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Diana Olick – Home Buyer Tax Credit Snafu: No USDA Loans
“The federal mortgage program from the U.S. Dept. of Agriculture for rural home buyers, guarantees low and even no down payment, low interest loans to rural buyers, but the lines between rural and urban were getting a bit vague. The tight mortgage lending conditions today have pushed thousands more buyers into the program. In 2006, the USDA program backed about 31,000 loans or $3 billion worth. In 2009, that had grown to 133,000 loans worth $16.2 billion. The good news is the standards are tight and the default rates far better than the FHA. The bad news is the program wasn’t meant to handle that many loans, and it ran out of money. Congress is in the process of appropriating more money for the program. The House passed a bill sponsored by Congressman Paul Kanjorski (PA).
The Senate passed a bill out of the Appropriations Committee, as part of agriculture appropriations. It was sponsored by Sen. Michael Bennet (CO). But you still can’t get a loan now. There is a far smaller program for direct loans from the USDA, but it is barely a blip compared to the guarantee program. So we’re all sitting here waiting for Congress to get the program more money, and it’s all expected to pass, but that still presents a big timing problem: The home buyer tax credit. Buyers have to close by June 30th, and many of them were depending on USDA loans. They signed contracts by the end of April, and now they’re stuck. Despite the promise of the funds, big lenders are holding off until the new appropriations are a done deal. Keith Wilcox of 1st American Home Loans says by the time the Congress passes the new funding, there will be such a backlog of borrowers, they’ll never get the loans done by closing June 30th. He’s not the only mortgage broker lighting up my phone this week. So not only are these borrowers missing out on the USDA loans, they’re also missing out on the opportunity to get the tax credit and at the very least lock in today’s nearly historically low interest rates. In other words, the government is holding up its own housing stimulus.”
Countrywide Picks Up Pace Resolving Troubled Loans: Barclays
Liquidation and modification rates on Countrywide-serviced residential loans have edged higher in the past few months, with a larger percentage of mortgage restructurings encompassing principal forgiveness, according to a study just released by Barclays Capital. The research firm examined loans within residential mortgage-backed securities (RMBS) serviced by Countrywide, now Bank of America Home Loans, and found that while historically, Countrywide-serviced deals have claimed lower-than-average mod rates and long liquidation timelines, that has begun to turn around in the past few months. Barclays reports that constant default rates (CDRs) on pools of mortgages serviced by the once-subprime leader have improved, primarily due to faster roll rates, as well as rejections from Home Affordable Modification Program (HAMP) trials, which allow the loan to proceed to foreclosure.
Analysts at Barclays expect Countrywide’s liquidation rates to continue to increase as more HAMP trials are resolved in the coming months. Many of these resolutions, though, do include transitions to permanent loan restructurings. Barclays says HAMP conversions have also boosted modification rates for Countrywide, and the research firm found that debt forgiveness mods now make up 10 percent of the servicer’s modified loans, up from 0 percent in January. The research firm says it as seen “continuous improvement” in current to delinquent rolls and falling 60-plus day delinquencies. Barclays says there have been important changes in servicer behavior in the Countrywide camp. HAMP rejection rates for Countrywide loans have shot up in the past few months and now constitute 36 percent of all resolved trial mods. According to the Treasury’s latest HAMP progress report, Countrywide/Bank of America is servicing approximately 215,000 active trial mods and has finalized nearly 57,000 permanent loan restructurings.
Wall Street hopes to dodge two reform bullets
Wall Street may still escape two of the harshest elements of Washington’s reform efforts. The two measures, included in the Senate bill passed last week, take direct aim at some of the more risky — and profitable — parts of banks’ business. One proposal would require financial firms to spin off their trading desks that deal in derivatives. The other, would ban banks from wagering with the firm’s own money, what the industry calls “proprietary trading.” Firms would also be restricted from investing in or sponsoring private-equity funds or hedge funds. The restrictions, if included in the final bill, would hit bank profits.
As the bill now moves to negotiations between key leaders of both the Senate and the House, there is a growing belief that both those proposals run the risk of getting derailed. Experts believe that the amendment aimed at regulating derivatives, will be left on the cutting-room floor or watered down substantially. Both the White House, as well as most Republicans, have come out strongly against the proposal, partly out of fear of what kinds of unintended consequences the new rule could have. Lawmakers already missed an opportunity to strengthen the proposal after choosing not to vote on an amendment which would prevent banks from trading for their own benefit rather than for the sake of their customers. Experts suggest that the Senate bill does not do a good job of explicitly defining what businesses banks should, and should not be involved in, positioning the topic as a subject of intense debate among lawmakers.
Top stories from HousingWire over the weekend
Federal prosecutors will not bring charges against the executives of the American International Group (AIG) for company’s collapse, according to a Saturday story in the New York Times. The story cited two unnamed sources. Joseph Cassano, and other executives at the AIG Financial Products unit, which insured $80bn in mortgage securities, have been investigated for possibly misleading investors. But no charges will be filed. In the past, modifying or pushing these loans through the foreclosure and ultimately, REO process, was slower than average, but the pace is picking up. According to Barclays, liquidations rates of Countrywide loans should increase as more trial modifications through the Home Affordable Modification Program (HAMP) are resolved. The board of directors of the Federal Deposit Insurance Corp. (FDIC) approved settlement of the bankruptcy case of Washington Mutual, the holding company of Washington Mutual Bank, which was closed in September 2008.
The agreement also settles claims between Washington Mutual and JPMorgan Chase (JPM: 40.05 0.00%), which acquired the failed bank. The Minnesota Department of Commerce closed Pinehurst Bank in St. Paul, Minnesota. It was the only closing last week. Coulee Bank, based in Wisconsin, will assume all $58.3m in total deposits and will purchase essentially all $61.2m in assets. The FDIC estimated the cost to the Deposit Insurance Fund (DIF) to be $6m. Leaning on revenue from rental properties, Triple Crown Corp., a real estate firm in Harrisburg, Penn., reported it has weathered enough of the housing downturn to begin increasing its property holdings. Effective immediately, institutions wanting to apply as Ginnie Mae or Federal Housing Administration (FHA) issuers must use separate forms. Those wishing to apply to Ginnie must use the new Form HUD-11701, titled “Application for Approval – Ginnie Mae Mortgage-Backed Securities Issuer.” Those wanting to become FHA lenders must use Form HUD-92001-A, “FHA Lender Approval Application.” The old form will no longer be available for use.
Ratings Shopping’ Lives as Congress Debates a Fix
Real-estate investment firm Redwood Trust Inc. approached two credit-rating firms early this year to rate a new mortgage-bond offering. One of the firms, Standard & Poor’s, expressed reservations about parts of the deal. Redwood chose Moody’s Investors Service—and in April sold more than $200 million of bonds carrying Moody’s top rating of triple-A, without a hitch. In a commentary about the bond offering last month, S&P indicated the deal wouldn’t have met its standards for a triple-A rating. A Moody’s spokesman said the firm “conducted a thorough review of the deal,” according to criteria it strengthened since the mortgage crisis. S&P, owned by McGraw-Hill Cos., declined to comment on its discussions with Redwood.
In the wake of the financial crisis, the companies that rate bonds have been lambasted for being asleep at the switch and for assigning rosy ratings to questionable mortgage bonds in order to win business. Those ratings companies have made numerous changes, but one thing remains the same: Issuers still “ratings shop” among firms for the most favorable opinions on deals. Some in the industry say ratings shopping may even have gotten easier in the wake of the financial crisis. S&P, Moody’s and Fitch Ratings are no longer as dominant in the business of rating bonds as they were, in part because they have pulled back partially from the mortgage market. The financial-regulation overhaul bill passed by the Senate on Thursday would limit the ability of bond issuers to pick firms to rate their securities. But the House version of the bill contains no such provision, and some key lawmakers have raised concerns about the idea. It remains to be seen whether the proposal will survive as the two chambers begin efforts Monday to reconcile their differences.
Now on to our real estate investing education section …
Commercial Calamity Calming
Although the state of commercial properties continues to show serious stress, according to Fitch Ratings, the rate of default is beginning to slow despite reaching a record 7.48% delinquency rate. The report goes on to provide a break-down of delinquencies by type including:
Hotels: 18.42%
Multi-family: 13.60%
Retail: 5.83%
Industrial: 4.6%
Office: 3.87%
The Good News
In addition to slowing default rates, areas outside of the Sun Belt and Rust Belt are showing signs of stability. The rate of credit worsening is also slowing as the level of liquidity loss as well as ability of mortgage holders to pay-off or close their loans demonstrated some positive signs.
The Bad News
Although the number of defaults is beginning to slow, experts believe the situation will continue into the foreseeable future as credit and lending standards continue to tighten in the commercial arena. Unlike residential real estate which is typically financed using 15 to 30 year loans, commercial loans frequently use short durations from five to ten years making them especially prone to a lack of liquidity associated with tighter lending standards. Net lending activity is down over 7.5 percent from the peak in 2008 with commercial giants like Wells Fargo projecting continued losses to peak by the end of the 2010.
The Bottom Line
What does this mean for prospective commercial short sale investors? Plain and simple…opportunity. Commercial short sales may be just the ticket to move your portfolio from a part-time investment to full-time career or long term asset. Whether you own a business of your own or simply desire a method to maximize profits, commercial short sales provide many of the same benefits enjoyed by those that work in residential real estate concerns with meaningful returns. Tune in to one of our webinars or sing-up to receive more information about investing in commercial short sale opportunities.
See you at the top!
Chris McLaughlin
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Copyright Loss Mitigation Institute LLC 2009.
All Rights Reserved.
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About the author:
Chris McLaughlin is widely known as America’s top
Real Estate Attorney and Investment Consultant.
* As the top Florida foreclosure and pre-
foreclosure expert, he oversees more than
100 short sale & REO closings each month
* Long-time authority on real estate investing
and rapid reselling of distressed homes. Owns
portfolio of nearly 100 high-value, high-profit
properties
* Owner of one of Florida’s largest Real Estate firms,
running 4 different offices, supporting over
400 agents, uniquely positioning him to help
thousands of investors make money in the
biggest market opportunity ever!
* Highly sought-after speaker, consultant, and
seminar leader for current trends and hot topics
in Real Estate Investing, Entrepreneurship, and
Wealth Building
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