Month: August 2010

Obama Plans Refinancing Aid, Loans for Jobless Homeowners, HUD Chief Says

Bloomberg 

By Holly Rosenkrantz – Aug 30, 2010

The Obama administration plans to set up an emergency loan program for the unemployed and a government mortgage refinancing effort in the next few weeks to help homeowners after home sales dropped in July, Housing and Urban Development Secretary Shaun Donovan said.

“The July numbers were worse than we expected, worse than the general market expected, and we are concerned,” Donovan said on CNN’s “State of the Union” program yesterday. “That’s why we are taking additional steps to move forward.”

The administration will begin a Federal Housing Authority refinancing effort to help borrowers who are struggling to pay their mortgages, and will start an emergency homeowners’ loan program for unemployed borrowers so they can stay in their homes, Donovan said.

“We’re going to continue to make sure folks have access to home ownership,” he said.

Sales of U.S. new homes unexpectedly dropped in July to the lowest level on record, signaling that even with cheaper prices and reduced borrowing costs the housing market is retreating. Purchases fell 12 percent from June to an annual pace of 276,000, the weakest since the data began in 1963.

Sales of existing houses plunged by a record 27 percent in July as the effects of a government tax credit waned, showing a lack of jobs threatens to undermine the U.S. economic recovery.

House Sales Plummet

Purchases plummeted to a 3.83 million annual pace, the lowest in a decade of record keeping and worse than the most pessimistic forecast of economists surveyed by Bloomberg News, figures from the National Association of Realtors showed last week. Demand for single-family houses dropped to a 15-year low and the number of homes on the market swelled.

U.S. home prices fell 1.6 percent in the second quarter from a year earlier as record foreclosures added to the inventory of properties for sale. The annual drop followed a 3.2 percent decline in the first quarter, the Federal Housing Finance Agency said last week in a report.

Donovan said on CNN yesterday that it is too soon to say whether the administration’s $8,000 first-time homebuyer credit tax credit, which expired April 30, will be revived.

“All I can tell you is that we are watching very carefully,” Donovan said. “We’re going to be focused like a laser on where the housing market is moving going forward, and we are going to go everywhere we can to make sure this market stabilizes and recovers.”

Reviving the tax credit would “help enormously” in the effort to fight foreclosures and revive the economy, Florida Governor Charlie Crist said on the same CNN program. Florida has the third-highest home foreclosure rate in the country, with one in every 171 housing units receiving a foreclosure filing this year.

O.C. economy slowing, but no double dip

O.C.Register

August 26th, 2010 by Mary Ann Milbourn

 After a spurt earlier in the year, Orange County’s economic recovery is slowing but it is unlikely to fall into a double dip recession, Wells Fargo Bank’s senior economist said today.

Scott A. Anderson told a Wells Fargo breakfast group in Irvine that he expects local employment to decline 0.2% this year — not good but better than the -7.4% in 2009.

Next year, however, he predicts hiring in Orange County will grow at a 1.6% pace, outperforming the state, which will see 1.1% job growth.

“The big drag in Orange County going forward is the state and local budget problems — you’re seeing some pretty big job losses,” he said.

Nationwide, Anderson said the recovery has slowed considerably. He expects second quarter gross domestic product growth to be revised downward on Friday to 1.2% to 1.5% from the previous 2.4%.

That’s a major pullback from the first quarter when the Bureau of Economic Analysis said GDP grew at 3.7% pace.

“We’re in a quicksand recovery,” said Anderson, noting the economy can’t seem to gain traction in jobs or other economic growth.  “We keep getting pulled into this morass.”

He said the one thing he is watching now is whether people are simply pausing in the recovery or whether they are starting to revise their business plans. He placed the odds of a double dip recession at the national level at 25%.

The major problem is that the economy remains weighed down by the housing bubble, Anderson said. With foreclosures this year likely to approach 2009’s high levels, he expects home prices to drop another 6% over the next 12 months.

“Orange County won’t be able to avoid lower home prices,” he said, with a 6% drop likely here, too.

That means Orange County would give back most or all of the price gains homeowners have seen this year. Recent real estate surveys say local home prices were up 3% to 6% in July over July 2009.

Anderson noted that in the first half of the year, Orange County’s economy was showing some strength, with a net gain of 29,000 jobs through June. July’s loss of 10,300 jobs may have been an anomaly due to the layoff of temporary census workers, he said.

“Even with the monthly job loss in July, Orange County’s employment performance year-on-year improved to a positive 0.5%, while U.S. employment was unchanged from a year ago,” Anderson said.

Orange County has benefited from growth in leisure and hospitality jobs as Americans vacation closer to home.

“That’s a big driver for the economy in this community,” Anderson said.

Still the county has a deep hole to dig out of. He noted employment here dropped 10% from peak to trough during the recession, twice the national rate. Local employment in financial services and manufacturing both fell 25% and jobs in construction dropped 40%.

Red-Ink Fears Prompt Mortgage Backer to Raise Fees

The Wall Street Journal

Red-Ink Fears Prompt Mortgage Backer to Raise Fees

 By NICK TIMIRAOS Aug 24th 2010

 The country’s most popular federal mortgage-insurance program is set to raise fees to borrowers in a bid to avoid burning through its dwindling reserves as home prices come under renewed pressure.

The move reflects new threats facing the Federal Housing Administration, a New Deal-era agency that has taken a central role in the housing market since mortgage markets seized up three years ago. The FHA, which doesn’t make loans but rather insures lenders against losses, guaranteed $857 billion in loans at the end of June, up 24% from a year ago.

The FHA offers among the easiest lending terms available, with minimum down payments of 3.5%, and it has backed nearly half of all home-purchase loans during the first half of the year, according to research firm Zelman & Associates. Many housing analysts attribute stronger-than-expected annual price growth in many California housing markets over the last 18 months to the FHA, which backs loans as large as $729,750, more than double the limit three years ago.

But playing savior to the housing market has come at a big cost. The agency’s reserves are falling sharply as many of those loans have defaulted at a rapid clip. While fees from new business have, for now, boosted the agency’s cash on hand, the FHA has set aside nearly 90% of that money to pay for projected expenses over 30 years. That has left just $3.5 billion to cover unanticipated losses, down from $10 billion one year ago.

“We still hold out a lot of concern about the portfolio,” said David Stevens, the agency’s commissioner, in an interview.

The biggest risk facing the agency would be a new round of home-price declines amid an economy showing signs of slowing. That would almost certainly lead to higher losses. Most borrowers make minimal down payments, so are particularly at risk of losing their homes if prices drop and they fall behind on their mortgages.

This fall, an annual audit will forecast the amount of money needed by the FHA to cover 30 years of projected losses. If home-price forecasts used in projecting those losses are particularly bearish, the report could show the agency will become insolvent, which would require the Treasury to cover any shortfall.

So far, the agency is ahead of last year’s forecasts and has paid out $3.7 billion less than anticipated to lenders when borrowers default, in part owing to aggressive efforts to modify loans and to processing delays on foreclosures.

Beginning in October, the FHA will raise the annual fees it charges new borrowers, adding about $300 million a month to its reserves.

The agency will raise annual insurance premiums to as high as 0.9% of the loan amount, up from 0.55%. For new borrowers, that would translate into an average monthly payment increase of $40. At the same time, it will drop the upfront premium that borrowers pay when they take out a mortgage to 1%, from 2.25%.

While many loans made as the housing bust accelerated have performed badly, newer loans are doing better. In June, the share of loans nationwide that were 90 days or more past due stood at 8.3%, down from a peak of 9.4% in January. The agency hopes such improvements, along with increased fees, will be enough to keep it from running into the red.

“The numbers are still higher than they should be in a normalized marketplace, and they clearly are higher than they should be on a going-forward basis,” Mr. Stevens said.

The moves are also designed to align the agency’s fee structure more closely with those of private mortgage insurers, in an effort to help those companies back into the market as it recovers. Private insurers have largely ceded the market to the FHA in recent years, unable to compete with its relatively liberal terms.

In addition, the agency is finalizing steps to limit the amount of cash that home-sellers can kick in for buyers’ closing costs. The change will reduce maximum seller contributions to 3% of the purchase price, down from 6%, bringing the FHA into line with the rest of the market. That could reduce sales by as much as 15% among builders of entry-level homes, which rely heavily on FHA backing, said John Burns, a housing consultant in Irvine, Calif.

Separately, the agency has stepped up efforts to weed out lenders whose activities are seen as resulting in above-average delinquencies. The FHA has already taken more than 1,500 sanctions against its lender-partners this year. In a letter to the industry last month, Mr. Stevens warned against “activities that reflect an overexuberance in the marketplace” and that seek to increase loan revenue by exploiting the agency’s underwriting systems.

The letter was prompted by signs that some lenders are focusing their marketing efforts on riskier borrowers or that they are offering premiums for certain FHA-backed loans, which could be red flags for predatory lending or fraud. Mr. Stevens said the mortgage industry needed to be “on notice that this is a program we need to protect,” particularly because the agency’s reserves are “precariously on marginal ground.”

While Congress this month signed off on the new fee structure, a larger overhaul package that would give the agency greater flexibility to eject lenders hasn’t passed the Senate.

Plunging home sales could sink recovery

CNNMoney.com

 Plunging home sales could sink recovery

 By Hibah Yousuf  August 24, 2010

NEW YORK (CNNMoney.com) — With home sales plunging to their lowest level in 15 years, economists warn that a double-dip in housing prices is just around the corner, threatening to further slow the overall recovery.

Existing home sales sank 27.2% in July, twice as much as analysts expected, to a seasonally adjusted annual rate of 3.83 million units. Much of that drop is attributed to the end of the $8,000 homebuyer tax credit.

That credit brought buyers out in droves, as they tried to sign home contracts before the April 30 deadline. Now, two months later, sales are 34% below April’s tax incentive-induced peak.

“Home sales were eye-wateringly weak in July,” said economist Paul Dales of Capital Economics. “It is becoming abundantly clear that the housing market is undermining the already faltering wider economic recovery. With an increasingly inevitable double-dip in housing prices yet to come, things could get a lot worse.”

The sales pace of all homes — single-family homes, townhomes, condominiums and co-ops — is at the lowest since NAR began tracking the figure in 1999. Sales of single-family homes, which account for a bulk of the transactions, are at the lowest level since May 1995.

Inventory has also continued to climb, rising 2.5% to 3.98 million existing homes for sale. That represents a 12.5-month supply at the current sales pace, the highest since October 1982 when it stood at 13.8 months. A six-month of supply is considered normal.

The combination of weak demand and glut of homes has put downward pressure on prices.

And as the recession proved, the housing market and the broader economy are closely intertwined. When housing prices collapse, so does the overall wealth and confidence of Americans.

“Falling housing prices strain the overall confidence in the economy and discourage Americans from spending,” Dales said. “They also mean that banks lose money on their investments and curtail lending, meaning there is less money out there to invest and boost the economy.

The NAR report showed that the median price of homes sold in July was $182,600, up 0.7% from a year ago. Just under a third of homes sold during the month were distressed properties.

Though prices have yet to fall back, Dales expects they will decline about 5% from current levels over the next six months.

On the bright side, Dales said while a drop prices will put a dent in the economy recovery, it won’t lead to another recession.

“The bulk of the downward adjustment in housing prices has been achieved over the last several years, so we’re not headed for a complete disaster,” said Dales. “We’re going to see a double-dip in housing prices, but not a double-dip in the overall economy.”

Sales by property and region: Sales of single-family homes sank 27.1% in July compared to the prior month, while condominium and co-op sales tanked 28.1%.

The Midwest fared the worst last month, with sales dropping 35% to an annual pace of 800,000 units in July. that’s 33.3% lower than a year earlier.

Resales in the Northwest dropped 29.5% from the previous month to an annual pace of 620,000 units.

They fell by 25% in the West and 22.6% in the South.

Federal foreclosure prevention program is struggling

Under the main Obama administration program to ease foreclosures, fewer than 37,000 homeowners received permanently lowered mortgage payments in July. Modification cancellations are up.

By Jim Puzzanghera, Los Angeles Times August 21, 2010

Reporting from Washington

Just as the housing market recovery has stalled, so has the Obama administration’s main program to ease home foreclosures.

Only 36,695 homeowners received permanently lowered mortgage payments in July through the much-criticized Home Affordable Modification Program, the smallest increase since December, administration officials said Friday.

And the number of people dropping out of the program continued to soar. Overall, nearly half the homeowners who entered the program since it launched in March of last year have dropped out.

Many had hoped the $75-billion program would be a silver bullet to the foreclosure problem, but it’s turned out to be a dud, said independent banking analyst Bert Ely. That’s not surprising, he said, given the depth of the housing market crash and recession, combined with a slow recovery.

“Even with a substantial reduction in mortgage payment and even some reduction in principal, you still have people who are over their head financially because of their reduced financial circumstances,” Ely said. “Isn’t it time to just rethink this whole business of modification … and let the market clear through foreclosures and short sales?”

The Los Angeles-Orange County area continued to have the most active trial and permanent modifications under the program, with 44,617 total modifications in July, or 6.6% of the national total. But that was down from 48,846 total modifications in June.

The Inland Empire was third nationwide, with 35,169 total modifications in July, or 5.2% of the total.

So far, 434,716 homeowners nationwide have received permanent modifications since the program began last year. The pace had picked up significantly starting in December after administration officials began pressuring mortgage servicers to convert more three-month trials under the program into permanent modifications.

The number of permanent modifications nearly tripled from January to May. Even in June, the administration reported that more than 50,000 new permanently modified mortgages were added.

July’s slowdown in the program’s growth comes amid a struggling real estate market.

During the second quarter of the year, there were a record 269,952 home foreclosures, up 38% from the same period a year earlier, according to Irvine research firm RealtyTrac. Last month, Southern California home sales plunged 21.4% compared with a year earlier, according to research firm MDA DataQuick of San Diego.

“While there has been some stabilization in the housing market, it remains clear that we have more work ahead,” said Raphael Bostic, an assistant secretary at the Department of Housing and Urban Development.

The Obama administration program provides cash incentives to servicers to modify mortgages. Homeowners who qualify first get a three-month trial modification with lower payments. If they make those payments, the modification can be made permanent. Only at that point does the servicer get the incentive payment.

The administration’s stated goal was to modify 3 million to 4 million mortgages through 2012.

The pace of new, temporary mortgage modifications under the program slowed in July, increasing just 1.3% to 1.3 million. Overall, about 47% of trial modifications started since the program began have been canceled. In addition, 12,912 permanent modifications have been canceled, mostly because the homeowner missed at least three straight payments.

Increasing numbers of cancellations were the latest problem for the administration’s modification program, which has been plagued by complaints from homeowners of bureaucratic runarounds by servicers, including lost paperwork and unreturned phone calls.

Herbert M. Allison Jr., the Treasury Department’s assistant secretary for financial stability, said the administration expected cancellations to continue as mortgage servicers work through earlier modifications that were made without documentation. Those stated-income modifications were needed last year because so many people were in need of quick foreclosure assistance, he said.

Many of the homeowners who got those early modifications under the program were removed because it turned out they “did not meet the qualifications for various reasons, such as income levels or the fact that they were not in the home itself,” Allison said.

But many of those who were canceled out of the program have been helped by modifications made outside of the Obama administration program.

For the eight largest mortgage servicers, including Bank of America, CitiMortgage and Wells Fargo Bank, 45% of homeowners whose trial modifications were cancelled received an alternative modification. Wells Fargo reported Friday that 87% of the 520,399 active modifications it had done from Jan. 1 to July 31 were through its own programs.

Administration officials said the housing market had stabilized significantly since Obama took office in January 2009, and stressed that homeowners with permanent modifications had a median payment reduction of 36%, or more than $500 a month.

But Bostic said administration officials are not “in happy land” and that the market was not yet “out of the woods.”

Ely said one flaw with the administration’s modification program is that it does not adequately take into account all the other debts faced by homeowners.

“There’s been this hype that you could wave a magic wand, change a few things [with the mortgage payment] and everything would be hunky-dory,” Ely said. “It’s not playing out this way.”

Federal Reserve bans lenders from paying bonuses to brokers for higher-interest-rate loans

The change is among several announced by the Fed, which has been criticized for failing to rein in high-risk lending during the housing boom.

By E. Scott Reckard, Los Angeles Times August 17, 2010

The Federal Reserve on Monday approved a rule banning lenders from paying bonuses to mortgage brokers and loan officers who get borrowers to agree to a higher interest rate than they need to pay.

The Fed also proposed requiring clearer disclosures about how payments on adjustable-rate loans can change over time.

The changes were among several announced Monday by the Fed, which has been criticized for doing little to rein in high-risk lending during the housing boom.

One of the proposed rules is designed to give consumers more time to review lenders’ disclosures on the costs of their home loans. Lenders would be required to refund any loan fees collected if the prospective borrower withdraws the mortgage application within three days of receiving the disclosures. That proposal is open for public comment.

The change in required disclosures for adjustable-rate loans is set to take effect at the end of January as an interim rule. Lenders must show the maximum interest rate and monthly payment that can occur during the first five years, a “worst case” example showing the maximum rate and payment possible over the life of the loan. The disclosures must also include a statement that consumers might not be able to avoid rate and payment increases by refinancing their loans.

The ban on lenders’ paying bonuses to brokers and loan officers for higher-interest loans takes effect in April. The Fed said that its consumer tests found that borrowers generally were unaware of the payments and how they could affect the total cost of a loan.

Critics have called the bonuses little more than kickbacks that encouraged mortgage brokers and lender salespeople to steer borrowers into costlier loans.

Brokers have argued that they can use the payments, also known as rebates or yield spread premiums, to cover borrowers’ closing costs, so a homeowner wanting to refinance a mortgage with no upfront costs might accept a higher interest rate to accomplish that.

In making the rule final, the Fed said a loan originator “may not receive compensation that is based on the interest rate or other loan terms. This will prevent loan originators from increasing their own compensation by raising the consumers’ loan costs.”

Loan originators would still be able to receive compensation calculated as a percentage of the loan amount.

Another rule finalized Monday would require borrowers to be notified when their mortgage has been sold or transferred.

The Fed also proposed a rule to make it easier for consumers to learn who owns their loans. Under the provision, once a mortgage servicer is asked by a borrower for that information, the loan servicer would have to provide it within a reasonable time, which generally would be 10 business days.

Home sales slump in July

Southern California sees a 21.4% drop in home sales from 2009 but tax credits skew the figures.

By Roger Vincent, Los Angeles Times August 18, 2010

Southland home sales fell dramatically in July as federal tax credits for buyers expired, yet the median home price declined only slightly from June.

Observers say buyers’ rush to take advantage of the tax benefits pushed forward sales that would otherwise have taken place later in the summer, creating a statistical drop that didn’t signify sudden underlying market weakness. When averaged, home sales have been fairly flat in recent months, said Gerd-Ulf Krueger, principal economist at HousingEcon.com.

“The lack of progress on the economic front is just having a very problematic impact on the psychological situation of a lot of American consumers,” Krueger said. “They are very cranky.”

The median price for all new and resale single-family homes, condominiums and town homes in July in Southern California was $295,000, according to MDA DataQuick of San Diego. Although that was a 1.6% drop from June, it represented a 10% increase from a year earlier, the real estate research firm said Tuesday.

Year-over-year price increases have occurred throughout 2010, with the exception of a 1% dip in April. But such advances will be harder to come by in future months, DataQuick analyst Andrew LePage said. Median prices — the point at which half the homes sold for more and half for less — were depressed early last year by a glut of distressed sales in cheaper inland markets, then moved up in later months as sales activity spread to wealthier neighborhoods.

“The high end came alive in the middle of last year,” LePage said. “Sellers got real and buyers started buying.”

A total of 18,946 homes were sold in the six-county region, a 20.6% drop from the previous month and a decline of 21.4% from July 2009, DataQuick said.

“It was to be expected,” LePage said, because many sales closed in May and June after buyers rushed to take advantage of a federal tax credit of up to $8,000.

About 34% of resales of existing homes involved foreclosed properties, compared with 33% in June and 43.4% in July 2009 in Los Angeles, Orange, Riverside, San Bernardino, San Diego and Ventura counties. Foreclosure sales have been flat for the last few months, LePage said.

Home prices will also be mostly flat in the months to come, perhaps with a slight upward trend, Krueger predicted.

“That won’t change until we hit the wall in terms of supply,” he said.

Krueger found some encouragement in the number of homes being snapped up by investors. Almost 22% of July home sales were to absentee owners who intend to resell or rent them to tenants.

“There is pent-up demand for speculative product,” he said, and even a shortage of foreclosure-related bargain properties on the market as far as investors are concerned.

Recent first-time buyer Steven Kaplan said he and his wife were not impressed with the distressed properties they saw on the market around Melrose and La Brea avenues in Los Angeles. Many were “short sales” priced for less than the banks were owed.

“What we were seeing for $600,000 were totally trashed houses,” the 33-year-old sound engineer said.

The couple ended up buying a smaller house for less than $600,000 last month that didn’t need a lot of work. He and his wife, Lola Stewart, had been thinking about buying a house for about five years. They decided to plunge ahead when they saw both home prices and apartment rents tick up a bit earlier this year.

“We were looking to get a better place,” he said, “and low interest rates made us able to actually afford something.”

The lure of loans at rock-bottom interest rates, though, still isn’t strong enough to overcome weak consumer confidence, said broker Syd Leibovitch, president of Rodeo Realty Inc. in Los Angeles.

“Interest rates are at 1950s levels,” he said. “I am surprised that hasn’t spurred more activity.”

Inventory on the market is almost double what it was in February, Leibovitch estimated. “Agents are no longer complaining they have nothing to show. There are lots of choices now.”

Agent Lynette Williams, who specializes in northeast Los Angeles and Pasadena, said she was also seeing more houses on the market, and some of them in select neighborhoods sell rapidly. Still, she is apprehensive about how the market will perform without federal tax credits. State subsidies are also phasing out.

Interest rates may be low, but getting financing is no picnic, she added. “Banks are scrutinizing everything.”