Ben Bernanke, the Federal Reserve chairman, says keeping interest rates low will spur loan demand and eventually help improve banks’ profitability in the long run, The Wall Street Journal reports.
The Fed has made a rare vow to keep key rates “exceptionally low” until late 2014.
But banks have expressed concern over the Fed’s low-interest-rate policy, saying that it is costing them profitability and that overly strict regulations on banks’ are preventing an increase in lending activity.
"The purpose of the Federal Reserve's policy of low interest rates is to speed the economic recovery, which will increase loan demand and opportunities for profitable lending, among many other benefits, and thus, ultimately, lead to higher net interest margins," Bernanke said at a community banking conference in Arlington, Va., on Thursday.
Source: “Bernanke: Fed's Low Rates Should Help Bank Profitability In Long Run,” The Wall Street Journal (Feb. 16, 2012)
Friday, February 17, 2012
30-Year Rates Continue to Hold at Record Lows
Fixed-mortgage rates continue to hover at record lows, with the 30-year fixed-rate mortgage staying at the record low of 3.87 percent since the first week of February, Freddie Mac reports in its weekly mortgage market survey. The 30-year fixed-rate mortgage, the most popular choice among home buyers, has been below 4 percent for the past 11 weeks.
Here’s a closer look at mortgages rates for the week ending Feb. 16:
30-year fixed-rate mortgages: averaged 3.87 percent, with an average 0.8 point, matching last week’s average. A year ago at this time, 30-year rates averaged 5 percent.
15-year fixed-rate mortgages: averaged 3.16 percent, with an average 0.8 point, also matching last week’s average. Last year at this time, 15-year rates averaged 4.27 percent.
5-year adjustable-rate mortgages: averaged 2.82 percent this week, with an average 0.8 point, dropping slightly from last week’s 2.83 percent average. Last year, 5-year ARMs averaged 3.87 percent.
1-year ARMs: averaged 2.84 percent, with an average 0.6 point, rising from last week’s 2.78 percent average. A year ago at this time, 1-year ARMs averaged 3.39 percent.
Source: Freddie Mac
Here’s a closer look at mortgages rates for the week ending Feb. 16:
30-year fixed-rate mortgages: averaged 3.87 percent, with an average 0.8 point, matching last week’s average. A year ago at this time, 30-year rates averaged 5 percent.
15-year fixed-rate mortgages: averaged 3.16 percent, with an average 0.8 point, also matching last week’s average. Last year at this time, 15-year rates averaged 4.27 percent.
5-year adjustable-rate mortgages: averaged 2.82 percent this week, with an average 0.8 point, dropping slightly from last week’s 2.83 percent average. Last year, 5-year ARMs averaged 3.87 percent.
1-year ARMs: averaged 2.84 percent, with an average 0.6 point, rising from last week’s 2.78 percent average. A year ago at this time, 1-year ARMs averaged 3.39 percent.
Source: Freddie Mac
Housing Starts Post Highest Level in 3 Years
Housing starts rose 1.5 percent in January from December, led by a surge in apartment construction, the Commerce Department reported Thursday.
Housing starts in January reached a seasonally annual rate of 699,000 units, reaching its highest level since October 2008.
The main reason for the January increase was due to a 14.4 percent rise in groundbreaking on rental properties or buildings with five units or more.
However, while multifamily units saw a rise in January, the construction of single-family homes had a modest drop of 1 percent for the month. The January decrease follows a strong 12 percent gain in single-family construction in December.
While single-family home construction has made strides over the last few months, construction still remains low and is at about half the rate that is considered healthy for the sector.
Still, more builders are feeling encouraged about the signs of a gradual recovery in the new-home market. Building permits in January, a future gauge to construction, ticked up 0.7 percent. Also, a recent index showed that builder sentiment was at its highest level in nearly five years.
Source: “Single-Family Homes Cool off After December Jump; Apartments Rebound as Starts Rise 1.5%,” Associated Press (Feb. 16, 2012) and “Housing Starts Climb More Than Expected in January,” Reuters (Feb. 16, 2012)
Housing starts in January reached a seasonally annual rate of 699,000 units, reaching its highest level since October 2008.
The main reason for the January increase was due to a 14.4 percent rise in groundbreaking on rental properties or buildings with five units or more.
However, while multifamily units saw a rise in January, the construction of single-family homes had a modest drop of 1 percent for the month. The January decrease follows a strong 12 percent gain in single-family construction in December.
While single-family home construction has made strides over the last few months, construction still remains low and is at about half the rate that is considered healthy for the sector.
Still, more builders are feeling encouraged about the signs of a gradual recovery in the new-home market. Building permits in January, a future gauge to construction, ticked up 0.7 percent. Also, a recent index showed that builder sentiment was at its highest level in nearly five years.
Source: “Single-Family Homes Cool off After December Jump; Apartments Rebound as Starts Rise 1.5%,” Associated Press (Feb. 16, 2012) and “Housing Starts Climb More Than Expected in January,” Reuters (Feb. 16, 2012)
FSBO Site Founder Reaches Out to Real Estate Pros
ForSaleByOwner.com founder and former chief operating officer Colby Sambrotto made headlines in August 2011 when he hired a real estate broker to sell his Manhattan condo. Now he’s working to bridge the gap between FSBOs and real estate pros with his most recent online venture, USRealty.com.
The property listing Web site allows sellers to post their homes for sale for a fee, with costs running as high as $399. As a licensed brokerage, the company will then post those listings on multiple listing services in the sellers’ local markets.
As with his prior site, this new business aims to reduce expenses associated with real estate transaction — including commissions. However, Sambrotto said that USRealty.com is not an attempt at disintermediation, unlike ForSaleByOwner.com. He aims to get real estate professionals involved this time around.
“I learned a lot of lessons at ForSaleByOwner.com,” he told REALTOR® Magazine. “People want to buy and sell their homes without having to pay commissions. It was great at reducing transaction costs, but it didn’t sell enough houses to be the game changer I thought it would be.”
How can he persuade practitioners to participate in this site while reducing the amount of commission paid on transactions? By encouraging buyer’s agents to show their customers the listings on the USRealty.com site, he explained. If their buyers purchase a home listed on USRealty.com, they’ll get a standard 3 percent commission, Sambrotto said. Also, the site will refer unsuccessful sellers out to real estate pros in local markets.
Sambrotto said his goal is to provide a good experience for real estate professionals while serving a distinct section of the housing market.
“I want to have warm relations with agents: The fact that this model is what it is validates that,” he explained. “But at the end of the day, a lot of Americans cannot afford to pay those commissions. We’re here to serve a specific niche. There’s always been a segment of the market that’s not traditional. A lot of these people can’t sell their home in the traditional way.”
While he didn’t roll out USRealty.com with distressed home owners as the intended user, he said the site has drawn a great deal of interest from that group. “It wasn’t built with that specific purpose in mind, but that seems to be the consumer that’s most attracted to this,” Sambrotto said.
By Brian Summerfield, REALTOR® Magazine
The property listing Web site allows sellers to post their homes for sale for a fee, with costs running as high as $399. As a licensed brokerage, the company will then post those listings on multiple listing services in the sellers’ local markets.
As with his prior site, this new business aims to reduce expenses associated with real estate transaction — including commissions. However, Sambrotto said that USRealty.com is not an attempt at disintermediation, unlike ForSaleByOwner.com. He aims to get real estate professionals involved this time around.
“I learned a lot of lessons at ForSaleByOwner.com,” he told REALTOR® Magazine. “People want to buy and sell their homes without having to pay commissions. It was great at reducing transaction costs, but it didn’t sell enough houses to be the game changer I thought it would be.”
How can he persuade practitioners to participate in this site while reducing the amount of commission paid on transactions? By encouraging buyer’s agents to show their customers the listings on the USRealty.com site, he explained. If their buyers purchase a home listed on USRealty.com, they’ll get a standard 3 percent commission, Sambrotto said. Also, the site will refer unsuccessful sellers out to real estate pros in local markets.
Sambrotto said his goal is to provide a good experience for real estate professionals while serving a distinct section of the housing market.
“I want to have warm relations with agents: The fact that this model is what it is validates that,” he explained. “But at the end of the day, a lot of Americans cannot afford to pay those commissions. We’re here to serve a specific niche. There’s always been a segment of the market that’s not traditional. A lot of these people can’t sell their home in the traditional way.”
While he didn’t roll out USRealty.com with distressed home owners as the intended user, he said the site has drawn a great deal of interest from that group. “It wasn’t built with that specific purpose in mind, but that seems to be the consumer that’s most attracted to this,” Sambrotto said.
By Brian Summerfield, REALTOR® Magazine
Top 10 States for Foreclosures in January
Foreclosures ticked up in January nationwide as more banks continued to work through backlogs of defaulting mortgages on their books, RealtyTrac reports.
For more than five years, Nevada has been the state leader with the highest rate of foreclosure filings in the country. In January, one in every 198 homes received a foreclosure notice in the state.
Still, Nevada is seeing progress: The state saw an 8 percent decrease in foreclosure activity from December to January, and filings were down 52 percent year-over-year.
Here are the states that are still facing the highest foreclosure rates in the nation:
Nevada: 1 in every 198 homes received a foreclosure filing in January
California: 1 in every 265
Arizona: 1 in every 325
Georgia: 1 in every 328
Michigan: 1 in every 354
Florida: 1 in every 363
Illinois: 1 in every 369
Delaware: 1 in every 373
Colorado: 1 in every 523
Indiana: 1 in every 555
Nationwide, one in every 624 households received a foreclosure filing in January. (Read more from the latest nationwide foreclosure report from RealtyTrac.)
While Nevada may still have the highest rate of foreclosures among states, some individual cities are seeing even higher rates of foreclosures. The worst hit-place for foreclosures is Stockton, Calif., in which one out of every 140 households received a foreclosure notice in January. In fact, nine of the country’s top 10 highest foreclosure rates were in metro areas in California — with Las Vegas the only city outside of that state on the list (ranked at No. 5).
By Melissa Dittmann Tracey, REALTOR® Magazine Daily News
For more than five years, Nevada has been the state leader with the highest rate of foreclosure filings in the country. In January, one in every 198 homes received a foreclosure notice in the state.
Still, Nevada is seeing progress: The state saw an 8 percent decrease in foreclosure activity from December to January, and filings were down 52 percent year-over-year.
Here are the states that are still facing the highest foreclosure rates in the nation:
Nevada: 1 in every 198 homes received a foreclosure filing in January
California: 1 in every 265
Arizona: 1 in every 325
Georgia: 1 in every 328
Michigan: 1 in every 354
Florida: 1 in every 363
Illinois: 1 in every 369
Delaware: 1 in every 373
Colorado: 1 in every 523
Indiana: 1 in every 555
Nationwide, one in every 624 households received a foreclosure filing in January. (Read more from the latest nationwide foreclosure report from RealtyTrac.)
While Nevada may still have the highest rate of foreclosures among states, some individual cities are seeing even higher rates of foreclosures. The worst hit-place for foreclosures is Stockton, Calif., in which one out of every 140 households received a foreclosure notice in January. In fact, nine of the country’s top 10 highest foreclosure rates were in metro areas in California — with Las Vegas the only city outside of that state on the list (ranked at No. 5).
By Melissa Dittmann Tracey, REALTOR® Magazine Daily News
Housing Affordability Reaches New Records
Housing affordability rose to a record high during the fourth quarter of 2011, which means a home buyer’s purchasing power is greater than it ever has been before, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index.
The index showed that 75.9 percent of all new and existing homes sold in the fourth quarter were affordable to families earning the national median income of $64,200, according to the index. That marks the highest percentage recorded in the index’s 20-year history.
"While today's report indicates that home ownership is within reach of more households than it has been for more than two decades, overly restrictive lending conditions confronting home buyers and builders remain significant obstacles to many potential homes sales, even with interest rates at historically low levels," says Barry Rutenberg, chairman of the National Association of Home Builders.
Most Affordable Cities
According to the index, the most affordable major housing market was Youngstown-Warren-Boardman, Ohio, in which 95 percent of all homes sold during the fourth quarter were affordable to households earning the median family income of $54,900, according to the index.
Other top affordable housing markets include: Lakeland-Winter Haven, Fla.; Modesto, Calif.; Harrisburg-Carlisle, Pa.; and Toledo, Ohio.
Least Affordable Cities
However, some metro areas still remain too pricey for buyers. The least affordable major housing market during the fourth quarter was New York-White Plains-Wayne, N.Y.-N.J., in which 29 percent of all homes sold were affordable to those earning the area's media income of $67,400.
Other high-priced metro areas at the bottom of the affordability index include: Honolulu; San Francisco-San Mateo-Redwood City, Calif.; Santa Ana-Anaheim-Irvine, Calif.; and Los Angeles-Long Beach-Glendale, Calif.
Source: National Association of Home Builders
The index showed that 75.9 percent of all new and existing homes sold in the fourth quarter were affordable to families earning the national median income of $64,200, according to the index. That marks the highest percentage recorded in the index’s 20-year history.
"While today's report indicates that home ownership is within reach of more households than it has been for more than two decades, overly restrictive lending conditions confronting home buyers and builders remain significant obstacles to many potential homes sales, even with interest rates at historically low levels," says Barry Rutenberg, chairman of the National Association of Home Builders.
Most Affordable Cities
According to the index, the most affordable major housing market was Youngstown-Warren-Boardman, Ohio, in which 95 percent of all homes sold during the fourth quarter were affordable to households earning the median family income of $54,900, according to the index.
Other top affordable housing markets include: Lakeland-Winter Haven, Fla.; Modesto, Calif.; Harrisburg-Carlisle, Pa.; and Toledo, Ohio.
Least Affordable Cities
However, some metro areas still remain too pricey for buyers. The least affordable major housing market during the fourth quarter was New York-White Plains-Wayne, N.Y.-N.J., in which 29 percent of all homes sold were affordable to those earning the area's media income of $67,400.
Other high-priced metro areas at the bottom of the affordability index include: Honolulu; San Francisco-San Mateo-Redwood City, Calif.; Santa Ana-Anaheim-Irvine, Calif.; and Los Angeles-Long Beach-Glendale, Calif.
Source: National Association of Home Builders
Citi Pays $158.3 Million Due to Faulty FHA Insurance Claims
CitiMortgage, a subsidiary of CitiBank, agreed to pay $158.3 million due to claims that the bank failed to comply with HUD-FHA requirements with certain loans regarding FHA mortgage insurance eligibility.
As a result of this, HUD incurred losses from defaulted loans that should not have been approved. The federal government joined cases with a private whistleblower, who filed against CitiMortgage under the False Claims Act in August of last year.
“For far too long, lenders treated HUD’s insurance of their mortgages like they were playing with house money,” said Manhattan U.S. attorney Preet Bharara. “In fact, they were playing with other people’s money and other people’s homes. CitiMortgage is the latest in a series of cases this office has filed against lenders who flouted HUD requirements for making government-backed loans.”
As part of the settlement, CitiMortgage accepted responsibility for specific actions including failing to conduct
a full review of certain loans it endorsed for FHA insurance and not meeting underwriting requirements set forth by HUD.
“It is critically important that FHA approved lenders meet our requirements for origination and underwriting of FHA loans,” said HUD general counsel Helen Kanovsky. “Lenders with authority to directly endorse FHA-insured mortgages must be serious about applying our underwriting guidelines and implement a quality control program that ensures compliance. This is a federal program and lenders who violate these requirements face potential False Claims Act liability.”
Through the Direct Endorsement Lender program (DEL), CitiMortgage has the authority to originate, underwrite, and endorse mortgages for FHA insurance. If a DEL lender such as Citi approves a mortgage loan for FHA insurance and the loan later defaults, the lender can submit an insurance claim to be paid for by HUD. The program has specific guidelines for underwriting and also requires the lender to maintain a quality control program, among other rules, which the lawsuit states CitiMortgage did not follow.
“We are pleased to resolve this matter in conjunction with the National Mortgage Settlement reached last week among the five largest mortgage servicers and the Department of Justice and state attorneys general,” said Mark Rodgers, a spokesman for New York-based Citigroup, said in an e-mailed statement to Bloomberg.
Federal officials sued three more banks in the past year over FHA insurance claims including Deutsche Bank AG and Mortageit Inc. in May, and Allied Home Mortgage Corporation in November.
As a result of this, HUD incurred losses from defaulted loans that should not have been approved. The federal government joined cases with a private whistleblower, who filed against CitiMortgage under the False Claims Act in August of last year.
“For far too long, lenders treated HUD’s insurance of their mortgages like they were playing with house money,” said Manhattan U.S. attorney Preet Bharara. “In fact, they were playing with other people’s money and other people’s homes. CitiMortgage is the latest in a series of cases this office has filed against lenders who flouted HUD requirements for making government-backed loans.”
As part of the settlement, CitiMortgage accepted responsibility for specific actions including failing to conduct
a full review of certain loans it endorsed for FHA insurance and not meeting underwriting requirements set forth by HUD.
“It is critically important that FHA approved lenders meet our requirements for origination and underwriting of FHA loans,” said HUD general counsel Helen Kanovsky. “Lenders with authority to directly endorse FHA-insured mortgages must be serious about applying our underwriting guidelines and implement a quality control program that ensures compliance. This is a federal program and lenders who violate these requirements face potential False Claims Act liability.”
Through the Direct Endorsement Lender program (DEL), CitiMortgage has the authority to originate, underwrite, and endorse mortgages for FHA insurance. If a DEL lender such as Citi approves a mortgage loan for FHA insurance and the loan later defaults, the lender can submit an insurance claim to be paid for by HUD. The program has specific guidelines for underwriting and also requires the lender to maintain a quality control program, among other rules, which the lawsuit states CitiMortgage did not follow.
“We are pleased to resolve this matter in conjunction with the National Mortgage Settlement reached last week among the five largest mortgage servicers and the Department of Justice and state attorneys general,” said Mark Rodgers, a spokesman for New York-based Citigroup, said in an e-mailed statement to Bloomberg.
Federal officials sued three more banks in the past year over FHA insurance claims including Deutsche Bank AG and Mortageit Inc. in May, and Allied Home Mortgage Corporation in November.
Rates Stay Low, With 30-Year Fixed Below 4 Percent
The average 30-year fixed-rate mortgage is still at an all-time low of 3.87 percent, and it’s been there since the first week of February, according to the Primary Mortgage Market Survey released by Freddie Mac.
The 30-year average has also managed to remain below 4 percent for the past 11 weeks, and below 5 percent for the past 52 weeks dating back to February 17, 2011, according to the survey.
The 15-year rate this week averaged at 3.16 percent (0.8 point), maintaining the same average as last week. The
15-year rate averaged 4.27 percent a year ago at this time.
The 5-year adjustable-rate mortgage (ARM) averaged 2.82 percent this week (0.8 point), down from last week when it averaged 2.83 percent, and down a year ago when it averaged 3.87 percent.
The 1-year ARM averaged 2.84 percent this week (0.6 point), an increase compared to 2.78 percent last week. The 1-year ARM averaged 3.39 percent at this time last year.
Frank Nothaft, vice president and chief economist for Freddie Mac, said amidst mixed confidence, mortgages rates were unchanged.
“Small business confidence ticked up slightly in January, representing a fourth consecutive month gain, according to the National Federation of Independent Business index. However, the Reuters/University of Michigan index of consumer sentiment fell in February by more than the market consensus forecast, breaking a five month trend,” Nothaft said. “In the meantime, home builder confidence rose in February to the highest reading since May 2007, based on the NAHB/Wells Fargo Housing Market Index.”
The 30-year average has also managed to remain below 4 percent for the past 11 weeks, and below 5 percent for the past 52 weeks dating back to February 17, 2011, according to the survey.
The 15-year rate this week averaged at 3.16 percent (0.8 point), maintaining the same average as last week. The
15-year rate averaged 4.27 percent a year ago at this time.
The 5-year adjustable-rate mortgage (ARM) averaged 2.82 percent this week (0.8 point), down from last week when it averaged 2.83 percent, and down a year ago when it averaged 3.87 percent.
The 1-year ARM averaged 2.84 percent this week (0.6 point), an increase compared to 2.78 percent last week. The 1-year ARM averaged 3.39 percent at this time last year.
Frank Nothaft, vice president and chief economist for Freddie Mac, said amidst mixed confidence, mortgages rates were unchanged.
“Small business confidence ticked up slightly in January, representing a fourth consecutive month gain, according to the National Federation of Independent Business index. However, the Reuters/University of Michigan index of consumer sentiment fell in February by more than the market consensus forecast, breaking a five month trend,” Nothaft said. “In the meantime, home builder confidence rose in February to the highest reading since May 2007, based on the NAHB/Wells Fargo Housing Market Index.”
Obama's Budget Calls for $61B from Banks
President Obama’s budget proposal continues to receive a barrage of criticism, especially from Republican lawmakers.
Obama specifically targets banks through a Financial Crisis Responsibility Fee, through which he intends to raise $61 billion from the nation’s largest banks.
The money is intended to “compensate the American people for the extraordinary assistance they provided to Wall Street, as well as to discourage excessive risk-taking,” according to the budget proposal.
A portion of the fees collected from the big-bank tax would be used to fund the mass refinance program outlined in the president’s State of the Union address. The fee would be assessed against firms with assets of more than $50 billion and would be paid over a 10-year period, starting next year.
“The Administration continues to actively implement ongoing Troubled Asset Relief Program (TARP) activities targeted to assist homeowners threatened by foreclosure, including unemployed homeowners and those with negative home equity,” Obama goes on to declare in the budget proposal.
He specifically mentions the $10 billion in savings brought to American homeowners through HAMP, although after
three years this program still falls short of its original goal of reaching 3 million to 4 million homeowners in its first two years.
As of December, about 910,000 loans had been permanently modified through HAMP.
The Financial Executives International, an industry organization for senior-level financial executives, released a statement this week expressing concerns about the budget’s increased taxes on American businesses and “American job creators.”
“Unfortunately, aspects of the President’s proposals to increase revenue would harm American job creators as well,” states the group’s president and CEO, Marie Hollein.
“FEI observes with concern that the budget proposes roughly $450 billion in tax increases on American businesses over the next 10 years,” states a press release from Financial Executives International.
House Budget Committee Chairman Rep. Paul Ryan (R-Wisconsin) has also been outspoken about Obama’s tax increases and calls attention to the budget’s net increase in spending.
“So we’re going to tax our most successful job creators, where most – more than half our jobs come from in America – at about 45 percent next year?” he asked on CNBC’s Kudlow Report.
Ryan says that while the budget may call for deficit reduction in some areas, overall it requires a net increase in spending.
Furthermore, he says the budget’s $1.9 trillion tax increases “will make it harder for businesses to create jobs and for workers to spur economic growth.”
Like other Republican congressmen, Ryan commented on the show, “This is really more of a campaign document than a credible fiscal solution to our big budget problems.”
Obama specifically targets banks through a Financial Crisis Responsibility Fee, through which he intends to raise $61 billion from the nation’s largest banks.
The money is intended to “compensate the American people for the extraordinary assistance they provided to Wall Street, as well as to discourage excessive risk-taking,” according to the budget proposal.
A portion of the fees collected from the big-bank tax would be used to fund the mass refinance program outlined in the president’s State of the Union address. The fee would be assessed against firms with assets of more than $50 billion and would be paid over a 10-year period, starting next year.
“The Administration continues to actively implement ongoing Troubled Asset Relief Program (TARP) activities targeted to assist homeowners threatened by foreclosure, including unemployed homeowners and those with negative home equity,” Obama goes on to declare in the budget proposal.
He specifically mentions the $10 billion in savings brought to American homeowners through HAMP, although after
three years this program still falls short of its original goal of reaching 3 million to 4 million homeowners in its first two years.
As of December, about 910,000 loans had been permanently modified through HAMP.
The Financial Executives International, an industry organization for senior-level financial executives, released a statement this week expressing concerns about the budget’s increased taxes on American businesses and “American job creators.”
“Unfortunately, aspects of the President’s proposals to increase revenue would harm American job creators as well,” states the group’s president and CEO, Marie Hollein.
“FEI observes with concern that the budget proposes roughly $450 billion in tax increases on American businesses over the next 10 years,” states a press release from Financial Executives International.
House Budget Committee Chairman Rep. Paul Ryan (R-Wisconsin) has also been outspoken about Obama’s tax increases and calls attention to the budget’s net increase in spending.
“So we’re going to tax our most successful job creators, where most – more than half our jobs come from in America – at about 45 percent next year?” he asked on CNBC’s Kudlow Report.
Ryan says that while the budget may call for deficit reduction in some areas, overall it requires a net increase in spending.
Furthermore, he says the budget’s $1.9 trillion tax increases “will make it harder for businesses to create jobs and for workers to spur economic growth.”
Like other Republican congressmen, Ryan commented on the show, “This is really more of a campaign document than a credible fiscal solution to our big budget problems.”
Report Reveals Delinquency and Foreclosure Rates Down for 4th Quarter
A recent Mortgage Bankers Association (MBA) report revealed that overall, delinquencies and foreclosures are on a decline, and when gauging where the U.S. housing market stands in terms of recovery, Jay Brinkmann, MBA’s chief economist and SVP for research and education, said we are about halfway to the pre-recession days.
The MBA released its 2011 4th quarter national delinquency survey results Thursday. Delinquency in the report is defined as loans that are at least one payment past due but not in the process of foreclosure.
Overall, the delinquency rate for mortgage loans on one-to-four unit residential properties decreased to 7.58 percent, compared to 7.99 percent for the third quarter, and 8.25 percent a year ago during the fourth quarter in 2010.
“The total delinquency rate peaked at 10.1 percent in the first quarter of 2010. It now stands at 7.6 percent, about half way to the longer-term pre-recession average of roughly 5 percent,” Brinkmann.
With the exception of the 30-day bucket, which increased from 3.19 percent last quarter to 3.22 percent this quarter, all delinquencies were down. More notably, loans delinquent 90 or more days decreased from 3.50 percent last quarter to 3.11 percent, a 39 point decrease.
Capital Economics said the fall of borrowers in the more severe stages is encouraging if it means that more borrowers are becoming current again, and the lack of improvement for 30 day delinquencies could be the severe delinquencies falling.
Brinkmann said the improvement in mortgage performance reflects the improvements seen in the job market and broader economy, and added that the mortgage delinquency rate is actually falling faster than the unemployment rate is declining.
Delinquency rates for problematic loans had significant decreases, with prime ARM loans at 9.22 percent this quarter, compared to 10.73 percent last quarter, and subprime loans dropping 157 points, ending at 19.67 percent, compared to 21.24 percent last quarter.
The exception to this downward trend were FHA loans,
which saw an increase in delinquency rates at 12.36 percent this quarter, compared to 12.09 percent last quarter.
“Part of the reason is that the FHA book of business has shown rapid growth, and purchase loans originated in 2008 and 2009 are only now entering the peaks of a normal delinquency curve,” said Brinkmann.
Another exception to the notable trends seen in the report is the percentage of loans in foreclosure inventory. While the percentage is down this quarter at 4.38 percent compared to 4.43 percent last quarter, it is still far from the halfway mark on the road to recovery.
Brinkmann said the longer-term average is roughly 1.2 percent for foreclosure inventory.
Foreclosure starts, loans on which foreclosure actions were initiated, were down at 0.99 percent, compared to 1.08 percent for the third quarter, and 1.27 percent a year ago. Seriously delinquent loans – loans that are 90 days or more past due or in foreclosure – were at 7.73 percent this quarter compared to 7.89 percent last quarter, and 8.60 percent a year ago.
Foreclosure inventory in judicial states actually increased and was significantly higher at 6.80 percent, compared to inventory in non-judicial states, which was at 2.79 percent and saw a decrease over time. Data also revealed that foreclosure starts for both types of states were relatively similar.
Michael Fratantoni, MBA’s VP of research and economics, explained that the issue is not the rates at which non-judicial versus judicial states enter into foreclosure, but the rates at which these loans exit out of foreclosure.
Data from the report also revealed that top five states with the highest share of loans in foreclosure were judicial, with the exception of California. The five states – Florida (24.2 percent), California (10.2 percent), Illinois (6.6 percent), New York (6.2 percent), and New Jersey (5.4 percent), make up 52.6 percent of the share of loans in foreclosure.
Though, Fratantoni noted that California is turning around more quickly than other states.
California, which held 12.8 percent of the share of loans in foreclosure last year, dropped 2.6 percent this quarter, compared to the 0.8 and 1 percent drop for the other four states over the year.
When asked about the impact of the AG settlement on the foreclosure process during a conference call, Brinkmann, said that he thinks we will see a drop in foreclosure inventory numbers, and when moving into foreclosure sale or REO, we might see some speed up eventually.
Capital Economics also said that data from RealtyTrac shows a slight rise in foreclosure filings in January, which could mean foreclosures are being processed more quickly, added with the recent settlement which may speed up the foreclosure process.
The MBA released its 2011 4th quarter national delinquency survey results Thursday. Delinquency in the report is defined as loans that are at least one payment past due but not in the process of foreclosure.
Overall, the delinquency rate for mortgage loans on one-to-four unit residential properties decreased to 7.58 percent, compared to 7.99 percent for the third quarter, and 8.25 percent a year ago during the fourth quarter in 2010.
“The total delinquency rate peaked at 10.1 percent in the first quarter of 2010. It now stands at 7.6 percent, about half way to the longer-term pre-recession average of roughly 5 percent,” Brinkmann.
With the exception of the 30-day bucket, which increased from 3.19 percent last quarter to 3.22 percent this quarter, all delinquencies were down. More notably, loans delinquent 90 or more days decreased from 3.50 percent last quarter to 3.11 percent, a 39 point decrease.
Capital Economics said the fall of borrowers in the more severe stages is encouraging if it means that more borrowers are becoming current again, and the lack of improvement for 30 day delinquencies could be the severe delinquencies falling.
Brinkmann said the improvement in mortgage performance reflects the improvements seen in the job market and broader economy, and added that the mortgage delinquency rate is actually falling faster than the unemployment rate is declining.
Delinquency rates for problematic loans had significant decreases, with prime ARM loans at 9.22 percent this quarter, compared to 10.73 percent last quarter, and subprime loans dropping 157 points, ending at 19.67 percent, compared to 21.24 percent last quarter.
The exception to this downward trend were FHA loans,
which saw an increase in delinquency rates at 12.36 percent this quarter, compared to 12.09 percent last quarter.
“Part of the reason is that the FHA book of business has shown rapid growth, and purchase loans originated in 2008 and 2009 are only now entering the peaks of a normal delinquency curve,” said Brinkmann.
Another exception to the notable trends seen in the report is the percentage of loans in foreclosure inventory. While the percentage is down this quarter at 4.38 percent compared to 4.43 percent last quarter, it is still far from the halfway mark on the road to recovery.
Brinkmann said the longer-term average is roughly 1.2 percent for foreclosure inventory.
Foreclosure starts, loans on which foreclosure actions were initiated, were down at 0.99 percent, compared to 1.08 percent for the third quarter, and 1.27 percent a year ago. Seriously delinquent loans – loans that are 90 days or more past due or in foreclosure – were at 7.73 percent this quarter compared to 7.89 percent last quarter, and 8.60 percent a year ago.
Foreclosure inventory in judicial states actually increased and was significantly higher at 6.80 percent, compared to inventory in non-judicial states, which was at 2.79 percent and saw a decrease over time. Data also revealed that foreclosure starts for both types of states were relatively similar.
Michael Fratantoni, MBA’s VP of research and economics, explained that the issue is not the rates at which non-judicial versus judicial states enter into foreclosure, but the rates at which these loans exit out of foreclosure.
Data from the report also revealed that top five states with the highest share of loans in foreclosure were judicial, with the exception of California. The five states – Florida (24.2 percent), California (10.2 percent), Illinois (6.6 percent), New York (6.2 percent), and New Jersey (5.4 percent), make up 52.6 percent of the share of loans in foreclosure.
Though, Fratantoni noted that California is turning around more quickly than other states.
California, which held 12.8 percent of the share of loans in foreclosure last year, dropped 2.6 percent this quarter, compared to the 0.8 and 1 percent drop for the other four states over the year.
When asked about the impact of the AG settlement on the foreclosure process during a conference call, Brinkmann, said that he thinks we will see a drop in foreclosure inventory numbers, and when moving into foreclosure sale or REO, we might see some speed up eventually.
Capital Economics also said that data from RealtyTrac shows a slight rise in foreclosure filings in January, which could mean foreclosures are being processed more quickly, added with the recent settlement which may speed up the foreclosure process.
Thursday, February 16, 2012
High Student Loan Debt Hinders Home Buying
With recent college graduates carrying an average debt load of more $25,000, fewer are able to qualify for a mortgage on their first home despite record-low interest rates.
A Federal Reserve study shows that the tighter lending criteria that emerged following the recession are taking a toll on younger, first-time home buyers, many of whom have below-average credit scores and fewer economic resources to make a large down payment.
The Fed's white paper to Congress notes that only 9 percent of 29- to 34-year-olds got a first-time mortgage between 2009 and 2011 versus 17 percent a decade earlier.
Source: "Student Loans Near $1 Trillion Hurting Young Buyers: Mortgages," Business Week (02/12)
A Federal Reserve study shows that the tighter lending criteria that emerged following the recession are taking a toll on younger, first-time home buyers, many of whom have below-average credit scores and fewer economic resources to make a large down payment.
The Fed's white paper to Congress notes that only 9 percent of 29- to 34-year-olds got a first-time mortgage between 2009 and 2011 versus 17 percent a decade earlier.
Source: "Student Loans Near $1 Trillion Hurting Young Buyers: Mortgages," Business Week (02/12)
Builders Are Feeling More Optimistic
Signs are improving in the new-home market and builders are feeling more optimistic about where the real estate market is heading, after coming off last year’s worst year on record for new home construction.
For the fifth consecutive month, builder confidence in the single-family home market increased in February, reaching its highest level in four years.
“Builder confidence has doubled since September,” says Barry Rutenberg, chairman of the National Association of Home Builders. “Given the recent improvements in new home starts and the increasing number of markets included in the NAHB/First American Improving Market Index, this consistency suggests that the housing market is moving toward more sustainable growth.”
While the jumps in builder confidence have been an encouraging sign for the industry, housing experts warn that confidence is still historically low, and that foreclosures, low appraisals, and more stringent credit standards continue to hamper the new-home market’s full recovery.
By Melissa Dittmann Tracey, REALTOR® Magazine Daily News
For the fifth consecutive month, builder confidence in the single-family home market increased in February, reaching its highest level in four years.
“Builder confidence has doubled since September,” says Barry Rutenberg, chairman of the National Association of Home Builders. “Given the recent improvements in new home starts and the increasing number of markets included in the NAHB/First American Improving Market Index, this consistency suggests that the housing market is moving toward more sustainable growth.”
While the jumps in builder confidence have been an encouraging sign for the industry, housing experts warn that confidence is still historically low, and that foreclosures, low appraisals, and more stringent credit standards continue to hamper the new-home market’s full recovery.
By Melissa Dittmann Tracey, REALTOR® Magazine Daily News
Citigroup Agrees to Pay $158M for Misleading Mortgages
In another setback for the bank, Citigroup will have to pay $158.3 million over claims that it had misled the government into insuring risky mortgage loans over a six-year time span, resulting in millions of dollars in government losses.
The announcement comes on the heels of a $25 billion settlement last week that will require major banks — including Citigroup — to settle allegations of foreclosure abuses. Citigroup’s share of the bill will be about $2.2 billion from that settlement alone.
But the latest $158 million tab from the Justice Department stems from a separate case, in which the government accused Citi of providing misleading information about the quality of some 30,000 mortgages to a federal insurance program operated by the U.S. Department of Housing and Urban Development. More than a third of those mortgages wound up in default, resulting in major losses to the government.
Citi has accepted responsibility for failing to comply with government requirements regarding the insurance of the mortgages.
CitiMortgage has faced a high default of its loans. Since 2004, more than 30 percent of loans originated or underwritten by CitiMortgage have ended up in default, the Associated Press reports. In 2006 and 2007, the default rate even swelled to more than 47 percent.
Source: “Citigroup to Pay $158 Million in Mortgage Fraud Settlement,” Associated Press (Feb. 15, 2012) and "Citi Admits Mortgage Fraud in $158-Million Settlement,” Los Angeles Times (Feb. 15, 2012)
The announcement comes on the heels of a $25 billion settlement last week that will require major banks — including Citigroup — to settle allegations of foreclosure abuses. Citigroup’s share of the bill will be about $2.2 billion from that settlement alone.
But the latest $158 million tab from the Justice Department stems from a separate case, in which the government accused Citi of providing misleading information about the quality of some 30,000 mortgages to a federal insurance program operated by the U.S. Department of Housing and Urban Development. More than a third of those mortgages wound up in default, resulting in major losses to the government.
Citi has accepted responsibility for failing to comply with government requirements regarding the insurance of the mortgages.
CitiMortgage has faced a high default of its loans. Since 2004, more than 30 percent of loans originated or underwritten by CitiMortgage have ended up in default, the Associated Press reports. In 2006 and 2007, the default rate even swelled to more than 47 percent.
Source: “Citigroup to Pay $158 Million in Mortgage Fraud Settlement,” Associated Press (Feb. 15, 2012) and "Citi Admits Mortgage Fraud in $158-Million Settlement,” Los Angeles Times (Feb. 15, 2012)
Investors Get Ready for FHFA's Foreclosure Bulk Sales
The Federal Housing Finance Agency announced it will soon be piloting a foreclosure-to-rental program, in which it’ll offer qualified investors the chance to buy a pool of foreclosed homes all at once as long as long as they agree to rent the properties for a specified period.
The Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, says Fannie will be debuting the program, with pools of its properties available in some of the hardest hit areas by the foreclosure crisis. Freddie Mac and FHA loans may be considered later.
The program is aimed at preventing further price depreciations in communities where foreclosures have soared in recent years.
“This is an important step toward increasing private investment in foreclosed properties to maximize value and stabilize communities,” Edward J. DeMarco, FHFA acting director, said in a statement.
Although FHFA has declined to comment yet on the precise size of the pool of foreclosed properties that will be offered, officials have indicated that the pilot program will be small compared to retail REO transactions.
At the end of September, Fannie and Freddie owned about 180,000 homes. “Even at 1,000 homes apiece, it would take more than 200 mega-investors to work their way through the current backlog,” an article at AOL Real Estate notes.
Source: “Foreclosure Fire Sale: Will Bulk ‘REO to Rental’ Program Fly?” AOL Real Estate (Feb. 15, 2012) and Federal Housing Finance Agency
The Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, says Fannie will be debuting the program, with pools of its properties available in some of the hardest hit areas by the foreclosure crisis. Freddie Mac and FHA loans may be considered later.
The program is aimed at preventing further price depreciations in communities where foreclosures have soared in recent years.
“This is an important step toward increasing private investment in foreclosed properties to maximize value and stabilize communities,” Edward J. DeMarco, FHFA acting director, said in a statement.
Although FHFA has declined to comment yet on the precise size of the pool of foreclosed properties that will be offered, officials have indicated that the pilot program will be small compared to retail REO transactions.
At the end of September, Fannie and Freddie owned about 180,000 homes. “Even at 1,000 homes apiece, it would take more than 200 mega-investors to work their way through the current backlog,” an article at AOL Real Estate notes.
Source: “Foreclosure Fire Sale: Will Bulk ‘REO to Rental’ Program Fly?” AOL Real Estate (Feb. 15, 2012) and Federal Housing Finance Agency
Foreclosures Pick Up Pace, Banks Work Through Glut
Foreclosures increased again in January as banks continued to work through a large backlogs of defaulting loans in their books, RealtyTrac reports. The number of foreclosure filings — including default notices, scheduled auctions, and bank repossessions — increased 3 percent from December to January.
However, the numbers were significantly down compared to one year earlier, RealtyTrac reports.
Last month, one in every 624 households received a foreclosure filing — a drop of 19 percent compared to January 2011.
Banks had slowed their pace of processing foreclosures last year following a robo-signing scandal, in which banks were accused of approving foreclosure documents without proper reviews. Banks have changed some of their methods in processing foreclosures. Also, the $25 billion foreclosure settlement, announced last week, among the nation’s five largest banks and state attorneys general is expected to lead to a pick up in the pace of foreclosures.
The “frozen up foreclosure process is beginning to thaw,” Brandon Moore, CEO of RealtyTrac, said in a statement. For example, Florida had a 14 percent increase in foreclosure filings in January compared to a year earlier.
Many housing experts view an increase in foreclosures as an important step for the housing market to recover in clearing the glut of foreclosed homes on the market. Foreclosures have hampered home prices in many markets.
Source: “Foreclosures Climbed in January,” CNNMoney (Feb. 16, 2012) and RealtyTrac
However, the numbers were significantly down compared to one year earlier, RealtyTrac reports.
Last month, one in every 624 households received a foreclosure filing — a drop of 19 percent compared to January 2011.
Banks had slowed their pace of processing foreclosures last year following a robo-signing scandal, in which banks were accused of approving foreclosure documents without proper reviews. Banks have changed some of their methods in processing foreclosures. Also, the $25 billion foreclosure settlement, announced last week, among the nation’s five largest banks and state attorneys general is expected to lead to a pick up in the pace of foreclosures.
The “frozen up foreclosure process is beginning to thaw,” Brandon Moore, CEO of RealtyTrac, said in a statement. For example, Florida had a 14 percent increase in foreclosure filings in January compared to a year earlier.
Many housing experts view an increase in foreclosures as an important step for the housing market to recover in clearing the glut of foreclosed homes on the market. Foreclosures have hampered home prices in many markets.
Source: “Foreclosures Climbed in January,” CNNMoney (Feb. 16, 2012) and RealtyTrac
Hidden Gems: Freddie Mac's Refinance Activity Reports
Of the myriad of public reports about the housing sector and mortgage industry, the quarterly statistics from Freddie Mac on refinance activity offer unique insights not only into the level of refinance lending but what that activity tells us about the housing sector.
And, if you know how to read them, the reports can offer strategic clues for the savvy lender.
First, the basics…
The McLean, Virginia-based GSE compiles data on loans it purchases which refinance loans within its portfolio. The data are used to produce two reports: the “Cash-out Refinance Report” and the “Refinance Product Transition Report.” Both are released quarterly.
The reports have a long and successful track record. The Cash-out Refinance Report dates back (annually) to 1986 and since Q1 1997 has been produced quarterly. The annual and quarterly cash-out volume series are covered from 1993 Q1 to the present. The Refinance Product Transition Report annual statistics are published for the period 1990 to the present. Quarterly statistics are presented for the past 20 quarters, e.g., 2006 Q4 through 2011 Q4.
The reports are published about 30 days after quarter’s end, making them quite timely and thus even more useful for strategic planning. While previously released data is revised, the revisions are usually small. (The revisions are due to Freddie Mac’s purchases of refinance loans originated in prior quarters. The additional data can cause the reported median and average statistics values to change.)
The reports provide key information estimating the dollar volume of equity extracted through refinancing which, among other things, affect Freddie’s own forecast of total prime conventional mortgage originations or refinance share changes.
The Cash-out Refinance report notes the percent of Freddie Mac-owned loans that:
were refinanced and resulted in new mortgages at least five percent higher in amount than the original mortgages,
the share that resulted in lower loan amounts,
the median ratio of the new loan interest rate to the old interest rate for fixed-rate mortgages,
the median age of the refinanced loan, and
the median amount of appreciation on the property since the previous loan was originated.
Those bits of data do more than describe the housing sector.
Loans refinanced into larger loans, for example, speak to a need to supplement lagging incomes – a consequence of the sharp reduction in jobs and hours worked in the Great Recession. As interest rates dropped, homeowners though could have drawn equity from their homes and maintained their previous payment.
Loans refinanced into smaller loans, to be sure allowed homeowners to reduce their monthly payments into more affordable payments, freeing cash for consumption. Personal consumption remains about 70 percent of the nation’s Gross Domestic Product (GDP).
Matching new and old interest rates of course offers insight into the impact of interest rate changes on the market.
Tracking the age of loans provides critical information in the construction of prepayment models.
Of course the median amount of appreciation provides further evidence of the trend in home values and prices. Freddie releases annual cash-out information for the whole U.S. and for the four Census regions. Quarterly data are published for the U.S. only.
Historical data from the reports show a distinct shift in refinance results. As real estate values continued to increase, refinances typically resulted in higher and higher loan balances, in spurts.
Indeed from 1985 through the 1990-91 recession, an average of 74 percent of refinance loans resulted in a loan balance at least 5 percent higher than the original loan. The increase in loan balances was offset by a drop in interest rates: the average median ratio of the new loan to the old loan, according to the reports was .89 which means the average rate of the new loan was about 11 percent lower. (Data from Freddie Mac’s product transition report for that period is not available to determine if borrowers shortened or extended terms of their loans.)
In the two years leading up to the Great Recession which began in December 2007, a whopping 85 percent of borrowers increased their outstanding loan balance through refis while accepting a slight increase in interest rates. At the same time, most borrowers increased loan terms to minimize payment shock.
By the end of 2008, just a year after the recession began, homeowners shifted dramatically to lowering their outstanding balance. From 2009, only 26 percent of refinance borrowers increased their outstanding loan balance, while 28 percent lowered their balance. The median of the change in interest rate showed rates came down about 19 percent and a significantly lower percentage of borrowers lengthened terms of their loans. The net impact was a noticeable improvement in homeowner balance sheets – and cash flow.
The quarterly report has changed over the years. When Freddie Mac first reported the interest-rate ratio, it was calculated as the original loan rate divided by the new loan rate. Starting with the 2006 Q3 report, Freddie flipped the ratio to report the new interest rate divided by the original rate, which is more intuitive: Values less than one indicate the borrower lowered his or her note rate; values greater than one indicate the rate increased.
The Cash-out Refinance Report also estimates another important macro-economic indicator: the amount of home equity borrowers are withdrawing from their home. Equity withdrawals through refinancing peaked at $83.7 billion in 2Q 2006 which, when combined with home equity loans and loans of credit produced equity withdrawals of $89.7 billion.
In the four years since the recession began, equity withdrawals through refinancing averaged $14.1 billion per quarter while the average median quarterly property appreciation was 1 percent; in the preceding four years the quarterly average withdrawal was $60.1 billion while median appreciation averaged 23 percent.
The Refinance Product Transition Report publishes the distribution of products chosen when borrowers refinanced their existing first mortgage. For each type of loan held initially, you can see what proportion kept the same product or opted for a different one. The report examines the ins and outs of six product categories:
1-year adjustable-rate mortgages (ARMs; this data includes some other types of loans for which rates reset at an equal frequency such as 3/3 and 5/5 ARMs),
hybrid ARMs (ARMs with the first rate reset period longer than subsequent rate reset periods, such as 3/1 ARMs and 5/1 ARMs),
balloon mortgages (loans that have one interest-rate adjustment, such as 5/25s),
15-year fixed-rate mortgages (FRMs; includes data on some shorter term loans),
20-25 year FRMs, and
30-year FRMs.
Trends for the transition report show a sharp move to shorter loan terms with borrowers moving from 20- and 30-year fixed rate loans to 15-year fixed rate loans, a trend that has accelerated since the beginning of 2010. From 2004 through 2009, the tendency had been to move to longer terms, from 15- and 20-year loans to 30-year loans.
Data from these reports can alert lenders as to the types of products borrowers prefer to adjust sales strategies, but at the same time can be used by macro-economists to understand consumer attitudes. In this case, it would appear consumers are increasingly reluctant to take on long term obligations, another indicator of lower levels of confidence about the economy.
The devil, of course, is in the details.
And, if you know how to read them, the reports can offer strategic clues for the savvy lender.
First, the basics…
The McLean, Virginia-based GSE compiles data on loans it purchases which refinance loans within its portfolio. The data are used to produce two reports: the “Cash-out Refinance Report” and the “Refinance Product Transition Report.” Both are released quarterly.
The reports have a long and successful track record. The Cash-out Refinance Report dates back (annually) to 1986 and since Q1 1997 has been produced quarterly. The annual and quarterly cash-out volume series are covered from 1993 Q1 to the present. The Refinance Product Transition Report annual statistics are published for the period 1990 to the present. Quarterly statistics are presented for the past 20 quarters, e.g., 2006 Q4 through 2011 Q4.
The reports are published about 30 days after quarter’s end, making them quite timely and thus even more useful for strategic planning. While previously released data is revised, the revisions are usually small. (The revisions are due to Freddie Mac’s purchases of refinance loans originated in prior quarters. The additional data can cause the reported median and average statistics values to change.)
The reports provide key information estimating the dollar volume of equity extracted through refinancing which, among other things, affect Freddie’s own forecast of total prime conventional mortgage originations or refinance share changes.
The Cash-out Refinance report notes the percent of Freddie Mac-owned loans that:
were refinanced and resulted in new mortgages at least five percent higher in amount than the original mortgages,
the share that resulted in lower loan amounts,
the median ratio of the new loan interest rate to the old interest rate for fixed-rate mortgages,
the median age of the refinanced loan, and
the median amount of appreciation on the property since the previous loan was originated.
Those bits of data do more than describe the housing sector.
Loans refinanced into larger loans, for example, speak to a need to supplement lagging incomes – a consequence of the sharp reduction in jobs and hours worked in the Great Recession. As interest rates dropped, homeowners though could have drawn equity from their homes and maintained their previous payment.
Loans refinanced into smaller loans, to be sure allowed homeowners to reduce their monthly payments into more affordable payments, freeing cash for consumption. Personal consumption remains about 70 percent of the nation’s Gross Domestic Product (GDP).
Matching new and old interest rates of course offers insight into the impact of interest rate changes on the market.
Tracking the age of loans provides critical information in the construction of prepayment models.
Of course the median amount of appreciation provides further evidence of the trend in home values and prices. Freddie releases annual cash-out information for the whole U.S. and for the four Census regions. Quarterly data are published for the U.S. only.
Historical data from the reports show a distinct shift in refinance results. As real estate values continued to increase, refinances typically resulted in higher and higher loan balances, in spurts.
Indeed from 1985 through the 1990-91 recession, an average of 74 percent of refinance loans resulted in a loan balance at least 5 percent higher than the original loan. The increase in loan balances was offset by a drop in interest rates: the average median ratio of the new loan to the old loan, according to the reports was .89 which means the average rate of the new loan was about 11 percent lower. (Data from Freddie Mac’s product transition report for that period is not available to determine if borrowers shortened or extended terms of their loans.)
In the two years leading up to the Great Recession which began in December 2007, a whopping 85 percent of borrowers increased their outstanding loan balance through refis while accepting a slight increase in interest rates. At the same time, most borrowers increased loan terms to minimize payment shock.
By the end of 2008, just a year after the recession began, homeowners shifted dramatically to lowering their outstanding balance. From 2009, only 26 percent of refinance borrowers increased their outstanding loan balance, while 28 percent lowered their balance. The median of the change in interest rate showed rates came down about 19 percent and a significantly lower percentage of borrowers lengthened terms of their loans. The net impact was a noticeable improvement in homeowner balance sheets – and cash flow.
The quarterly report has changed over the years. When Freddie Mac first reported the interest-rate ratio, it was calculated as the original loan rate divided by the new loan rate. Starting with the 2006 Q3 report, Freddie flipped the ratio to report the new interest rate divided by the original rate, which is more intuitive: Values less than one indicate the borrower lowered his or her note rate; values greater than one indicate the rate increased.
The Cash-out Refinance Report also estimates another important macro-economic indicator: the amount of home equity borrowers are withdrawing from their home. Equity withdrawals through refinancing peaked at $83.7 billion in 2Q 2006 which, when combined with home equity loans and loans of credit produced equity withdrawals of $89.7 billion.
In the four years since the recession began, equity withdrawals through refinancing averaged $14.1 billion per quarter while the average median quarterly property appreciation was 1 percent; in the preceding four years the quarterly average withdrawal was $60.1 billion while median appreciation averaged 23 percent.
The Refinance Product Transition Report publishes the distribution of products chosen when borrowers refinanced their existing first mortgage. For each type of loan held initially, you can see what proportion kept the same product or opted for a different one. The report examines the ins and outs of six product categories:
1-year adjustable-rate mortgages (ARMs; this data includes some other types of loans for which rates reset at an equal frequency such as 3/3 and 5/5 ARMs),
hybrid ARMs (ARMs with the first rate reset period longer than subsequent rate reset periods, such as 3/1 ARMs and 5/1 ARMs),
balloon mortgages (loans that have one interest-rate adjustment, such as 5/25s),
15-year fixed-rate mortgages (FRMs; includes data on some shorter term loans),
20-25 year FRMs, and
30-year FRMs.
Trends for the transition report show a sharp move to shorter loan terms with borrowers moving from 20- and 30-year fixed rate loans to 15-year fixed rate loans, a trend that has accelerated since the beginning of 2010. From 2004 through 2009, the tendency had been to move to longer terms, from 15- and 20-year loans to 30-year loans.
Data from these reports can alert lenders as to the types of products borrowers prefer to adjust sales strategies, but at the same time can be used by macro-economists to understand consumer attitudes. In this case, it would appear consumers are increasingly reluctant to take on long term obligations, another indicator of lower levels of confidence about the economy.
The devil, of course, is in the details.
Obama Proposes Extending Tax Waiver on Mortgage Debt Forgiveness
Obama’s FY2013 budget proposal includes an extension of the Mortgage Forgiveness Debt Relief Act of 2007.
The Act ensures that homeowners who received principal reductions or other forms of debt forgiveness on their primary residences do not have to pay taxes on the amount forgiven.
Without the Mortgage Forgiveness Debt Relief Act, debt reduced through mortgage modifications or short sales qualifies as income to the borrower and is taxable. Under the act, up to $2 million in debt elimination can be tax-free.
In the Treasury’s Green Book, its summary explanation of the administration’s budget proposal, it calls for an extension of the tax break due to “the continued importance of facilitating home mortgage modifications.”
The administration is proposing an extension that would apply to any amounts forgiven before January 1, 2015.
At that point, the government would reassess the market and determine whether another extension is appropriate
The Act ensures that homeowners who received principal reductions or other forms of debt forgiveness on their primary residences do not have to pay taxes on the amount forgiven.
Without the Mortgage Forgiveness Debt Relief Act, debt reduced through mortgage modifications or short sales qualifies as income to the borrower and is taxable. Under the act, up to $2 million in debt elimination can be tax-free.
In the Treasury’s Green Book, its summary explanation of the administration’s budget proposal, it calls for an extension of the tax break due to “the continued importance of facilitating home mortgage modifications.”
The administration is proposing an extension that would apply to any amounts forgiven before January 1, 2015.
At that point, the government would reassess the market and determine whether another extension is appropriate
Foreclosure Activity Up 3% for the Month, Down 10% From Last Year
Foreclosure activity increased 3 percent in January, but is still down 10 percent compared to a year ago in January 2011, according to the U.S. Foreclosure Market Report released by RealtyTrac Thursday.
Foreclosure activity includes default notices, scheduled auctions, and bank repossessions. Nationwide, one in every 624 housing units had a foreclosure filing during January 2012.
“Although overall foreclosure activity was down from a year ago for the 16th straight month in January, we continue to see signs on a local and regional level that the frozen-up foreclosure process is beginning to thaw,” said Brandon Moore, CEO of RealtyTrac. “Foreclosure activity increased on a year-over-year basis for the first time in more than 12 months in Florida, Illinois, Indiana and Pennsylvania, following a pattern we saw in late 2011 in states such as California, Arizona and Massachusetts.”
Moore also said that the pattern of increasing foreclosure activity is expected in coming months, especially since the multi-state settlement set forth clears guidelines for lenders and servicers to follow when foreclosing. This, Moore said, should allow servicers to push delayed foreclosures from last year.
At the state and regional level, the situation can be more complicated.
Moore said roadblocks such as legislation to alter the foreclosure process and lawsuits against lenders can lead to uneven trends in local and regional foreclosure numbers.
Breakdown by foreclosure activity type
The total number of default notices filed was at 58,362 in January, remaining unchanged from the previous month, but down 22 percent from January 2011. States with the highest increase in default notices on a year-over-year basis included Pennsylvania (+112%), Maryland (+100%), Florida (36%), and Massachusetts (+27%), and Connecticut (+23%).
Foreclosure auctions were scheduled on 86,037 properties in January, up 1 percent from December, but down 20 percent from January 2011. Scheduled auctions increased significantly on a year-over-year basis in several states, including Illinois and Indiana (+141%), South Carolina (+79%), Massachusetts (+57%), and Minnesota (+24%).
REO properties totaled 66,542 in January, an 8 percent increase from December, and a 15 percent decrease from January 2011. States that saw an increase in REO activity on a year-over-year basis included Massachusetts (+75%), New Hampshire (+62%), Indiana (+60), Illinois (+52), and Connecticut (+39 percent).
States with the highest foreclosure rates
West coast states Nevada, California and Arizona had the highest foreclosure rates, with Nevada topping the list for the 61st month in a row, despite an 8 percent decrease in foreclosure activity compared to the previous month in December. While California’s foreclosure activity dropped, the state still has the nation’s second highest foreclosure rate. Arizona’s foreclosure activity increased 14 percent from the previous month. Year-over-year foreclosure activity dropped in all three states due to slow foreclosure starts. Trailing behind those states in foreclosure filings were Georgia and Michigan.
Metropolitan rankings
Nine out of 10 of the metropolitan areas, meaning areas with a population of 200,000 or more, with the highest foreclosure rates were found in California. Las Vegas was the exception at number five. The top four cities for foreclosure rates in California were Stockton, Modesto, Riverside-San Bernardino, and Vallejo-Fairfield.
Data for the report is collected from more than 2,200 counties nationwide, and those counties account for more than 90 percent of the U.S. population.
Foreclosure activity includes default notices, scheduled auctions, and bank repossessions. Nationwide, one in every 624 housing units had a foreclosure filing during January 2012.
“Although overall foreclosure activity was down from a year ago for the 16th straight month in January, we continue to see signs on a local and regional level that the frozen-up foreclosure process is beginning to thaw,” said Brandon Moore, CEO of RealtyTrac. “Foreclosure activity increased on a year-over-year basis for the first time in more than 12 months in Florida, Illinois, Indiana and Pennsylvania, following a pattern we saw in late 2011 in states such as California, Arizona and Massachusetts.”
Moore also said that the pattern of increasing foreclosure activity is expected in coming months, especially since the multi-state settlement set forth clears guidelines for lenders and servicers to follow when foreclosing. This, Moore said, should allow servicers to push delayed foreclosures from last year.
At the state and regional level, the situation can be more complicated.
Moore said roadblocks such as legislation to alter the foreclosure process and lawsuits against lenders can lead to uneven trends in local and regional foreclosure numbers.
Breakdown by foreclosure activity type
The total number of default notices filed was at 58,362 in January, remaining unchanged from the previous month, but down 22 percent from January 2011. States with the highest increase in default notices on a year-over-year basis included Pennsylvania (+112%), Maryland (+100%), Florida (36%), and Massachusetts (+27%), and Connecticut (+23%).
Foreclosure auctions were scheduled on 86,037 properties in January, up 1 percent from December, but down 20 percent from January 2011. Scheduled auctions increased significantly on a year-over-year basis in several states, including Illinois and Indiana (+141%), South Carolina (+79%), Massachusetts (+57%), and Minnesota (+24%).
REO properties totaled 66,542 in January, an 8 percent increase from December, and a 15 percent decrease from January 2011. States that saw an increase in REO activity on a year-over-year basis included Massachusetts (+75%), New Hampshire (+62%), Indiana (+60), Illinois (+52), and Connecticut (+39 percent).
States with the highest foreclosure rates
West coast states Nevada, California and Arizona had the highest foreclosure rates, with Nevada topping the list for the 61st month in a row, despite an 8 percent decrease in foreclosure activity compared to the previous month in December. While California’s foreclosure activity dropped, the state still has the nation’s second highest foreclosure rate. Arizona’s foreclosure activity increased 14 percent from the previous month. Year-over-year foreclosure activity dropped in all three states due to slow foreclosure starts. Trailing behind those states in foreclosure filings were Georgia and Michigan.
Metropolitan rankings
Nine out of 10 of the metropolitan areas, meaning areas with a population of 200,000 or more, with the highest foreclosure rates were found in California. Las Vegas was the exception at number five. The top four cities for foreclosure rates in California were Stockton, Modesto, Riverside-San Bernardino, and Vallejo-Fairfield.
Data for the report is collected from more than 2,200 counties nationwide, and those counties account for more than 90 percent of the U.S. population.
Deadline to Request Foreclosure Review Extended Three Months
Consumers who want their foreclosure cases checked by a third party as part of federal regulators’ independent foreclosure review directive now have until July 31, 2012, to submit their requests.
The Federal Reserve and the Office of the Comptroller of the Currency (OCC) announced Wednesday that the deadline has been pushed out by three months to give consumers more time to file for a case assessment if they believe they suffered financial injury as a result of errors in foreclosure actions in 2009 or 2010. The original deadline was April 30.
The independent foreclosure reviews, as mandated and enforced by the federal regulatory agencies, only apply to the mortgage servicers and their subsidiaries that were subject to the enforcement actions handed down by the OCC and Fed on April 13th of last year.
Participating servicers include:
America’s Servicing Company
Aurora Loan Services
BAC Home Loans Servicing
Bank of America
Beneficial
Chase
Citibank
CitiFinancial
CitiMortgage
Countrywide
EMC
Everbank/Everhome Mortgage Company
Financial Freedom
GMAC Mortgage
HFC
HSBC
IndyMac Mortgage Services
MetLife Bank
National City Mortgage
PNC Mortgage
Sovereign Bank
U.S. Bank
Wachovia Mortgage
Washington Mutual
Wells Fargo
Wilshire Credit Corporation
Borrowers are eligible for a foreclosure review if their loan is serviced by one of the participating companies above, the mortgage loan was subject to foreclosure between January 1, 2009 and December 31, 2010, and the property securing the mortgage was the borrower’s primary residence.
There are no costs associated with the foreclosure reviews. These case evaluations performed by independent third parties began in November. Eligible borrowers should have received a letter by the end of 2011 detailing the process.
The Federal Reserve and the Office of the Comptroller of the Currency (OCC) announced Wednesday that the deadline has been pushed out by three months to give consumers more time to file for a case assessment if they believe they suffered financial injury as a result of errors in foreclosure actions in 2009 or 2010. The original deadline was April 30.
The independent foreclosure reviews, as mandated and enforced by the federal regulatory agencies, only apply to the mortgage servicers and their subsidiaries that were subject to the enforcement actions handed down by the OCC and Fed on April 13th of last year.
Participating servicers include:
America’s Servicing Company
Aurora Loan Services
BAC Home Loans Servicing
Bank of America
Beneficial
Chase
Citibank
CitiFinancial
CitiMortgage
Countrywide
EMC
Everbank/Everhome Mortgage Company
Financial Freedom
GMAC Mortgage
HFC
HSBC
IndyMac Mortgage Services
MetLife Bank
National City Mortgage
PNC Mortgage
Sovereign Bank
U.S. Bank
Wachovia Mortgage
Washington Mutual
Wells Fargo
Wilshire Credit Corporation
Borrowers are eligible for a foreclosure review if their loan is serviced by one of the participating companies above, the mortgage loan was subject to foreclosure between January 1, 2009 and December 31, 2010, and the property securing the mortgage was the borrower’s primary residence.
There are no costs associated with the foreclosure reviews. These case evaluations performed by independent third parties began in November. Eligible borrowers should have received a letter by the end of 2011 detailing the process.
Wednesday, February 15, 2012
More State Codes Call for Greater Home Energy Efficiency
More builders are raising the bar when it comes to greater energy efficiency in homes. The new-home industry is using it as a lure to attract buyers, but they’re also, in some cases, being forced to adopt more stringent state energy code standards for new residences.
While greater energy efficiency in new homes can serve as a selling point to potential buyers, some builders are also growing concerned that the tougher energy codes being adopted by a growing number of states are coming at a high price tag at a time when the industry is still struggling.
"There's definitely been a lot of movement by states to adopt more energy-efficient codes," Max Neubauer of the American Council for an Energy-Efficient Economy, told USA Today.
While energy building codes are usually updated every three years, the last two updates have called for greater leaps in increasing energy efficiency.
Paul Karrer of the Online Code Environment and Advocacy Network estimates that moving from the 2006 energy code to the more stringent 2009 energy code alone led to about $840, on average, in extra costs to a new home. On the other hand, Karrer says it has the potential to cut home owners’ utility bills by $243 each year.
Last month, Maryland became the first state in the country to require that new homes must meet the 2012 International Energy Conservation Code. The code calls for about 30 percent greater efficiency than homes that were built five years ago.
Also offering up new standards, the International Green Construction Code will debut next month. The code will serve as a voluntary guide for commercial and public buildings aimed at curbing energy and water use as well as improving indoor air quality. Several states are already planning to adopt it.
Source: “More New Homes Conserve Energy,” USA Today (Feb. 15, 2012)
While greater energy efficiency in new homes can serve as a selling point to potential buyers, some builders are also growing concerned that the tougher energy codes being adopted by a growing number of states are coming at a high price tag at a time when the industry is still struggling.
"There's definitely been a lot of movement by states to adopt more energy-efficient codes," Max Neubauer of the American Council for an Energy-Efficient Economy, told USA Today.
While energy building codes are usually updated every three years, the last two updates have called for greater leaps in increasing energy efficiency.
Paul Karrer of the Online Code Environment and Advocacy Network estimates that moving from the 2006 energy code to the more stringent 2009 energy code alone led to about $840, on average, in extra costs to a new home. On the other hand, Karrer says it has the potential to cut home owners’ utility bills by $243 each year.
Last month, Maryland became the first state in the country to require that new homes must meet the 2012 International Energy Conservation Code. The code calls for about 30 percent greater efficiency than homes that were built five years ago.
Also offering up new standards, the International Green Construction Code will debut next month. The code will serve as a voluntary guide for commercial and public buildings aimed at curbing energy and water use as well as improving indoor air quality. Several states are already planning to adopt it.
Source: “More New Homes Conserve Energy,” USA Today (Feb. 15, 2012)
Reminder: 3.8% Tax Is Not a Transfer Tax on Real Estate
Tax time is nearing and once more rumors are circulating on the Internet and by e-mail that the health care reform law enacted two years ago includes a 3.8 percent transfer tax on real estate starting in 2013. That rumor is not true; NAR has material available to you to explain how that 3.8 percent tax works. It’s a tax on a very narrow band of investment income for high-wealth households (those who earn $250,000 in a joint return or $200,000 as an individual) that could come into play on the sale of a house if the sales gain is more than $500,000 for a married couple or $250,000 for an individual.
Even in the unlikely event the sales gain is more than that amount, the tax would only apply based on other considerations having to do with the household’s income and tax situation. The bottom line is that the tax, which was imposed to help shore up Medicare, will hit only some portion of investment income. Download a free brochure on how the tax works. Video and explanatory article.
Source: National Association of REALTORS®
Even in the unlikely event the sales gain is more than that amount, the tax would only apply based on other considerations having to do with the household’s income and tax situation. The bottom line is that the tax, which was imposed to help shore up Medicare, will hit only some portion of investment income. Download a free brochure on how the tax works. Video and explanatory article.
Source: National Association of REALTORS®
Survey Reveals Qualities of Agents Who Make $100k or More
Real estate professionals who earn $100,000 or more per year show quite a few differences in how they do their job and the technology they use compared to real estate professionals who make $30,000 to $50,000 a year, according to a new survey conducted by InmanNext, a Web site operated by Inman News.
Surveying about 1,300 real estate agents, InmanNext found some of the following characteristics common to those who make $100,000 or more per year versus those who make less.
-- Close more transactions: Sixty-six percent of real estate agents who make $100,000 or more per year say they closed 20 or more transactions in the year compared to about half of those who earn $30,000 to $50,000 who say they closed 10 or fewer transactions.
-- Appeal to the high-end market: High-income agents tended to specialize in luxury homes, condos, and townhouses, and they were less likely to work with first-time buyers or REOs compared to mid-range earners.
-- Work longer hours: Forty-two percent of high-income agents say they work between 40 to 50 hours a week, and 41 percent say they work more than 50 hours a week.
-- Spend more on marketing: High-income agents tend to spend more money on their marketing. About 62 percent of middle-income agents reported spending less than $2,500 on their marketing for their business. On the other hand, 63 percent of high-income earners said they spent $5,000 or more per year on marketing.
-- Spend more on technology: High-income earners also tend to spend more on technology purchases to aid them in their business. More than half said they spend $2,500 or more on technology each year, and a quarter spend $5,000 or more. Meanwhile, about 84 percent of middle-income earners say they spend less than $2,500 on technology purchases a year. As for technology preferences, high-income earners show a preference toward Apple Macintosh computers and iPhones, more so than mid-range earners.
-- Use social networking and Web sites: Nearly half of high-income earners say they update their Web site at least a few times a week, while 39 percent of mid-range earners report updating their Web site or blog only once a month. High-income earners are also more connected on Facebook, with nearly half reporting 500 or more friends on Facebook compared to more than two-thirds of middle-income earners who say they have 500 or fewer friends on Facebook. High-income agents also were more likely to have a YouTube account and Twitter account and to have more followers than mid-range earners.
Source: “Survey: High-Income Real Estate Agents Lead the Pack on Technology,” Inman News (Feb. 14, 2012)
Surveying about 1,300 real estate agents, InmanNext found some of the following characteristics common to those who make $100,000 or more per year versus those who make less.
-- Close more transactions: Sixty-six percent of real estate agents who make $100,000 or more per year say they closed 20 or more transactions in the year compared to about half of those who earn $30,000 to $50,000 who say they closed 10 or fewer transactions.
-- Appeal to the high-end market: High-income agents tended to specialize in luxury homes, condos, and townhouses, and they were less likely to work with first-time buyers or REOs compared to mid-range earners.
-- Work longer hours: Forty-two percent of high-income agents say they work between 40 to 50 hours a week, and 41 percent say they work more than 50 hours a week.
-- Spend more on marketing: High-income agents tend to spend more money on their marketing. About 62 percent of middle-income agents reported spending less than $2,500 on their marketing for their business. On the other hand, 63 percent of high-income earners said they spent $5,000 or more per year on marketing.
-- Spend more on technology: High-income earners also tend to spend more on technology purchases to aid them in their business. More than half said they spend $2,500 or more on technology each year, and a quarter spend $5,000 or more. Meanwhile, about 84 percent of middle-income earners say they spend less than $2,500 on technology purchases a year. As for technology preferences, high-income earners show a preference toward Apple Macintosh computers and iPhones, more so than mid-range earners.
-- Use social networking and Web sites: Nearly half of high-income earners say they update their Web site at least a few times a week, while 39 percent of mid-range earners report updating their Web site or blog only once a month. High-income earners are also more connected on Facebook, with nearly half reporting 500 or more friends on Facebook compared to more than two-thirds of middle-income earners who say they have 500 or fewer friends on Facebook. High-income agents also were more likely to have a YouTube account and Twitter account and to have more followers than mid-range earners.
Source: “Survey: High-Income Real Estate Agents Lead the Pack on Technology,” Inman News (Feb. 14, 2012)
Foreclosure Sales Up for West Coast States Except Washington
Foreclosure sales on the West Coast started strong for the beginning of 2012, with Washington as the exception, according to ForeclosureRadar.
Arizona, California, Nevada, and Oregon are the other states included in the report – all of which saw increases in foreclosure sales to investors. Trustee sale investors pay the full amount in cash without inspections or title insurance prior to purchase.
This is the fourth largest month on record in California, and the busiest since March of 2011, stated ForeclosureRadar.
Nevada experienced the largest month-over-month increase in foreclosure sales (+59.8 percent), with Washington being the only state seeing a decline (-31.3 percent). Nevada’s
increase, combined with the significant declines in new foreclosures that began in October 2011, is quickly diminishing the foreclosure inventory in the state.
California also saw a substantial increase (+14.6 percent), and the state underwent the most activity, with investors purchasing 3,964 properties for $766.2 million, according to ForeclosureRadar.
“January’s numbers should put to rest any notion that we will see a wave of foreclosures in 2012, at least in the western states that we cover.” said Sean O’Toole, founder & CEO of ForeclosureRadar. “Foreclosure starts remain near record low levels, significantly lower than a year ago, when many banks still had self-imposed moratoriums in place due to the robo-signing scandal. Add to that a foreclosure timeframe of more than 8 months, and there is little chance of a wave this year even if all the banks started the foreclosure process en masse tomorrow.”
Oregon (-26.5 percent) and Arizona (-6.3 percent) had a decrease in foreclosure starts, which is when a borrower receives a notice of default and the foreclosure process begins.
ForeclosureRadar stated that despite what appears to be significant percentage increases in foreclosure starts in California (+15.5 percent), Nevada (+16.6 percent) and Washington (+25.1 percent), compared to January one year ago, foreclosure starts are significantly lower now.
Recent Articles
By: Esther Cho
Arizona, California, Nevada, and Oregon are the other states included in the report – all of which saw increases in foreclosure sales to investors. Trustee sale investors pay the full amount in cash without inspections or title insurance prior to purchase.
This is the fourth largest month on record in California, and the busiest since March of 2011, stated ForeclosureRadar.
Nevada experienced the largest month-over-month increase in foreclosure sales (+59.8 percent), with Washington being the only state seeing a decline (-31.3 percent). Nevada’s
increase, combined with the significant declines in new foreclosures that began in October 2011, is quickly diminishing the foreclosure inventory in the state.
California also saw a substantial increase (+14.6 percent), and the state underwent the most activity, with investors purchasing 3,964 properties for $766.2 million, according to ForeclosureRadar.
“January’s numbers should put to rest any notion that we will see a wave of foreclosures in 2012, at least in the western states that we cover.” said Sean O’Toole, founder & CEO of ForeclosureRadar. “Foreclosure starts remain near record low levels, significantly lower than a year ago, when many banks still had self-imposed moratoriums in place due to the robo-signing scandal. Add to that a foreclosure timeframe of more than 8 months, and there is little chance of a wave this year even if all the banks started the foreclosure process en masse tomorrow.”
Oregon (-26.5 percent) and Arizona (-6.3 percent) had a decrease in foreclosure starts, which is when a borrower receives a notice of default and the foreclosure process begins.
ForeclosureRadar stated that despite what appears to be significant percentage increases in foreclosure starts in California (+15.5 percent), Nevada (+16.6 percent) and Washington (+25.1 percent), compared to January one year ago, foreclosure starts are significantly lower now.
Recent Articles
By: Esther Cho
CFPB Issues Proposal to Place New Standards on Mortgage Statements
The Consumer Financial Protection Bureau (CFPB) is looking to propose a rule to standardize monthly mortgage statements to make them easier for customers to understand.
The CFPB recently released an early draft of a statement and is seeking feedback.
“This draft statement shows consumers the breakdown of their mortgage payments – what money goes to the loan principal, interest, and fees,” CFPB director Richard Cordray said in a statement. “This information will help consumers stay on top of their mortgage costs and hold their mortgage servicers accountable for fixing errors that crop up.”
The draft is available online, and opinions on the draft can be shared by emailing MortgageStatement@cfpb.gov.
Under section 1420 of the Dodd-Frank Act, statements must include certain information including:
Principal loan amount
Current interest rate
Date on the interest rate may next reset
Description of any late payment fees and any prepayment fee
Information about housing counselors
Phone number and email address for borrower to obtain information about the mortgage
Other information the CFPB may prescribe in regulation
“Most servicers have spent years customizing the mortgage statements they send to their customers,” Ghazale Johnston, senior executive of Accenture Credit Services, said in an email. “Moving to a new set of statement standards may require them to make a significant investment in changing their core systems.”
Once a refined prototype is available, the CFPB said in statement that it will propose a rule to specify what needs to be on statements, but creditors, assignees, and servicers will have some flexibility to tweak the form after final publication of the rule and form.
By: Esther Cho
The CFPB recently released an early draft of a statement and is seeking feedback.
“This draft statement shows consumers the breakdown of their mortgage payments – what money goes to the loan principal, interest, and fees,” CFPB director Richard Cordray said in a statement. “This information will help consumers stay on top of their mortgage costs and hold their mortgage servicers accountable for fixing errors that crop up.”
The draft is available online, and opinions on the draft can be shared by emailing MortgageStatement@cfpb.gov.
Under section 1420 of the Dodd-Frank Act, statements must include certain information including:
Principal loan amount
Current interest rate
Date on the interest rate may next reset
Description of any late payment fees and any prepayment fee
Information about housing counselors
Phone number and email address for borrower to obtain information about the mortgage
Other information the CFPB may prescribe in regulation
“Most servicers have spent years customizing the mortgage statements they send to their customers,” Ghazale Johnston, senior executive of Accenture Credit Services, said in an email. “Moving to a new set of statement standards may require them to make a significant investment in changing their core systems.”
Once a refined prototype is available, the CFPB said in statement that it will propose a rule to specify what needs to be on statements, but creditors, assignees, and servicers will have some flexibility to tweak the form after final publication of the rule and form.
By: Esther Cho
After Two-Year Lull, Delinquencies Rise for Second Straight Quarter
The national mortgage delinquency rate rose during the fourth quarter of 2011, TransUnion reported Tuesday, marking only the second time since the end of 2009 the Chicago-based credit bureau has recorded an increase in its quarterly assessment of past due mortgage payments.
The first was during the third quarter of 2011, with the succession signaling what could be a troubling trend in the making.
TransUnion calculates the mortgage delinquency rate as the percentage of borrowers 60 or more days behind on their payments, excluding those that are already in foreclosure.
The rate increased from 5.88 percent at the end of the third quarter to 6.01 percent as of the end of the fourth.
Between the third and fourth quarters of 2011, all but 13 states experienced increases in their mortgage delinquency rates, according to TransUnion’s study.
On a more granular level, 64 percent of metropolitan areas saw increases in mortgage delinquencies during the final three months of last year. The previous three months also had the distinction of increases in 64 percent of metros. That’s up from only 21 percent during the second quarter of 2011.
“To see that, quarter over quarter, fewer homeowners were able to make their mortgage payments is not welcome news. However, it was not unexpected,” said Tim
Martin, group vice president of U.S. housing in TransUnion’s financial services business unit.
Martin explained that there tends to be a natural seasonality – which was evident well before the recession – of higher delinquencies during the fourth quarter period of any year, perhaps because borrowers must balance holiday spending versus debt payments.
More intrinsic to the current conditions, Martin noted that on top of the seasonal flux, home prices continued to deteriorate in the fourth quarter of 2011 and unemployment remained stubbornly high.
“This combination leads to more negative equity in homes and reduced real personal income that can affect borrowers’ ability and willingness to pay their mortgages,” he said.
Martin does see some “more encouraging news” behind the numbers in TransUnion’s latest report – when looking at the data year-over-year, more homeowners are now making their mortgage payments on time, as evidenced by the 6 percent drop in the national delinquency rate since the fourth quarter of 2010.
“While it is certainly good to see the rate dropping, at this pace it will take a very long time for mortgage delinquencies to get back to normal,” Martin said.
By: Carrie Bay
The highest mortgage delinquency rates during the fourth quarter were found in Florida (14.27%), Nevada (12.08%), New Jersey (8.32%), and Arizona (7.50%).
States with the lowest mortgage delinquency rates included North Dakota (1.50%), South Dakota (2.45%), Nebraska (2.57%), and Alaska (2.77%).
TransUnion’s forecast calls for mortgage delinquency rates to drift downward marginally in 2012 as the economic environment begins to modestly improve.
In the meantime, however, the agency says the industry may see a quarter or two more of slightly elevated nonpayment rates as some consumers are not able to, or decide not to, repay their mortgage debt obligations in light of the uncertain economic outlook.
The first was during the third quarter of 2011, with the succession signaling what could be a troubling trend in the making.
TransUnion calculates the mortgage delinquency rate as the percentage of borrowers 60 or more days behind on their payments, excluding those that are already in foreclosure.
The rate increased from 5.88 percent at the end of the third quarter to 6.01 percent as of the end of the fourth.
Between the third and fourth quarters of 2011, all but 13 states experienced increases in their mortgage delinquency rates, according to TransUnion’s study.
On a more granular level, 64 percent of metropolitan areas saw increases in mortgage delinquencies during the final three months of last year. The previous three months also had the distinction of increases in 64 percent of metros. That’s up from only 21 percent during the second quarter of 2011.
“To see that, quarter over quarter, fewer homeowners were able to make their mortgage payments is not welcome news. However, it was not unexpected,” said Tim
Martin, group vice president of U.S. housing in TransUnion’s financial services business unit.
Martin explained that there tends to be a natural seasonality – which was evident well before the recession – of higher delinquencies during the fourth quarter period of any year, perhaps because borrowers must balance holiday spending versus debt payments.
More intrinsic to the current conditions, Martin noted that on top of the seasonal flux, home prices continued to deteriorate in the fourth quarter of 2011 and unemployment remained stubbornly high.
“This combination leads to more negative equity in homes and reduced real personal income that can affect borrowers’ ability and willingness to pay their mortgages,” he said.
Martin does see some “more encouraging news” behind the numbers in TransUnion’s latest report – when looking at the data year-over-year, more homeowners are now making their mortgage payments on time, as evidenced by the 6 percent drop in the national delinquency rate since the fourth quarter of 2010.
“While it is certainly good to see the rate dropping, at this pace it will take a very long time for mortgage delinquencies to get back to normal,” Martin said.
By: Carrie Bay
The highest mortgage delinquency rates during the fourth quarter were found in Florida (14.27%), Nevada (12.08%), New Jersey (8.32%), and Arizona (7.50%).
States with the lowest mortgage delinquency rates included North Dakota (1.50%), South Dakota (2.45%), Nebraska (2.57%), and Alaska (2.77%).
TransUnion’s forecast calls for mortgage delinquency rates to drift downward marginally in 2012 as the economic environment begins to modestly improve.
In the meantime, however, the agency says the industry may see a quarter or two more of slightly elevated nonpayment rates as some consumers are not able to, or decide not to, repay their mortgage debt obligations in light of the uncertain economic outlook.
Tuesday, February 14, 2012
HUD Grants $1.8 Billion to Enhance Affordable Housing
The U.S. Department of Housing and Urban Development announced that it will offer nearly $1.8 billion to public housing authorities nationwide, allowing agencies to make large-scale improvements to public housing units.
The funds also can be used to make energy-efficient upgrades to replace old plumbing and electrical systems, according to HUD.
Thousands of public housing units are lost annually, mostly due to disrepair, according to HUD.
“This funding will help housing authorities address long-standing capital improvements, but it only scratches the surface in addressing the deep backlog we’re seeing across the country,” said HUD Secretary Shaun Donovan. “Today, we are closer to helping housing authorities and our private sector partners undertake their capital needs over the long haul.”
The funds also can be used to make energy-efficient upgrades to replace old plumbing and electrical systems, according to HUD.
Thousands of public housing units are lost annually, mostly due to disrepair, according to HUD.
“This funding will help housing authorities address long-standing capital improvements, but it only scratches the surface in addressing the deep backlog we’re seeing across the country,” said HUD Secretary Shaun Donovan. “Today, we are closer to helping housing authorities and our private sector partners undertake their capital needs over the long haul.”
Banks to Pay Military Members for Foreclosure Errors
Four major banks have agreed to reimburse any military members found to have been wrongfully foreclosed upon in the last five years.
The Justice Department will oversee the reviews by the banks. The financial institutions involved are JPMorgan Chase, Wells Fargo, Citigroup, and Ally Financial.
The banks will be conducting reviews of accounts dating back to Jan. 1, 2006, to find any military members who they may have mistakenly foreclosed upon — which violates the Servicemembers Civil Relief Act.
"From our first conversations, these servicers made it clear that they shared our goal of ensuring that any servicemember harmed as a result of a violation of the SCRA will receive full compensation," U.S. Assistant Attorney General Thomas Perez said in a speech Friday.
Two banks already have agreed to reimburse military members at least $116,785 each. They said they’ll also pay any lost equity in a home.
Some banks have already been compensating service members for wrongful foreclosures after allegations first surfaced nearly a year ago that violations of SCRA were made against military members by several banks. Chase has admitted to 14 wrongful evictions of military families and has agreed to give back the homes or offer compensation if the home was already resold. It has also developed a foreclosure prevention and assistance program for military vets. Bank of America has agreed to pay more than $20 million to 157 military members to correct wrongful evictions made from 2006 to 2009.
Source: “Military Members May Get Six-Figure Payday for Wrongful Foreclosures,” HousingWire (Feb. 13, 2012)
The Justice Department will oversee the reviews by the banks. The financial institutions involved are JPMorgan Chase, Wells Fargo, Citigroup, and Ally Financial.
The banks will be conducting reviews of accounts dating back to Jan. 1, 2006, to find any military members who they may have mistakenly foreclosed upon — which violates the Servicemembers Civil Relief Act.
"From our first conversations, these servicers made it clear that they shared our goal of ensuring that any servicemember harmed as a result of a violation of the SCRA will receive full compensation," U.S. Assistant Attorney General Thomas Perez said in a speech Friday.
Two banks already have agreed to reimburse military members at least $116,785 each. They said they’ll also pay any lost equity in a home.
Some banks have already been compensating service members for wrongful foreclosures after allegations first surfaced nearly a year ago that violations of SCRA were made against military members by several banks. Chase has admitted to 14 wrongful evictions of military families and has agreed to give back the homes or offer compensation if the home was already resold. It has also developed a foreclosure prevention and assistance program for military vets. Bank of America has agreed to pay more than $20 million to 157 military members to correct wrongful evictions made from 2006 to 2009.
Source: “Military Members May Get Six-Figure Payday for Wrongful Foreclosures,” HousingWire (Feb. 13, 2012)
Save a Home by Turning It Into a Billboard?
Home owners in a Los Angeles suburb are getting their nearly $2,000 monthly mortgage paid for by allowing their home to be turned into a massive billboard, painted in orange and green.
The marketing company Braniacs From Mars launched the initiative: They’ll pay struggling home owners mortgage for up to a year, if home owners agree to rent out billboard space on their home to advertise the firm and its social media icons.
The company made its bold offer to home owners in April 2011, collecting nearly 40,000 applications. The majority of the applications came from hard-hit housing markets like California, Florida, and Nevada.
Romeo Mendoza, Braniacs From Mars founder and CEO, told Reuters that his goal is to choose 1,000 homes across the country and have them all advertising his firm.
"If we roll it out to scale and impact the foreclosure crisis, that would be amazing," Mendoza said.
But zoning laws and other city code laws regarding a home’s appearance may derail Mendoza’s plans. Many areas won’t allow homes to be turned into massive billboards.
Source: “Mortgage Relief: Houses Turned into Billboards,” Reuters (Feb. 13, 2012)
The marketing company Braniacs From Mars launched the initiative: They’ll pay struggling home owners mortgage for up to a year, if home owners agree to rent out billboard space on their home to advertise the firm and its social media icons.
The company made its bold offer to home owners in April 2011, collecting nearly 40,000 applications. The majority of the applications came from hard-hit housing markets like California, Florida, and Nevada.
Romeo Mendoza, Braniacs From Mars founder and CEO, told Reuters that his goal is to choose 1,000 homes across the country and have them all advertising his firm.
"If we roll it out to scale and impact the foreclosure crisis, that would be amazing," Mendoza said.
But zoning laws and other city code laws regarding a home’s appearance may derail Mendoza’s plans. Many areas won’t allow homes to be turned into massive billboards.
Source: “Mortgage Relief: Houses Turned into Billboards,” Reuters (Feb. 13, 2012)
Obama Budget Calls for $6B in Home Energy Retrofits
President Obama is calling for $6 billion in his 2013 budget to expand home energy retrofits. Obama unveiled his $3.8 trillion budget for 2013 on Monday.
The home energy retrofit allocation aims to revive Obama’s Home Star program, which passed the House of Representatives in 2010 but never won over final congressional approval. The Home Star program would grant home owners rebates for efficiency upgrades, including sealing ducts, installing efficient water heaters and heating units, windows, doors, and adding insulation. The program was previously dubbed “cash for caulkers.”
Still, some are skeptical the full $6 billion will win final approval. "While Home Star is unlikely to make it through Congress (this year) due to its price tag, we hope something more modest might be able to move forward," Steven Nadel, executive director of the American Council for an Energy-Efficient Economy, told USA Today.
Source: “Obama Seeks Billions for Home Energy Retrofits, EVs,” USA Today (Feb. 13, 2012)
The home energy retrofit allocation aims to revive Obama’s Home Star program, which passed the House of Representatives in 2010 but never won over final congressional approval. The Home Star program would grant home owners rebates for efficiency upgrades, including sealing ducts, installing efficient water heaters and heating units, windows, doors, and adding insulation. The program was previously dubbed “cash for caulkers.”
Still, some are skeptical the full $6 billion will win final approval. "While Home Star is unlikely to make it through Congress (this year) due to its price tag, we hope something more modest might be able to move forward," Steven Nadel, executive director of the American Council for an Energy-Efficient Economy, told USA Today.
Source: “Obama Seeks Billions for Home Energy Retrofits, EVs,” USA Today (Feb. 13, 2012)
Home Owners More Attractive Than Renters, Singles Say
Home owners trump renters when it comes to finding someone to date, according to a new survey of 1,000 single people. More than a third of women and 18 percent of men would rather date a home owner than a renter, according to the survey, which was conducted on behalf of Trulia.
On the other hand, only 2 percent of women said they’d prefer to date a renter, while 3 percent of men said they’d prefer a renter.
Not only do both sexes prefer home owners, but they also prefer you live alone. Sixty-two percent of the singles surveyed said they prefer to date others who live alone and have no roommates.
And while the number of young adults who have moved back in with their parents has skyrocketed in recent months due to economic hardships, less than 5 percent of the singles surveyed said they would date someone living in their parents' home.
What home qualities are the many singles who prefer ownership to renting most drawn to? The top vote-getters were the master bath, walk-in closets, and gourmet kitchens. They also gave high ranks to hardwood floors, outdoor decks, and home theaters.
Source: “Want a Date? Buy a Home,” CNNMoney (Feb. 14, 2012)
On the other hand, only 2 percent of women said they’d prefer to date a renter, while 3 percent of men said they’d prefer a renter.
Not only do both sexes prefer home owners, but they also prefer you live alone. Sixty-two percent of the singles surveyed said they prefer to date others who live alone and have no roommates.
And while the number of young adults who have moved back in with their parents has skyrocketed in recent months due to economic hardships, less than 5 percent of the singles surveyed said they would date someone living in their parents' home.
What home qualities are the many singles who prefer ownership to renting most drawn to? The top vote-getters were the master bath, walk-in closets, and gourmet kitchens. They also gave high ranks to hardwood floors, outdoor decks, and home theaters.
Source: “Want a Date? Buy a Home,” CNNMoney (Feb. 14, 2012)
NAR Cautions Against MID Changes
The National Association of REALTORS® has come out against parts of President Obama’s proposed budget for 2012 that would limit itemized deductions, including the mortgage interest deduction, for wealthier households.
“NAR firmly believes that the mortgage interest deduction is vital to the stability of the American housing market and economy,” 2012 NAR President Moe Veissi said. “We urge the president and Congress to do no harm.”
The president’s proposal calls for reducing the value of itemized deductions for taxpayers earning more than $200,000 in annual income — or $250,000 for joint filings of married couples. It limits the value of the deduction to 28 cents on the dollar for affected taxpayers, rather than 33 cents or 35 cents.
NAR’s concern is limitations on the MID would harm home values, hindering a budding housing recovery.
“While progress has been made in bringing stability to the housing market, the recovery has been slow,” Veissi said. “The nation’s home owners already pay 80 to 90 percent of U.S. federal income taxes. Raising taxes on them, now or in the future, could critically erode home values at all price levels.”
Source: “Obama budget: Tax plans aim at rich,” CNNMoney (Feb. 13, 2012) and NAR
“NAR firmly believes that the mortgage interest deduction is vital to the stability of the American housing market and economy,” 2012 NAR President Moe Veissi said. “We urge the president and Congress to do no harm.”
The president’s proposal calls for reducing the value of itemized deductions for taxpayers earning more than $200,000 in annual income — or $250,000 for joint filings of married couples. It limits the value of the deduction to 28 cents on the dollar for affected taxpayers, rather than 33 cents or 35 cents.
NAR’s concern is limitations on the MID would harm home values, hindering a budding housing recovery.
“While progress has been made in bringing stability to the housing market, the recovery has been slow,” Veissi said. “The nation’s home owners already pay 80 to 90 percent of U.S. federal income taxes. Raising taxes on them, now or in the future, could critically erode home values at all price levels.”
Source: “Obama budget: Tax plans aim at rich,” CNNMoney (Feb. 13, 2012) and NAR
In Addition to $25 Billion Settlement, Nevada's AG Wins More
In addition to the $25 billion settlement between the five largest servicers and 49 states, Nevada’s Attorney General Catherine Cortez Masto reaped more for Nevada homeowners through an additional settlement with Bank of America.
“I fought for and consequently received additional coverage that is above and beyond what is included in the national multistate settlement for Nevada homeowners who have been devastated by the foreclosure crises,” said Masto in a statement. “My team and I have taken our time to surgically review and subsequently change the national settlement to ensure that it delivers adequate and immediate consumer relief.”
Masto won Nevada $750 million in relief for lien principal payments and short sales from BofA and $30 million for
consumer protection efforts. BofA is also required to suspend foreclosure sales for borrowers who are eligible for the National Homeownership Retention Program and solicit borrowers who may qualify.
In December 2010, Masto’s office sued BofA to undo a deal made in October 2008 on loan modifications under Countrywide, claiming the lender did not meet obligations. According to a New York Times article, the bank did not provide loan modifications to qualified homeowners as required, foreclosed on borrowers with pending modification requests, and failed to meet the 60-day requirement on granting new loan terms.
For Nevada residents, the estimated share for the national settlement between BofA, JPMorgan Chase, Wells Fargo, Citigroup, and Ally is $1.5 billion, with a breakdown that will go as follows:
$1.3 billion in benefits form loan term modifications and other direct relief
$57 million for those who qualify due to losing their home to wrongful foreclosures from January 1, 2008 through December 31, 2011
$42 million for underwater borrowers
$60 million as a direct payment in addition to the $30 million as part of the BofA settlement
Nevada can continue to pursue criminal actions against the banks, and the settlement does not prevent homeowners or investors from pursuing cases against the top five servicers.
BY: ESTHER CHO
“I fought for and consequently received additional coverage that is above and beyond what is included in the national multistate settlement for Nevada homeowners who have been devastated by the foreclosure crises,” said Masto in a statement. “My team and I have taken our time to surgically review and subsequently change the national settlement to ensure that it delivers adequate and immediate consumer relief.”
Masto won Nevada $750 million in relief for lien principal payments and short sales from BofA and $30 million for
consumer protection efforts. BofA is also required to suspend foreclosure sales for borrowers who are eligible for the National Homeownership Retention Program and solicit borrowers who may qualify.
In December 2010, Masto’s office sued BofA to undo a deal made in October 2008 on loan modifications under Countrywide, claiming the lender did not meet obligations. According to a New York Times article, the bank did not provide loan modifications to qualified homeowners as required, foreclosed on borrowers with pending modification requests, and failed to meet the 60-day requirement on granting new loan terms.
For Nevada residents, the estimated share for the national settlement between BofA, JPMorgan Chase, Wells Fargo, Citigroup, and Ally is $1.5 billion, with a breakdown that will go as follows:
$1.3 billion in benefits form loan term modifications and other direct relief
$57 million for those who qualify due to losing their home to wrongful foreclosures from January 1, 2008 through December 31, 2011
$42 million for underwater borrowers
$60 million as a direct payment in addition to the $30 million as part of the BofA settlement
Nevada can continue to pursue criminal actions against the banks, and the settlement does not prevent homeowners or investors from pursuing cases against the top five servicers.
BY: ESTHER CHO
Lawsuit Filed Against Wells Fargo and Chase for Default Service Fees
Baron and Budd attorneys filed a lawsuit on February 10, alleging that Wells Fargo and JPMorgan Chase charged excessive default service fees.
“Wells Fargo and Chase executives conspired to increase profits in any way they can, even if that meant deceiving homeowners who were losing out on the American dream,” said attorney Roland Tellis in a statement. “In addition to charging unnecessary and marked-up fees, the banks concealed the fees through cryptic wording.”
One of the fees charged to borrowers who pay late is the broker’s price opinion (BPO), which is used to help the lender price the property for foreclosure.
According to the suit, while federal law allows mortgage servicers to charge borrowers BPO fees, Wells Fargo and Chase marked up the charges or performed unnecessary services to make a profit, which is not permissible.
The suit also claims that the fees are disguised on statements as other charges, miscellaneous fees, or corporate advances.
While federal law allows lenders to charge these BPO fees, but they are not allowed to mark up the charges or perform unnecessary services and make a profit, which is what Wells Fargo and Chase have done, according to the suit.
The suit states that Wells Fargo and Chase combined service about 25 percent of all U.S. mortgages.
“We are currently reviewing the complaint to better understand the facts of the filing,” said a Wells Fargo spokesperson to DS News.
Chase had no comment on the lawsuit.
BY: ESTHER CHO
“Wells Fargo and Chase executives conspired to increase profits in any way they can, even if that meant deceiving homeowners who were losing out on the American dream,” said attorney Roland Tellis in a statement. “In addition to charging unnecessary and marked-up fees, the banks concealed the fees through cryptic wording.”
One of the fees charged to borrowers who pay late is the broker’s price opinion (BPO), which is used to help the lender price the property for foreclosure.
According to the suit, while federal law allows mortgage servicers to charge borrowers BPO fees, Wells Fargo and Chase marked up the charges or performed unnecessary services to make a profit, which is not permissible.
The suit also claims that the fees are disguised on statements as other charges, miscellaneous fees, or corporate advances.
While federal law allows lenders to charge these BPO fees, but they are not allowed to mark up the charges or perform unnecessary services and make a profit, which is what Wells Fargo and Chase have done, according to the suit.
The suit states that Wells Fargo and Chase combined service about 25 percent of all U.S. mortgages.
“We are currently reviewing the complaint to better understand the facts of the filing,” said a Wells Fargo spokesperson to DS News.
Chase had no comment on the lawsuit.
BY: ESTHER CHO
With 10M at Risk of Default, CFPB's Primary Focus Is Mortgages
As many as 10 million homeowners are at risk of default, according to Richard Cordray, director of the Consumer Financial Protection Bureau (CFPB).
In an op-ed piece for Politico, Cordray recounts the type of behavior and practices that put so many Americans in danger of losing their homes.
It’s what he describes as “the wild West of lending” during the years leading up to the mortgage meltdown – a time when consumers were steered into high-priced mortgages, first-time buyers opted for balloon loans without understanding the risks, and lenders with little regard for a borrower’s ability to repay were ascending the ranks in terms of market share.
“Few people realized how dangerous or widespread the problem was. Neither did we, though we could plainly see that something was very wrong,” Cordray admitted, referring to his time as a state and local treasurer in Ohio.
According to Cordray, the “tragic error” underlying the housing crisis was the fact that no single federal government agency was looking at the market from the perspective of the consumer. Enter the CFPB.
While the CFPB is charged with overseeing all consumer-facing financial products and services – including credit cards, checking accounts, and payday loans – Cordray says the agency’s greatest focus is on the mortgage market, and servicing in particular.
The mortgage market “was, after all, the house of cards that crashed our economy and caused so much pain for millions of Americans,” Cordray wrote, noting that in addition to the 10 million homeowners at risk of default, there are currently 4 million who are already behind on their payments by more than 90 days and nearly a quarter of all mortgage borrowers who owe more than their home is now worth.
“There is much that needs to be fixed in this broken market – from the moment a prospective homeowner starts shopping for a loan all the way until the loan is finally terminated, which for too many people these days comes about through foreclosure,” Cordray said.
He pointed out that independent, nonbank institutions which tend to specialize in the servicing of subprime or delinquent loans are now subject to the CFPB’s watchful eye, whereas before they had little or no oversight.
“[F]or the first time, the federal government will have the authority to look into the entire mortgage servicing market,” Cordray said. “This is a critical improvement: We will be able to monitor all players to make sure they abide by federal consumer financial laws.”
The CFPB plans to issue a rule requiring all mortgage servicers to provide consumers with better information in their billing statements, he explained.
This week, the agency is releasing a prototype of what such a statement would look like on its website. Cordray is seeking input from the public and mortgage industry professionals on the statement prototype.
In the future, the CFPB will also issue new consumer protections around “force-placed insurance” – the hazard insurance that mortgage servicers secure at the borrower’s expense when they believe a borrower’s previous hazard insurance has lapsed.
The agency plans to draft the rule in a way that prevents servicers from charging for force-placed insurance unless there is a reasonable basis to believe the borrower has failed to maintain their own insurance. The rule will require servicers to provide consumers an opportunity to obtain their own insurance, which Cordray says is generally less expensive than force-placed insurance.
The CFPB will also issue new disclosures for hybrid adjustable-rate mortgages (ARMs), which Cordray describes as “complicated loans” that usually start with a teaser interest rate before resetting to a much higher rate.
He explained that consumers will be notified months ahead of their first interest rate adjustment and will receive a good-faith estimate of their new monthly payment, along with a list of alternatives they may pursue to head off the higher rate, such as refinancing or renegotiating the loan terms.
“The CFPB is implementing rules and helping to articulate standards so we never again end up in the mess we still see around us today,” Cordray said.
BY: CARRIE BAY
In an op-ed piece for Politico, Cordray recounts the type of behavior and practices that put so many Americans in danger of losing their homes.
It’s what he describes as “the wild West of lending” during the years leading up to the mortgage meltdown – a time when consumers were steered into high-priced mortgages, first-time buyers opted for balloon loans without understanding the risks, and lenders with little regard for a borrower’s ability to repay were ascending the ranks in terms of market share.
“Few people realized how dangerous or widespread the problem was. Neither did we, though we could plainly see that something was very wrong,” Cordray admitted, referring to his time as a state and local treasurer in Ohio.
According to Cordray, the “tragic error” underlying the housing crisis was the fact that no single federal government agency was looking at the market from the perspective of the consumer. Enter the CFPB.
While the CFPB is charged with overseeing all consumer-facing financial products and services – including credit cards, checking accounts, and payday loans – Cordray says the agency’s greatest focus is on the mortgage market, and servicing in particular.
The mortgage market “was, after all, the house of cards that crashed our economy and caused so much pain for millions of Americans,” Cordray wrote, noting that in addition to the 10 million homeowners at risk of default, there are currently 4 million who are already behind on their payments by more than 90 days and nearly a quarter of all mortgage borrowers who owe more than their home is now worth.
“There is much that needs to be fixed in this broken market – from the moment a prospective homeowner starts shopping for a loan all the way until the loan is finally terminated, which for too many people these days comes about through foreclosure,” Cordray said.
He pointed out that independent, nonbank institutions which tend to specialize in the servicing of subprime or delinquent loans are now subject to the CFPB’s watchful eye, whereas before they had little or no oversight.
“[F]or the first time, the federal government will have the authority to look into the entire mortgage servicing market,” Cordray said. “This is a critical improvement: We will be able to monitor all players to make sure they abide by federal consumer financial laws.”
The CFPB plans to issue a rule requiring all mortgage servicers to provide consumers with better information in their billing statements, he explained.
This week, the agency is releasing a prototype of what such a statement would look like on its website. Cordray is seeking input from the public and mortgage industry professionals on the statement prototype.
In the future, the CFPB will also issue new consumer protections around “force-placed insurance” – the hazard insurance that mortgage servicers secure at the borrower’s expense when they believe a borrower’s previous hazard insurance has lapsed.
The agency plans to draft the rule in a way that prevents servicers from charging for force-placed insurance unless there is a reasonable basis to believe the borrower has failed to maintain their own insurance. The rule will require servicers to provide consumers an opportunity to obtain their own insurance, which Cordray says is generally less expensive than force-placed insurance.
The CFPB will also issue new disclosures for hybrid adjustable-rate mortgages (ARMs), which Cordray describes as “complicated loans” that usually start with a teaser interest rate before resetting to a much higher rate.
He explained that consumers will be notified months ahead of their first interest rate adjustment and will receive a good-faith estimate of their new monthly payment, along with a list of alternatives they may pursue to head off the higher rate, such as refinancing or renegotiating the loan terms.
“The CFPB is implementing rules and helping to articulate standards so we never again end up in the mess we still see around us today,” Cordray said.
BY: CARRIE BAY
Obama's FY2013 Budget: Campaign Rhetoric or Sound Solutions?
President Barack Obama’s FY2013 budget proposal has instigated a whirlwind of bipartisan debate as Republicans launch accusations that the president’s proposal is no more than a piece of campaign material that will harm more than help the nation’s economy.
The president has allocated $350 billion for “short-term measures for job growth,” $50 billion for transportation improvements, and eliminations of several tax cuts for high-income Americans.
The budget includes an extension of the 2 percent payroll tax cut through the end of 2012, and a 10 percent tax cut for small businesses that add new jobs.
Under the proposed budget, HUD would receive a 3.2 percent increase in funding with an additional $1.4 billion more than the department’s 2012 budget.
HUD’s total budget for the new year is proposed at $44.8 billion.
Pending Congressional approval, the increased budget allows for $141 million in additional support for housing counseling.
The budget also includes the recent increases in FHA premiums, which according to the proposal, “will boost FHA’s capital reserves-to better protect taxpayers against the risk of credit losses by the program-and increase Federal revenues.”
In its budget proposal, the administration predicts the FHA will insure $149 billion in mortgage loans in 2013.
In his statement released with the proposal, Obama largely blames the housing industry from the state of the economy.
“Too many mortgages had been sold to people who could not afford – or even understand – them,” he said, adding that banks created risky loan packages and misled investors about their contents, while regulators “either looked the other way or did not have the authority to act.”
“In the end, this growing debt and irresponsibility helped trigger the worst economic crisis since the Great Depression,” Obama stated.
Senate Republican Leader Mitch McConnell (R-Kentucky) stated Monday that Obama’s budget proposal “isn’t really a budget at all. It’s a campaign document.”
According to McConnell, not only will Republicans not support the proposal, but also “the President’s own party doesn’t want to have anything to do with it.”
Singing a similar tune, Rep. John Boehner (R-Ohio) termed the budget proposal “a gloomy reflection of [Obama’s] failed policies of the past,” calling the proposal’s contents “a collection of rehashes, gimmicks, and tax increases that will make our economy worse.”
However, Treasury Secretary Tim Geithner spoke out in support of the budget proposal, saying, “The proposals strike a balance between supporting growth and laying out a responsible, long-term deficit reduction plan that simplifies the tax code and asks the most fortunate to pay their fair share.”
Likewise, Senate Budget Committee Chairman Kent Conrad (D-North Dakota), said, “President Obama’s budget would continue to move the nation in the right direction.”
“Now others are going to have to be willing to step up and be part of the solution,” he stated.
The president has allocated $350 billion for “short-term measures for job growth,” $50 billion for transportation improvements, and eliminations of several tax cuts for high-income Americans.
The budget includes an extension of the 2 percent payroll tax cut through the end of 2012, and a 10 percent tax cut for small businesses that add new jobs.
Under the proposed budget, HUD would receive a 3.2 percent increase in funding with an additional $1.4 billion more than the department’s 2012 budget.
HUD’s total budget for the new year is proposed at $44.8 billion.
Pending Congressional approval, the increased budget allows for $141 million in additional support for housing counseling.
The budget also includes the recent increases in FHA premiums, which according to the proposal, “will boost FHA’s capital reserves-to better protect taxpayers against the risk of credit losses by the program-and increase Federal revenues.”
In its budget proposal, the administration predicts the FHA will insure $149 billion in mortgage loans in 2013.
In his statement released with the proposal, Obama largely blames the housing industry from the state of the economy.
“Too many mortgages had been sold to people who could not afford – or even understand – them,” he said, adding that banks created risky loan packages and misled investors about their contents, while regulators “either looked the other way or did not have the authority to act.”
“In the end, this growing debt and irresponsibility helped trigger the worst economic crisis since the Great Depression,” Obama stated.
Senate Republican Leader Mitch McConnell (R-Kentucky) stated Monday that Obama’s budget proposal “isn’t really a budget at all. It’s a campaign document.”
According to McConnell, not only will Republicans not support the proposal, but also “the President’s own party doesn’t want to have anything to do with it.”
Singing a similar tune, Rep. John Boehner (R-Ohio) termed the budget proposal “a gloomy reflection of [Obama’s] failed policies of the past,” calling the proposal’s contents “a collection of rehashes, gimmicks, and tax increases that will make our economy worse.”
However, Treasury Secretary Tim Geithner spoke out in support of the budget proposal, saying, “The proposals strike a balance between supporting growth and laying out a responsible, long-term deficit reduction plan that simplifies the tax code and asks the most fortunate to pay their fair share.”
Likewise, Senate Budget Committee Chairman Kent Conrad (D-North Dakota), said, “President Obama’s budget would continue to move the nation in the right direction.”
“Now others are going to have to be willing to step up and be part of the solution,” he stated.
Monday, February 13, 2012
Major Metros Get Too Pricey for Some Buyers
More Americans may be growing reluctant to buy homes in some of the nation’s priciest areas because of the high cost.
“Even though people often say they want to live in urban neighborhoods where they can walk more and drive less, they get more for their buck where the car is king,” says Jed Kolko, Trulia’s chief economist. “Most long-distance searches are toward smaller, suburban, more sprawling areas, not toward the older, dense cities of the northeast.”
According to a new study by Trulia and 24/7 Wall St., Americans may be avoiding relocation to the following metro areas due to the high costs of real estate:
1. Newark-Union, N.J.-Penn.
Median home price: $400,000
2. San Jose-Sunnyvale-Santa Clara, Calif.
Median home price: $546,000
3. Washington-Arlington-Alexandria, D.C.-Va.-Md.-W.V.
Median home price: $390,000
4. Philadelphia, Penn.
Median home price: $265,000
5. Bethesda-Rockville-Frederick, Md.
Median home price: $700,000
“Most of the cities attracting lots of search activity from outsiders had huge price declines during the housing bust,” says Kolko. “They’re now much more affordable than they were during the boom — especially to people in cities where prices are still high.”
Source: “Newark, San Jose, Washington and More Major Cities Where No One Wants to Move,” 24/7 Wall St. (Feb. 10, 2012)
“Even though people often say they want to live in urban neighborhoods where they can walk more and drive less, they get more for their buck where the car is king,” says Jed Kolko, Trulia’s chief economist. “Most long-distance searches are toward smaller, suburban, more sprawling areas, not toward the older, dense cities of the northeast.”
According to a new study by Trulia and 24/7 Wall St., Americans may be avoiding relocation to the following metro areas due to the high costs of real estate:
1. Newark-Union, N.J.-Penn.
Median home price: $400,000
2. San Jose-Sunnyvale-Santa Clara, Calif.
Median home price: $546,000
3. Washington-Arlington-Alexandria, D.C.-Va.-Md.-W.V.
Median home price: $390,000
4. Philadelphia, Penn.
Median home price: $265,000
5. Bethesda-Rockville-Frederick, Md.
Median home price: $700,000
“Most of the cities attracting lots of search activity from outsiders had huge price declines during the housing bust,” says Kolko. “They’re now much more affordable than they were during the boom — especially to people in cities where prices are still high.”
Source: “Newark, San Jose, Washington and More Major Cities Where No One Wants to Move,” 24/7 Wall St. (Feb. 10, 2012)
Banks Offer More Cash Incentives for Short Sales
More banks are offering home owners incentives to sell their houses in a short sale to prevent a costly foreclosure to the bank. In fact, some banks are offering struggling home owners as much as $35,000 to do a short sale, according to an article at CNNMoney.
Many home owners have been surprised at banks’ recent willingness to approve short sales.
"Initially, the home owners are skeptical," says Elizabeth Weintraub, a real estate professional in Sacramento, Calif. "The bank may have already turned down their request for a modification. Then, one day, they call and say, 'Let us give you some cash.'"
For banks, the incentives have proven to be a smarter move than letting a property fall into foreclosure.
"The first choice is a modification, but if that's impossible then a short sale is a faster, more efficient solution," Tom Kelly, a spokesman for Chase Mortgage, said.
With a foreclosure, home owners stop making their mortgage payments and usually property taxes as well. They also often put off maintenance issues, which can cause the home to lose value even more. Foreclosed homes sold, on average, for 22 percent less than homes not in foreclosure in December, according to National Association of REALTORS®’ data. For comparison, discounts for short sales were about 14 percent.
"I've seen a lot of foreclosures for sale where it would cost a lot more than $20,000 to get them into condition to sell again," says John Hayton, a short sale specialist in Orlando, Fla.
Source: “Banks Pay Delinquent Borrowers $35,000 to Sell Their Homes,” CNNMoney (Feb. 10, 2012)
Many home owners have been surprised at banks’ recent willingness to approve short sales.
"Initially, the home owners are skeptical," says Elizabeth Weintraub, a real estate professional in Sacramento, Calif. "The bank may have already turned down their request for a modification. Then, one day, they call and say, 'Let us give you some cash.'"
For banks, the incentives have proven to be a smarter move than letting a property fall into foreclosure.
"The first choice is a modification, but if that's impossible then a short sale is a faster, more efficient solution," Tom Kelly, a spokesman for Chase Mortgage, said.
With a foreclosure, home owners stop making their mortgage payments and usually property taxes as well. They also often put off maintenance issues, which can cause the home to lose value even more. Foreclosed homes sold, on average, for 22 percent less than homes not in foreclosure in December, according to National Association of REALTORS®’ data. For comparison, discounts for short sales were about 14 percent.
"I've seen a lot of foreclosures for sale where it would cost a lot more than $20,000 to get them into condition to sell again," says John Hayton, a short sale specialist in Orlando, Fla.
Source: “Banks Pay Delinquent Borrowers $35,000 to Sell Their Homes,” CNNMoney (Feb. 10, 2012)
Could the Mortgage Deal Lead to a Jump in Foreclosures?
A $25 billion mortgage settlement announced between major banks and state and government officials is supposed to bring aid to troubled home owners, but it could also bring a wave of new foreclosures, CNNMoney reports.
During the yearlong negotiations, some banks slowed down repossessing homes, and now they may have a backlog of troubled loans on the books — loans that can’t be saved by the deal’s aid on refinancing or mortgage principal reduction.
"The bottom line is that 2012 will see a lot of foreclosures that should have taken place in 2011 and didn't," Rick Sharga, executive vice president for Carrington Holdings, told CNNMoney.
Last year, foreclosure filings dropped 34 percent. This year, Daren Blomquist, vice president of RealtyTrac, estimates that new foreclosure filings will increase to between 2.2 million and 2.5 million compared to last year’s 1.9 million filings in 2011.
The mortgage deal is aimed at helping home owners avoid foreclosure. One million struggling home owners may see their mortgage principal reduced as part of the deal. But the home owners must be able to afford new, lower payments. The banks will have no choice but to foreclose on home owners who stop making payments altogether or cannot afford a new payment structure on their loan.
But the spike in the backlog of foreclosures may not be all bad for the housing market, experts say.
"The market needs to clear out a lot of the distressed inventory before prices start to come back," Sharga said. There are more than 3 million home owners seriously delinquent on their mortgage or in foreclosure currently.
The five banks part of the settlement are Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, and Ally Financial.
Source: “Mortgage Deal Means More Foreclosures,” CNNMoney (Feb. 10, 2012)
During the yearlong negotiations, some banks slowed down repossessing homes, and now they may have a backlog of troubled loans on the books — loans that can’t be saved by the deal’s aid on refinancing or mortgage principal reduction.
"The bottom line is that 2012 will see a lot of foreclosures that should have taken place in 2011 and didn't," Rick Sharga, executive vice president for Carrington Holdings, told CNNMoney.
Last year, foreclosure filings dropped 34 percent. This year, Daren Blomquist, vice president of RealtyTrac, estimates that new foreclosure filings will increase to between 2.2 million and 2.5 million compared to last year’s 1.9 million filings in 2011.
The mortgage deal is aimed at helping home owners avoid foreclosure. One million struggling home owners may see their mortgage principal reduced as part of the deal. But the home owners must be able to afford new, lower payments. The banks will have no choice but to foreclose on home owners who stop making payments altogether or cannot afford a new payment structure on their loan.
But the spike in the backlog of foreclosures may not be all bad for the housing market, experts say.
"The market needs to clear out a lot of the distressed inventory before prices start to come back," Sharga said. There are more than 3 million home owners seriously delinquent on their mortgage or in foreclosure currently.
The five banks part of the settlement are Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, and Ally Financial.
Source: “Mortgage Deal Means More Foreclosures,” CNNMoney (Feb. 10, 2012)
6 ‘Turnaround Towns’ in Real Estate
Florida cities are expected to see some of the biggest recoveries in housing prices in the coming months, according to a new report by Realtor.com that reveals the top turnaround towns. In fact, the signs are already there with drops in inventories and distressed homes, as well as higher listing prices and increases in sales.
The following are the top six housing markets expected to see the biggest turnaround, according to Realtor.com.
1. Miami, Fla.
Median home price: $185,000
Growth: Sales volume of existing single-family homes has jumped 51 percent in the third quarter compared to 12 months prior.
A factor in the recovery: International clients are snagging up Miami homes: In May, they purchased 60 percent of existing houses and condos and 90 percent of newly built homes.
2. Phoenix
Median home price: $129,000
Growth: Homes sold 27 percent faster in the fourth quarter compared tot he same period in 2010.
A factor in the recovery: An improving job market: Unemployment dropped to 7.7 percent in November, which beats the national average and is a 1.1 percentage point improvement over 2010‘s rate in the city.
3. Orlando
Median home price: $145,000
Growth: Inventory of for-sale homes dropped 44 percent in the fourth quarter and homes that were on the market sold 37 percent faster than they did a year earlier.
A factor in the recovery: A strong tourist destination, Orlando is attracting international buyers, such as from South America, Canada, and Europe. Also, the job market is improving there, particularly aided by the development of a major medical complex.
4. Fort Myers, Fla.
Median home price: $115,000
Growth: Median listing prices here had the biggest increase in the nation last year, soaring 31 percent year-over-year.
A factor in the recovery: This retirement hot-spot is getting more attention from Canadians, who are taking advantage of a strong Canadian dollar and the fallen home values here.
5. Sarasota, Fla.
Median home price: $181,000
Growth: Sales volume here increased 17 percent during the three months ended Dec. 31 compared to year-over-year. Plus, home prices rose 2 percent in that time period.
A factor in the recovery: A drop in bank-owned homes and distressed sales is helping the housing market to recover, as well as an improving job market.
6. Boise, Idaho
Median home price: $120,000
Growth: A big drop in inventory: The number of homes for sale during the fourth quarter dropped by 40 percent compared to a year earlier.
A factor in the recovery: The metro area is seeing a growth in the diversity of its employers and the number of jobs its attracting, particularly in the tech industry and a growth in agricultural-based companies.
Source: “Top 10 Turnaround Towns,” CNNMoney (February 2012)
The following are the top six housing markets expected to see the biggest turnaround, according to Realtor.com.
1. Miami, Fla.
Median home price: $185,000
Growth: Sales volume of existing single-family homes has jumped 51 percent in the third quarter compared to 12 months prior.
A factor in the recovery: International clients are snagging up Miami homes: In May, they purchased 60 percent of existing houses and condos and 90 percent of newly built homes.
2. Phoenix
Median home price: $129,000
Growth: Homes sold 27 percent faster in the fourth quarter compared tot he same period in 2010.
A factor in the recovery: An improving job market: Unemployment dropped to 7.7 percent in November, which beats the national average and is a 1.1 percentage point improvement over 2010‘s rate in the city.
3. Orlando
Median home price: $145,000
Growth: Inventory of for-sale homes dropped 44 percent in the fourth quarter and homes that were on the market sold 37 percent faster than they did a year earlier.
A factor in the recovery: A strong tourist destination, Orlando is attracting international buyers, such as from South America, Canada, and Europe. Also, the job market is improving there, particularly aided by the development of a major medical complex.
4. Fort Myers, Fla.
Median home price: $115,000
Growth: Median listing prices here had the biggest increase in the nation last year, soaring 31 percent year-over-year.
A factor in the recovery: This retirement hot-spot is getting more attention from Canadians, who are taking advantage of a strong Canadian dollar and the fallen home values here.
5. Sarasota, Fla.
Median home price: $181,000
Growth: Sales volume here increased 17 percent during the three months ended Dec. 31 compared to year-over-year. Plus, home prices rose 2 percent in that time period.
A factor in the recovery: A drop in bank-owned homes and distressed sales is helping the housing market to recover, as well as an improving job market.
6. Boise, Idaho
Median home price: $120,000
Growth: A big drop in inventory: The number of homes for sale during the fourth quarter dropped by 40 percent compared to a year earlier.
A factor in the recovery: The metro area is seeing a growth in the diversity of its employers and the number of jobs its attracting, particularly in the tech industry and a growth in agricultural-based companies.
Source: “Top 10 Turnaround Towns,” CNNMoney (February 2012)
Fed Chair Says 'Normal Lending' Key to Recovery
The Federal Reserve’s monetary policy and efforts to keep interest rates low have contributed to increased housing affordability. However, those strategies have not yet had the desired effect of stimulating the economy into a full recovery as banks have stuck to their guns on strict lending standards.
“We want [banks] to take a balanced approach. We want to make prudent loans, but we don’t want them to turn away creditworthy borrowers,” said Federal Reserve Chairman Ben Bernanke during his speech Friday to home builders at the 2012 International Builders’ Show in Orlando.
Echoing recommendations outlined in the a Federal Reserve white paper released Jan. 5, Bernanke called for increased lending to creditworthy home buyers and more loan modifications and mortgage refinancings to help revitalize the housing industry and economy.
“Normal lending is a big part of getting the economy back on its feet,” said Bernanke, who also called for greater access to loans for investors to purchase homes in bulk.
Relaxed credit standards contributed to the housing crisis, thus tightened borrowing was necessary to protect banks, investors, and borrowers, Bernanke said. However, the lending pendulum may have swung too far the other direction.
REALTORS® are feeling the credit crunch affecting their clients, with 34 percent of reporting that mortgage accessibility is the biggest factor prohibiting their clients from purchasing a home, according to the 2011 NAR Member Profile.
The Fed has been working to improve lending conditions, helping banks become strong again through regulation and administering “stress tests” to ensure lenders have enough capital. And some progress has been made. According to a recent Fed survey of loan officers, there were reports of a slight uptick in lending nationwide.
Bernanke addressed other issues still hindering the housing market recovery, including the fact that 12 million home owners – or more than one in five borrowers with a mortgage – are underwater. Additionally, the drop in home equity by more than 50 percent since the peak of the housing boom has resulted in the loss of more than $7 trillion in household wealth nationally.
Federal Reserve staff estimate that distressed sales, which include both short sales and REOs, now account for 30 percent of home sales. And about one-fourth of vacant homes for sale in the second quarter of 2011 were bank-owned.
“With home prices falling and rents rising, it could make sense in some markets to turn some of the foreclosed homes into rental properties,” said Bernanke, advocating for REO-to-rental programs.
As of early November 2011, about 60 metropolitan areas each had at least 250 REO properties for sale by the GSEs and the FHA. However, NAR has asked policymakers “to proceed cautiously with the REO-to-rental program since housing markets are complex and varied.” NAR has also advised that any REO-to-rental program be administered by local entities, market experts, and licensed real estate professionals.
By Erica Christoffer, REALTOR® Magazine
“We want [banks] to take a balanced approach. We want to make prudent loans, but we don’t want them to turn away creditworthy borrowers,” said Federal Reserve Chairman Ben Bernanke during his speech Friday to home builders at the 2012 International Builders’ Show in Orlando.
Echoing recommendations outlined in the a Federal Reserve white paper released Jan. 5, Bernanke called for increased lending to creditworthy home buyers and more loan modifications and mortgage refinancings to help revitalize the housing industry and economy.
“Normal lending is a big part of getting the economy back on its feet,” said Bernanke, who also called for greater access to loans for investors to purchase homes in bulk.
Relaxed credit standards contributed to the housing crisis, thus tightened borrowing was necessary to protect banks, investors, and borrowers, Bernanke said. However, the lending pendulum may have swung too far the other direction.
REALTORS® are feeling the credit crunch affecting their clients, with 34 percent of reporting that mortgage accessibility is the biggest factor prohibiting their clients from purchasing a home, according to the 2011 NAR Member Profile.
The Fed has been working to improve lending conditions, helping banks become strong again through regulation and administering “stress tests” to ensure lenders have enough capital. And some progress has been made. According to a recent Fed survey of loan officers, there were reports of a slight uptick in lending nationwide.
Bernanke addressed other issues still hindering the housing market recovery, including the fact that 12 million home owners – or more than one in five borrowers with a mortgage – are underwater. Additionally, the drop in home equity by more than 50 percent since the peak of the housing boom has resulted in the loss of more than $7 trillion in household wealth nationally.
Federal Reserve staff estimate that distressed sales, which include both short sales and REOs, now account for 30 percent of home sales. And about one-fourth of vacant homes for sale in the second quarter of 2011 were bank-owned.
“With home prices falling and rents rising, it could make sense in some markets to turn some of the foreclosed homes into rental properties,” said Bernanke, advocating for REO-to-rental programs.
As of early November 2011, about 60 metropolitan areas each had at least 250 REO properties for sale by the GSEs and the FHA. However, NAR has asked policymakers “to proceed cautiously with the REO-to-rental program since housing markets are complex and varied.” NAR has also advised that any REO-to-rental program be administered by local entities, market experts, and licensed real estate professionals.
By Erica Christoffer, REALTOR® Magazine
Home Values Declined 1.1 Percent in Fourth Quarter
Zillow forecasts home values will be on the decline through December 2012, but the decrease will be smaller than in 2011.
Home values in the U.S. fell in the fourth quarter, with the Zillow Home Value Index (ZHVI) sinking 1.1 percent after a less significant decline for the two previous quarters.
The Seattle-based company’s forecast also predicts that hardest hit cities such as Los Angeles; Riverside, California; and Phoenix, Arizona, will reach bottom and then stabilize or increase in value in 2012. Baltimore and Washington D.C. are also expected to reach bottom and see an increase or remain flat in 2012.
In the fourth quarter, the rate of homes foreclosed on increased slightly to 8.2 out of every 10,000 in December, compared to 8 out of every 10,000 homes in November. The rate was lower than the end of the third quarter, when it was 8.6 out of every 10,000 homes. Foreclosure re-sales made up 19.1 percent of all December sales, which is an increase from August, when 17.1 percent of all sales were foreclosure re-sales.
Home values in the U.S. fell in the fourth quarter, with the Zillow Home Value Index (ZHVI) sinking 1.1 percent after a less significant decline for the two previous quarters.
The Seattle-based company’s forecast also predicts that hardest hit cities such as Los Angeles; Riverside, California; and Phoenix, Arizona, will reach bottom and then stabilize or increase in value in 2012. Baltimore and Washington D.C. are also expected to reach bottom and see an increase or remain flat in 2012.
In the fourth quarter, the rate of homes foreclosed on increased slightly to 8.2 out of every 10,000 in December, compared to 8 out of every 10,000 homes in November. The rate was lower than the end of the third quarter, when it was 8.6 out of every 10,000 homes. Foreclosure re-sales made up 19.1 percent of all December sales, which is an increase from August, when 17.1 percent of all sales were foreclosure re-sales.
U.S. Resolves Claims Against BofA Through $1 Billion Settlement
Bank of America will pay $1 billion to settle on the largest False Claims Act relating to mortgage fraud.
As part of the $25 billion settlement, Loretta E. Lynch, U.S. attorney for the Eastern District of New York, announced that the government will resolve its claims against Bank of
America, Countrywide, and certain Countrywide subsidiaries and affiliates for underwriting and origination mortgage fraud.
Since 2009, the U.S. attorney’s office has been investigating lending practices from Countrywide, which BofA acquired in 2008. The results of the investigation led to allegations that the bank created loans insured by the Federal Housing Authority (FHA) to unqualified home buyers. BofA was also accused of originating loans based on inflated appraisals and failing to identify homeowners who could participate in the government’s Home Affordable Modification Program.
Of the $1 billion, $500 million will provide recovery to the FHA, which was said to have incurred hundreds of millions of dollars in damages due to loan origination practices from Countrywide. The remaining $500 million will fund a modification program for affected Countrywide borrowers with underwater mortgages. BofA is required to solicit potential borrowers who are eligible for the program.
As part of the $25 billion settlement, Loretta E. Lynch, U.S. attorney for the Eastern District of New York, announced that the government will resolve its claims against Bank of
America, Countrywide, and certain Countrywide subsidiaries and affiliates for underwriting and origination mortgage fraud.
Since 2009, the U.S. attorney’s office has been investigating lending practices from Countrywide, which BofA acquired in 2008. The results of the investigation led to allegations that the bank created loans insured by the Federal Housing Authority (FHA) to unqualified home buyers. BofA was also accused of originating loans based on inflated appraisals and failing to identify homeowners who could participate in the government’s Home Affordable Modification Program.
Of the $1 billion, $500 million will provide recovery to the FHA, which was said to have incurred hundreds of millions of dollars in damages due to loan origination practices from Countrywide. The remaining $500 million will fund a modification program for affected Countrywide borrowers with underwater mortgages. BofA is required to solicit potential borrowers who are eligible for the program.
Senate's Housing Chairman Pushes for More Principal Writedowns
Sen. Robert Menendez (D-New Jersey) says the $25 billion settlement struck between federal and state officials and the nation’s five largest mortgage servicers “helps homeowners but it’s a long way from healing the grievous wounds left by the crisis.”
Those wounds have been made deeper by the continuing decline in home prices that has put millions of homeowners in the hole on their mortgage, owing far more on their loan than the home is now worth.
Menendez, who is chairman of the Senate’s housing subcommittee, has introduced a bill that he describes as “innovative,” which would encourage lenders to reduce principal for underwater borrowers with a shared-appreciation modification.
Menendez’s Preserving American Homeownership Act would establish a program through which banks would write down the principal balance of the mortgage to 95 percent of the re-assessed value of the home. This reduction would take place over a three-year period in
one-third increments per year, provided the homeowner remains current on their payments.
In exchange, the bank would receive a fixed share – not to exceed 50 percent – of the increase in the home’s value when the home is sold or later refinanced. The percentage of shared appreciation would depend on how much the bank reduces the principal. For example, if the bank reduced the principal by 20 percent, they would receive a 20 percent share of any later increase in the home price.
Homeowners would be eligible for the program no matter how far underwater they are. Homeowners who are in default or foreclosure would also be eligible, but they would be required to make timely payments on the modified mortgage going forward or the principal reduction would be retracted. Only primary residences would qualify for assistance under the program.
“When you owe more than your house is worth through no fault of your own, relief can be hard to come by,” said Sen. Menendez.
“More and more people are choosing to walk away, since they feel that’s their only viable option, which only exacerbates the problem. My bill aims to break this cycle and give homeowners the relief they are looking for by working with banks to find acceptable solutions for everyone,” Menendez added.
The number of homeowners underwater on their mortgage is currently estimated to be more than 10 million, or approximately 22 percent of all homeowners. On average, these homeowners owe anywhere from $40,000 to $65,000 more than their home is currently worth.
Those wounds have been made deeper by the continuing decline in home prices that has put millions of homeowners in the hole on their mortgage, owing far more on their loan than the home is now worth.
Menendez, who is chairman of the Senate’s housing subcommittee, has introduced a bill that he describes as “innovative,” which would encourage lenders to reduce principal for underwater borrowers with a shared-appreciation modification.
Menendez’s Preserving American Homeownership Act would establish a program through which banks would write down the principal balance of the mortgage to 95 percent of the re-assessed value of the home. This reduction would take place over a three-year period in
one-third increments per year, provided the homeowner remains current on their payments.
In exchange, the bank would receive a fixed share – not to exceed 50 percent – of the increase in the home’s value when the home is sold or later refinanced. The percentage of shared appreciation would depend on how much the bank reduces the principal. For example, if the bank reduced the principal by 20 percent, they would receive a 20 percent share of any later increase in the home price.
Homeowners would be eligible for the program no matter how far underwater they are. Homeowners who are in default or foreclosure would also be eligible, but they would be required to make timely payments on the modified mortgage going forward or the principal reduction would be retracted. Only primary residences would qualify for assistance under the program.
“When you owe more than your house is worth through no fault of your own, relief can be hard to come by,” said Sen. Menendez.
“More and more people are choosing to walk away, since they feel that’s their only viable option, which only exacerbates the problem. My bill aims to break this cycle and give homeowners the relief they are looking for by working with banks to find acceptable solutions for everyone,” Menendez added.
The number of homeowners underwater on their mortgage is currently estimated to be more than 10 million, or approximately 22 percent of all homeowners. On average, these homeowners owe anywhere from $40,000 to $65,000 more than their home is currently worth.
Banks Respond to Robo-Signing Settlement
While the $25 billion settlement between five of the nation’s largest servicers and 49 of the state attorneys general awaits approval from a judge, there is some relief in the industry that the 16 months of investigation and negotiation has come to a close.
“The best thing about the mortgage settlement is that it’s done,” said Stan Humphries, Zillow’s chief economist on the company’s website.
“The agreement brings closure to these issues and enables the company to move forward in our ongoing efforts to help borrowers find affordable and sustainable payment relief whenever possible,” Ally stated Thursday afternoon.
However, while federal and state officials are congratulating themselves, the settlement’s impact on the broader market remains questionable. “It will be a good thing for many individuals,” Humphries admits, but “[a]s far as helping the housing market as a whole, it’s a drop in the bucket.”
Nonetheless, Mike Heid, president of Wells Fargo Home Mortgage suggests the settlement will have some positive impact. “Today’s agreement represents a very important step toward restoring confidence in mortgage servicing and stability in the housing market,” he stated Thursday after the settlement announcement.
Wells Fargo has agreed to pay $1.01 billion to the government and $4.34 billion in borrower relief.
The bank stated Thursday that it will begin an expanded refinance program and borrower relief program at the start of March.
JPMorgan Chase will pay $1.08 billion to the government and has designated $4.21 billion in borrower aid.
In a brief statement responding to the settlement, a JPMorgan Chase spokesperson said Thursday, “We have worked very hard with the Federal Government and State Attorneys General over the past year to address a variety of challenging and complex issues to reach this settlement.”
“The settlement includes far reaching relief that will help many of our customers and complement our already extensive efforts to improve our borrower assistance efforts and servicing processes,” the spokesperson continued.
Citigroup will pay $4.15 million to the government and $1.79 billion in borrower aid.
“The monetary component of Citi’s portion of the settlement amount is to be paid in three parts: a payment in cash upon final settlement; customer relief payments; and refinancing concessions, for a total value of approximately $2.2 billion,” Citigroup stated Thursday.
Answering any concerns from investors, the bank also stated that it anticipates it has enough in reserves to cover its customer relief obligations “and all but a small portion” of its obligation to the government under the settlement.
Like Citigroup, Ally does not expect its commitment under the settlement will harm the bank. “Ally expects that the financial impact of the agreement will not be material on financial results for the first quarter of 2012 and future periods,” Ally stated.
Ally has agreed to pay $110 million to the government and $200 million in aid to borrowers.
Bank of America will pay $3.24 billion to the government and $8.58 billion in relief to borrowers.
A portion of BofA’s government payment – $1 billion – will be paid to settle a separate claim on behalf of Countrywide for loan originations issues.
“We believe this settlement will help provide additional support for homeowners who need assistance, brings more certainty to the housing market and aligns to our ongoing commitment to help rebuild our neighborhoods and get the housing market back on track,” Dan Frahm, a BofA spokesperson stated Thursday.
“The best thing about the mortgage settlement is that it’s done,” said Stan Humphries, Zillow’s chief economist on the company’s website.
“The agreement brings closure to these issues and enables the company to move forward in our ongoing efforts to help borrowers find affordable and sustainable payment relief whenever possible,” Ally stated Thursday afternoon.
However, while federal and state officials are congratulating themselves, the settlement’s impact on the broader market remains questionable. “It will be a good thing for many individuals,” Humphries admits, but “[a]s far as helping the housing market as a whole, it’s a drop in the bucket.”
Nonetheless, Mike Heid, president of Wells Fargo Home Mortgage suggests the settlement will have some positive impact. “Today’s agreement represents a very important step toward restoring confidence in mortgage servicing and stability in the housing market,” he stated Thursday after the settlement announcement.
Wells Fargo has agreed to pay $1.01 billion to the government and $4.34 billion in borrower relief.
The bank stated Thursday that it will begin an expanded refinance program and borrower relief program at the start of March.
JPMorgan Chase will pay $1.08 billion to the government and has designated $4.21 billion in borrower aid.
In a brief statement responding to the settlement, a JPMorgan Chase spokesperson said Thursday, “We have worked very hard with the Federal Government and State Attorneys General over the past year to address a variety of challenging and complex issues to reach this settlement.”
“The settlement includes far reaching relief that will help many of our customers and complement our already extensive efforts to improve our borrower assistance efforts and servicing processes,” the spokesperson continued.
Citigroup will pay $4.15 million to the government and $1.79 billion in borrower aid.
“The monetary component of Citi’s portion of the settlement amount is to be paid in three parts: a payment in cash upon final settlement; customer relief payments; and refinancing concessions, for a total value of approximately $2.2 billion,” Citigroup stated Thursday.
Answering any concerns from investors, the bank also stated that it anticipates it has enough in reserves to cover its customer relief obligations “and all but a small portion” of its obligation to the government under the settlement.
Like Citigroup, Ally does not expect its commitment under the settlement will harm the bank. “Ally expects that the financial impact of the agreement will not be material on financial results for the first quarter of 2012 and future periods,” Ally stated.
Ally has agreed to pay $110 million to the government and $200 million in aid to borrowers.
Bank of America will pay $3.24 billion to the government and $8.58 billion in relief to borrowers.
A portion of BofA’s government payment – $1 billion – will be paid to settle a separate claim on behalf of Countrywide for loan originations issues.
“We believe this settlement will help provide additional support for homeowners who need assistance, brings more certainty to the housing market and aligns to our ongoing commitment to help rebuild our neighborhoods and get the housing market back on track,” Dan Frahm, a BofA spokesperson stated Thursday.
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