Month: August 2012

Senators press for tax relief on principal reductions, short sales

By Jon Prior

August 24, 2012

A group of senators are pressing Majority Leader Harry Reid, D-Nev., to allow a vote on a package of tax relief extensions set to expire this year, including a break for mortgage principal forgiven in loan modifications or short sales.

Homeowners who receive a principal reduction or a short sale next year will be required to pay taxes on the debt forgiven if Congress does not extend the Mortgage Debt Relief Act of 2007. The law expires Dec. 31. Up to $2 million of reduced debt can be excluded from taxable income under an extender package to be introduced in the Senate early next week.

The Senate Finance Committee passed the Family and Business Tax Cut Certainty Act, which would extend the tax relief through 2013, by a 19-5 bipartisan vote earlier in the month. (Read a summary of the bill here).

“It just depends on when Mr. Reid will schedule a vote on the package,” a Senate Republican aide said.

Democrats said they will make the push as well for the package to be passed when Congress reconvenes next month.

“These tax cuts will reassure families, help spur job growth and boost the economy,” Sen. Max Baucus, D-Mont., chairman of the finance committee said after the package passed earlier in the month.

The extension for providing relief on the mortgage debt reductions could cost $1.3 billion in lost revenue, according to an analysis of the bill.

But Baucus added it was an example of what Congress needs to do in order to avoid a looming “fiscal cliff” and solve a larger fight over extending the Bush era tax cuts for the rich.

Congress is also considering several programs to reduce principal for the roughly 11 million borrowers who owe more on their mortgage than their house is worth. Those programs would be rendered even less effective if borrowers elect not to take the relief in order avoid paying taxes on the assistance.

The $25 billion settlement between the five largest mortgage servicers and the state attorneys general earlier this year will provide some principal reduction next year along with expanded incentives from the Home Affordable Modification Program.

Mortgage bond analysts at JPMorgan Chase ($37.35 0.18%) expect roughly 650,000 short sales by the end of 2012, which may only increase as these types of liquidations become more popular.

Fannie Mae and Freddie Mac will ease rules beginning Nov. 1 to speed up the short sale process on the loans they guarantee, even for borrowers still current on their mortgage.

According to Morgan Stanley ($14.54 -0.02%) research, short sales took up a larger percentage of distressed sales than REO earlier in the year. (Click on the graph below to expand.)

Banks and mortgage servicers have even begun sending large incentive payments directly to the borrower in order to ease the move after a short sale. But unless Congress acts on the extender package, those checks may be going to the government instead.

2 reports show Calif. real estate on a roll


Two reports show California real estate on a roll.

California home sale prices came close to a 4-year high in July, with the pace of sales year-over-year growing for the fourth month in a row, the California Association of Realtors says.

Article Tab: image1-2 reports show Calif. real estate on a roll

“It’s hard to generalize the state of California’s housing market because the markets are so diverse and are performing so differently,” LeFrancis Arnold, the association’s president, said.

“REO-dominated areas (of homes seized by banks) such as those in the Inland Empire and Central Valley are experiencing sales constraints due to an extreme shortage of available homes,” he said. “On the other hand, a robust economy in the San Francisco Bay area and a relatively larger inventory at higher price levels is helping to fuel sales and prices.”

The July median price was the highest since August 2008, when it was at $352,730. July also marked the 5th straight month that the state’s median home price saw both month-over-month and year-over-year gains.

The report says:

•The median price of an existing single-family home (or price at the midpoint of all sales) was $333,860 last month, up 4.2% from $320,540 in June and nearly 13% from the state’s July 2011 median of $296,160 . During the housing crash, the state’s median price got as low as $245,230.

•July sales rose to an annualized pace of 529,230 homes – that is, homes that would sell if transactions were to occur for a year at July’s sales pace. That’s an increase of 15.3 percent over the pace in July 2011 – 459,140 homes.

•California’s housing inventory was pretty much flat in July, with the index of existing, single-family homes at 3.4 months compared to 3.5 months in June. However, July’s inventory was down from a revised 5.6-month supply in July 2011. The index indicates the number of months needed to sell the supply of homes on the market at the current sales rate. A seven-month “inventory” of homes for sale is considered normal.

In Orange County, prices slipped slightly, while sales had a dramatic increase. The association reported:

•The median house price was $551,160 in July, barely down from $551,510 the year before and down about 3% from June. The low since the housing crash was $442,170 in January 2009, CAR spokesperson Lotus Lou said in an interview.

•House sales in O.C. were up 32.1% from year-ago levels.

•The county’s “inventory” of homes for sale was at a 4-month supply, down a bit from 4.2 months in June and plunging from 7.5 months in July 2011.

Another indication of improvement in the state’s real estate sector: California added the most new construction jobs in the country in the year ended July, a construction industry report shows.

An analysis of federal data by the Associated General Contractors of America found California’s construction bosses adding 27,300 jobs in the year ended in July — or a 5 percent jump — bringing the workforce to 576,300. California was followed in construction job creation by Texas (22,900, up 4.1 percent) and Indiana (9,300, up 7.8 percent).

But construction employment dropped in 31 states year over year as of July, the report says, and in 28 states in the past month.

Florida lost the most jobs year over year (-16,900, down 5.2 percent), followed by Illinois (-9,800, down 5 percent) and Missouri (-9,500, down 9.2 percent.

California slipped by 0.2% since June.

Association officials pointed to shrinking public construction budgets as offsetting homebuilding and non-residential construction gains.

Ken Simonson, AGCA chief economist, said: “Public constructions cuts in particular are taking their toll on construction employment in many parts of the country. With economic growth remaining sluggish, there is a chance construction employment will begin to slip in even more places.”

The group is urging officials in Washington to provide employers with more certainty about future tax rates and enact various infrastructure measures.

Consumer bureau wants to open a window on home appraisals

The Consumer Financial Protection Bureau wants people to see full appraisal reports on homes they’re buying or refinancing as early in the mortgage process as possible.

By Kenneth R. Harney, LA Times

August 26, 2012

WASHINGTON — The Consumer Financial Protection Bureau wants you to see the full appraisal report on the house you’re buying or refinancing as early in the mortgage process as possible, and without your having to ask the lender for it.

This means all the comparable properties the appraiser selected, adjustments for property condition or location, plus all additional data — especially computer-generated estimates — that may have been used to arrive at the final value.

It also means you would get to see who performed the appraisal and whether he or she is merely licensed in the state or carries a professional designation — letters such as “SRA” after the name indicating higher levels of training and experience. Plus it would give you an idea about whether the appraiser is locally based and thus knowledgeable about neighborhood sales and listing trends, or has traveled from another part of the state.

Information like this can be crucial in an environment in which home sellers, buyers and realty agents routinely complain about botched appraisals that complicate or kill deals by coming in thousands of dollars below the contract price. In many cases, critics say, appraisers continue to inappropriately select distressed-sale comparables to value non-distressed transactions in areas where property values are rising. In a May survey of its members, the National Assn. of Realtors found that 33% of agents reported problems connected with appraisals that endangered sales.

The consumer bureau also wants to open the door to disclosure of fee-splitting information that typically is kept hidden from you: How much of your $450 to $600 in appraisal charges at closing will go to the appraiser, and how much will go to an unseen appraisal “management company” that may be owned by or affiliated with your lender and is also getting a cut of the action?

In a proposal Aug. 16, the bureau said under its plan mortgage lenders would be required to provide copies of all written appraisals and other data used in the valuation “promptly after receiving them,” but in no event later than three business days before the closing. This would include the electronic automated valuation models (AVMs) widely used by lenders and management companies to supplement standard reports.

AVMs, which depend on public records rather than on-site observations, have been criticized by some appraisers and realty agents as being tools to keep appraised values below contract prices agreed upon by sellers and buyers in rebounding markets. Banks defend their use as safeguards against overvaluation and subsequent losses in the event of default.

Pat Turner, who has a senior residential appraiser (SRA) designation and is active in the Richmond, Va., area, has a different term for them: “interference” in the work of the local appraiser. He says appraisers often submit their reports to management companies only to hear back that an AVM has located alleged “comps” indicating that the value should be below what the appraiser reported.

In one recent appraisal assignment, Turner said, a bank’s management company told him to consider two lower-cost comparables identified by an AVM that would have significantly depressed the valuation he submitted. He refused, he said, because he knew the objective was simply to “push the value down” so that the bank could limit the loan amount.

The consumer bureau also has issued proposals for revisions to the current closing cost sheets used nationwide for real estate transactions. Among the changes: an option to include a breakout of the appraisal charges paid by borrowers. The first would be the amount that the appraiser receives. The second line would be what the appraisal management company takes.

The fact that appraisal management companies are pocketing big chunks of the borrowers’ appraisal payments generally is unknown to most consumers. In some cases, the appraisal charge may be $500 and the appraiser is being paid $200 to $250 — much less than the traditional fee before the advent of management companies. Critics connect these low payments with the rising level of complaints about incompetent appraisals, often performed by newcomers to the field or less experienced individuals who agree to work for less.

The consumer agency’s proposals won’t be finalized for months, but in the meantime you as a consumer can ask: Where are my appraisal payments going? To the appraiser? Or into the coffers of my lender? If it’s the latter, what’s the justification for the charge? The answers could be troubling.

Home prices expected to climb slowly

August 19th, 2012,  by 

 OC Register

How’s the Orange County housing market doing these days? We asked four insiders to share their views after DataQuick reported that home prices had edged up 2.9% and sales were up 25.7%.

Here are their responses …

Us: What are the one or two most salient developments you’re seeing in O.C.’s residential market now?

There is pent-up seller demand for many who do not have the equity with which to work. Only banks for whom equity is no issue have been the inventory drivers. It will be some time before prices inch their way up enough to allow many sellers to again participate in the move-up market.Patrick Veling, president of Real Data Strategies: Lack of inventory is the biggest market driver at the moment, and is inflating prices via heavy buyer competition.

These numbers do show the influence of a similar lack of inventory of new homes. Where can you buy a new home in Orange County these days when you want to move in within 60 or 90 days?

Lesslie Giacobbi, agent for Seven Gables Real Estate: The two most salient developments I am seeing is that there is very little inventory in resale homes.  It is tremendously difficult to locate a home for a client, write your offer without competing against multiple offers, and getting your offer accepted.

All agents are having a rough time finding properties.  This is consistent with the 33% change of listings sold reported by DataQuick.  As the inventory decreases, it is increasingly difficult.

One of my biggest problems is selling some of the high-end housing and having an appraisal that does not come in.  Not only does it not come in at sales price, but sometimes the appraisals are $200,000 and $300,000 short.  While many of us do understand that it is often difficult to find comps, appraisers are not given enough latitude to really look at a property and what makes it so desirable that a buyer wants to pay a certain price for it.

Mark Boud, president of Real Estate Economics: Increases in sales volume and significant declines in distressed housing inventory.

Maria Elena Banks, president of the Orange County Association of Reators: This is shaping up as a once-in-a-decade opportunity to own a home in Orange County.  Homebuyer confidence has returned for one, and low borrowing rates and (higher) rents are attracting investment at higher than normal levels.

Us: Are home prices back up to 2010 levels because there are more standard sales (a change in the mix) or because home values truly are rising?

Boud: Mainly because of a change in mix.  As distressed inventory has declined, more ‘normal’ sales are occurring, bringing up the average, but not necessarily translating to the significant price appreciation levels associated with the percentage increases DataQuick shows.

Still, prices are now stable throughout the county, and are beginning a mild upward trend.

Banks: The fence is no longer a comfortable place to sit.  Buyers are jumping off to follow investors, lured by low rates and the sense that prices will rise in the future as the economy improves.

Much like stock prices, rising home prices now reflect an expectation that prices will in fact be higher down the road.  Remember the advice Warren Buffet gave his investors earlier this year, which was essentially that held over time and acquired at low rates, houses are an even better investment than stocks.

Giacobbi: There are more standard sales, fewer REOs, and also fewer short sales right now.  This certainly accounts for some of the increase in pricing along with the competition in the market place.  So the rise is due to both factors.

Veling: The median price is driven more by changes in the mix of homes that are selling than by the actual value of any specific home or homes. However, consider that as the mix changes, values below the midpoint usually increase over time as sellers have opportunity to raise their prices. I believe that’s what we will soon see.

Us: House sales are up way more than condo sales. Is that because supply is constrained for condos?

Veling: SFRs (single-family residences) are still the product of choice. Condos and attached properties have all of the baggage of HOA fees and proximity to neighbors. In addition, financing them is not as easy as SFRs due to many projects not being on the GSA (Fannie and Freddie) approved financing lists resulting from heavy foreclosure activity and balance of owner-occupied to rental units.

Giacobbi: House sales are up for several reasons:  Houses have proven to be a better investment if people can afford them.  In addition, there are many condos that are distress sales…short or REO.

It is hard to do a short sale often with a condo, because the Associations are insisting on getting their back payments and much of the time there is simply not enough money to get them what they want.  As a result, the condos go back to the bank.   There is also a lot of litigation and additional HOA problems.

Banks: Yes, there is very little inventory for condos right now in south Orange County.  I believe it’s a result of investors choosing real estate as the option which best balances their risk and return.  I also think that while many would prefer to buy a single family home, today’s tight credit market means that they only qualify for the relatively lower priced condo market.

Boud: Condos have been ‘picked over’ quite a bit.  Listings are down for condos, while resale listings for sfr’s remain relatively plentiful.

Us: Just 93 new homes sold in July (vs. the average of 150 for the past year). How come?

Boud: Because there is very low supply of new homes.  This changes next year, with the introduction of Sendero and other master plans.

Giacobbi: There are few new homes available on the market right now.  For many buyers, they can buy a resale that is newer with all of the landscape completed, window covers, outdoor patios, BBQs etc. for the same price, already done.

In most cases, especially  the high end, you cannot begin to build (at the cost) you can buy an exact re-sale house for.  So many sellers today bought three to five years ago, spent hundreds of thousands of dollars in improvements, and now are selling for less than their purchase.  That is the reason we do not see spec builders building.

Banks: New construction has been down due to the economy, but it is starting to come back.

Us: What’s the outlook for the last half of 2012? Will the market gains hold?

Giacobbi: I think the market gains will hold — so long as we don’t have other serious economic issues.

Veling: The median price is likely to continue its slow climb. We will not see actual increases in specific property values unless the homes which sell are outstanding values compared to similar competing homes. That value is established by location, condition and realistic pricing that is not beyond what the neighborhood will bear.

Banks: As long as the job market and local economy continues to gain momentum, the sales and prices trends will continue to move slowly higher, governed somewhat by the availability of credit and appraised values.

Boud: Yes, but the improvements will continue to be very gradual and erratic.

No-fee mortgage option is on the way

By Jennifer Liberto @CNNMoney August 17, 2012

Richard Cordray, who runs the consumer bureau, announced new rules Friday that would limit fees on mortgages.

NEW YORK (CNNMoney) — Lenders would have to offer potential home buyers an option to get mortgages with no fees, under a rule proposed by the Consumer Financial Protection Bureau.

Generally, homeowners pay fees and points in exchange for lower overall interest rates on mortgage loans.

“Consumers have a hard time comparing loans when they are dealing with a bewildering array of points and fees,” said Richard Cordray, director of the Consumer Financial Protection Bureau, in a statement. “We want to provide consumers with clearer options and enable them to choose the loan that they believe is right for them.”

In the Dodd-Frank Act, Congress wanted to clean up the process of getting a residential mortgage, which was criticized as a contributing factor to the financial crisis. The idea was to ensure consumers understand the mortgage loans they’re offered, as well as all the accompanying fees.

While good news for consumers, the mortgage proposal is actually easier on lenders. Lawmakers banned extra fees and points on mortgage loans in cases when the originator makes a commission — which happens with most mortgages.

Under this proposed rule, the bureau would allow lenders to keep offering consumers options to reduce their mortgage interest through fees and points, as long as those fees and points actually reduce the overall interest rate on the mortgage. Lenders must offer the no-fee mortgages as well.

A senior official with the consumer bureau explained that the rule was a balance between a blanket ban on fees and the current origination process, which has no rules for mortgage fees. Consumer groups and those in the lending industry weighed in, saying it would be better to keep giving consumers the opportunity to lower interest rates by paying more up front.

The bureau will now collect comment on the rules and finalize them to take effect by January. To top of page

Housing market improved a bit in summer

Jonathan Ernst / REUTERS

A U.S. flag decorates a for-sale sign at a home in the Capitol Hill neighborhood of Washington, D.C.

By NBC News and wire services 08/22/12

More Americans purchased previously-owned homes in July, suggesting improvement in the beleaguered housing market over the summer.

Existing home sales rose 2.3 percent last month, with sales rising to a seasonally adjusted annual rate of to 4.47 million units, up from 4.37 million units in June, the National Association of Realtors said Wednesday. That was just below analysts’ expectations of a 4.52 million-unit rate. Sales were 10.4 percent above the 4.05 million-unit pace in July 2011.

Low interest rates and a modest improvement in the labor market helped home buying conditions, the NAR said.

“Mortgage interest rates have been at record lows this year,” said the NAR’s chief economist Lawrence Yun, adding that the labor market was also showing signs of improvement.

“Combined, these factors are helping to unleash pent up demand,” he said. “However, the market is constrained by unnecessarily tight lending standards and shrinking inventory supplies, so housing could easily be much stronger without these abnormal frictions.”

The NAR said it is asking the government to expeditiously release the foreclosed properties it owns in inventory-constrained markets.

Nationwide, the median price for a home resale was $187,300 in July, 9.4 percent higher than in the same month a year earlier.

In June, sales declined 5.4 percent to a seasonally adjusted annual rate of 4.37 million.

Wednesday’s housing number could be a sign of strength for the housing market, which is beginning to recover from the after-effects of the financial crisis.

Recent data suggest that the housing market, which has suffered over the past six years, is perking up, with sales and prices becoming stable.

But home building now plays a much smaller economic role than it did before the 2007-2009 recession, and a turn for the worse in the broader economy could easily undo housing’s incipient recovery.

“We think the housing sector has turned a corner and demand will continue to improve,” said Michelle Girard, a senior economist at Royal Bank of Scotland in Stamford, Ct.

“The data also underscores the fact that improvement will be gradual. What would help the housing sector would be a stronger economy, better job growth, and easier financing conditions. I still think it’s difficult to get a mortgage loan, that’s hindering activity.”

A separate report Wednesday showed applications for U.S. home mortgages tumbled last week, with demand for refinancing drying up as mortgage rates jumped to their highest level since late June.

Regulator warns against use of eminent domain to refinance homes

August 08, 2012|By Steve Goldstein

LA Times

WASHINGTON — The regulator for mortgage giants Fannie Mae and Freddie Mac on Wednesday warned against the use of eminent domain to restructure home loans.

San Bernardino County has proposed using such powers to seize distressed mortgages at a discount and then refinance them for struggling homeowners. Chicago officials also are considering the idea, according to reports. Although mortgage rates are near record lows, underwater homeowners are essentially blocked from refinancing their loans.

According to CoreLogic, some 11.4 million, or 23.7%, of all residential properties with a mortgage are “underwater” or “upside down,” meaning that borrowers owe more on their mortgage than their homes are worth. There are federal programs to aid such borrowers, but so far they are only available to a small segment of those mortgage holders.

The Federal Housing Finance Agency made clear its opposition to the use of eminent domain for fixing mortgages.

“As conservator of Fannie Mae and Freddie Mac and regulator of 12 Federal Home Loan Banks, FHFA has significant concerns about the use of eminent domain to revise existing financial contracts and the alteration of the value of the companies’ securities holdings,” the agency said in a statement.

“FHFA has determined that action may be necessary on its part to avoid a risk to safe and sound operations at its regulated entities and to avoid taxpayer expense. Additionally, FHFA has concerns that such programs could negatively affect the extension of credit to borrowers seeking to become homeowners and on investors that support the housing market,” it added.

Lobbyists for banks and securities firms such as the Securities Industry and Financial Markets Assn. have made similar points. Treasury Secretary Timothy F. Geithner was cool to the idea when asked at a congressional hearing last month.

Geithner recently clashed with the head of the FHFA, Edward DeMarco, over the agency’s refusal to engage in mortgage principal write-downs.