Watchdog Highlights Fannie, Freddie Staffing Shortfall

A study by the Federal Housing Finance Agency's Office of Inspector General finds that regulators lack the staff to effectively oversee Fannie Mae and Freddie Mac and consequently have dialed down scrutiny of the government-sponsored enterprises. The report singles out the FHFA's monitoring of housing inventory owned by the GSEs. Despite a surge in foreclosures that has boosted Fannie Mae's inventory sixfold in the past four years, the study states that "FHFA has yet to conduct a targeted examination" of how the companies manage seized properties. Source: "Staffing Woes Harm Fannie and Freddie Oversight, Government Watchdog Says," Bloomberg (09/23/11)

Mortgage Rates Remain at Record Lows

The 15-year fixed-rate mortgage reached a new record low of 3.29 percent this week, as 30-year mortgage rates remained at the record low it reached last week, Freddie Mac reports in its weekly mortgage market survey. Here’s a closer look at mortgage rates for the week: 30-year fixed-rate mortgages: averaged 4.09 percent, matching last week’s record-hitting average. Last year at this time, 30-year rates averaged 4.37 percent. 15-year fixed-rate mortgages: averaged 3.29 percent, marking a new all-time record. Last week, 15-year rates averaged 3.30 percent, and a year ago at this time, it averaged 3.82 percent. 5-year adjustable-rate mortgages: averaged 3.02 percent this week, up from last week’s 2.99 percent average. Last year at this time, the 5-year ARM averaged 3.54 percent. 1-year ARMs: averaged 2.82 percent, up slightly from last week’s 2.81 percent. A year ago, the 1-year ARM averaged 3.46 percent. "A sluggish economy and investor concerns over the European debt markets left mortgage rates largely unchanged this week,” says Frank Nothaft, Freddie Mac’s chief economist. Housing data remained mixed this week with new-home construction dropping 5 percent in August, while existing-home sales rose 5 percent in August. By Melissa Dittmann Tracey, REALTOR® Magazine Daily News

How Much Longer Will Housing Remain Sluggish?

The weak U.S. economy will likely dampen the housing market until 2015, according to a new survey of economists, analysts, and real estate professionals. Home prices are expected to grow only slightly at 1.1 percent annually through 2015, the survey by MacroMarkets LLC and Pulsenomics notes. Yet, some local markets may see — or already are seeing — larger home price growth. The report also notes that home price expectations for 2011 are not as dismal as once forecasted. Home prices haven’t fallen anywhere near the pace of 2008. Still, "average projection is somewhat more negative for each of the following four years," according to the report. More home owners continue to be underwater on their mortgage and foreclosures continue to grow. Meanwhile, lawmakers are trying to come up with ways to stimulate the housing market, including urging banks to write down loan balances for borrowers seriously underwater or loosening standards to allow more home owners to refinance at current low mortgage rates. Recovery would also involve working with federal regulators on ways to rent out or clear the high inventory of foreclosed homes plaguing many markets. Source: “Home Forecast Calls for Pain,” The Wall Street Journal (Sept. 21, 2011) and “Five More Years of Housing Problems, With Some Stability in Local Markets,” HousingWire (Sept. 21, 2011)

Fed’s Latest Move May Send Rates Lower

The Federal Reserve announced Wednesday it will invest $400 billion in long-term Treasury securities over the next nine months, which is expected to send interest rates on mortgages even lower. The Fed’s move is yet another attempt to try to stimulate economic growth, which has faced stagnation in employment, housing, and household spending over the past couple of years. "This program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative," the Fed said in a statement Wednesday. Mortgage rates have already been reaching record lows in recent weeks, but the Fed’s latest efforts are expected to send rates dropping even further. Economists predict that interest rates could drop by a few tenths of a percentage point, which would be significant to anyone getting a loan to purchase a home. However, tough lending standards remain an obstacle that is keeping many home buyers on the sidelines. Banks have tightened their lending standards, which have made even some buyers with good credit struggle to qualify for the best rate. Source: “Fed Will Shift Debt Holdings to Lift Growth,” The New York Times (Sept. 21, 2011)

Down Payment Remains Obstacle to Home Ownership

More than half of renters who wish to buy a home say they are unable to because they’re not able to save enough for a down payment, according to Trulia’s Fall 2011 American Dream survey. Lack of a down payment proved to be the biggest obstacle for young adults (18-34 year olds), as 62 percent cite it as the reason they have been unable to buy a home. Among those aged 35-54, the bigger concern was qualifying for a loan and having a poor credit history, the survey found. “From saving enough for a down payment to qualifying for a mortgage and having a poor credit history, today’s aspiring home owners face many financial obstacles in order achieve their American Dream of home ownership,” says Jed Kolko, Trulia’s chief economist. “These obstacles keep some would-be home owners from taking advantage of low mortgage rates. On the other hand, they prevent some people from buying homes they can’t really afford. Government home ownership policies can target some of these obstacles to home ownership, but only stronger economic recovery will help households facing multiple obstacles become better able to buy homes.” Home Ownership Still Ranks High Despite the sluggish real estate market, Americans aren’t turned off to home ownership. In fact, 70 percent of Americans say home ownership is part of achieving the American Dream, according to Trulia’s survey. Fifty-seven percent of current home owners say owning a home is among the best long-term investments they could make, and 80 percent of home owners said they plan to buy another home in the future. By REALTOR® Magazine Daily News

August Existing-Home Sales Leap Despite Headwinds

Existing-home sales increased in August, even with ongoing tight credit and appraisal problems, along with regional disruptions created by Hurricane Irene, according to the NATIONAL ASSOCIATION OF REALTORS®. Monthly gains were seen in all regions. Total existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, rose 7.7 percent to a seasonally adjusted annual rate of 5.03 million in August from an upwardly revised 4.67 million in July, and are 18.6 percent higher than the 4.24 million unit level in August 2010. Lawrence Yun, NAR chief economist, said there are some positive market fundamentals. “Some of the improvement in August may result from sales that were delayed in preceding months, but favorable affordability conditions and rising rents are underlying motivations,” he said. “Investors were more active in absorbing foreclosed properties. In additional to bargain hunting, some investors are in the market to hedge against higher inflation.” Investors accounted for 22 percent of purchase activity in August, up from 18 percent in July and 21 percent in August 2010. First-time buyers purchased 32 percent of homes in August, unchanged from July; they were 31 percent in August 2010. All-cash sales accounted for 29 percent of transactions in August, unchanged from July; they were 28 percent in August 2010; investors account for the bulk of cash purchases. “We had some disruptions from Hurricane Irene in the closing weekend of August, when many sales normally are finalized, along the Eastern seaboard and in New England,” Yun said. “As a result, the Northeast saw the smallest sales gain in August, and some general impact is expected in September with widespread flooding from Tropical Storm Lee. Aberrations in housing data are possible over the next couple months as markets recover from disrupted closings and storm damage.” Yun said an extremely important issue currently is the renewal and availability of the National Flood Insurance Program, scheduled to expire at the end of this month. “About one out of 10 homes in this country need flood insurance to get a mortgage, and we would see significant negative market impacts without it,” he said. According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to 4.27 percent in August, down from 4.55 percent in July; the rate was 4.43 percent in August 2010. Last week, Freddie Mac reported the 30-year fixed rate fell to a record low 4.09 percent. NAR President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I., said the market is remarkably affordable for people with secure jobs, good credit and long-term plans. “All year, the relationship between home prices, mortgage interest rates and family income has been hovering at historic highs, meaning the best housing affordability conditions in a generation,” he said. “The biggest factors keeping home sales from a healthy recovery are mortgages being denied to creditworthy buyers, and appraised valuations below the negotiated price. Buyers may be able to find more favorable credit terms with community and small regional banks, and Realtors® can often give buyers advice to help them overcome some of the financing obstacles,” Phipps said. Contract failures – cancellations caused largely by declined mortgage applications or failures in loan underwriting from appraised values coming in below the negotiated price – were reported by 18 percent of NAR members in August, up from 16 percent July and 9 percent in August 2010. The national median existing-home price for all housing types was $168,300 in August, which is 5.1 percent below August 2010. Distressed homes – foreclosures and short sales typically sold at deep discounts – accounted for 31 percent of sales in August, compared with 29 percent in July and 34 percent in August 2010. Total housing inventory at the end of August fell 3.0 percent to 3.58 million existing homes available for sale, which represents an 8.5-month supply at the current sales pace, down from a 9.5-month supply in July. Single-family home sales rose 8.5 percent to a seasonally adjusted annual rate of 4.47 million in August from 4.12 million in July, and are 20.2 percent above the 3.72 million pace in August 2010. The median existing single-family home price was $168,400 in August, which is 5.4 percent below a year ago. Existing condominium and co-op sales increased 1.8 percent a seasonally adjusted annual rate of 560,000 in August from 550,000 in July, and are 8.3 percent higher than the 517,000-unit level one year ago. The median existing condo price was $167,500 in August, down 3.3 percent from August 2010. Regionally, existing-home sales in the Northeast increased 2.7 percent to an annual pace of 770,000 in August and are 10.0 percent above a year ago. The median price in the Northeast was $244,100, which is 5.1 percent below August 2010. Existing-home sales in the Midwest rose 3.8 percent in August to a level of 1.09 million and are 26.7 percent above August 2010. The median price in the Midwest was $141,700, down 3.5 percent from a year ago. In the South, existing-home sales increased 5.4 percent to an annual pace of 1.94 million in August and are 16.9 percent higher than a year ago. The median price in the South was $151,000, which is 0.8 percent below August 2010. Existing-home sales in the West jumped 18.3 percent to an annual pace of 1.23 million in August and are 20.6 percent higher than August 2010. The median price in the West was $189,400, down 13.0 percent from a year ago. Source: NAR

Fannie, Freddie May Hike Fees in 2012

In overhauling Fannie Mae and Freddie Mac, the government may require more private mortgage insurance from borrowers and charge lenders higher fees to guarantee loans--moves that could increase borrowing costs, Edward DeMarco, acting director of the Federal Housing Finance Agency, said this week at a mortgage conference in Raleigh, N.C. Such steps are aimed at making the mortgage market more competitive and trim costs to the federal government by $28 billion over 10 years. The government-sponsored enterprises buy loans from lenders and package them into securities that are then sold to investors. The GSEs charge a “guarantee fee” when they buy mortgages, a fee likely to be raised in 2012. The increase could lead to a modest increase to mortgage borrowers. “Increasing the guarantee fees by 0.1 percentage point, as the White House proposed, would raise the monthly cost of a $220,000 mortgage by about $15,” The Wall Street Journal article notes. Fannie and Freddie may also require borrowers to hold more private mortgage insurance to lessen the risks on taxpayers. The federal government took over the GSEs in 2008. Any changes would be made “gradually” to avoid harming the already fragile housing market, DeMarco said. Source: “Fannie, Freddie to Raise Fees,” The Wall Street Journal (Sept. 19, 2011) and “Mortgage Finance Head: Shift Risk From Treasury,” Associated Press (Sept. 19. 2011)

NAR Calls for Efforts to Reduce Foreclosure Inventories

Increased lending to creditworthy home buyers and more loan modifications and short sales are necessary to reduce the rising inventory of foreclosed homes and help stabilize and revitalize the housing industry and economy, according to the National Association of REALTORS®. That was the message delivered today by Allan Dechert, 2011 president of the New Jersey Association of REALTORS®, who testified on NAR’s behalf before the Senate Banking, Housing and Urban Affairs Subcommittee on Housing, Transportation, and Community Development regarding new ideas to address foreclosures. “As the leading advocate for homeownership, NAR knows that foreclosures don’t just affect the families that lose their homes – communities, the housing market and the economy all suffer,” said Dechert, broker-owner of Ferguson Dechert Real Estate in Avalon, N.J. “Ensuring credit availability to qualified buyers and helping more distressed homeowners with loan modifications and short sales will help reduce the growing inventory of foreclosed homes and ensure that housing leads the way out of today’s economic struggles.” Dechert said that creditworthy consumers continue to have difficulties securing fair and affordable loans despite their proven ability to afford the monthly payment. He said that NAR supports responsible lending standards; however, unnecessarily tight credit restrictions are putting downward pressure on home values, increasing the number of homeowners whose mortgage exceeds the value of their home, and adding to the number of foreclosures. “Increased fees, higher down payments and reduced loan limits are making it harder for borrowers to obtain safe and sound mortgage financing products. Greater access to financing for qualified borrowers and investors could help absorb the excess inventory of foreclosed properties,” said Dechert. In testimony, NAR also urged the lending industry to take greater action to keep struggling families in their homes through loan modifications that reduce the probability of default and prevent further increases to the large inventory of foreclosed properties. Helping more families remain current on their mortgage by significantly reducing their monthly mortgage payment will allow them remain in the home that they worked so hard to obtain and reduce the impact of foreclosures on local home prices. Dechert said that continued short sale delays are also contributing to foreclosures and urged lenders and servicers to quickly approve reasonable short sale offers that would allow home owners to avoid foreclosure. The current short sale process can be time-consuming and inefficient, and many would-be buyers end up walking away from a sale that could have saved a home owner from foreclosure. “Loan modifications – and short sales for those unable to meet their mortgage obligations – help stabilize home values and neighborhoods, and limit the losses incurred by lenders, the federal government and taxpayers,” said Dechert. “More must be done to streamline short sale transactions, since many potential home buyers are simply choosing to walk away from transactions due to the length of time it takes for lenders to approve and complete these sales.” Dechert also testified about the pooling and disposition of foreclosure inventories held by the Federal Housing Administration and Fannie Mae and Freddie Mac. NAR is concerned that, although bulk sales may quickly alleviate the large inventory of homes held by the agencies, those sales would likely result in larger losses than necessary. REALTORS® strongly believe that every effort should be made to incentivize individual versus bulk sales because individual sales maximize asset recovery and minimize the impact on housing values. Regarding another proposed option to combine foreclosure disposition with affordable rentals through lease-to-own programs, Dechert testified that the focus should be on keeping families in their homes whenever possible. He recommended that any lease-to-own programs be privately administered by local entities that understand the needs and challenges of their local communities. Source: NAR

Banks' REO Inventories Down by 17%

Banks held about 476,000 homes that they repossessed from delinquent mortgage borrowers as of the end of July, according to Barclays Capital. That tally represents a 17 percent contraction from 574,000 REOs on the books just 10 months earlier, in September of 2010, just as the robo-signing scandal began grabbing headlines. At the same time, the research firm estimates there were 1.57 million home loans 90-plus days delinquent but not yet in foreclosure at the end of July of this year, and another 1.91 million already in the foreclosure process. Barclays says the rise in processing times has been driven almost entirely by the time that loans spend in delinquency and foreclosure. The average period that loans spend in REO has risen only modestly since 2007, suggesting that any lengthening in disposition timelines has been a function of weaker demand for homes than of processing delays, Barclays explained. While processing timeframes have been trending up since 2007 as a result of the industry’s modification efforts and the deluge of delinquent loans, the research firm notes that timelines increased even more dramatically once mortgage documentation issues were uncovered in late 2010. According to Barclays’ analysis, the average number of months a loan has spent in foreclosure has climbed from around 10 months just before October 2010 to more than 12 months today. The firm’s analysts point out that whether a loan is located in a judicial or non-judicial state has a “considerable impact” on the amount of time the loan is likely to remain in the foreclosure process. Still, even within the judicial state population, loans in certain areas are showing much longer processing delays. For example, Barclays’ research shows that among the judicial foreclosure states, New York, New Jersey, and Florida all display longer-than-average foreclosure delays, with defaulted borrowers in New York currently remaining in the foreclosure bucket for an average of around 17 months. Although most non-judicial states process foreclosures relatively quickly because servicers are not required to obtain court approval before re-possessing delinquent properties, Barclays says even here, there is significant variation in processing times. The company’s report points to Massachusetts and Washington, D.C. as exhibiting extended processing delays. In particular, subprime loans in Massachusetts currently remain in the foreclosure bucket for an average of over 10 months. Barclays also found that servicers are more likely to offer loan modifications in traditionally slow foreclosure states, and empirical evidence indicates that servicers are a little more generous in their loan modification terms in slow foreclosure states. The company says debt forgiveness modifications have historically been slightly more prevalent in states where the foreclosure timeline has extended. “We found that 4-5 percent of loan modifications executed in slow foreclosure states in 2011 have involved some level of principal forgiveness, compared with 2-3 percent in fast foreclosure states,” Barclays said in its report. Barclays notes that another external factor that has historically driven processing delays on delinquent loans has been the servicer managing the loan. The company’s analysis shows that Ocwen and Wells Fargo have experienced a much more modest rise in their processing times relative to other servicers, particularly when it comes to servicing subprime and Alt-A loans. Barclays says it is also notable that prior to 2008, there was very little difference in foreclosure processing times between servicers as fewer distressed loans needed to be serviced. “With the large number of borrowers that have become delinquent in the past few years, some servicers have likely been overwhelmed with the volume of problem loans they have had to manage,” according to the research firm’s analysts. Although timelines have significantly increased for all states and sectors, Barclays says some servicers appear to have implemented improvements to their foreclosure processes recently. Notably, loans serviced by Countrywide and Citigroup have recently shown a pickup in delinquency to foreclosure roll rates, according to Barclays. “Although there may be a lag in the timing of when different servicers and states start to see improvements in timeline rolls, we hope to see further improvements from other servicers in the coming months,” the research firm said.

For Sale: 2BR/1BA Co-Op in Bayside, NY, $220,000

For Sale: 2BR/1BA Co-Op in Bayside, NY, $220,000

For Sale: 5BR/3+1BA Multi-Family in Mineola, NY, $487,500

For Sale: 5BR/3+1BA Multi-Family in Mineola, NY, $487,500

Foreclosure Sales Slow

While lenders have resumed foreclosures after putting them on hold as a result of an investigation into "robo-signing" a year ago, snags remain in the process. 1010data Inc. and CoreLogic Inc. report a drop in the number of foreclosed homes liquidated to 3.6 percent in June from 5.7 percent in August 2010. The number of homes entering the foreclosure pipeline tops the number being sold by banks. The delays help home owners hang onto their properties longer and aid the economy in the short term, but make it difficult for new buyers to close on foreclosed properties. Source: “Effort on Home Loans Stalls," The Wall Street Journal (Sept. 19, 2011)

'Mortgage Mess' Costs Banks Nearly $66 Billion

Mortgage and foreclosure abuses have costs the country’s five largest lenders nearly $66 billion — and that number will likely double by the end of the fallout, according to a Bloomberg News report. Bank of America Corp., whose CEO has referred to the situation as the “mortgage mess,” has faced the largest losses of any lender at $39.1 billion since the start of 2007, Bloomberg found. JPMorgan Chase & Co. followed with $16.3 billion, and Wells Fargo & Co. had $5.09 billion. Paul Miller, an FBR Capital Markets & Co. analyst, told Bloomberg that he thinks the costs for all banks could surpass $121 billion when the final bill comes due for lax lending practices. He predicts that Bank of America, Wells Fargo, JP Morgan, and Ally Financial Inc. will face 60 percent of the burden (Bank of America alone may shoulder 33 percent of that). “You’re not talking about improperly stapling together two documents, you’re talking about systematic fraud in the system,” Neil Barofsky, the former special inspector general for the U.S. Treasury’s Troubled Asset Relief Program, told Bloomberg News. “What this shows is that before the financial crisis, the banks were essentially lying to the purchasers of the mortgages about the quality.” Analysts predict banks will face more claims if home values continue to fall and foreclosures still rise. Source: “Mortgage Debacle Costs Banks $66 Billion as Suits Sap Profits,” Bloomberg (Sept. 16, 2011)

House Fails to Vote on Extending Loan Limits

Conforming loan limits on government-backed mortgages at Fannie Mae and Freddie Mac are set to expire on Oct. 1, because attempts to extend them haven't gain traction in Congress. In 2008, Congress raised the limits up to $729,750 in some areas to make larger mortgages available in high-priced housing markets. The limits will drop to $625,500 on Oct. 1 in the many areas of the country, mostly affecting housing markets on West and East Coasts. The Conforming Loan Limits Extension Act introduced in July by Reps. John Campbell (R-Calif.) and Rep. Gary Ackerman (D-N.Y.) would allow GSEs and the Federal Housing Administration to purchase or guarantee mortgages worth as much as $729,750 in most areas. (Additionally, Reps. Brad Sherman (D-Calif.) and Gary Miller (R-Calif.) introduced a bill in May to make the loan limits permanent.) Another bill, the Homeownership Affordability Act of 2011, introduced in August by Senators Robert Menendez (D-N.J.) and Johnny Isakson (R-Ga.) would keep the higher limits in place by increasing the guarantee fees charged on loans between $625,500 and $729,500. (Guarantee fees are charged by loan guarantors prior to bundling mortgages into securities.) None of the bills in the House and Senate to extend the loan limits have been voted upon. The Conforming Loan Limits Extension Act, one of the House’s plans to extend the limits, failed to make it into a short-term spending bill, which will be voted on soon. "We are focusing all of our effort and attention on making sure that a temporary extension of the current conforming loan limits is included in an omnibus spending bill that it appears the House and Senate will consider late this year," said a spokesman for Rep. John Campbell, R-Calif., who introduced the bill in the House. The National Association of Home Builders has said it fears more than 17 million homes nationwide will become ineligible for more affordable federal funding if the loan limit expires. Federal Reserve Chairman Ben Bernanke has said he’s confident that the private market, including investors and insurers, would step up to fill the void when the conforming loan limits expired — although likely at a higher cost to borrowers. "We expect to see significant negative consequences for the struggling housing market as a result of the limit drop after Oct. 1," Campbell's office said. "Therefore, it will be even more pressing and pertinent that Congress acts quickly to reverse the limit reduction at the next opportunity." Source: “Extension of Conforming Loan Limits Fail in House,” HousingWire (Sept. 16, 2011) and “Senators Menendez and Isakson Call for Extending Higher Home Loan Limits to Boost Weak Housing Market,” Office of Sen. Johnny Isakson, R-Ga. (Sept. 16, 2011)