bank of america

Discounts converge – short sales now better than foreclosures

Short sales, once a rare event in local real estate market, today are nearly as prevalent as foreclosures as lenders seek to avoid adding to their foreclosure inventories and troubled homeowners opt for a faster way out of default.  Historically, foreclosures have been discounted 10% or more. Now, as short sales become more popular, the difference between and short-sale discounts and foreclosure discounts is shrinking, according to the latest LPS Home Price Index.  In April 2007, as the housing bubble burst, foreclosures sold at a 19% discount and short sales sold at a discount of 10%. As the volumes of both forms of distressed sales have increased, so have the discounts, but short sale discounts have increased more. Today foreclosures sell at a 29% average discount and short sales at an average discount of 23%, a difference of only 6%.

The shrinking discount may make short sales more attractive to buyers than foreclosures. In general, home sellers undergoing short sales are motivated to do so to protect their credit to the extent possible and they tend to maintain better condition of their properties than borrowers undergoing foreclosure. Foreclosures also may be vacant for long periods of time. Today’s average processing timeline for foreclosures is about a year, and substantially higher in some judicial states. With a short sale, the property may not be vacated at all during the sales process.  LPS suggests that the task of managing the large number of distressed properties in the market today is immense, which may, in some cases, contribute to suboptimal pricing of some distressed properties. Since 2007, discounts for both foreclosures and short sales have increased, but short-sale discounts increased a bit faster.

PPI falls

The Labor Department said on Friday its seasonally adjusted producer price index (PPI) dropped 0.2% last month. That was the first drop of the year and the biggest decline since October.  Economists polled by Reuters had expected prices at farms, factories and refineries to be flat.  The decline left wholesale prices 1.9% higher in April that a year earlier, the weakest reading since October 2009.  Wholesale prices excluding volatile food and energy costs rose in line with economists’ expectations, up 0.2% after March’s 0.3% gain.  The drop in PPI was due to a 1.4% decline in energy prices, the biggest drop since October. Gasoline costs slumped 1.7%, while prices also fell for residential natural gas and liquefied petroleum gas.  The producer price index outside food and energy was pushed up by a 0.4% increase in the index for pharmaceuticals. Higher prices for civilian aircraft also pushed up the core index.  In the 12 months to April, core producer prices increased 2.7% after rising 2.9% the previous month. April’s reading was the lowest since August and just below analysts’ expectations.

Olick – mortgage market hampers recovery

“The Realtors say it, the home builders say it, and now the chairman of the Federal Reserve is saying it: ‘Some creditworthy borrowers are still having trouble getting a mortgage.’  Loose mortgage underwriting is largely blamed for the housing crash, and as a result the credit markets have swung in the opposite direction, some say too far.  ‘You’ll see fewer willing lenders at 660 than you do at the top end of the scale,’ notes Bankrate.com’s Greg McBride, referring to FICO scores (Fair Isaac Corporation).  Twenty five% of Americans today have a FICO credit score lower than 650, and twelve% more are below 700. While the Federal Housing Administration (FHA), the government’s mortgage insurer, is supposed to be serving borrowers with lower credit scores, the average FICO for an FHA loan in March was 701.  ‘It’s often the lender regarding the higher score,’ says Rick Sharga of Carrington Mortgage Holdings. Despite the FHA insurance, lenders just won’t take the chance.

Many borrowers who lost big during the housing crash are now fighting to regain their credit, but the time it takes to do that depends largely on how high their credit score was to begin with. According to FIC, a borrower with a credit score above 780 who lost a home to foreclosure will need 7 years of unblemished credit to regain their standing. A borrower who started at 680 will need just three years. Just being late on mortgage payments, up to ninety days, will drop your credit score 80 points if you started at 680 but 130 points if you were at 780. The higher you start, the harder you fall.  And it is not just credit standing in the way of a home loan. In order to get today’s record low interest rates, you need to put 20% down on the home. For a $300,000 home, that’s $60,000. On top of that you often have a 6% brokers fee and then closing costs, which averaged just over $4000 last year, according to Bankrate.com. If you do have lower credit, or a lower down payment, you will have to pay private mortgage insurance.  If you don’t have much money to put down, and you do have lower credit, the FHA is your only option now, but fees and premiums are going up there as well. 27% of home purchase financing in March of this year came from FHA loans, according to Campbell/Inside Mortgage Finance, but that was just before fees went up. The FHA share of mortgage originations has been dropping precipitously since then.

As the housing market recovers, and home prices stabilize, one might assume the credit markets would loosen as well. That has not been the case so far, according to a recent Federal Reserve survey of bankers. In fact, mortgages will likely get more expensive, as federal regulators move closer to new rules concerning risk retention in mortgage lending.  In addition to fees, credit and down payment, just less than a quarter of homeowners with a mortgage owe more on that loan than their home is currently worth. These so-called ‘underwater’ borrowers are therefore trapped, unless they have enough cash to put out and are willing to eat their losses. There are also many more who are in a near-negative equity position, which means they do not have enough equity in their homes to cover a new down payment, closing costs and brokers fees. That knocks a lot of potential buyers out of today’s market.  There is no question that we must not return to the lax lending of the past, where borrowers were asked no questions and offered whatever they wished. There is a question of how tight the mortgage market needs to be, when housing is still the chief impediment to overall economic recovery.”

Subprime is back

Mortgage backed securities are hot again.  Many of the hedge fund traders gathered at the Skybridge Alternatives investor summit at the Bellagio Hotel in Las Vegas are enthusiastically seeking out the once “toxic” mortgage bonds for their portfolios.  Even Kyle Bass, the Texan hedge fund manager who made billions shorting mortgage bonds in the years before the financial crisis, is bullish on mortgage credit. The “worst” bonds, those not backed by Fannie Mae and Freddie Mac, could see gains of 15%, he said Thursday.  The primary attraction of the bonds is their price. Although in recent months the bonds have rallied by as much as 20%, they still trade at steep discounts to par value. Last year they fell 40%.  The hedge fund mangers attracted to the bonds believe that even with massive defaults, they will continue to generate cash flows in excess of what current market prices indicate.  Some of the enthusiasm for the bonds is rooted in the idea that the housing market may be reaching a bottom. If home prices began to rise, mortgage defaults would likely decline and the prices of the bonds rise. But some traders believe that even if housing declines further and the economy stalls, the bonds could be profitable because the Federal Reserve would step in and buy them as part of a new round of quantitative easing.

NAHB – 55+ confidence up

Builder confidence in the 55+ housing market for single-family homes had a significant increase in the first quarter of 2012 compared to the same period a year ago, according to the latest National Association of Home Builders’ (NAHB) 55+ Housing Market Index (HMI) released today. The index increased 10 points to 27, and although 27 is relatively low for an index that lies on a scale of 0 to 100, it is nevertheless the highest reading since the inception of the index in 2008.  The 55+ single-family HMI measures builder sentiment based on a survey that asks if current sales, prospective buyer traffic and anticipated six-month sales for that market are good, fair or poor (high, average or low for traffic). An index number below 50 indicates that more builders view conditions as poor than good. All index components remain well below 50, but increased considerably from a year ago, each reaching an all-time high: Present sales rose 12 points to 27, expected sales for the next six months increased eight points to 32 and traffic of prospective buyers rose nine points to 26.  The 55+ multifamily condo HMI remains the weakest of the 55+ housing market indices, but also recorded an all-time high at 15, up seven points from a year ago. All index components showed an increase compared to a year ago: Present sales rose five points to 14, expected sales for the next six months increased seven points to 20 and traffic of prospective buyers jumped nine points to 15.  The 55+ multifamily rentals continue to lead the way in the overall 55+ housing market. Present production climbed 11 points to 31, expected future production increased eight points to 35, current demand for existing units rose three points to 42 and expected future demand increased one point to 45.

MOODY’s issues capital warning

Moody’s has warned that the tendency of global banks to avoid new capital requirement rules and load up on debt will continue to put pressure on their creditworthiness.  The credit rating agency announced it was placing 17 banks on review for a downgrade earlier this year, citing “vulnerabilities” in the companies’ vast and volatile capital markets businesses.  Moody’s caution could see all 17 banks downgraded when the review is finally completed, expected to happen in mid-June. Three of the banks, Credit Suisse, Morgan Stanley, and UBS, face as much as a three-notch downgrade; 10 face a two-notch slide and four a one-notch drop.  The potential downgrades have become a talking point on Wall Street, with some bankers openly criticizing Moody’s and others privately attempting to change the agency’s mind in closed-door meetings.

Commercial real estate improves slightly

Conditions in the commercial real estate sector improved in the first quarter, but investors and executives are worried about some of the commercial mortgages set to mature in the coming year and the market’s general lack of interest in sub-A real estate assets, real estate executives said.  Executives in the industry provided this “luke warm” feedback in the latest Real Estate Roundtable quarterly sentiment survey.  The survey’s overall confidence index is at 70, which shows confidence in the industry to be more favorable than not. Still, that index score is down from a reading of 77 in the first quarter of 2011, but up from a score of 59 in the fourth quarter of 2011.  To get the index number higher, the job market will have to improve, bringing demand for commercial real estate assets in the below Class-A category with it, the executives said.  “Fostering a commercial real estate recovery that extends beyond so-called class A or trophy assets in gateway markets still depends on an improved jobs picture, more confidence among businesses and consumers, and reduced uncertainty on looming tax and budget issues,” said roundtable chairman Daniel Neidich. “Our Q2 survey confirms the need for swift policy action to boost employment, business investment, and economic certainty.”  Another issue delaying full confidence in commercial real estate is the overall economy and uncertainty about how the US will handle economic issues and issues related to employment and business investment.

Foreclosure-rescue company president arrested

The president of a Palm Beach County foreclosure-rescue company was arrested Thursday and charged with several counts of fraud, including acting as a loan originator without a license, after an investigation that included law enforcement officials from Boca Raton to Tallahassee.  Guilfort Dieuvil, 38, is president of the Nationwide Investment Firm Corp., a for-profit company that has homeowners quitclaim deed their properties to it with promises to broker a short sale or loan modification, while also defending the case in court.  The arrest comes after The Palm Beach Post revealed, in a series of four articles beginning in November, lawsuits, police reports and letters to state officials from homeowners complaining that instead of getting the help they sought, they unwittingly signed over the deeds to their homes.  Some claim they were threatened with eviction and left with debt on properties to which they no longer have title.  Details of the investigation that led to Dieuvil’s arrest were not available late yesterday, but Boca Raton Police Department officer Sandra Boonenberg said detectives from her department worked in conjunction with other agencies on the case.

Building edged up in March

The Commerce Department said yesterday that construction spending ticked up 0.1 per cent.  The small March gain left construction spending at a seasonally adjusted annual rate of $808.1 billion. That’s 6 per cent above a 12-year low of $762.6 billion hit last March. Still, the level of spending is roughly half of what economists consider to be healthy.  “The weakness in construction spending in March was entirely in public spending,” said John Ryding, an analyst at RDQ Economics, in a note to clients.  Still, even with the increase in private construction spending, the trend over the last three months is weak, Ryding noted.  “We look for some gradual improvement in private construction spending in 2012, but structures investment is not a material factor in our growth forecast for this year,” he said. 

Government construction activity fell 1.1 per cent to the slowest pace since February 2007, the report said. Spending by state and local governments dropped to the weakest level since November 2006, while spending by the federal government rose 3.8 per cent to a rate of $28.9 billion.  Spending on private nonresidential projects rose 0.7 per cent. Work on office buildings, hotels and transportation projects rose. Spending in the category that includes shopping centres fell.  Private residential activity rose 0.7 per cent. The increase was driven by more construction of single-family homes.  Even with the gains, home construction continues to slump five years after the housing bubble burst. Sales of new homes fell 7.1 per cent in March, the largest decline in more than a year.  Though new-home sales represent less than 10 per cent of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to the National Association of Home Builders.  Business spending on construction projects, such as office buildings and shopping centres, is also sluggish. The government reported last week that it fell in the January-March quarter, the second consecutive quarterly decline.  The economy grew at an annual rate of 2.2 per cent in first quarter. Stronger consumer spending offset slower business investment and less growth in government spending.  Economists expect construction spending to remain sluggish this year. Tighter credit could keep businesses from receiving loans for building projects. And lawmakers are likely to keep pressure on government spending, which could hamper public works projects.

Private sector employment sluggish

Private-sector employment increased by just 119,000 in April, according a report from ADP that puts a dent into the notion that the jobs market is on the path to a solid recovery.  The report was well below forecasts of 170,000 and comes after a string of stronger numbers.  ADP said service-sector jobs rose by 123,000, but construction fell by 5,000, falling for the first time since September 2011. Manufacturing also lost 5,000, while goods-producing dropped 4,000. Financial services added 13,000 jobs.  Employment additions again were strongest in small businesses, which added 58,000 positions, and weakest in big business, which saw a net of just 4,000 new jobs.  The March number was revised downward from 209,000 to 201,000, according to the report, which is done in conjunction with Macroeconomic Advisors.

MBA – mortgage applications up

Mortgage applications increased 0.1% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 27, 2012.  The Market Composite Index, a measure of mortgage loan application volume, increased 0.1% on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index increased 0.4% compared with the previous week.  The Refinance Index decreased 0.7% from the previous week.  The seasonally adjusted Purchase Index increased 2.9% from one week earlier. The unadjusted Purchase Index increased 3.7% compared with the previous week and was 3.0% higher than the same week one year ago.  The four week moving average for the seasonally adjusted Market Index is up 0.09%.  The four week moving average is down 1.77% for the seasonally adjusted Purchase Index, while this average is up 0.75% for the Refinance Index.  The refinance share of mortgage activity decreased to 72.6% of total applications from 73.4% the previous week. The government share of purchase applications remained steady at 37.0%, a slight increase from a couple of weeks ago when the share was 36.4%. The government share of purchase applications over the last three weeks has been at the lowest level since 2009.  During the month of March, the investor share of applications for home purchase was at 5.7%, a slight decrease from 6.1% in February.  This change was led by a decline in the West South Central region.  In addition, the share of purchase mortgages for second homes remained constant at 5.8%.

US has to deleverage

The US government will have to follow its citizens and corporates in deleveraging its balance sheet, Bob Baur, chief global economist, Principal Global Investors, said today.  “It’s no question that we’re going to see more deleveraging. Households are in much better shape and companies have improved their balance sheets dramatically. It’s the government that needs to deleverage,” he said.  He added that some deleveraging had begun at the state level, but had yet to reach central government.  The US government, which pumped trillions of dollars into bailouts of the banking and automobile sector and buying mortgage-backed securities to help lenders Fannie Mae and Freddie Mac, has more than $15 trillion in debt – the ceiling for borrowing is set at $16.4 trillion.  It is also facing demographic problems such as an aging population and subsequent rising Medicare bill, which might handicap the speed at which it can reduce its debt.

Olick – where are the foreclosures?

“The number of homes entering the foreclosure process rose in March, up 8.1%, according to a new report from lender Processing Services, but the volume is down more than 30% from a year ago.  Analysts had expected this number to skyrocket immediately following the $25 billion settlement between banks and state governments over fraudulent mortgage servicing.  Foreclosures sales, which are the final stage of the foreclosure process, not sales of bank-owned homes, dropped precipitously in March to their lowest point in over two years. They dropped most sharply — 14% month-to-month — in states where a judge is not required in the foreclosure process (so-called non-judicial states).  Again, that is contrary to expectations, but could be yet another stall in the system, as banks try to modify more loans to meet some of the terms of the servicing settlement. The foreclosure sales decline also appears to be exclusively in private and portfolio loans, which again points to the settlement.  That low pace of foreclosure sales is keeping foreclosure inventory, or loans in the foreclosure process, at near historic highs, according to LPS. That number may be heading lower, however, as banks ramp up the short sale process.

Short sales, when the bank allows the home to be sold for less than the value of the mortgage, are in fact now outpacing sales of bank-owned homes in many markets, according to a new report from RealtyTrac.  Short sales rose by 15% in the fourth quarter of 2011 from the previous year, while sales of REO’s (bank-owned homes) dropped 12%. Short sales outpaced REO sales in several markets, including Los Angeles, Miami, and Phoenix, according to RealtyTrac. Georgia, where foreclosure inventories are surging, saw a 113% jump in short sales. The process, once avoided widely due to its lengthy lag time, is already speeding up, and Fannie Mae and Freddie Mac both recently announced new guidelines to reduce short sale timelines.  ‘Lenders are increasingly recognizing that short sales may be a better alternative for them than foreclosure,’ notes RealtyTrac’s Daren Blomquist. ‘This trend began in markets with stronger demand and where the distressed inventory tends to be newer homes (Phoenix, Los Angeles, Las Vegas), but the trend appears to be spreading to other markets like Atlanta and Detroit.’  Look for a special report on the Atlanta housing market on CNBC and CNBC.com Thursday.”

People renouncing US citizenship to escape taxes

About 1,780 expatriates gave up their nationality at US embassies last year, up from 235 in 2008, according to Andy Sundberg, secretary of Geneva’s Overseas American Academy, citing figures from the government’s Federal Register. The embassy in Bern, the Swiss capital, redeployed staff to clear a backlog as Americans queued to relinquish their passports.  The US, the only nation in the Organization for Economic Cooperation and Development that taxes citizens wherever they reside, is searching for tax cheats in offshore centers, including Switzerland, as the government tries to curb the budget deficit. Shunned by Swiss and German banks and facing tougher asset-disclosure rules under the Foreign Account Tax Compliance Act, more of the estimated 6 million Americans living overseas are weighing the cost of holding a US passport.  Renunciations are higher in Switzerland because American expatriates expect extra scrutiny of their affairs after the UBS case and as the US probes 11 other Swiss financial firms for aiding offshore tax evasion, said Martin Naville, head of the Swiss-American Chamber of Commerce in Zurich.

“Every dollar you save, you lose to the US tax man,” said tax lawyer Ledvina. “That’s one reason why people give up citizenship.”  The 2010 Fatca law requires banks to withhold 30% from “certain US-connected payments” to some accounts of American clients who don’t disclose enough information to the IRS.  “There is incredible frustration at the audacity and imperial overreach of this law,” said David Kuenzi, a tax adviser at Thun Financial Advisors in Madison, Wisconsin, referring to Fatca.  Failure to file the 8938 form can result in a fine of as much as $50,000. Clients can also be penalized half the amount in an undeclared foreign bank account under the Banks Secrecy Act of 1970.  “It’s a big brother concept,” said Brent Lipschultz, a partner at New York-based accounting firm EisnerAmper.  The implementation of Fatca from next year comes after UBS, Switzerland’s largest bank, paid a $780 million penalty in 2009 and handed over data on about 4,700 accounts to settle a tax- evasion dispute with the US Whistle-blower Birkenfeld was sentenced to 40 months in a US prison in 2009 after informing the government and Senate about his American clients at the Geneva branch of Zurich-based UBS.

Pushback against ideology in principal reduction debate

Federal Housing Finance Agency (FHFA) Acting Director Edward DeMarco pushed back against Democratic lawmakers yesterday, claiming the agency decision on principal reduction will be based on analytics not ideology.  Reps. Elijah Cummings, D-Md., and John Tierney, D-Mass., sent a letter earlier in the morning to DeMarco. They pointed to internal documents at Fannie Mae showing the government-sponsored enterprise and its regulator approved but then quickly closed a pilot principal forgiveness program in 2010 that could have saved the firm $410 million.  DeMarco expressed disappointment in the letter and said since 2009, the FHFA approved multiple pilot programs for principal forgiveness, but the approvals did not indicate a “pre-determined view.”

“The fact that FHFA continues to consider principal-forgiveness alternatives, including recent HAMP program changes initiated by the Treasury Department, belies any ideological tilt on our part, but rather a strict analytical-based approach to gathering and evaluating data to determine what options best fit within the legal constraints that fall upon this agency as conservator for the enterprises,” DeMarco said in the letter.  DeMarco said while many pilot programs were developed, “there was not full agreement to proceed at the enterprises or their counterparties,” which in this instance was Citigroup.  The pilot program in question involves 1,200 mortgages originated by Citi for shared appreciation and 1,000 Fannie-guaranteed loans for principal forgiveness, according to the internal documents reviewed by HousingWire. The program would have been partly rolled out in the second quarter of 2011, according to several of the internal emails. 

In an early April speech, DeMarco showed preliminary FHFA analysis on new principal-reduction incentives. The expanded HAMP effort could save Fannie and Freddie Mac $1.7 billion but would cost taxpayers a net $2.8 billion. He also outlined how principal forbearance was a substitute for a shared-appreciation program.  The FHFA delayed its decision on approving the GSEs to do principal reductions, but DeMarco said in the letter that this is a decision meant for Congress.  “Such a policy question, especially as it has to do with public funds being taken from one group of citizens to provide a benefit to another group of citizens, should be determined by Congress,” DeMarco wrote. “In the absence of clear legislative direction, however, FHFA will continue to make determinations in how best to accomplish both of these goals after careful analysis of the facts and other information available to us and the multiple legal responsibilities placed upon us.”

Fannie and Freddie Servicer Response Timelines on Preforeclosure Sales

When evaluating a borrower’s request for Fannie Mae’s Home Affordable Foreclosure Alternatives (HAFA) program or the non-HAFA program for Fannie Mae preforeclosure sales, servicers must comply within the response times described in Servicing Guide Announcement SVC-2012-07,  Changes to Servicer Response Times and the Preforeclosure Sale Process  and outlined in the table below.  Servicers must document the mortgage servicing loan file for validation of compliance with these response timelines.

Fannie Mae HAFA – Servicer Evaluation of Borrower Response Package (BRP)

-  Within 3 business days of receipt of the BRP – The servicer must acknowledge receipt of the BRP to the borrower either verbally or in writing.

-  Within 5 business days of receipt of the BRP – If the servicer determines that documentation is missing, the servicer must send an Incomplete Information Notice to the borrower.

- Within 5 business days of a decision but in no event more than 30 calendar days after receipt of a complete BRP – The servicer must send an Evaluation Notice to the borrower.  If the servicer determines a HAFA Short Sale is the most appropriate foreclosure alternative, the HAFA Short Sale Agreement (Form 184) and the HAFA Request for Approval of Short Sale without Short Sale Agreement (Form 185) should be included with the Evaluation Notice.

Within 30 calendar days after receipt of the complete BRP but in no event more than 60 days after receipt of the complete BRP – If the servicer is unable to fully evaluate the

borrower for a HAFA, including preparation of the Form 184 and Form 185, an extension of 30 calendar days is permitted as long as the servicer provides weekly verbal or written status updates to the borrower. All communication must be documented in the mortgage loan servicing file.  The servicer must send the Evaluation Notice no later than 60 days after receipt of the complete BRP. 

- Within 14 calendar days after return of a fully executed Form 184 – The servicer must allow the borrower 14 calendar days to return a fully-executed Form 184 with required documentation.

- Within 10 calendar day extension of return of fully executed Form 184 – If necessary, the servicer may allow the borrower up to 10 additional calendar days to complete the Form 184 submission.

-  Within 10 business days of receipt of the Form 185 – The servicer must respond with a decision of approval or denial. 

*If the offer results in net proceeds equal to or greater than the minimum acceptable net proceeds (MANP), the servicer must approve the short sale.  

*If the offer does not result in net proceeds equal to or greater than MANP, the servicer must provide a counteroffer with the denial.  

* The MANP should not be disclosed to the borrower. 

- 5 business days after communicating a counteroffer – The servicer must request a response from the borrower on the purchaser’s decision of a counteroffer.

- Within 10 business days after receipt of revised offer – The servicer must respond with a decision on a revised offer from the borrower. 

*If the offer results in net proceeds equal to or greater than the MANP, the servicer must approve the short sale.  

*If the offer does not result in net proceeds equal to or greater than the MANP, the servicer may provide a counteroffer with the denial.  

*The MANP should not be disclosed to the borrower.

Fannie Mae’s Non-HAFA Preforeclosure Sale – Prior to Receipt of a Preforeclosure Sale Offer

-  Within 3 business days of receipt of the BRP – The servicer must acknowledge receipt of the BRP to the borrower either verbally or in writing.

-  Within 5 business days of receipt of the BRP – If the servicer determines that documentation is missing, the servicer must send an Incomplete Information Notice to the borrower.

-  Within 5 business days of a decision but in no event more than 30 calendar days after receipt of a complete BRP – The servicer must send an Evaluation Notice to the borrower. The Evaluation Notice should include the approved model language provided on eFannieMae.com.

Fannie Mae’s Non-HAFA Preforeclosure Sale – Preforeclosure Sale Offer Received with a BRP

-  Within 3 business days of receipt of the offer  The servicer must acknowledge receipt of a short sale offer. 

-  Within 5 business days of receipt of the offer  If the servicer determines that documentation is missing, the servicer must send an Incomplete Information Notice to the borrower.

-  Within 5 business days of a decision but in no event more than 30 calendar days after receipt of a complete BRP – The servicer must respond to the short sale offer with approve, approve with conditions, deny with counteroffer, or “still under review.”

-  5 business days after communicating a counteroffer If the response is “deny with counteroffer,” the servicer must request a response from the borrower on the purchaser’s decision of a counteroffer.

-  Within 10 business days after receipt of revised offer  The servicer must ensure that revised offers are evaluated within time frames that enable a decision to be communicated to the borrower within 10 business days after receipt of the revised offer.

-  30 calendar days after receipt of the BRP  If the servicer responds with “still under review,” an extension of 30 calendar days is permitted as long as the servicer provides weekly verbal or written status updates.   All communication must be documented in the mortgage loan servicing file.

-  Within 60 calendar days of receipt of the BRP and offer – The servicer must respond with a final decision.

Economic growth flat

Gross domestic product (GDP) expanded at a 2.2 percent annual rate, the Commerce Department said on Friday in its advance estimate, moderating from the fourth quarter’s 3 percent rate.  While that was below economists’ expectations for a 2.5 percent pace, a surge in consumer spending took some of the sting from the report. However, growth was still stronger than analysts’ predictions early in the quarter for an expansion below 1.5 percent. Although the details were mixed, the GDP report offered a somewhat better picture of growth compared with the fourth quarter, when inventory building accounted for nearly two thirds of the economy’s growth. In the first quarter, demand from consumers took up the slack.  Consumer spending which accounts for about 70 percent of U.S. economic activity, increased at a 2.9 percent rate – the fastest pace since the fourth quarter of 2010. That compared to a 2.1 percent rise in the fourth quarter.  Business spending fell at a 2.1 percent pace after rising 5.2 percent in the fourth quarter.

Excluding inventories, GDP is rose at a 1.6 percent rate. In the fourth quarter, the comparable figure was just 1.1 percent.  Elsewhere, growth in the first quarter was held back by a another drop in government defense spending, which confounded expectations for a strong rebound. An increase in exports was offset by a rise imports, causing trade to have virtually no impact on growth. Separately, civilian employment costs rose more modestly by 0.4 percent during the first quarter, primarily because growth in benefits slowed after a sharp rise in last year’s fourth quarter, Labor Department data showed on Friday.  The gain in employee costs was slightly lower than the 0.5 percent rise forecast by analysts surveyed by Reuters. Costs had increased 0.5 percent in the final three months of 2011.  Benefit costs, which account for 30 percent of compensation, grew by 0.5 percent in the first quarter after a sharp 0.7 percent rise in last year’s fourth quarter.  Wages and salaries – the other 70 percent of costs – were up 0.5 percent in the first three months this year, a pickup from the 0.3 percent gain posted in last year’s closing quarter.

Olick – foreclosures return

“Big jumps in foreclosure activity in cities like Pittsburgh, Indianapolis, New York and Raleigh pushed the national numbers higher in the first three months of this year, according to a new report from RealtyTrac, an online foreclosure sales and data company.  A majority of U.S. housing markets posted a quarterly increase in foreclosure activity, although the numbers are still down from a year ago.  ‘First quarter metro foreclosure trends were a mixed bag,’ said Brandon Moore, chief executive officer of RealtyTrac, adding that the increase in the number of cities seeing a quarterly jump is, ‘an early sign that long-dormant foreclosures are coming out of hibernation in many local markets.’ Tracking foreclosure activity is a tricky business right now, as the system has been roiled with problems left over from the so-called ‘robo-signing’ foreclosure paperwork scandal.  The five largest banks signed a $25 billion settlement agreement earlier this year, requiring them to do more modifications and write down principal on some troubled loans. While some expected foreclosure numbers to surge, as states that require a judge in the foreclosure process finally start pushing the documents through again, but more recent data has shown the opposite. As banks work on saving more loans or doing foreclosure alternatives, like short sales, deeds in lieu of foreclosure, or deeds for rent programs, the final foreclosure numbers are falling. New mortgage delinquencies are also falling, thanks to a slowly improving jobs picture.

Still, inventories of properties in the foreclosure process are still abnormally high, and some of the usual markets are the culprits. Stockton and Modesto, California still have the highest foreclosure rates in the nation, while Las Vegas dropped to the eighth spot, with foreclosure activity down 61 percent from a year ago. The Phoenix market is also improving, although still in the top ten list of foreclosure rates.  Just over 7 percent of U.S. loans were in some stage of delinquency in March, and 4.14 percent were in the foreclosure process, according to a new report from Lender Processing Services. The delinquency number is down almost 9 percent from a year ago, but the foreclosure inventory is fairly flat, down 1.6 percent from a year ago, but up slightly from the previous month. 5.6 million properties are still in some stage of delinquency or foreclosure. These numbers, negative home equity, and still-tight credit are the largest impediments to a robust recovery in the housing market.”

Treasury Secretary wants to open markets to China

Treasury Secretary Timothy Geithner said Thursday the United States was willing to open up its markets to China and give it more access to U.S. technologies if Beijing made progress on issues that concern the United States.  Also Thursday, a top GOP lawmaker pressed the Obama administration to increase pressure on China to make currency and trade reforms.  The comments came ahead of the U.S.-China Strategic and Economic Dialogue meetings in Beijing next week. “We are willing to continue to make progress on these issues, but our ability to do so will depend in part on how much progress we see from China on issues that are important to us,” Geithner said. He repeated that China’s currency, the yuan, needed to appreciate more rapidly and pledged that the United States would continue to push aggressively for fair treatment of U.S. companies doing business with China.  Rep. Dave Camp, chairman of the House of Representatives Ways and Means Committee, urged the administration to negotiate an investment treaty with China and to press the world’s second-largest economy to make reforms.  “Plain and simple, we cannot allow China to continue its unacceptable trade practices,” the Michigan Republican said in a speech, referring to longstanding barriers to U.S. exports and the widespread piracy and counterfeiting of U.S. goods.  “The litany of China’s trade distorting policies is deeply troubling and cannot be allowed to stand,” Camp said. “In addition, we should pursue a Bilateral Investment Treaty (BIT) with China.”  Camp’s call for the United States to begin talks with China on a treaty comes one week before Geithner and Secretary of State Hillary Clinton travel to Beijing for high-level talks.

Remodelling Market Index (RMI) flat

Due to a recently discovered computer coding error, the National Association of Home Builders (NAHB) has revised the RMI going back to 2006. The error had slightly reduced the true values of the overall index, as well as its two major components. The revisions generally show a one point or less quarterly increase, with quarter-to-quarter patterns remaining relatively unchanged. Some of the subcomponents experienced larger revisions but in a counteracting fashion, so that the impact on the primary indicators was muted.  Remodeling activity remained relatively flat in the first quarter of 2012, as the Remodeling Market Index (RMI) compiled by the National Association of Home Builders decreased one point to 47 from the upwardly revised 48 in the previous quarter.  The overall RMI combines ratings of current remodeling activity with indicators of future activity. An RMI below 50 indicates that more remodelers report market activity is lower (compared to the prior quarter) than report it is higher.

In the first quarter, the RMI component measuring current market conditions dropped one point to 49, while the component measuring future indicators of remodeling business fell two points to 44.  “We are seeing that the demand for remodeling work has been pulled forward because of a mild winter,” said NAHB Remodelers Chairman George “Geep” Moore Jr., GMB, CAPS, GMR and owner/president of Moore-Built Construction & Restoration Inc. in Elm Grove, La. “That is why many remodelers reported lower numbers for future activity.”  The three components measuring current market conditions moved in different directions in the first quarter: major additions remained even at 44; minor additions rose one point to 52; and maintenance and repair dropped four points to 51. Two of the four components measuring future market indicators decreased: backlog of remodeling jobs dropped four points to 43 and appointments for proposals fell five points to 45. Meanwhile, calls for bids rose one point to 47 and amount of work committed for the next three months remained even at 42.  Regionally, remodeling market conditions in the West increased three points to 47, while the other three regions showed declines: the Northeast to 48 (from 55), the Midwest to 50 (from 52) and the South to 46 (from 49).

June 15 is the short sale day

Fannie Mae and Freddie Mac, the nation’s two largest mortgage backers, will implement their new short sale guidelines on June 15. The changes require mortgage servicers to make a decision within 30 days of receiving a short sale offer. They also must consider requests for pre-approved short sales within that same timeframe.  If the lender needs more than 30 days, it must give borrowers weekly status updates and a decision within 60 days of the initial application. This extension gives lenders more time to determine the value of the property or to get the approval of a mortgage insurer.  The moves are aimed at streamlining the short sale process, which often takes months to complete. Faster response times could help thousands of homeowners. Short sale transactions can get so complicated that many prospective buyers won’t even consider making an offer on a short sale property. And many of those who bid often walk away from the offer because lenders take so long to make a decision.  ”Short sales are more complex than routine home sales since they may involve multiple parties and long-distance negotiating,” said Tracy Mooney, a Freddie Mac senior vice president. The new rules “are intended to help make the decision process more transparent and timely.”

Banks have also caught on to the benefit of approving short sales. Foreclosures take more time for the bank to recoup their money, and it costs upwards of $50,000 to process a foreclosure. But in the wake of the robosigning scandal, banks are more apt to help and even encourage a homeowner to pursue via a short sale.  In addition to the benefits of the bank, the homeowner comes out much better in the long run.  Along with a new home, their credit has been salvaged to a respectable level as opposed to letting a home go due to foreclosure. With a foreclosure it can take up to seven years for your credit to show signs of improvement.

Jobless claims stay high, jobs stall

Initial claims for state unemployment benefits dropped by 1,000 to a seasonally adjusted 388,000, the Labor Department said today. The prior week’s figure was revised up to 389,000 from the previously reported 386,000.  The four-week moving average for new claims, a closely followed measure of labor market trends, rose 6,250 to 381,750, its highest since the week that ended Jan. 7.  Economists polled by Reuters had forecast new claims falling to 375,000 last week. The reading was the latest example of fizzling momentum in the labor market recovery. New claims fell sharply during early winter but the improvement has largely stalled in recent weeks.  The number of people still receiving benefits under regular state programs after an initial week of aid rose 3,000 to 3.315 million in the week ended April 14.  The number of Americans on emergency unemployment benefits fell 45,930 to 2.73 million in the week ended April 7, the latest week for which data is available.  A total of 6.68 million people were claiming unemployment benefits during that period under all programs, down 87,160 from the prior week.  Employers added 120,000 new jobs to their payrolls in March, the least since October, after averaging 246,000 jobs per month over the prior three months.  Many economists believe a mild winter boosted payrolls growth earlier in the year and view recent stagnation as payback for those gains.

Foreclosures up in half of all American cities

More than half of US major cities showed an increase in foreclosures since the end of last year, according to RealtyTrac.  Mortgage servicers put a freeze on the process in 2010 to correct affidavit problems and resolve investigations from federal regulators and the state attorneys general. A $25 billion settlement approved in March brought new standards and relief requirements for struggling homeowners.  As servicers adjusted, foreclosures began to increase in different areas of the country during the first quarter.  Filings increased in 26 of 50 largest cities, led by Pittsburgh, where foreclosures jumped 49% from the previous three months.  Some cities still showed continued declines from the end of last year. Filings dropped 28% in Portland, Ore. and fell 26% in Las Vegas. Servicers put Vegas filings on pause since a new state law took effect bringing new affidavit requirements and stronger enforcement for violations. As a result, Stockton,

California held the highest metro foreclosure rate in the first quarter, where one in every 60 homes received a filing.  Vegas dropped all the way to eighth on a 61% decline from the first three months of last year, but it wasn’t the only city with filings well below year-ago levels.  Of the 50 major cities, 33 reported filings were down from the first quarter of 2011. Vegas showed the largest drop over that time, followed by a 53% decrease in Seattle and a 51% drop in Austin, Texas.  “First quarter metro foreclosure trends were a mixed bag,” said Brandon Moore,CEO of RealtyTrac. “While the majority of metro areas continued to show foreclosure activity down from a year ago, more than half reported increasing foreclosure activity from the previous quarter — an early sign that long-dormant foreclosures are coming out of hibernation in many local markets.”

Fed doing more harm than good?

The Federal Reserve is doing more harm to the US economy than good by keeping interest rates artificially low and continuing its “monetary medicine”, Peter Boockvar, portfolio manager and equity strategist at Miller Tabak said.  “Bernanke has put the US economy over the past bunch of years into monetary Fantasyland,” Boockvar said today. “When you have rates at zero, when you have an expanded balance sheet of about $3 trillion, the economy is not real.”  Boockvar’s comments followed the Fed’s policy statement on Wednesday that it would hold its key interest rate near zero. The Fed also indicated the economy would have to improve before it changes its policy. A 9-1 vote accompanied the statement, which renewed the pledge to keep rates low through 2014.  Boockvar said the Fed’s policy of keeping rates at zero misallocates capital and does not create a firm foundation for growth because “the cost of money is artificial.  It’s on monetary medicine, painkillers you can say,” he said. “The Fed to me is an impediment, not a boost, and they should just stop what they are doing.”  The Fed’s quantitative easing or bond-buying over the past several years has coincided with gains in stock markets, but it has also stoked fears of inflation and worries the Fed won’t be able to exit without causing turmoil in the bond markets and a jump in interest rates.  “At some point, the extraordinary policy (of bond buying) has to be reversed and it’s going to be a complete mess when it happens,” Boockvar said. “If they (the Fed) think they’re going to do it orderly, I have a big problem with that belief.”

NAR – recovery is here!

Pending home sales increased in March and are well above a year ago, another signal the housing market is recovering, according to the National Association of Realtors (NAR).  The Pending Home Sales Index, a forward-looking indicator based on contract signings, rose 4.1% to 101.4 in March from an upwardly revised 97.4 in February and is 12.8% above March 2011 when it was 89.9.  The data reflects contracts but not closings.  The index is now at the highest level since April 2010 when it reached 111.3.  The PHSI in the Northeast slipped 0.8% to 78.2 in March but is 21.1% above March 2011.  In the Midwest the index declined 0.9% to 93.3 but is 16.9% higher than a year ago.  Pending home sales in the South rose 5.9% to an index of 114.1 in March and are 10.6% above March 2011.  In the West the index increased 8.7% in March to 108.0 and is 9.0% above a year ago.

Lawrence Yun, NAR chief economist and incorrigible optimist, said 2012 is expected to be a year of recovery for housing.  Of course, he said that about 2010 and 2011 as well, but who’s counting?  “First quarter sales closings were the highest first quarter sales in five years.  The latest contract signing activity suggests the second quarter will be equally good, ” he said.  “The housing market has clearly turned the corner.  Rising sales are bringing down inventory and creating much more balanced conditions around the county, which means home prices will be rising in more areas as the year progresses.”

Olick – noisy numbers or recovery?

“The spring housing numbers aren’t coming in along expectations.  That can’t be, right?  Unemployment has been easing, mortgage delinquencies falling, and affordability is off the charts. That means housing should be bouncing back with verve and vigor this Spring, except it’s not.  It’s not crashing again, it’s just bouncing along a bottom, which means the recovery, as we’ve been warning all along, becomes increasingly local.  Let’s look at some data out this week:  Sales of new homes dropped, but only after a large upward revision in February. That of course leads everyone to blame the weather.  S&P/Case-Shiller’s home price index reached new lows, but the amount of the annual drop was smaller than the previous month, so that’s an improvement, sort of.  Mortgage applications fell, even as the rate on the thirty year fixed hit a new low on the Mortgage Bankers Association’s weekly survey. Refis fell hard and purchase applications rose a little, although the four week moving average is down.  Zillow.com reports that home values rose from February to March (0.5%), ‘marking the largest monthly increase since May 2006, before home values peaked.’ That led analysts there to exclaim the headline: ‘Majority of Markets Covered by Zillow Home Value Forecast to Hit Bottom by Late 2012.’  Trulia.com released a report which mixes three indicators, construction starts, existing home sales and delinquency and foreclosure rates in order to gauge the housing recovery. Apparently it slipped backward in March ‘after a few strides forward.’  Then Federal Reserve Chairman Ben Bernanke said, ‘The ongoing weakness in the housing market still represents a headwind to economic recovery.’

No wonder economists at Freddie Mac concluded in its April forecast that the data are, ‘noisy.’ Then they too blamed it all on the weather.  So what are we to think, and how are we to play housing, here at the almost, sort of, bottom in some markets but not in others?  ‘Investor demand will drive many markets this spring and summer,’ says David Stiff, chief economist at Fiserv. ‘This means that, at the moment, the MBA purchase application index is a less reliable predictor of sales activity.’  Stiff says he thinks the housing market has bottomed out, but that won’t be obvious until next year. He also makes clear that the recovery will be driven by investors, and investors largely buy in the lower cost markets.  The one truth I heard in all the heated talk of housing today came from CNBC’s Jim Cramer, with whom I often disagree. He said, ‘aggregate numbers make you no money.’ He was talking specifically about housing.”