. The economy may be improving slightly,
buyers may be considering getting back in, but we are barely half
way through the overhang of distress, and any change in the
economy could set us back even further. I am in no way claiming
that housing is in for a quadruple dip nor that we are going to
see more big losses. Frankly I think we're going to be flat in
housing for a long time, which is not a very interesting story to
tell from a reporter's perspective. While there may be two types
of properties (distressed and non-distressed), there is just one
housing market, and you cannot negate one to inflate or deflate
the other."
Small business more optimistic, maybe
Optimism of small business owners remained flat in November at
53%, according to a new scorecard by SurePayroll, the leading
online payroll service for small businesses with less than 100
employees. That's fairly good news after optimism rebounded by
20% in October from an all-time low of 33% in September. The
report, which measures the current health of small business in
America, also showed hiring was down from October, but wages on
the other hand did tick up slightly. Still both remain down 3%
and 0.5% year-to-date, respectively. Small businesses make up
99.7% of all employer firms and employ more than half of private
sector workers in this country, according to the US Small
Business Administration, which describes a small business as
having fewer than 500 employees.
While 53% of small business owners are optimistic about the state
of the economy and the health of their business, one must not
forget roughly the same amount of are just as pessimistic. Alter
says most of SurePayroll customers describe themselves as
"cautiously optimistic" and that sentiment rests heavily upon
what happens in Washington. Next year one of the biggest factors
to impact the decisions made by small businesses is the Supreme
Court's ruling over the constitutionality of Obama's health care
law, according to SurePayroll's November scorecard. By a ratio of
2 to 1, the small business owners surveyed are hopeful the
Supreme Court finds the health care legislation unconstitutional.
If that were to happen, hiring and wages would likely see a
boost, says Alter. Another big factor to impact small businesses
is whether Congress will act to extend the employee payroll tax
credit and if so, who will have to foot the bill. Passing an
extension would provide many Americans with an extra $1000
dollars in discretionary spending, which would be good for
business, says Alter. But, if it is businesses who have to cover
the expense of that credit, that would certainly hurt hiring and
wages.
WSJ - delinquent CMB loans declines
The share of delinquent commercial mortgages that were bundled
together and sold as securities declined modestly during the
third quarter for the first time since the property downturn
began four years ago, according to a survey released yesterday by
the Mortgage Bankers Association. The share of loans at least 30
days past due fell to 8.92% from 9.02% in the second quarter for
commercial and multifamily loans in mortgage-backed securities.
Those loans have had the worst performance among all commercial
mortgages originated during the boom, and the delinquency rate
was still above the 8.52% mark of one year ago.
Commercial mortgages held by US banks had a 90-day delinquency
rate of 3.75% at the end of the third quarter, down from 3.94% in
the second quarter. Delinquencies on bank-held commercial loans
have fallen or remained flat in each of the past four quarters.
Delinquencies posted small increases on multifamily mortgages
held by Fannie Mae and Freddie Mac, but the increases came from
very low absolute levels. Freddie Mac has a delinquency rate of
just 0.33%, or around one-tenth of the level of delinquencies of
commercial banks. That was up from 0.31% in the second quarter
but down from 0.36% in the first quarter. Nearly 0.57% of Fannie
Mae multifamily mortgages were delinquent at the end of
September. That was up from 0.46% at the end of the June, but
down from 0.71% at the end of 2010.
Foreclosures down in Colorado
According to a report re-leased Tuesday by the Colorado Division
of Housing, foreclosure auction sales in Colorado’s
metropolitan counties were up 7.9 percent in November compared to
November of last year. Foreclosure sales in Larimer County rose
47 percent in November compared to a year ago but filings dropped
37 percent. Overall, sales and filings dropped in Larimer County
in the first 11 months of the year compared to the same time
frame in 2010. However, comparing the first 11 months of this
year to the same period last year, foreclosure filings were down
28.6 percent through November while foreclosure auction sales
were down 20.7 percent. New foreclosure filings fell year over
year during November with total filings dropping 21.7 percent
from 2,932 filings in November 2010 to 2,296 filings in November
of this year. Foreclosure auction sales increased during the same
period from 1,195 to 1,290. From October 2011 to November 2011,
foreclosure filings fell 2.3 percent, and foreclosure sales at
auction rose 37.5 percent.
Foreclosure auction sales through November fell year over year
from 2010’s 11n-month total of 18,728 to 14,854 during the same
period this year. Foreclosure filings were also down through
November, falling to 23,556 filings year-to-date this year from
last year’s 11-month total of 32,982. Year-to-date through
November, the counties with the largest decreases in foreclosure
filings, year-over-year, were Mesa County and Denver County,
where filings decreased by 35.2 percent and 32.2 percent,
respectively. Pueblo County reported the smallest decline in
filings with a decrease of 12.5 percent from the first 11 months
of 2010 to the same period this year. All counties surveyed
reported year-over-year decreases in foreclosure filings. For
the first 11 months of this year, all counties also showed
decreases in foreclosure auction sales when compared to the same
period last year.
The counties with the largest decreases in foreclosure auction
sales, year-over-year, were Broomfield County and Adams County,
where auction sales decreased by 40.3 percent and 27.0 percent,
respectively. Pueblo County reported the smallest decline in
auction sales with a decrease of 9.1 percent from the first
eleven months of 2010 to the same period this year. The county
with the highest rate of foreclosure sales during November was
Adams County with a rate of 681 households per foreclosure sale.
Mesa County came in second with 792 households per foreclosure
sale. The lowest rate was found in Boulder County where there
were 3,402 households per foreclosure sale.
Mr. Geithner goes to Germany
U.S. Treasury Secretary Timothy Geithner arrived in Germany on
Tuesday for a three-day blitz of euro zone officials to urge them
to take decisive action to backstop their currency union and
resolve a crushing debt crisis. Geithner will press French
President Nicolas Sarkozy, the new leaders of Spain and Italy and
Germany's finance minister to agree at a crucial European Union
summit on Friday to take steps that will give markets confidence
that no euro zone countries will default, and that the region's
banks will stay solvent. Geithner has made several trips to
Europe in recent months as U.S. concerns over the crisis grow
and, judging by comments from both him and President Barack
Obama, the Treasury Secretary may add to a growing chorus calling
for the European Central Bank to take more decisive action to
resolve the crisis.
The need for action was underscored by Standard & Poor's warning
on Monday that 15 of the 17 euro zone countries now face an
unprecedented mass downgrade if they fail to reach a satisfactory
agreement at the Brussels summit—all the way up to AAA-rated
Germany and France. The Federal Reserve joined with the European
Central Bank and others in action to ease dollar funding strains
a week ago and Obama and Geithner have both pointed to the option
of the ECB backstopping European governments and the banking
system. That idea is viewed by many economists as the key to any
comprehensive solution to the crisis, but resisted by Germany.
Olick - why are cancellations even higher?
"For the past several months, Realtors across the nation have
been reporting an ever-increasing number of cancelled existing
home sale contracts. The latest Realtors Confidence Index now
puts the cancellation rate at 20 percent, way up from the
historical norm of around four to six percent. 'On-time
settlements were reported as declining from 65 percent to 47
percent,' according to the Realtors. It's not why you think, or
at least not why I thought. Inability to get a mortgage was
reported by just 9 percent of respondents to the Realtor survey.
Bigger issues were failed inspections, buyers with cold feet and
adverse economic conditions. I'm sure appraisals figured in there
as well. It begs the question then, if these are just delays or
true cancellations?
Anecdotally, I was doing a report on a residential street in
Northwest DC last week, an area that is still holding its own and
didn't lose much in the housing crash. I was standing in front of
a 'For Sale' sign, when the Realtor from the sign came out of the
house. She wanted to know what we were saying about the
neighborhood, concerned of course that there were any signs of
cracking. I assured her there were not, but asked about the house
she was selling. The Realtor told me it was actually under
contract, after about 35 days on the market. I asked why there
was no 'under contract' sign, which used to be so commonplace
before the 'sold' sign goes up. She said they hadn't had the
inspection yet, although the house looked, at least from the
outside, to be in very good condition. When I asked if she
worried about that, her answer was, 'You never know these days.'
Apparently the jitters are widespread, even in one of the
nation's most secure housing markets.
With so much of the current housing market comprised of
distressed property sales, and with the Realtors unable to
capture so much of that share in their data, uncertainty is
certainly understandable if not mandated. I read a report today
citing Barclay's analyst Stephen Kim of Barclays Capital, who is
upgrading builders and raising price targets on the premise that
we will see a housing 'rebound' in 2012. 'In the absence of a
government homebuyer incentive, prices for non-distressed home
sales have stabilized for almost a year. In our opinion, this is
the most important trend in the housing industry right now,'
notes Kim. 'We are amazed at how little attention it has been
getting from the media and the Street. This stability on the part
of non-distressed prices has occurred despite a very high share
of distressed activity and continued declines in overall prices.'
I'm not sure where he's getting that stabilization. CoreLogic
reported home prices in September, excluding distressed sales,
fell 1.1 percent in September. Their chief economist Mark Fleming
cites a supply and demand imbalance and adds, 'Distressed sales
remain a significant share of homes that do sell and are driving
home prices overall.' We obviously have to be very careful
reading today's housing market tea leaves. There are so many
different indicators and so many different entities reporting
these indicators, that it's often hard to find out what's really
going on. That's why I always go back to the Realtors on the
front lines. They are telling us that this market, distressed or
not, is skittish and undependable. A 20 percent cancellation rate
for existing sales is shocking and does not suggest a rebound on
the horizon. At best, I'm looking for simple stabilization."
Euro down against dollar
The euro edged lower on Tuesday, as traders reacted to news that
Standard & Poor’s (S&P) put 15 euro-zone countries on a
negative “cre
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