Friday, September 9, 2011

Is Depression Holding Back Household Spending?

Households have tightened up spending and are behaving in a way as if the economy was even worse than it actually is, say economists.

Economic growth continues to fall short of expectations and Federal Reserve Chairman Ben Bernanke, speaking at a luncheon in Minneapolis on Thursday, suggested that it may partially be because the public is depressed.

Americans are facing high levels of unemployment, slow gains in wages for the employed, falling home prices, and debt burdens. However, “even taking into account the many financial pressures they face, households seem exceptionally cautious,” Bernanke said at the luncheon.

While the economy has grown slowly this year, consumer confidence remains low. In fact, the latest consumer sentiment readings are near all-time lows, which were last seen in late 2008 during the financial crisis, John Williams, the president of the Federal Reserve Bank of San Francisco, recently told the Seattle Rotary Club. “People are on edge waiting for the other shoe to drop.”

Source: “Fed Chief Describes Consumers as Too Bleak,” The New York Times (Sept. 8, 2011)

Mortgage Rates Dip, Reaching Another Record Low

For the second time in a month, fixed and adjustable-rate mortgage rates set new record lows this week, Freddie Mac reports in its weekly mortgage market survey. The previous record lows were set Aug. 18.

Economic uncertainty and employment concerns are continuing to keep rates low, says Frank Nothaft, Freddie Mac’s chief economist.

Here’s a closer look at rates for the week ending Sept. 8.

30-year fixed-rate mortgages: averaged 4.12 this week, down from last week’s 4.22 percent. The 30-year rates’ previous low was 4.15 percent, set on Aug. 18.
15-year fixed-rate mortgages: averaged 3.33 percent this week, down from last week’s 3.39 percent average. Its previous record low was 3.36 percent.
5-year adjustable-rate mortgages: averaged 2.96 percent, holding steady at the same record low it set last week.
1-year ARMs: averaged 2.84 percent this week, down from last week’s 2.89 percent average. Its previous record low was 2.86 percent.
Despite the low rates, mortgage application volume remains low, dropping for the third straight week, the Mortgage Bankers Association reported this week. The volume of mortgage applications for purchase remained relatively flat this week at “extremely low levels, close to lows last seen in 1996,” says Mike Fratantoni, MBA’s vice president of Research and Economics. Refinance application volume was also down, dropping more than 35 percent below levels last year at this time.

By REALTOR® Magazine Daily News

Wednesday, September 7, 2011

Legality of Thousands of Mortgages Thrown Into Question

Robo-signing has been around a lot longer than originally thought, and could jeopardize the legality over the deeds of tens of thousands of homes dating back more than a decade ago, the Associated Press (AP) reports.

County officials across the country are finding mortgage paperwork that were improperly notarized or signed without proper review, dating as far back as 1998, the AP has found in its analysis.

For example, in Guilford County, N.C., about 74 percent of 6,100 mortgage documents filed since 2006 were found to have questionable signatures.

"Because of these bad titles, property owners can't prove they own the properties they think they bought, and banks can't prove they had the right to sell them," Jeff Thigpen, the registrar of deeds in Guilford County, N.C., told the AP.

Since last fall, banks have faced investigations over “robo-signing” procedures, which consists of shortcuts of approving and reviewing mortgage paperwork and foreclosures. The “robo-signing” scandal has brought many foreclosures into question as home owners have challenged the validity of their mortgage documents.

Mortgage documents with robo-signed signatures could throw into question the ownership of the properties, says Katherine Porter, a professor at University of California Irvine School of Law .

Furthermore, if invalid documents are discovered in the chain of ownership, shoddy mortgage paperwork has the potential to delay the sale of a home or make it difficult for buyers to get a mortgage because title insurers won't write a policy for the property, says Justin Ailes, vice president of government affairs of the American Land Title Association.

Source: “Widespread Robo-signing of Mortgage Documents Found as far Back as 1998 Could Haunt Owners,” Associated Press (Sept. 1, 2011)

U.S. Sues 17 Banks Over Mortgage Losses

The Federal Housing Finance Agency, which oversees mortgage giants Fannie Mae and Freddie Mac, is suing 17 of the nation’s largest lenders over about $200 billion in investment losses that severely battered Fannie and Freddie nearly three years ago.

FHFA is accusing lenders in the lawsuit of misrepresenting the worth of the mortgage securities they arranged and sold. Bank of America Corp., Citigroup Inc., J.P. Morgan Chase Deutsche Bank AG, General Electric Co., and others were named in the lawsuit, which was filed Friday in federal and state court in three jurisdictions.

FHFA alleges in the lawsuit that the losses that Fannie Mae and Freddie Mac incurred were from mortgage investments that had riskier characteristics than "the descriptions contained in the marketing and sales materials" provided to the government-sponsored enterprises. They also allege that the banks failed to identify proof that borrowers’ incomes were overstated or fake, and the securities rapidly lost value when borrowers were unable to make their payments.

The lawsuit represents one of the biggest against banks since the housing crisis, as banks continue to face legal trouble in recent months. Some critics say the mounting lawsuits against banks threatens to tighten credit and undermine the housing recovery.

"The government is coming at the banks from every direction — the FHFA lawsuits being the most recent example — at the same time the government is putting enormous pressure on the banks to extend credit to help alleviate the housing crisis," Andrew Sandler, co-chairman of BuckleySandler LLP, a law firm representing banks in litigation and regulatory enforcement actions, told The Wall Street Journal. "It constitutes a completely incoherent government approach to the housing crisis."

Meanwhile, in a separate case, the Financial Times reported Tuesday that several big banks are in talks over a possible settlement with state prosecutors over accusations of improper mortgage practices. The settlement reportedly would limit the banks’ legal liabilities in return for a multibillion dollar payment, the Financial Times reported. The allegations against banks such as

Fed Official: Housing Market ‘Severely’ Out of Balance

The “severely out of balance” housing market is greatly hampering the nation’s economic recovery, and solving the supply-and-demand issues in the housing market needs to be an “immediate priority,” Elizabeth Duke, member of the Board of Governors of the Federal Reserve, said late last week to the Federal Reserve Board Policy Forum during a speech, “The Housing Market Going Forward: Lessons Learned from the Recent Crisis.”

Duke said that addressing the swelling inventories of REOs is critical for helping to rebalance the housing market. An inventory of at least 1 million REOs this year as well as 2012 and 2013 is expected to pass through the market, and REO properties are weighing heavily on the market for owner-occupied house and bringing overall home prices down, Duke said.

Duke said that converting a portion of residential REOs to rental units may be one reasonable option for lenders to handle the big wave of foreclosures.

"Such conversions might also be in the best interests of lienholders and guarantors if recoveries from renting out properties exceed those from outright sales," she said. "Over time, as financing conditions ease and the number of REO properties to be sold declines, the share of properties sold to owner-occupants and sold to investors for rental will adjust commensurately."

Source: “Fed Duke: Balancing Housing Market Supply-Demand ‘Immediate Priority,” Market News International (Sept. 1, 2011)