Month: December 2010

Home sales rise 5.6% in November

CNN Money 
By Blake Ellis, December 22, 2010 

NEW YORK ( — Existing home sales picked up steam in November, though they are still down nearly 30% from this time last year.

Sales of previously-owned homes jumped 5.6% in November to an annual rate of 4.68 million, the National Association of Realtors reported Wednesday. The rate was down 27.9% from 12 months earlier, when a homebuyer tax credit helped lift sales to a two-year high of 6.49 million.

Despite low home prices and mortgage rates, the housing market has continued to struggle through the recovery. Existing home sales slowed in October, following two straight months of gains. But those gains came after home sales sank 27% in July, hitting the lowest levels in 15 years.

“This report doesn’t necessarily mean the housing market is getting better,” said economist John Canally of LPL Financial. “We’ve taken a couple steps forward, one step back, and this is a step forward, but next month might be another step back — these things tend to go in fits and starts.”

But Lawrence Yun, NAR’s chief economist, is hopeful that homebuyers will take advantage of improving affordability.

“The relationship recently between mortgage interest rates, home prices and family income has been the most favorable on record for buying a home since we started measuring in 1970,” he said. “Therefore, the market is recovering and we should trend up to a healthy, sustainable level in 2011.”

The inventory of homes on the market dropped 4% in November to 3.71 million units. Canally said inventories are well below their peak, but a level around 2.2 million units is considered healthy.

The median price of all existing homes sold during November was $170,600, up a modest 0.4% from a year ago. About two-thirds of homes sold during the month were in foreclosure, NAR said.

“The fact home prices went up is a good sign and shows that the housing market is continuing a slow recovery,” said Canally. “But home prices are still bouncing along the bottom.”

While Canally said the housing market has a long way to go on its road to recovery, he agreed with Yun that sales are likely to gradually improve in the coming year.

“Banks still aren’t willing to lend, but we’re working down that inventory, the job market is getting better and affordability is at an all-time high,” he said. “And now that we’re six months removed from the homebuyer tax credit there’s nothing pushing the market one way or another, so we’ll get a gradual recovery — no boom and no bust.” 

Mortgage Rates Jump. Will Home Prices Fall?

The Wall Street Journal
Dec 17, 2010
by Jack Hough

Borrowing money to buy a house just got more expensive. The average rate on a 30-year mortgage rose to 4.83%, Freddie Mac said Thursday. That’s an increase of about two-thirds of a percentage point in five weeks.

The rate increase means monthly payments on new mortgages will jump. Five weeks ago, a buyer with a 30-year loan would have committed to payments of $487 a month. Now it’s $526. That’s an 8% price difference – more than enough to give most shoppers pause.

Will costlier mortgages push already wobbly home prices lower? History offers some answers.

The recent rise in rates isn’t nearly the sharpest in Freddie Mac’s history. Over two years ended mid-1981, former Federal Reserve Chairman Paul Volcker raised the nation’s core interest rate, the Fed funds rate, from a target of about 11% to one of 20% in an effort to combat high inflation. As a result, 30-year mortgage rates marched from 11% in June 1979 to over 16% by April 1980. The recent 8% increase in monthly payments over five weeks has nothing on the record five-week jump: more than 21% over the period ended March 28, 1980. Monthly payments per $100,000 soared to $1,347 from $1,109.

The effect on house prices? They rose more than 15% from 1979 to 1981.

Mortgage Rates and Home Prices


Inflation, to be sure, offset all of the increase and more. Subtract it, and house prices declined 9% over those two years. The nominal price increase, however, suggests that a whopper of a rate increase failed to trigger a selloff.

In 1987, following only a moderate uptick in inflation, the Fed gradual raised the core interest rate from 6% to 6.75% in late April and early May. The 30-year mortgage rate took a wilder rise, spiking nearly one and a half percentage points to 10.47% over five weeks ended May 1. Monthly payments rose 13%, to about $913 per $100,000 borrowed.

House prices soared 9% that year. Inflation averaged just 3.6%.

Mortgage payments rose nearly 11% over five weeks ended Aug. 8, 2003, to $621.58 per $100,000 borrowed. The increase signaled a broad economic recovery; growth in gross domestic product accelerated from 1.8% in 2002 to 3.6% in 2004. Immediately following the 2003 mortgage rate rise, prices shot 42% higher after inflation over three years.

It’s unlikely that the recent mortgage rate increase foretells a rally of anywhere near that magnitude, but homeowners shouldn’t assume that higher rates worsen the outlook for house prices. Current mortgage rates, after all, are still extraordinarily low. The 4.17% rate recorded five weeks ago is the lowest since at least 1970, when Freddie Mac was created. The average rate over the past four decades was close to 9%.

That’s not to say that house prices won’t dip for other reasons. Even before the recent rate increase, the Case-Shiller index of house prices fell 2% in the third quarter following a 4.7% rise in the second quarter.

Jobs, incomes and economic growth will likely decide what happens next, not a change in the 30-year mortgage rate.


Some condo owners may lose FHA financing

Their ability to sell or refinance their units could be hampered if their condo projects missed a key deadline for recertification.

LA Times,

By Kenneth R. Harney December 12, 2010

Reporting from Washington

Tens of thousands of condominium unit owners around the country may not know it, but their ability to sell or refinance could be jeopardized by a rolling series of federal government deadlines.

On Wednesday, an estimated 2,200 condominium projects missed an eligibility deadline involving sales or refinancings using Federal Housing Administration-insured mortgages. The deadline was originally set by FHA for recertification or approval of these projects, but at the last minute the agency agreed to extend eligibility for most of them — 23,000 projects — into next year, with a series of rolling expiration dates. A group of 2,200 condo projects around the country received extensions only until the end of this month.

What this means, say lenders and condo experts, is that unsuspecting unit owners nationwide could suddenly be cut off from an increasingly important source of mortgage money. In some markets where FHA accounts for 75% or more of first-time home purchases, condo sellers could be severely handicapped. In parts of the country with heavy concentrations of condos, such as California, Florida, New England, Washington, D.C., and the urban Midwest, the effects could even depress sales prices.

“This is a travesty” unfolding, said Jon Eberhardt, president of Condo Approvals LLC, a national consulting firm based in Torrance. “You’ve got thousands of people out there with no idea” that FHA financing could evaporate for them in the near future.

“This is going to be a big problem,” said Steve Stamets, a loan officer with Union Mortgage Group in Rockville, Md., with numerous condo clients. “I expect you will have frantic sellers pushing management companies” to get their condo buildings approved.

The eligibility issue dates to November 2009, when the FHA published new rules on the types of condo projects acceptable for mortgages on unit sales and refinancings. The rules were the outgrowth of a review that found the FHA — essentially a government-owned insurance company — had approved thousands of projects over the previous two decades but possessed inadequate current information on their underlying homeowners associations’ budgets, legal documents, insurance coverage, renter-to-owner ratios, delinquencies on condo fee payments, the amount of commercial space and a variety of other characteristics that could affect a project’s financial stability.

The 2009 guidance spelled out toughened standards in these areas and set up timetables for taking fresh looks at projects before sanctioning additional unit financings. Condo projects that had been approved by the FHA before October 2008, the guidance said, would have to submit the information required for renewed approval by Dec. 7, 2010, or lose eligibility for FHA financing.

FHA officials issued bulletins and notices during the last year to lenders, condo management companies and consulting firms warning them about the approaching deadline. Ultimately, however, according to FHA officials, roughly 25,000 projects nationwide missed the cutoff. Officials said they had no estimate on the number of individual units affected, but clearly it’s a sizable multiple of 25,000. For example, Eberhardt said, the average condo project in California contains 85 units.

Rather than abruptly eliminate financing for such a large and important segment of the country’s housing market, FHA relented and announced the revised schedule of expirations.

Though the precise expiration schedules were not immediately available, FHA officials said they planned to notify condo associations, management companies and lenders on the specifics shortly.

What can owners do? Tops on the list, according to FHA officials, is to get in touch with the leaders of your homeowners association. Ask them to do what’s necessary to get the project through the approval hoops. Large mortgage lenders can also get the ball rolling if they want to finance a unit in the project.

Costs for a recertification or approval can run from just under $1,000 to more than $3,000. Time for approvals may be a much more significant factor, however. Eberhardt says his firm can assemble documents and create a package for the FHA in about five days, but the process can extend for an additional 45 days to more than 60 days if the FHA staff is overwhelmed with applications. That just might happen in the coming weeks as unit owners begin learning about their financing cutoff deadlines.

Meanwhile, your sale or refinancing could be put on hold.

22 mortgage providers accused of unfair lending practices

The government is investigating lenders that require credit scores higher than the FHA minimum. The National Community Reinvestment Coalition alleges the practice disproportionately harms blacks and Latinos.

By Alejandro Lazo, Los Angeles Times 12/10/2010

The federal government said it was investigating 22 mortgage providers after a national housing group accused them of engaging in unfair lending practices toward borrowers with poor credit scores.

The National Community Reinvestment Coalition said Wednesday that the lenders had implemented policies that require borrowers to have scores higher than the minimum established for certain loans insured by the Federal Housing Administration. The U.S. Department of Housing and Urban Development, which oversees the FHA, said it would investigate the allegations.

“FHA is an important vehicle for Americans who want to purchase or refinance a home,” said John Trasvina, an assistant secretary with the housing department. “For lenders to deny responsible home seekers this source of credit, without regard for their capacity to repay the loans, would raise serious fair-housing concerns and, if proven, undermine our nation’s recovery efforts.”

FHA-backed loans have become a major source of funding for home purchases since the private market for mortgages dried up during the housing bust and credit crunch. In Southern California, for instance, government-insured FHA loans accounted for 35.8% of all mortgages used to purchase homes in October, according to San Diego research firm MDA DataQuick.

“Critical to our nation’s economic progress is the ability of homeowners to get quality refinancing, and for home buyers to reclaim vacant houses by accessing quality mortgage credit, ” said John Taylor, chief executive of the coalition.

Lenders could be violating the Federal Fair Housing Act, according to the complaints, because their policies disproportionately penalize African Americans and Latinos.

John Courson, chief executive of the Mortgage Bankers Assn. in Washington, said lenders have the authority to use their own credit standards when deciding whether to originate an FHA-insured loan.

“Lenders make their credit decisions based on objective credit criteria designed to ensure a borrower will be able to make their monthly payment,” Courson said. If a loan from the FHA goes bad, Courson said, a lender can be on the hook for indemnification from the government, face the costs associated with putting the property back on the market and even be kicked out of the program.

California-based lenders included in the coalition’s complaint are Bank of the West, Paramount Residential Mortgage Group, Prospect Mortgage, Stearns Lending Inc. and Sierra Pacific Mortgage Co.

Fannie, Freddie Pressed on Mortgages

The Wall Street Journal
DECEMBER 8, 2010
Fannie Mae and Freddie Mac are in talks with Obama administration officials to join fledgling government programs aimed at reducing loan balances of mortgages where borrowers owe more than their homes are worth, according to people familiar with the situation.

An agreement with the two government-owned mortgage giants to write down so-called underwater loans could reduce the threat to the U.S. housing market from the glut of homeowners believed at risk of default should their personal finances or home prices worsen. A deal would deepen losses at Fannie Mae and Freddie Mac, which already have cost taxpayers about $134 billion.

Fannie Mae and Freddie Mac, which own or guarantee about half of all first-lien mortgages in the U.S., have been highly reluctant to reduce loan balances, especially for borrowers who are still making payments.

The Obama administration is pressuring Fannie Mae and Freddie Mac, through their primary regulator, the Federal Housing Finance Agency. The administration wants the firms to join a program run by the Federal Housing Administration that allows banks and other creditors, which agree to write down mortgages, to essentially hand off the reduced loans to the FHA.

Federal officials estimate that 500,000 to 1.5 million homeowners could benefit from the program—a fraction of the estimated 11 million borrowers who were underwater as of June 30, according to CoreLogic Inc. That figure represents about 23% of all U.S. households with a mortgage.

Industry executives say the FHA program—as well as a related initiative by Treasury—will be only marginally helpful to the housing market without the participation of Fannie Mae and Freddie Mac. The program completed three loan modifications during its first three months and received 61 applications

Participation by Fannie Mae and Freddie Mac would put additional pressure on the nation’s biggest banks to follow suit. Banks have shown little enthusiasm for the programs without the two mortgage giants.

David Stevens, the FHA’s commissioner, said resistance by lenders has been exasperating. Obama administration officials have given lenders “a responsible way to address borrowers with negative equity, he said, “and if institutions are blatantly refusing” to participate, then that is “short-sighted.”

The arm-twisting is the latest sign that loan-modification efforts aren’t doing enough to address the threat that more borrowers will default on so-called underwater properties.

“Letting the status quo continue is going to be much more expensive than people think,” said Kenneth Rosen, a professor of economics and real estate at the University of California, Berkeley. “We’ve got a downward spiral in housing here, and they’d better break the back of this with some shock and awe.”

The ongoing discussions underscore the sometimes awkward relationship between the Obama administration and FHFA, which has overseen Fannie Mae and Freddie Mac since their takeover in September 2008 and is charged with stemming taxpayer losses. An FHFA spokeswoman said participation in the FHA and Treasury loan-modification efforts is under review.

The two mortgage companies rarely reduce loan balances—only 10 of the 120,000 loans modified during the second quarter of 2010, according to the Office of the Comptroller of the Currency.

“We have historically counted on the fact that the vast majority of borrowers-even borrowers who are underwater-continue making their payments,” said Don Bisenius, a Freddie Mac executive vice president.

Fannie Mae and Freddie Mac are reluctant to reduce principal because it limits their options to recoup losses. Typically, the companies collect claims from mortgage insurers or force banks to buy back certain loans when a loan defaults. Those options are relinquished when writing down loan balances.

In addition, Fannie Mae and Freddie Mac, along with other mortgage investors, are reluctant to approve principal reductions if banks that own second mortgages on the same properties also don’t take losses.

Unlike most loan-modification efforts, the FHA program is open only to borrowers who aren’t behind on their payments.

The Treasury Department initiative to reduce loan balances builds on HAMP, in which banks reduce monthly payments for distressed borrowers by lowering interest rates and extending loan terms.

Starting in October, banks were able to receive additional subsidies if they first write down loan balances for borrowers owing at least 15% more than their home’s current value. Fannie Mae has said it won’t participate in the Treasury program. Freddie Mac says it is still reviewing whether to join.


Mortgage tax break in the crosshairs

By Tami Luhby, senior writer
December 2, 2010: 8:06 AM ET

NEW YORK ( — Don’t even think of touching the mortgage interest tax deduction in the midst of a fragile housing market.

That was the immediate response of the housing industry, which has come out with guns blazing against the presidential deficit commission’s proposal to overhaul the coveted tax provision.

“We will fight this proposal,” said Joe Stanton, chief lobbyist for the National Association of Home Builders. “From everything we’ve read, it will end up being a tax hike.”

Charged with finding ways to reduce the nation’s exploding federal debt, the bipartisan debt panel recommended Wednesday a wide range of controversial spending cuts and tax changes that would slash $4 trillion in deficits over the next 10 years.

Among the proposals was a major change to the mortgage interest deduction, which costs the Treasury Department an estimated $131 billion a year.

Currently, taxpayers who itemize their deductions can deduct the interest on mortgages of up to $1 million for their principal and second residences, plus on home equity loans of up to $100,000. The provision generally benefits higher-income Americans since they are more likely to itemize.

The panel recommends turning the deduction into a 12% non-refundable tax credit available to everyone. The mortgage size would be capped at $500,000. Interest on mortgages for second homes and on home equity loans would not be eligible.

That did not sit well with the trade associations for the real estate and home building industries, which have contributed a total of $51.2 million to Congress for 2010, according to the Center for Responsive Politics.

“It would immediately stop in its tracks any stabilization we are seeing in the housing market and would effectively increase the cost of homeownership for millions upon millions of people,” said Michael Berman, chairman of the Mortgage Bankers Association.

Under the panel’s proposal, a homeowner in the 25% income tax bracket would get a credit worth less than half the amount of the deduction, according to the home builders association.

The industry groups argue that the deduction makes owning a house more affordable. A recent study commissioned by the National Association of Realtors showed that nearly three-quarters of homeowners said the deduction was extremely or very important to them.

“Any changes to the [deduction] now or in the future could critically erode home prices and the value of homes by as much as 15%,” said Ron Phipps, president of the Realtors’ group.

Not everyone agrees, however.

Researchers have found that the deduction does not promote homeownership, according to a report by the Urban Institute, Tax Policy Center and What Works Collaborative. That’s because the tax provision’s main beneficiaries are not individuals on the margin between renting and owning. Wealthier taxpayers are likely to own homes regardless of the deduction.

The mortgage interest deduction has been the target of previous presidential commissions. In 2005, a panel appointed by then-President Bush recommended allowing homeowners to claim a mortgage interest credit of 15% on loans of up to about $412,000. The proposal went nowhere.

In the end, the trade associations may be able to hold their fire. The commission’s recommendations may not even garner enough support among its 18 members to make official recommendations to Congress. The report itself said its aim is to offer a “starting point for a serious national conversation.”


Foreclosure freeze coming for the holidays

By Les Christie, staff writerDecember 3, 2010


NEW YORK ( — Several of the big mortgage players are playing Santa Claus again this year, saying they will not evict borrowers in default during the two weeks surrounding Christmas.

Freddie Mac (FMCC) and Fannie Mae (FNMA), the two government-controlled mortgage giants, are freezing all foreclosure evictions on mortgage loans they own or back from Dec. 20 through Jan.3.

Evictions mark the end of the foreclosure process. After the home is sold at foreclosure auction — or banks take possession of the home — owners must leave the property or face eviction notices.

“If the property is occupied, our foreclosure attorneys will suspend the eviction to provide a greater measure of certainty to families during the holidays,” said Anthony Renzi, executive vice president of single family portfolio management at Freddie Mac.

For some of the big private banks, who also usually observe a freeze during the holidays, the situation is a little different this year, thanks tomoratoriums they already have in place because of the robo-signing scandal.

That freeze was initiated to give the banks time to examine whether they violated any legal procedures in processing foreclosures and to correct and refile questionable documents they uncover.

A spokesman for Bank of America (BACFortune 500), Rick Simon, said that made addressing this year’s situation a little awkward but it would still observe its usual holiday policy.

“Bank of America’s practice in recent years [is to hold off on] foreclosure sales or evictions from late December through New Year’s Day on loans held in our investment portfolio or that are owned by investors who give the bank delegated authority,” he said.

It will continue the foreclosure process for loans it services that are held by investors who decline to participate in the freeze and for properties that are known to be vacant.

A spokesman for Chase Mortgage, a division of J.P. Morgan Chase (JPM,Fortune 500), said its robo-signing-connected moratorium makes an additional holiday freeze moot; it will still be several weeks before it starts to evict borrowers again.

Wells Fargo’s (WFCFortune 500) holiday freeze will run the same two week period as Fannie’s and Freddie’s and will, like Bank of America’s, include all loans it holds in its portfolio. For the other loans it services, it will follow guidelines from investors and from the states where the properties are located.

With the number of bank repossessions amounting to around 100,000 a month recently, the temporary reprieve could affect tens of thousands of borrowers in default.