Month: March 2012

Pending home sales ease down in February

By Kerri Panchuk, http://www.housingwire.com

March 26, 2012

Pending home sales fell slightly in February, but still remain well above levels set in the first half of 2011, the National Association of Realtors said Monday.

The NAR Pending Home Sales Index is a forward-looking indicator of housing activity based on contract signings.

The index hit a level of 96.5 in February, down 0.5% from a score of 97 in January. Still, it remains 9.2% above the February 2011 index score of 88.4.

The data provided reflects the number of contracts signed, but not closings.

“The spring home-buying season looks bright because of an elevated level of contract offers so far this year,” said Lawrence Yun, NAR’s chief economist. “If activity is sustained near present levels, existing-home sales will see their best performance in five years. Based on all of the factors in the current market, that’s what we’re expecting with sales rising 7% to 10% in 2012.”

Still, pending home sales slipped 0.6% in the Northeast with the index score dropping to 77.7 in February. That is 18.4% above year ago levels.

The index in the Midwest grew 6.5% to an index score of 93.8 and is 19% higher than February of 2011. Meanwhile, pending home sales in the South declined 3% to an index score of 105.8 in February. Still, that is 7.8% above year ago levels.

The West saw its index score fall 2.6% in February to 99.3 — 1.8% below February 2011 levels.

BofA: Families facing foreclosure can rent

By Chris Isidore @CNNMoney March 23, 2012

BofA mortgage plan: families rent homes facing foreclosure

Bank of America’s pilot program would let families facing foreclosure rent their homes.

NEW YORK (CNNMoney) — Bank of America has announced a program that will let homeowners facing foreclosures stay in their homes as renters.

The “Mortgage to Lease” program will start as a limited pilot program for up to 1,000 homeowners in Arizona, Nevada and New York selected by the bank.

The bank said if the effort succeeds, it could be expanded to the broader group of at-risk homeowners with BofA mortgages. Homeowners can not apply to be part of the program at this time. (Buying is cheaper than renting)

Those selected for this initial pilot program will be more than 60 days delinquent on their home loans, have high loan balances in relation to their current property value, have no other liens on their property, and have an income level high enough to afford the rent.

The homeowner will transfer title to their properties to the bank and have their outstanding mortgage debt forgiven. In exchange, they may lease their home for up to three years at or below the current market rental rate.

While Bank of America (BACFortune 500) will retain ownership of the properties at first, homes in the pilot program will be transitioned to investor ownership. The bank will work with property management companies to oversee the rental properties.

“Our priority is designing a solution that helps our customer,” said Ron Sturzenegger, an executive with the bank, in a statement. “If this evolves from a pilot into a more broadly based program, we also see potential benefits from helping to stabilize housing prices in the surrounding community and curtail neighborhood blight by keeping a portion of distressed properties off the market.”

Bank of America is one of five major banks to participate in a $26 billion foreclosure deal with federal authorities and state attorneys general to settle charges over improper foreclosure actions.

The deal is supposed to lead to billions of dollars in principal reductions and refinancing for more than a million homeowners who owe more than their homes are worth. But critics of the deal say a growing number of borrowers are realizing that the deal will do little, if anything, to help them.

There are nearly 200,000 homes in Arizona, Nevada and New York for which the homeowner is 60 days or more delinquent on their home loans, according to figures from the Mortgage Bankers Association. That figure includes all lenders, not just Bank of America. It does not include homes in those states that are already in the foreclosure process. To top of page

Southland housing market gains momentum

Strong demand from investors lifts home sales in February to the highest level for that month in five years. Because many of those deals were for less than $200,000, median prices fell.

  • In February, 15,573 houses and condominiums throughout the Southland were sold. That was a 7.2% increase from January and an 8.4% jump from February 2011. Above, a home for sale in Mar Vista.
In February, 15,573 houses and condominiums throughout the Southland… (Genaro Molina, Los Angeles Times)
March 15, 2012|By Alejandro Lazo, Los Angeles Times

A Southland home sales recovery gained steam in February as a record number of deep-pocketed investors snapped up distressed properties at bargain-basement prices. With so many purchases of low-end homes, median prices remained in a slump.

The influx of cash from speculators helped push February sales to their highest level for that month in five years, real estate firm DataQuick reported Wednesday. The increase was fueled by purchases of properties costing less than $200,000. Sales of homes costing more than $800,000 sank.

The activity on the low end helped push the region’s median price down 3.7% from February 2011. At $264,750, the median — the point at which half the homes in the region sold for more and half for less — is now just 7.2% above the market’s 2009 bottom, reached during the worst of the financial crisis.

In related news, the foreclosure picture improved throughout California last month, according to Irvine data tracker RealtyTrac.

In Los Angeles and Orange counties, all forms of foreclosure filings fell 18% in February from a year earlier. Filings include notices of default, notices of foreclosure sales and repossessions. Foreclosure filings dropped 11% in the Inland Empire and 9% in San Diego County over the same time period. Nationwide, February filings declined 8% from a year earlier.

Longtime Los Angeles real estate agent Leo Nordine said Southern California’s housing market has probably hit bottom, but he added, “prices are going to be flat as a pancake this year.”

Investors seeking to refurbish foreclosed properties and either resell them to first-time buyers or rent them out were flooding the real estate market at an unprecedented level, Nordine said.

“I’ve never seen it like this before,” Nordine said. “There are so many investors buying right now it’s insane. The top 1% is buying up all the real estate.”

Big-money investors, including Wall Street hedge funds and private equity firms, are positioning themselves to snap up foreclosed homes and convert them into rental units. Billionaire investor Warren Buffett, for instance, said in a recent cable news interview that he would buy foreclosed homes if he could find the right way to manage those properties.

“Single-family homes are cheap now,” Buffett told CNBC. “If I had a way of buying a couple hundred thousand single-family homes and had a way of managing [them] … I would load up on them.”

Wall Street types are aiming to do exactly that. A spokesman for New York buyout firm GTIS Partners said it plans to spend $1 billion through 2016 purchasing single-family properties and converting them to rentals. Oaktree Capital Management of Los Angeles recently announced it had started a fund that would buy $450 million worth of single-family homes.

Also in Southern California, G8 Capital of Ladera Ranch has bought several portfolios of distressed properties that it plans to rent out. The real estate investment firm McKinley Capital Partners of Oakland has purchased hundreds of homes in the San Francisco Bay Area.

Mia Melle, president of RentToday.us, a company that manages rental homes for investors throughout Southern California, said many of her clients were now private equity funds.

“Those guys are hot and heavy on the market buying houses — as many as they can possibly get their hands on,” Melle said. “That’s the main thing we are dealing with.”

The Obama administration is looking to capitalize on this interest by selling to investors pools of foreclosed homes owned by mortgage titans Fannie Mae and Freddie Mac as well as the Federal Housing Administration. The administration hopes to use investors to convert some of the nearly 250,000 foreclosed homes owned by government-controlled entities into rentals. Fannie recently listed for sale about 2,490 homes in some of the nation’s hardest-hit markets, including about 484 in Los Angeles and the Inland Empire.

But investors flush with cash are already busy buying foreclosures and other distressed homes. A record 29.7% of previously owned properties sold last month were bought by absentee purchasers, who paid a median $192,750. The Inland Empire was the epicenter of this activity, with absentee buyers accounting for 37.2% of sales.

In total, 15,573 houses and condominiums were bought throughout the Southland in February. That was a 7.2% increase from January and an 8.4% jump from February 2011.

Excluding sales of new homes, foreclosed properties accounted for about 1 in 3 sales. Short sales — in which a bank allows a home to be sold for less than what’s owed on the mortgage — made up about 1 in 5 sales.

Many observers expect the long-suffering housing market to finally hit bottom in 2012, particularly if the jobs picture brightens. But foreclosures, tight mortgage credit and high regional unemployment remain significant impediments to a housing recovery.

Unemployment is still a harsh reality for many in Southern California. The jobless rate was 11.8% in Los Angeles County in January, a drop from 12% in December. In Orange County, The rate rose to 8% from 7.8%. In the Inland Empire, it rose to 12.4% from 12.2%.

More seniors use reverse mortgages to raise cash

By Mark Koba, cnbc.com 3/16/12

Finding themselves financially strapped, more seniors at an earlier age are trying to get reverse mortgages on their homes in order to survive, according to a new report.

The study says the percentage of people aged 62 to 64 applying for reverse mortgages has increased 15 percent since 1999.

The reason for the dramatic upswing among “younger” seniors is simple, the report concludes: They need the money.

“The average age for taking out reverse mortgages has been around 71,”  explains Sandy Timmerman, director of the MetLife Market Institute who conducted the survey with the National Council on Aging.

“But with job losses, higher debt and living costs, more and more of the ‘younger’ seniors are looking at reverse mortgages as a way to pay their bills and keep their homes,” Timmerman adds. “It shows the devastation some seniors have gone through since the financial downturn.”

Reverse mortgages — which allow homeowners to borrow against the value of their homes — have been around since the early 1960s, but have grown in popularity. TV commercials with celebrities such as Henry Winkler, Robert Wagner and Fred Thompson promoting reverse mortgages, are rampant during weekends and late night viewing hours.

But whether it’s the ads, the financial necessity, or both — reverse mortgages have become attractive to more seniors. In 2010 alone, more than 80,000 Americans over 62 years old finalized a reverse mortgage. That’s up from 25,000 in 1995.

‘It’s not surprising that more seniors are doing this at an earlier age,” says Karl Byrd, CFP, vice president at Security Ballew Wealth Management. “We live in a time when people are not planning for their retirement or can even get out of debt. Some seniors can’t even buy groceries right now.”

The increase in the number of reserve mortgages may simply be due to the growing number of seniors, poor or not, says Gregg Smith, COO of the lending firm, One Reverse Mortgage.

“We’ve noticed the age range for reverse mortgages getting ‘younger’ for us,” Smith says. “But when you figure that some 10,000 people a day reach 62 in the U.S., we’re seeing this grow among all seniors and believe it will get even bigger in the next 10 years.”

Another selling point for reverse mortgages is the gain of respectability.

“Those ads aside, reverse mortgages are getting rid of the bad reputation they’ve had in the past,” says Mark Goldman, a real estate professor at San Diego State University and a real estate investor, who’s handled reverse mortgages for some of his clients — including his in-laws.

“The loans are backed by the government and more financial planners are looking at them as a viable option for their clients,” Goldman goes on to say. “With mortgage rates low, and reverse loan fees dropping, they can make good sense.”

How a reverse mortgage works is fairly simple. Designed for those 62 or older, a homeowner gets a lump sum or a payout for the equity in their house. The loan, with interest, does not have to be repaid until the last surviving homeowner moves out of the property or passes away.

There’s no income or credit check and even if a senior is in foreclosure — and as long as the house has equity — they are eligible. All who apply must meet with an independent home loan counselor to discuss the ins and outs of getting a reverse mortgage.

Reverse mortgage loans are not taxable, and generally don’t affect Social Security benefits. Most loans have adjustable rates and can be re-financed, while some have fixed rates.

But they do come with a price tag and tight restrictions. Previous loans have to be paid off. Closing costs can add up — the average is about $2,000 to $3,000 depending on location. And there’s no free ride when it comes to property taxes and mortgage insurance — they have to be paid by the homeowners to keep the house.

Homeowners must use the house as their main residence, and if the homeowner dies or wants to sell, the proceeds must go to pay off the loan.

Another warning signal — reverse loans can use up all or most of the equity and leave seniors with fewer assets as they grow older. And the loans are geared toward older seniors. The older someone is, the more credit is available. That’s why most reverse mortgages have been taken out by people in their 70’s. That is until now.

“Weaker economic conditions are pushing ‘younger seniors’ to go for any amount of money they can get at an earlier age,” says Timmerman.

“The people we surveyed in the younger age range applying for the loans were clear about their needs for financial help,” Timmerman says. “They didn’t seem like they could wait.”

At a time when more seniors in the U.S. are facing poverty — some 15.9 percent are considered poor — it’s not surprising to see the move to reverse mortgages, says Mark Goldman.

“I saw a an older woman at the drugstore the other day, asking her pharmacist to please cut the costs of her medicine,” Goldman adds. “When you see seniors facing rising health care costs, and as they lose jobs and see 401(k) returns shrink, it’s going to be tough not to look at a reverse loan.”

Government-held REO halved during robo-signing freeze

March 9, 2012 • 2:35pm

The government cut its inventory of foreclosed homes by half in 2011.

Fannie MaeFreddie Mac and the Department of Housing and Urban Development held roughly 150,700 REO properties as of Dec. 31, down 49% from the 296,000 at the end of 2010, according to an analysis of their collective financial statements.

HUD made the biggest dent last year with its portfolio of foreclosed Federal Housing Administration properties. However it holds the fewest amount of REO among the three. Its inventory totaled more than 32,000 at the end of December, down 47% from the more than 62,000 it held one year prior.

Fannie reduced its inventory to more than 118,000, down 27% from roughly 162,000 at the end of 2010.

Freddie, which reported its earnings Friday, cut its REO inventory to 60,500, down 16% from more than 72,000 the year before.

Servicers halted the foreclosure process in many areas of the country last year as it sorted out mishandled documentation, investigations and settlement negotiations. The entire process was revamped under federal consent orders signed in April and through a $25 billion agreement with state attorneys general to be finalized this week.

Rebooting the process may take much of 2012 as well, according to Freddie. And delinquencies remain elevated at all three Fannie, Freddie and HUD.

The serious delinquency rate at Fannie dropped to 3.91% from 4.45% over 2011. The Freddie serious delinquency rate declined as well to 3.58% from 3.84%.

Seriously delinquent FHA loans under HUD increased 19% over last year to more than 711,000 mortgages. The FHA default rate stood at 9.6% at the end of December.

“We expect the pace of our REO acquisitions will continue to be affected by delays in the foreclosure process in 2012, but the volume will likely remain elevated due to the company’s large inventory of seriously delinquent loans that will likely complete the foreclosure process and transition to REO during 2012,” Freddie disclosed in its financial filing Friday.

Freddie said the average holding period for resold REO was 197 days in 2011, up from 155 the year before.

Still, the GSEs sold REO at a record pace in 2011. Combined, both sold more than 353,000 previously foreclosed property for the year.

At Freddie, two-thirds of its 110,000 sales went to owner-occupants. The Federal Housing Finance Agency launched a pilot program in February that could boost more sales to investors this year.

Foreign buyers are snapping up U.S. homes

With foreign entities wary of mortgage-backed securities, buyers are focusing on individual homes — a welcome occurrence in regions suffering from a glut of properties on the market.

By Lew SichelmanLa times March 11, 2012

Reporting from Washington—

Because of the housing market meltdown, foreign governments and banks are shying away from bonds backed by American home loans. But individual foreign buyers are taking advantage of the crash to snap up U.S. bargains at a record clip.

When housing was flying high, foreign entities were buying the lion’s share of the mortgage-backed securities packaged by Fannie Mae and Freddie Mac, the two quasi-government agencies that help keep the housing finance system flush with cash by buying mortgages from Main Street lenders.Now, with Fannie Mae and Freddie Mac in conservatorship and their futures in question — and with millions of homeowners underwater on loans held by Fannie Mae and Freddie Mac — the foreign share of the mortgage-backed securities market is just a fraction of what it once was. Instead, foreigners are gobbling up individual properties.

Foreign clients bought $41 billion worth of stateside houses and apartments during the 12-month period that ended in March 2011, according to the latest tally by the National Assn. of Realtors. That’s roughly the same as the previous year.

But add in the $41 billion spent by immigrants who moved here within the last two years and individuals with visas of more than six months, and the total is $82 billion worth of U.S. residential real estate taken off the market by international buyers, up from $66 billion the year before.

The demand for American real estate is so strong that last fall, the Realtors association launched an international version of its listing website. Now, the 4.4 million properties displayed on Realtor.com can be viewed more easily by buyers from practically any place in the world, and in almost a dozen languages.

In the 1980s, when investors from Japan and other countries were buying large amounts of commercial real estate, including such iconic properties as the Pebble Beach golf club and Rockefeller Center in New York, there was fear in some quarters that the U.S. was for sale to foreigners.

There’s no such outcry this time around, if only because the foreign share of the domestic housing market is but a small sliver of a $1.07-trillion pie. And in markets where foreign buyers are most active, their pesos, pounds and rupees are being welcomed with open arms because they are helping unclog the logjam of unsold and foreclosed houses, a jam-up many believe must be cleared before residential real estate can regain its equilibrium.

“At a time when there are a lot of homes on the market and an overhang of distressed properties, an active foreign demand relieves these worries,” says Michael Fratantoni, vice president of research at the Mortgage Bankers Assn.

While most states have some international buyers, the Realtors group says foreigners are buying largely in four states — Florida, California, Texas and Arizona. Of those, only Texas is not being held back by a glut of unsold inventory.

More recent data square with the association’s findings. According to DataQuick, nearly 55% of all U.S. residential real estate sales to foreigners from May to November last year were in Florida, and more than 17% were in Arizona. Nearly 6% were in California, and close to 5% were in Nevada, another state hit hard by the housing downturn.

According to an analysis of Internet searches of U.S. real estate by foreigners in last year’s fourth quarter by Point2, a real estate technology company, Florida holds the most interest, followed by Arizona, Nevada and California.

None of this is terribly surprising. Not only are housing prices languishing in these spots, but most people prefer warmer climates. What may be surprising, though, is that many foreign buyers are not coming to the U.S. from that far away.

While the Realtors counted buyers from more than 70 countries, Canada accounted for nearly a fourth of all international sales, followed by China at 9% and India, Mexico and Britain each with a 7% share. Together, these five countries accounted for 53% of the transactions.

Canadians have always been big investors in American real estate, especially in warmer climates. But Saul Klein of Vancouver, Canada, firm Point2 says interest is also keen among Canadians in states such as Michigan, which is close to home. Michigan has been hit particularly hard by the downturn and, therefore, offers “very attractive” investment opportunities, Klein says.

But pure investment isn’t necessarily the main driver of the decision to buy houses in America, even if the buyers expect to use them only on vacations with family and friends. Rather, it’s foreign buyers’ desire to protect their money from the ravages of their own economies.

Even though the value of the U.S. dollar isn’t what it once was, most foreigners believe the U.S. is the “best place in the world” to park their money, says Faith Xenos of Singer Xenos, a Coral Gables, Fla., wealth management firm that works with Brazilian clients. “There is a certain allure and prestige to being a U.S. investor. So when people do well, they put their money in American real estate or a Swiss bank account,” Xenos says.

Most foreign purchases are in cash, if only because the long-term, big-ticket borrowing arrangements common in this country are, well, foreign to foreigners.

Stephen Davis, an immigration lawyer in Jacksonville, Fla., says foreigners can buy homes in the United States under several visa programs. But to grease the wheels a bit further, Sens. Charles E. Schumer, a New York Democrat, and Mike Lee, a Utah Republican, have introduced legislation that would grant three-year visas to those who spend at least $500,000 in cash on at least one house.

Noting the strong desire to own homes in places where the inventory of properties for sale is currently bloated, Schumer said of the measure: “This is a way of letting them live here and solving our housing crisis.”

FHA mortgages are poised to get more expensive

The FHA plans to impose limits on the amount of money that home sellers can contribute at closing and to raise mortgage insurance premiums.

By Kenneth R. HarneyLA Times March 11, 2012

Reporting from Washington—

If you’re considering buying a house with an FHA mortgage and expect the seller to help out with your closing costs, here’s a heads-up: The Federal Housing Administration plans to impose significant restrictions on the amount of money that sellers can contribute at closing in the near future.

On top of that, the FHA also will be raising its mortgage insurance premiums during the coming weeks, increasing charges for new purchasers across the board.You might ask, why hit us with additional financial burdens right now, just as housing is showing modest signs of recovery in many areas and the spring buying season is getting underway?

One big reason: Over the last six years, the FHA has been the turnaround champ of residential real estate, offering down payments as low as 3.5% despite the recession and housing bust and growing its market share to 25%-plus from 3%. The program is financing 40% or more of all new-home purchases in some metropolitan areas and is a crucial resource for first-time buyers and moderate-income families, especially minorities. With a maximum loan amount of $729,750 in high-cost areas, it is also a force in some of the country’s most expensive markets — California, Washington, D.C., New York and parts of New England.

But during the same span of rapid growth, the FHA’s insurance fund capital reserves have steadily deteriorated — far below congressionally mandated levels. Delinquencies have been increasing. According to the latest quarterly survey by the Mortgage Bankers Assn., FHA delinquencies rose to 12.4%, compared with a 4.1% average for prime (Fannie MaeFreddie Mac) conventional fixed-rate mortgages and 6.6% for VA loans.

As a result, the FHA is under the gun — with Congress and within the Obama administration — to get its own house in order, cut insurance claims and rebuild its reserves. The upcoming squeezes on seller contributions and bumps in premiums are steps in this direction.

The seller-contribution cutbacks could be painful, particularly in areas of the country where closing costs and home prices are relatively high.

Here’s what’s involved: Traditionally the FHA has been uniquely generous in allowing home sellers — including builders marketing new construction — to sweeten the pot for purchasers by chipping in money to defray closing costs. The FHA now allows sellers to pay up to 6% of the price of the house toward their buyers’ closing expenses. Fannie Mae and Freddie Mac, by comparison, cap contributions at 3%. The VA’s ceiling is 4%.

Under newly proposed rules, the FHA cap would drop to the greater of 3% of the home price or $6,000. In sales involving houses priced at $100,000 or less, this wouldn’t change anything ($6,000 equals 6% of $100,000). But on all sales above this threshold, the squeeze would get progressively tighter.

On a $200,000 home, a buyer could today ask the seller to pay for $12,000 of a long list of settlement charges including all prepaid loan expenses, discount points on the loan, interest rate buy-downs and upfront FHA insurance premiums, among others. Under the proposed cutback, the maximum amount would be slashed in half.

On many home transactions, the reductions would force sellers to lower their prices to enable cash-short buyers to get through the closing. In other cases, sales might simply be too far of a stretch for some purchasers.

The proposed cuts are open to public comment through the end of this month but are highly likely to be adopted in much the same form soon afterward. The FHA also is restricting the types of “closing costs” that sellers can pay. Six months’ or a year’s worth of interest payments or homeowner association dues in advance no longer will be permitted — a serious blow to many builders who use these as financial carrots.

Beyond these changes, FHA also plans significant increases in insurance premiums — upfront premiums will rise to 1.75% from 1%, effective April 1, and annual premiums will increase by 0.1% on all loans under $625,000 and 0.35% on mortgage amounts above that, effective June 1.

William McCue, president of McCue Mortgage Co. in New Britain, Conn., which does a sizable percentage of its business with the FHA, said the cumulative effect of all these increases “will not just crowd first-time buyers out of the FHA market, it will prevent them from owning a home that, absent these new costs, would be affordable.”

Bottom line: Nail down your FHA money and seller-contribution negotiations as soon as you can because later looks a lot more expensive.