Month: May 2011

Home Prices Drop Into Double-Dip Territory

By Matt Egan

Published May 31, 2011 | FOXBusiness

U.S. home prices officially double-dipped in March, tumbling to new post-bubble lows, a report released Tuesday revealed.

According to the S&P/Case-Shiller home price index, seasonally-adjusted prices in 20 metro areas slumped 0.2% in March from February to 138.16 — below the crisis low set in April 2009 of 139.26. While economists had projected the 0.2% decline, it marks a painful reminder of the housing market’s failure to mount a sustainable rebound from its historic slump.

S&P said the short-lived bounce in home prices in 2009 and 2010 was largely due to the first-time home buyers tax credit, which has since expired.

“Excluding the results of that policy, there has been no recovery or even stabilization in home prices during or after the recent recession,” David Blitzer, chairman of the index committee at S&P Indices, said in the report. “This month’s report is marked by the confirmation of a double-dip in home prices across much of the nation…Home prices continue on their downward spiral with no relief in sight.”

In the 20 markets surveyed by S&P, home prices were off by a non-adjusted 0.8%, compared with a 1.1% drop in February and forecasts for a 0.6% fall. Year-over-year, home prices tumbled 3.3%.

Some of the heaviest declines were seen in Minneapolis, which suffered a 10% annual dive in prices — the first double-digit fall since a 12% plunge in Las Vegas in March 2010.

Overall in the first quarter, U.S. home prices dropped 4.2% from the prior quarter and 5.1% from a year ago.

Washington D.C. was the only city in the report to post a monthly and annual increase. S&P said Washington prices increased 1.1% month-over-month and 4.3% on an annual basis. Seattle saw its home prices inch up 0.1% from February, but they remained off 7.5% from the year before.

“The housing fundamentals that have weighed on activity and sentiment since the bubble burst remain in place and while some progress has been made, considerable more progress remains yet to be achieved,” Dan Greenhaus, chief economist strategist at Miller Tabak, wrote in a note.

The gloomy housing report failed to prevent a bullish open on Wall Street as the Dow Jones Industrial Average leaped 100 points at the open. Likewise, housing-related stocks such as home builder PulteGroup (PHM: 8.28, +0.08, +1.04%) and home improvement retailer Home Depot (HD: 36.12, +0.12, +0.33%) posted modest gains.

Existing Home Sales Fall Unexpectedly In April

By Greg Robb

Published May 19, 2011| MarketWatch Pulse FOX Business

WASHINGTON – Sales of existing single-family homes and condos fell 0.8% in April to a seasonally adjusted annual rate of 5.05 million, the National Association of Realtors reported Thursday. The decline was a surprise. Economists surveyed by MarketWatch expected sales to rise to 5.25 million units in April, based on a surge in pending home sales in March. Sales rose a revised 3.5% in March to 5.09 million units, down from the initial estimate of a 3.7% rise to 5.1 million units. The median price of homes sold was down 5% in April from last year at $163,700. Inventories of existing homes for sale rose 9.9% to 3.87 million units in April, representing 9.2 months’ supply, up from 8.3 months in March.

Freddie: Fixed Mortgage Rates Slide As Indicators Mixed

By Drew FitzGerald

Published May 19, 2011| Dow Jones Newswires

The interest on fixed-rate mortgages edged down for the fifth straight week to hit a new low this year, as mixed indicators from the housing market and broader economy sent the markets muddled signals, according to the latest survey from Freddie Mac (FMCC).

Freddie Mac Chief Economist Frank Nothaft said fixed rates were falling slightly as financial markets tried to judge the strength of the economy. Industrial production lay flat in April due to auto-parts supplier disruptions caused by the earthquake disaster in Japan, while retail sales excluding automobiles and gasoline grew at the slowest rate since last December. Meanwhile, consumer confidence, as measured by the University of Michigan, rose in May to the highest reading since February.

The 30-year fixed-rate mortgage averaged 4.61% for the week ended Thursday, down from 4.63% the prior week and 4.84% a year ago. Rates on 15-year fixed-rate mortgages were 3.80%, down from 3.82% the previous week and 4.24% a year earlier.

Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 3.48%, up from 3.41% the prior week and down from 3.91% a year earlier. One-year Treasury-indexed ARMs reached 3.15%, up from 3.11% the prior week and down from 4% a year earlier.

To obtain the rates, the fixed-rate mortgages required an average payment of 0.7 point, while adjustable mortgages required 0.6 point. A point is 1% of the mortgage amount, charged as prepaid interest.

Foreclosure rate slows as repossession timeline lengthens

Big banks are taking longer to push borrowers into foreclosure and through each stage of the process amid increased scrutiny.

By Alejandro Lazo, Los Angeles Times
May 12, 2011
Increased scrutiny of how lenders foreclose on Americans has dragged the repossession process out to unprecedented lengths, driving down the pace at which banks are taking back homes.

Big banks are taking longer not only to push borrowers into foreclosure, but also to move homeowners through each stage of the process than in previous years, according to a report by Irvine-based RealtyTrac.

The extended timelines have meant a reprieve for troubled borrowers. But economists said the delays could hold back a national housing rebound if foreclosures remain a significant part of the market for years to come.

In April, U.S. foreclosure activity fell for the seventh month in a row on a year-over-year basis to the lowest point in more than three years, RealtyTrac said. The sharp April drop was the result of the foreclosure-processing slowdown and not an indication of a housing rebound lifting people out of default, experts said.

“The banks have had to slow down and get more lawyers involved because of all of the fuss over the robo-signing scandal,” said Christopher Thornberg, principal of Beacon Economics, referring to the revelations last year that banks foreclosed on properties using faulty paperwork.

Foreclosure filings— notices of default, scheduled auctions and bank repossessions — dropped 9% in April from March and plunged 34% from April 2010 as 219,258 U.S. properties received new filings in April. The number of bank repossessions fell 5% from the prior month and 25% from April 2010, with lenders taking back 69,532 U.S. properties. In all, 239,795 foreclosure filings were made, with some properties receiving multiple filings.

In California, 55,899 properties received new foreclosure filings, down 7% from the previous month and off 20% from a year earlier. But a 22% jump in home seizures compared with March contributed to keeping the state’s foreclosure rate the third highest in the nation, with 13,741 homes seized. That was still down 19% from April 2010.

One in every 240 California homes received a foreclosure filing in April, RealtyTrac said.

Houston Smith, a Hermosa Beach real estate agent who markets foreclosures for big banks, said that as a result of the paperwork fiasco, he has seen the pace of bank-owned properties released into the market slow significantly.

“[Lenders] are under increased pressure and encouragement to make every effort to do a loan modification, or a short sale, and that has been a dramatic change,” Smith said. “It does not mean that there are fewer properties in trouble.”

New laws have helped drag out the process in many states. Consumer advocates and attorneys also are increasingly challenging bank actions in courts and are ramping up their lobbying efforts to push for more mortgage workouts for borrowers in trouble.

“In the end it is really a sideshow,” said Alys Cohen, a staff attorney for the National Consumer Law Center. “The paperwork needs to be proper, but the real question is whether homeowners will get loan modifications when they qualify for them.”

Nationally, foreclosures completed in the first quarter of 2011 took an average of 400 days from start to finish, according to RealtyTrac, an increase from 340 days during the same period in 2010 and more than double the average of 151 days it took to foreclose during the same period in 2007.

The process has even slowed in California, where foreclosures remain largely outside of the court system. In California, the average foreclosure took 330 days in the first quarter, up from 262 days during the same period last year and more than double the average of 134 days during the period in 2007.

In states where a court order is needed to repossess a home, foreclosures are taking even longer.

The average timeframe from start to finish in New Jersey and New York was more than 900 days in the first quarter, more than three times the average in the first quarter of 2007 for both states, according to RealtyTrac.

In Florida, the average foreclosure took 619 days in the first quarter, up from 470 a year earlier and nearly four times the average of 169 during the same period in 2007.

Federal regulators last month ordered the nation’s biggest banks to overhaul their procedures and compensate borrowers injured financially by wrongdoing or negligence. A wider-ranging investigation conducted by a coalition of state attorneys general and other federal agencies is ongoing.

Several states have sought to put their own limitations on how quickly banks can take back homes. Homeowners also appear to be increasingly challenging foreclosures, particularly in states where a court order is required.

States with a judicial foreclosure process registered a 3% decrease in overall foreclosure activity from March, but a 47% plunge from April 2010. States with a non-judicial foreclosure process posted an 11% month-over-month decrease and a 26% year-over-year decrease.

Some economists are concerned that a slower foreclosure process will mean that the housing recovery will take longer to get going. Foreclosures tend to sell at a discount, and, when making up the bulk of sales in a market, give the perception that prices are falling. In addition, residential builders are struggling to compete with foreclosed homes. Home building has typically been an important boost to an economy exiting recession.

“Clearing this stuff out and getting this stuff over with is just essential, and so in the long run the faster these things can be resolved now, the better,” said Richard Green, director of USC’s Lusk Center for Real Estate. “That is the only point at which the market can resume normalcy.”

But Kurt Eggert, a professor at Chapman University School of Law, said that much of the slowdown in California and other states has been intentional by banks that do not want to see another steep drop in prices. Fewer foreclosures and more mortgage modifications would be a good thing, he said.

“If servicers foreclosed as quickly as they could, and they dumped all the properties on the market, you could get a downward spiral,” Eggert said. “As that happens, more and more borrowers go underwater and you could have a vicious cycle — just like the housing boom was fed by the perception that prices always go up, you could have a housing slump that is fed by the perception that prices always go down.”

Federal Retreat on Bigger Loans Rattles Housing

Peter DaSilva for The New York Times

A home in Carmel Valley, Calif., priced for sale at $789,500. Homeowners in high-price areas worry that prices could tumble.

By DAVID STREITFELD New York Times May 10th, 2011

MONTEREY, Calif. — By summer’s end, buyers and sellers in some of the country’s most upscale housing markets are slated to lose one their biggest benefactors: the deep pockets of the federal government. In this seaside community of pricey homes, the dread of yet another housing shock is already spreading.

A Monterey, Calif., home priced at $820,000. Mortgages in Monterey County will be guaranteed only up to $483,000.

“We’re looking at more price drops, more foreclosures,” said Rick Del Pozzo, a loan broker. “This snowball that’s been rolling downhill is going to pick up some speed.”

For the last three years, federal agencies have backed new mortgages as large as $729,750 in desirable neighborhoods in high-cost states like California, New York, New Jersey, Connecticut and Massachusetts. Without the government covering the risk of default, many lenders would have refused to make the loans. With the economy in free fall, Congress broadened its traditionally generous support of housing to a substantial degree.

But now Democrats and Republicans agree that the taxpayer should no longer be responsible for homes valued well above the national average, and are about to turn a top slice of the housing market into a testing ground for whether the private mortgage market can once again go it alone. The result, analysts say, will be higher-cost loans and fewer potential buyers for more expensive homes.

Michael S. Barr, a former assistant Treasury secretary, said the federal government’s retrenchment would be painful for many communities. “There’s always going to be a line, and for the person just over it it’s always going to be an arbitrary line,” said Mr. Barr, who teaches at the University of Michigan Law School. “But there is no entitlement to living in a home that costs $750,000.”

As the housing market braces for more trouble, homeowners everywhere have been reduced to hoping things will someday stop getting worse. In some areas, foreclosures are the only thing selling. New home construction is nearly nonexistent. And CoreLogic, a data company, said Tuesday that house prices fell 7.5 percent over the last year.

The federal government last year backed nine out of 10 new mortgages nationwide, and losses from soured loans are still mounting. Fannie Mae, which buys mortgages from lenders and packages them for investors, said last week it needed an additional $6.2 billion in aid, bringing the cost of its rescue to nearly $100 billion.

Getting the government out of the mortgage business, however, is proving much more difficult than doling out new benefits. As regulators prepare to drop the level at which they will guarantee loans — here in Monterey County, the level will drop by a third to $483,000 — buyers and sellers are wondering why they should be punished simply for living in an expensive region.

Sellers worry that the pool of potential buyers will shrink. “I’m glad to see they’re trying to rein in Fannie Mae, but I think I’m being disproportionately penalized,” said Rayn Random, who is trying to sell her house in the hills for $849,000 so she can move to Florida.

Buyers might face less competition in the fall but are likely to see more demands from lenders, including higher credit scores and larger down payments. Steve McNally, a hotel manager from Vancouver, said he had only about 20 percent to put down on a new home in Monterey County.

If a bigger deposit were required, Mr. McNally said, “I’d wait and rent.”

Even those who bought ahead of the changes, scheduled to take effect Sept. 30, worry about the effect on values. Greg Peterson recently purchased a house in Monterey for $700,000. “That doesn’t get you a palace,” said Mr. Peterson, a flight attendant.

He qualified for government insurance, which meant he needed only a small down payment. If that option is not available in the future, he said, “home prices all around me will plummet.”

The National Association of Realtors, 8,000 of whom have gathered in Washington this week for their midyear legislative meeting, is making an extension of the loan guarantees a top lobbying priority.

“Reducing the limits will put more downward pressure on prices,” said the N.A.R. president, Ron Phipps. “I just don’t think it makes a lot of sense.” But he said that in contrast to last year, when a one-year extension of the higher limits sailed through Congress, “there’s more resistance.”

Federal regulators acknowledge that mortgages will get more expensive in upscale neighborhoods but say the effect of the smaller guarantees on the overall housing market will be muted.

A Federal Housing Administration spokeswoman declined to comment but pointed to the Obama administration’s position paper on reforming the housing market. “Larger loans for more expensive homes will once again be funded only through the private market,” it declares.

Brokers and agents here in Monterey said terms were much tougher for nonguaranteed loans since lenders were so wary. Borrowers are required to come up with down payments of 30 percent or more while showing greater assets, higher credit ratings and lower debt-to-income ratios.

In the Federal Reserve’s quarterly survey of lenders, released last week, only two of the 53 banks said their credit standards for prime residential mortgages had eased. Another two said they had tightened. The other 49 said their standards were the same — tough.

The Mortgage Bankers Association has opposed letting the limits drop, although a spokesman said its members were studying the issue.

“I don’t want to sugarcoat this,” said Mr. Barr, the former Treasury official. “The housing finance system of the future will be one in which borrowers pay more.”

The loan limits were $417,000 everywhere in the country before the economy swooned in 2008. The new limits will be determined by various formulas, including the median price in the county, but will not fall back to their precrisis levels. In many affected counties, the loan limit will fall about 15 percent, to $625,500.

Monterey County, however, will see a much greater drop. The county is really two housing markets: the farming city of Salinas and the more affluent Monterey and Carmel.

Real estate records show that 462 loans were made in Monterey County between the current limit and the new ceiling since the beginning of 2009, according to the research firm DataQuick. That was only about 1 percent of the loans made in the county. But it was a much higher percentage for Monterey and Carmel — about a quarter of their sales.

Heidi Daunt, with Treehouse Mortgage, said loans too large for a government guarantee currently carried interest rates of at least 6 percent, more than a point higher than government-backed loans.

“That can definitely blow a lot of people out of the water,” Ms. Daunt said.

Bill Sets Up Private Firms To Back Mortgages

By Ronald D. Orol & MarketWatch

Published May 12, 2011 | Dow Jones Newswires

WASHINGTON (MarketWatch) — A Democrat and a Republican on Thursday introduced legislation that would overhaul the federal mortgage-financing system and set up as many as 15 or 20 firms that would buy loans, then package and sell them with explicit government guarantees.

The bill was introduced by two members of the House Financial Services Committee — Rep. John Campbell, (R., Calif.), and Rep. Gary Peters, (D., Mich.). The bill seeks to replace troubled government-seized housing giants Fannie Mae (FNMA: 0.38, -0.01, -2.05%) and Freddie Mac (FMCC: 0.40, +0.00, +0.88%), which would be wound down based on a plan set up by their regulator.

Jaret Seiberg, analyst at MF Global Inc. in Washington, said the bill is the kind of legislation that he believes could eventually emerge from Congress. “It preserves a government role in housing finance, which means inexpensive 30-year, fixed-rate mortgages will continue to be readily available,” he commented.

However, Seiberg said it was introduced too early in the political fight and it will be hard for many Republicans to support this approach.

While the legislation does not yet have the support of leadership in either party, it is unusual in that it has the backing of both a Republican and Democrat.

Top Republicans have advanced bills that would lead to a mostly private mortgage market, while Democrats have pushed for a government role in the mortgage industry.

The two legislators anticipate there being 15 to 20 or more firms chartered to securitize residential mortgages operating in the marketplace, according to Christopher Bognanno, a spokesman for Campbell.

He said the bill does not specify whether the companies should hold a portfolio of mortgages the way Fannie and Freddie currently have on their books. Yet Bognanno added the lawmakers agree that it would not make sense to have the kinds of large portfolios that the two troubled existing mortgage giants Fannie and Freddie have on their books.

The Campbell-Peters bill seeks to limit taxpayer liability by creating a reserve fund to cover any losses. The fund would be capitalized by assessing a special guarantee fee to buyers of the packaged mortgage securities. It also would seek to recoup any taxpayer funds spent to bail out the firms through a special assessment levied on the firms.

The bill has the support of the Housing Policy Council, a group made up of 32 mortgage-finance companies.

“This legislation is a strong approach that would create a modern private-sector housing finance system, preserve bedrock financing like the 30-year fixed rate mortgage and protect taxpayers,” said John Dalton, president of the group.

House GOP Unveils Bills To Speed Closure of Fannie, Freddie

By Alan Zibel

Published May 13, 2011 | Dow Jones Newswires

WASHINGTON -(Dow Jones)- U.S. House lawmakers unveiled seven bills Friday to speed up the eventual closure of government-controlled mortgage giants Fannie Mae (FNMA: 0.38, -0.01, -2.05%) and Freddie Mac (FMCC: 0.40, +0.00, +0.88%), part of a Republican push to dramatically reduce the U.S. government’s role in the mortgage market.

The bills are part of a GOP strategy to keep public attention on Fannie and Freddie, the two mortgage giants whose government takeover in fall 2008 has cost taxpayers about $138 billion so far.

Republicans, especially in the House, want to unwind the government’s longstanding backing of the $10.5 trillion U.S. mortgage market, arguing that the high levels of support that have traditionally been part of American housing policy pose too much of a risk for future bailouts. “We never want to find ourselves in the situation we’re in ever again,” said Rep. Scott Garrett (R., N.J.) at a briefing with reporters. Garrett said he was encouraged by a meeting held earlier between GOP lawmakers and Treasury Secretary Timothy Geithner, and Housing and Urban Development Secretary Shaun Donovan.

The Obama administration, he noted, shares Republicans’ goal of diminishing government support for housing. “They are on the same page as we are,” he said.

Republicans face intense resistance, however, from powerful interests such as Realtors and community bankers, who have been lobbying on Capitol Hill to maintain a strong federal role. The Senate, meanwhile, has shown little inclination to take up the issue anytime soon.

Fannie and Freddie buy loans and repackage them for sale to investors as securities, offering guarantees to make investors whole if borrowers default. They were placed in federal control in September 2008 after rising mortgage losses wiped out their thin capital cushions.

The GOP bills add to eight that were passed by a House subcommittee last month. They restore a cap on the amount of taxpayer aid the two companies can receive, ensure there is no new federal replacement for Fannie and Freddie if the two are put into receivership and bar the government from lowering the 10% annual dividend paid by the two companies.

Others would require Fannie and Freddie to sell or place into the public domain “non-mission critical” assets such as patents and data, subject the two companies to the Freedom of Information Act, and limit payments of legal fees for Fannie and Freddie executives.

Finally, a bill would abolish an affordable housing trust fund that was created in 2008. It was supposed to be funded by profits from Fannie and Freddie, but never got going as the companies’ fortunes turned downward.

The Republican bill to cap taxpayer aid to Fannie and Freddie, while likely a politically popular move, could rattle the market for mortgage securities. That’s because investors in securities issued by Fannie and Freddie have been operating under the assumption that the government will live up to a December 2009 pledge to provide unlimited aid to Fannie and Freddie through 2012.

Since investors assumed that the U.S. government stands behind Fannie and Freddie, they are willing to purchase securities issued by the two companies and consider them nearly as safe as Treasury debt. But restoring caps on aid to Fannie and Freddie would throw the government’s support into question.

“The market would have a difficult time trading if that legislation passed the House,” said Jim Vogel, a debt analyst at FTN Financial.

The GOP bills’ sponsors are: Rep. Jason Chaffetz (R., Utah); Rep. Michael Fitzpatrick (R., Pa.); Rep. Robert Hurt (R., Va.); Rep. Randy Neugebauer (R., Texas); Rep. Don Manzullo (R., Ill.); Rep. Ed Royce (R., Calif.) and Rep. Steve Stivers (R., Ohio).

While many Republicans favor limiting the federal role in the housing market as much as possible, others are taking a more moderate position.

Earlier this week, Rep. John Campbell (R., Calif.) and Rep. Gary Peters (D., Mich.) unveiled legislation that would replace Fannie and Freddie with at least five private companies that would issue mortgage-backed securities with the explicit guarantee of the federal government. Their proposal mirrors plans advanced by industry groups such as the Financial Services Roundtable’s Housing Policy Council and Mortgage Bankers Association.

Such legislation could pass Congress in several years, as it ensures that low-cost mortgages will be available to consumers, wrote Jaret Seiberg, financial policy analyst at MF Global’s Washington Research Group, in a note to clients.

Garrett, however, said this approach would be too similar to the structure of Fannie and Freddie. “We don’t want to go back to where we came from,” he said.