By: Esther Cho 03/02/2012
Despite recent reports of modest improvement in the health of the housing economy, Fitch expects the real estate sector to continue to depress the performance of banks, according to Fitch Ratings.
Residential real estate is the largest exposure for banks since they make up $2.5 trillion, or roughly one-third of total loans, according to the agency. Home equity represents about 30 percent of this amount, with 1-4 family first lien mortgages making up the balance.
“Most of these loans are on bank balance sheets and are concentrated at the largest institutions,” the Fitch report stated. “As a majority of them are subordinated, performance remains very much leveraged to further home price declines and potential principal reduction initiatives.”
Based on Fitch Rating’s Sustainable Home Price (SHP) model, home prices may continue to decline by 8 to 10 percent over the next several years. According to a recent Case-Shiller report, home prices hit new lows at the end of 2011.
With the decrease in home prices, Fitch believes the declines will continue to pressure homeowners and increase both the likelihood of default and loss severity.
While mortgage delinquency rates showed some recent strides compared to their 2010 peak, the numbers are still elevated compared to levels before the crises. Modifications have also become subdued, but Fitch said in the report that modifications may pick up in 2012 as HAMP 2.0 becomes adopted since the new version removes buyback risks for lenders and aims to qualify more underwater borrowers.
Based on Fitch’s base and stress scenarios, the agency also said that the 20 largest banks can incur losses in excess of $80 billion on home equity and 1-4 family portfolios over the next three years. This estimate represents a loss rate of 5.1 percent on aggregate loans of $1.6 trillion, compared with a loss rate of 8.4 percent since 2008.
Overall, Fitch said in the report that many banks have resolved the most problematic areas of their residential portfolios, which means additional losses are likely to be more moderate compared to previous losses. Still, Fitch said the housing market is likely to remain pressured, and some banks will continue to feel earnings, and possibly capital, pressures as a result.
Tuesday, March 6, 2012
FBI Reports High Number of Mortgage Fraud Cases in Recent Years
By: Esther Cho 03/02/2012
While mortgage originations are at their lowest level since 2001, investigations for mortgage fraud have shot up in recent years. As of December 31, 2011, the FBI reported 2,590 pending mortgage fraud investigations with 71 percent involving losses of more than $1 million.
Source:FBI
In 2007, there were 1,199 pending fraud causes, with a peak of 3,129 in 2010, according to an FBI financial crimes report. With increased levels of foreclosures and delinquencies over the past few years, mortgage fraud schemes targeting distressed homeowners as victims have surged as well.
In addition to mortgage fraud cases, mortgage fraud suspicious activity reports (SARs) saw a significant increase, with 46,717 reports in 2007, and 93,508 in 2011.
Through the year 2011, FBI mortgage fraud investigations led to 1,220 informations and indictments and 1,089 convictions. The uncovering of mortgage fraud cases brought $1.38 billion in restitutions; $116.3 million in fines; seizures valued at $15.7 million; and $7.33 million in forfeitures, according to the FBI report.
States with significant mortgage fraud problems in 2010 were Florida, New York, California, New Jersey, Maryland, Michigan, Virginia, Ohio, Colorado, and Illinois, according to Mortgage Asset Research Institute.
The FBI advises homeowners to be aware of offers which claim to save borrowers in distress and also advises against paying advances fees for promised services in return.
One type of mortgage fraud scheme involves scammers claiming they can negotiate loan modification terms on behalf of the borrowers with the lender while demanding large fees up front for the service they are purporting to offer.
While mortgage originations are at their lowest level since 2001, investigations for mortgage fraud have shot up in recent years. As of December 31, 2011, the FBI reported 2,590 pending mortgage fraud investigations with 71 percent involving losses of more than $1 million.
Source:FBI
In 2007, there were 1,199 pending fraud causes, with a peak of 3,129 in 2010, according to an FBI financial crimes report. With increased levels of foreclosures and delinquencies over the past few years, mortgage fraud schemes targeting distressed homeowners as victims have surged as well.
In addition to mortgage fraud cases, mortgage fraud suspicious activity reports (SARs) saw a significant increase, with 46,717 reports in 2007, and 93,508 in 2011.
Through the year 2011, FBI mortgage fraud investigations led to 1,220 informations and indictments and 1,089 convictions. The uncovering of mortgage fraud cases brought $1.38 billion in restitutions; $116.3 million in fines; seizures valued at $15.7 million; and $7.33 million in forfeitures, according to the FBI report.
States with significant mortgage fraud problems in 2010 were Florida, New York, California, New Jersey, Maryland, Michigan, Virginia, Ohio, Colorado, and Illinois, according to Mortgage Asset Research Institute.
The FBI advises homeowners to be aware of offers which claim to save borrowers in distress and also advises against paying advances fees for promised services in return.
One type of mortgage fraud scheme involves scammers claiming they can negotiate loan modification terms on behalf of the borrowers with the lender while demanding large fees up front for the service they are purporting to offer.
Treasury Reinstates HAMP Incentives as Servicers Show Improvement
By: Carrie Bay 03/02/2012
The Treasury Department says servicers participating in the Home Affordable Modification Program (HAMP) are getting better at evaluating homeowners for the program, including noticeable improvement in assessing borrower income to determine program eligibility and calculate the amount of their modified payments.
Treasury reported Friday that during the fourth quarter of 2011, seven of the largest participating servicers were found to be in need of “moderate improvement” and two servicers were found to need only “minor improvement” with respect to the specific performance metrics tested. No servicer was found in need of substantial improvement last quarter.
OneWest Bank and Select Portfolio Servicing performed at the highest level, needing only minor improvement. The seven servicers deemed to need moderate improvement include: America Home Mortgage Servicing, Bank of America, CitiMortgage, GMAC Mortgage, JPMorgan Chase, Ocwen, and Wells Fargo.
HAMP performance reviews evaluate servicers based on three categories: identifying and contacting homeowners; homeowner evaluation and assistance; and program reporting, management, and governance.
Treasury singled out JPMorgan and BofA in its latest report, noting that both servicers had improved their practices over the last quarter. Treasury had been withholding HAMP incentive payments from the two companies because prior servicer assessments found them to be in need of “substantial improvement.”
Bank of America was found to have remedied essentially all areas previously identified as needing improvement and continued to demonstrate improved processes generally, Treasury said.
JPMorgan Chase showed marked progress in remedying a number of outstanding issues from previous quarters, according to the report, including improving the speed at which it processes eligible homeowners for permanent HAMP modifications and strengthening its internal quality assurance processes around the program.
Treasury said it agreed to release withheld incentives for past deficiencies as part of the $25 billion federal-state mortgage servicing settlement announced last month, but officials stress that they retain the right to withhold incentives in the future should the results of HAMP compliance reviews warrant such remedial action.
As of the end of January, participating servicers had granted 951,319 permanent HAMP modifications to distressed borrowers. There are an additional 76,343 HAMP trials currently in active status.
The Treasury Department says servicers participating in the Home Affordable Modification Program (HAMP) are getting better at evaluating homeowners for the program, including noticeable improvement in assessing borrower income to determine program eligibility and calculate the amount of their modified payments.
Treasury reported Friday that during the fourth quarter of 2011, seven of the largest participating servicers were found to be in need of “moderate improvement” and two servicers were found to need only “minor improvement” with respect to the specific performance metrics tested. No servicer was found in need of substantial improvement last quarter.
OneWest Bank and Select Portfolio Servicing performed at the highest level, needing only minor improvement. The seven servicers deemed to need moderate improvement include: America Home Mortgage Servicing, Bank of America, CitiMortgage, GMAC Mortgage, JPMorgan Chase, Ocwen, and Wells Fargo.
HAMP performance reviews evaluate servicers based on three categories: identifying and contacting homeowners; homeowner evaluation and assistance; and program reporting, management, and governance.
Treasury singled out JPMorgan and BofA in its latest report, noting that both servicers had improved their practices over the last quarter. Treasury had been withholding HAMP incentive payments from the two companies because prior servicer assessments found them to be in need of “substantial improvement.”
Bank of America was found to have remedied essentially all areas previously identified as needing improvement and continued to demonstrate improved processes generally, Treasury said.
JPMorgan Chase showed marked progress in remedying a number of outstanding issues from previous quarters, according to the report, including improving the speed at which it processes eligible homeowners for permanent HAMP modifications and strengthening its internal quality assurance processes around the program.
Treasury said it agreed to release withheld incentives for past deficiencies as part of the $25 billion federal-state mortgage servicing settlement announced last month, but officials stress that they retain the right to withhold incentives in the future should the results of HAMP compliance reviews warrant such remedial action.
As of the end of January, participating servicers had granted 951,319 permanent HAMP modifications to distressed borrowers. There are an additional 76,343 HAMP trials currently in active status.
DeMarco Stands Firm as Principal Reduction Debate Wages On
By: Krista Franks Brock 03/02/2012
The principal reduction debate wages on with the Federal Housing Finance Agency (FHFA) standing firm in its resolve that the strategy is not in the best interest of the GSEs while facing criticism and questioning from lawmakers.
At a Senate Banking Committee hearing last week, HUD Secretary Shaun Donovan announced that Treasury will now offer the GSEs incentives for administering principal reductions.
Having recently increased the incentives offered to banks for administering principal reductions, Treasury now aims to “ensure consistency throughout the HAMP program” by making sure GSE borrowers have the same options as non-GSE borrowers.
At the same hearing, FHFA Acting Director Edward DeMarco faced questioning regarding his reluctance toward principal forgiveness at Fannie May and Freddie Mac.
“Both companies have been reviewing principal forgiveness alternatives. Both advised me they do not believe that it is in the best interest of the companies to do so,” he told lawmakers.
However, he did agree with lawmakers that “foreclosure is the worst possible outcome in almost all instances. It is the most costly. It is the most devastating to the family. It is the most devastating to the neighborhood and surrounding community, and we have a responsibility to make all prudent actions to find a remedy to a troubled borrower short of foreclosure because of these costs.”
DeMarco maintained that principal reduction is just one of four tools for preventing foreclosure. The other three include reducing the interest rate, extending the loan term, and forbearance.
“What FHFA has found consistently in its analysis is that the first three of those tools work better than the fourth one with regard to our fundamental mandate of preserving and conserving,” DeMarco said.
DeMarco also pointed out that while the GSEs together guarantee 60 percent of mortgages, their loans make up just 29 percent of seriously delinquent loans.
In addition, while they make up a minority of serious delinquencies, GSE loans make up about half of permanent HAMP modifications.
Regardless of their success through forbearance and other alternatives, Senator Robert Menendez (D-New Jersey) pointed out that banks are turning to principal forgiveness for 20 percent of their modifications.
As banks are equally as motivated as the GSEs to bring in the highest returns, Menendez wonders why the discrepancy in approach
The principal reduction debate wages on with the Federal Housing Finance Agency (FHFA) standing firm in its resolve that the strategy is not in the best interest of the GSEs while facing criticism and questioning from lawmakers.
At a Senate Banking Committee hearing last week, HUD Secretary Shaun Donovan announced that Treasury will now offer the GSEs incentives for administering principal reductions.
Having recently increased the incentives offered to banks for administering principal reductions, Treasury now aims to “ensure consistency throughout the HAMP program” by making sure GSE borrowers have the same options as non-GSE borrowers.
At the same hearing, FHFA Acting Director Edward DeMarco faced questioning regarding his reluctance toward principal forgiveness at Fannie May and Freddie Mac.
“Both companies have been reviewing principal forgiveness alternatives. Both advised me they do not believe that it is in the best interest of the companies to do so,” he told lawmakers.
However, he did agree with lawmakers that “foreclosure is the worst possible outcome in almost all instances. It is the most costly. It is the most devastating to the family. It is the most devastating to the neighborhood and surrounding community, and we have a responsibility to make all prudent actions to find a remedy to a troubled borrower short of foreclosure because of these costs.”
DeMarco maintained that principal reduction is just one of four tools for preventing foreclosure. The other three include reducing the interest rate, extending the loan term, and forbearance.
“What FHFA has found consistently in its analysis is that the first three of those tools work better than the fourth one with regard to our fundamental mandate of preserving and conserving,” DeMarco said.
DeMarco also pointed out that while the GSEs together guarantee 60 percent of mortgages, their loans make up just 29 percent of seriously delinquent loans.
In addition, while they make up a minority of serious delinquencies, GSE loans make up about half of permanent HAMP modifications.
Regardless of their success through forbearance and other alternatives, Senator Robert Menendez (D-New Jersey) pointed out that banks are turning to principal forgiveness for 20 percent of their modifications.
As banks are equally as motivated as the GSEs to bring in the highest returns, Menendez wonders why the discrepancy in approach
Mortgage Rates Drop Closer to All-Time Lows
After rising last week following positive housing indicators, mortgage rates fell back near all-time lows once again this week, Freddie Mac reports in its weekly mortgage market survey.
"Fixed mortgage rates bottomed out in January and February of this year, which is helping spur the housing market,” said Frank Nothaft, Freddie Mac’s chief economist.
This week, the National Association of REALTORS® reported that pending home sales increased in January, reaching its strongest pace since April 2010. The Federal Reserve also noted that real estate activity in the residential sector increased modestly in most of the districts it tracks and that home sales increased.
Here’s a closer look at rates for the week ending March 1, 2012:
•30-year fixed-rate mortgages: averaged 3.90 percent, with an average 0.8 point, dropping from last week’s 3.95 percent average. A year ago at this time, 30-year rates averaged 4.87 percent.
•15-year fixed-rate mortgages: averaged 3.17 percent, with an average 0.8 point, dropping from 3.19 percent last week. Last year, 15-year rates averaged 4.15 percent.
•5-year adjustable-rate mortgages: averaged 2.83 percent, with an average 0.7 point, rising from last week’s 2.80 percent average. Last year, 5-year ARMs averaged 3.72 percent.
•1-year ARMs: averaged 2.72 percent, with an average 0.6 point, this week, dropping slightly from last week’s 2.73 percent average. A year ago, 1-year ARMs averaged 3.23 percent.
Source: Freddie Mac
"Fixed mortgage rates bottomed out in January and February of this year, which is helping spur the housing market,” said Frank Nothaft, Freddie Mac’s chief economist.
This week, the National Association of REALTORS® reported that pending home sales increased in January, reaching its strongest pace since April 2010. The Federal Reserve also noted that real estate activity in the residential sector increased modestly in most of the districts it tracks and that home sales increased.
Here’s a closer look at rates for the week ending March 1, 2012:
•30-year fixed-rate mortgages: averaged 3.90 percent, with an average 0.8 point, dropping from last week’s 3.95 percent average. A year ago at this time, 30-year rates averaged 4.87 percent.
•15-year fixed-rate mortgages: averaged 3.17 percent, with an average 0.8 point, dropping from 3.19 percent last week. Last year, 15-year rates averaged 4.15 percent.
•5-year adjustable-rate mortgages: averaged 2.83 percent, with an average 0.7 point, rising from last week’s 2.80 percent average. Last year, 5-year ARMs averaged 3.72 percent.
•1-year ARMs: averaged 2.72 percent, with an average 0.6 point, this week, dropping slightly from last week’s 2.73 percent average. A year ago, 1-year ARMs averaged 3.23 percent.
Source: Freddie Mac
Number of Underwater Home Owners Grows
Nearly 23 percent of home owners owe more on their houses than they are currently worth, according to new data from the last three months of 2011 released by CoreLogic.
More specifically, the number of underwater home owners rose slightly from 22.1 percent in mid-2011 to 22.8 percent by the end of last year.
"When they're upside down, borrowers may be current on their payments but they're more vulnerable to economic storms — like job losses — that could tip them over into default," says Sam Khater, senior economist at CoreLogic.
About 8 percent of underwater home owners have already lagged on their mortgage payments.
Source: “Underwater Borrowers Are on the Rise,” CNNMoney (March 1, 2012)
More specifically, the number of underwater home owners rose slightly from 22.1 percent in mid-2011 to 22.8 percent by the end of last year.
"When they're upside down, borrowers may be current on their payments but they're more vulnerable to economic storms — like job losses — that could tip them over into default," says Sam Khater, senior economist at CoreLogic.
About 8 percent of underwater home owners have already lagged on their mortgage payments.
Source: “Underwater Borrowers Are on the Rise,” CNNMoney (March 1, 2012)
NAR: REO Rental Programs Largely Unnecessary
Housing markets are complex and varied, and a government pilot program to turn bank-owned properties into rentals could be disruptive and counterproductive in some markets, according to the National Association of REALTORS®.
NAR urges the Federal Housing Finance Agency (FHFA) to proceed cautiously with its Real Estate-Owned (REO) Initiative pilot program to sell homes repossessed by government agencies to private investors to convert into rental units.
“REALTORS® support efforts to reduce the high inventories of foreclosures, but all real estate is local and we are concerned that REO-to-rental programs are not necessary in some areas and could even hinder the recovery,” NAR President Moe Veissi said. “In many communities REOs are already moving well through the normal processes, so we urge caution when proceeding with a rental program.”
According to a recent NAR analysis, while the overall visible inventory of foreclosures has been trending down across the country, there is a noticeable difference in foreclosure inventories in states that require judicial proceedings to foreclose on a property versus inventories in states that do not require the court’s intervention. Foreclosure inventories in judicial states are currently 2.5 times higher than non-judicial states. In addition, the disposition of foreclosure inventories is considerably faster in non-judicial states, where foreclosure sales rates are four times higher than in judicial states.
“Inventories of condos and single-family homes for sale continuously fell last year, suggesting that there is no significant oversupply of visible foreclosure inventory in the market,” NAR Chief Economist Lawrence Yun said. “Even the shadow inventories of distressed homes have fallen, though they remain elevated and are an ongoing concern. The government REO-to-rental plan could work in areas where buyers are not quickly absorbing the shadow inventory.”
To prevent further increases in foreclosure inventory, NAR has repeatedly called for improved lending to creditworthy home buyers and have urged lenders to make more loan modifications, mortgage refinancings, and short sales, which will help stabilize struggling housing markets.
“While REO-to-rental programs could be successful in a few communities, we believe that doing more to ensure mortgage availability for qualified home buyers and investors could be even more beneficial in helping absorb excess foreclosure inventories across the country,” Veissi said.
NAR urges that a national advisory board be created to ensure that current and future REO-to-rental pilot programs truly benefit the local community, minimize taxpayer losses and stabilize home values, and suggests substantial participation of local market experts, especially licensed real estate professionals, who have unparalleled knowledge of local market conditions.
Source: NAR
NAR urges the Federal Housing Finance Agency (FHFA) to proceed cautiously with its Real Estate-Owned (REO) Initiative pilot program to sell homes repossessed by government agencies to private investors to convert into rental units.
“REALTORS® support efforts to reduce the high inventories of foreclosures, but all real estate is local and we are concerned that REO-to-rental programs are not necessary in some areas and could even hinder the recovery,” NAR President Moe Veissi said. “In many communities REOs are already moving well through the normal processes, so we urge caution when proceeding with a rental program.”
According to a recent NAR analysis, while the overall visible inventory of foreclosures has been trending down across the country, there is a noticeable difference in foreclosure inventories in states that require judicial proceedings to foreclose on a property versus inventories in states that do not require the court’s intervention. Foreclosure inventories in judicial states are currently 2.5 times higher than non-judicial states. In addition, the disposition of foreclosure inventories is considerably faster in non-judicial states, where foreclosure sales rates are four times higher than in judicial states.
“Inventories of condos and single-family homes for sale continuously fell last year, suggesting that there is no significant oversupply of visible foreclosure inventory in the market,” NAR Chief Economist Lawrence Yun said. “Even the shadow inventories of distressed homes have fallen, though they remain elevated and are an ongoing concern. The government REO-to-rental plan could work in areas where buyers are not quickly absorbing the shadow inventory.”
To prevent further increases in foreclosure inventory, NAR has repeatedly called for improved lending to creditworthy home buyers and have urged lenders to make more loan modifications, mortgage refinancings, and short sales, which will help stabilize struggling housing markets.
“While REO-to-rental programs could be successful in a few communities, we believe that doing more to ensure mortgage availability for qualified home buyers and investors could be even more beneficial in helping absorb excess foreclosure inventories across the country,” Veissi said.
NAR urges that a national advisory board be created to ensure that current and future REO-to-rental pilot programs truly benefit the local community, minimize taxpayer losses and stabilize home values, and suggests substantial participation of local market experts, especially licensed real estate professionals, who have unparalleled knowledge of local market conditions.
Source: NAR
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