Bank of America (BOA) is offering some struggling homeowners payments of up to $30,000 if they sell their homes in a short sale and avoid ending up in foreclosure.  Under the plan, Bank of America will offer homeowners so-called relocation payments of between $2,500 and $30,000 if they sell their home in a short sale. In short sale deals, the sale price of the home is less than what the seller owes the bank.  The bank first tested the payments in a pilot program in Florida last fall. Under that initiative, Bank of America paid up to $20,000 to borrowers who sold their homes in short sales.  Chase started a similar initiative in late 2010 that pays as much as $35,000 to short sellers. Wells Fargo has also paid five-figure incentives to short sellers or to owners who turned over their deeds to the bank.  BOA said it has completed 200,000 short sales over the past two years. These sales are generally more cost effective for banks than foreclosures. By avoiding foreclosure, the lenders get distressed properties back from delinquent borrowers more quickly, which helps them to avoid property tax payments, maintenance expenses and legal fees that can build up for months, even years, as foreclosures work through the system.

In addition, the incentives help guarantee the homes will return to the lenders in better condition. Foreclosed properties are often poorly maintained, even sometimes sabotaged, by angry former owners, making them worth far less to the banks.  During the last three months of 2011, foreclosures sold for an average of about $150,000, according to RealtyTrac. Meanwhile, short sales sold for an average of about $185,000.  To qualify for Bank of America’s relocation payments, borrowers must obtain pre-approval on sale prices for their homes. The sale must begin by the end of 2012 and close by September 26, 2013.  The exact compensation is determined case-by-case based on a calculation that involves the home’s value, mortgage balance and other factors.  Borrowers can call 877-459-2852 to find out if they may be eligible for the program.

Business inventories up

The Commerce Department said inventories increased 0.3% to a record $1.58 trillion, after rising 0.6% in February.  Economists polled by Reuters had forecast inventories rising 0.4%.  Inventories are a key component of gross domestic product and March’s report was the latest to suggest the government could lower its 2.2% growth estimate for the first quarter.  Data on wholesale and manufacturing inventories released last week indicated a slower pace of restocking in March than the government had assumed in its initial first-quarter GDP estimate published last month.  Inventories in March were held back by declining stocks for furniture and building materials. Automobile inventories rose 1.2% in March after rising 1.4% the previous month.  Inventories excluding autos, which is used to calculate GDP, ticked up 0.1% after rising 0.2% in February.  Business sales increased 0.6% to a record $1.24 trillion in March, after rising 0.7% the prior month. At March’s sales pace it will take 1.27 months for businesses to clear shelves, down from 1.28 months in February.

MBA – refinance applications up

Mortgage applications increased 9.2% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending May 11, 2012.   The Market Composite Index, a measure of mortgage loan application volume, increased 9.2% on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index increased 8.7% compared with the previous week.  The Refinance Index increased 13.0% from the previous week.  The seasonally adjusted Purchase Index decreased 2.4% from one week earlier. The unadjusted Purchase Index decreased 2.4% compared with the previous week and was 1.0% lower than the same week one year ago. The four week moving average for the seasonally adjusted Market Index is up 1.77%.  The four week moving average is up 1.57% for the seasonally adjusted Purchase Index, while this average is up 1.88% for the Refinance Index.

The refinance share of mortgage activity increased to 74.9% of total applications from 72.1% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 5.4% from 5.7% of total applications from the previous week.  “A flare up of the sovereign debt troubles in Europe once again led investors to flee to the safety of US Treasury securities last week.  As a result, mortgage rates have reached new lows in our survey, and refinancing application volumes picked up substantially as a result,” said Michael Fratantoni, MBA’s Vice President of Research and Economics.    “Survey participants indicated that this was not due primarily to HARP volume – the HARP share of refinances fell to 28% of refinance applications, down relative to last week and last month, when the share was just above 30% in April.  The increase in refinance activity last week was concentrated in the conventional sector, which was up around 14% for the week, while government refinance applications were up only 4%.”  During the month of April, the investor share of applications for home purchase was at 5.7%, unchanged from March.  The Pacific region has the largest investor share of applications for home purchase at 9.5%. In addition, the share of purchase mortgages for second homes decreased to 5.7% in April from 5.8% in March.

Gold enters bear market

Gold entered a so-called bear market, dropping for a fourth day, after Greek leaders failed to form a government, increasing speculation that the country may quit the euro and driving the Dollar Index (DXY) to a record advance.  Immediate-delivery gold lost as much as 0.7% to $1,533 an ounce, more than 20% below its all-time high last September and fulfilling the common definition of the market slump. That’s the cheapest since Dec. 29. The precious metal traded at $1,535.75 at 2:01 p.m. in Singapore.  A second Greek vote will be held, possibly next month, as gridlock followed a May 6 ballot in which voters rejected the austerity program that underpins the country’s bailout accords. German Finance Minister Wolfgang Schaeuble called the new election a referendum on whether Greece stays in the euro.  “It’s a risk-off environment,” Peter Hickson, head of commodities research at UBS AG, said in a Bloomberg Television interview. “People are concerned about liquidity and they’re going to take security in the US dollar.”

Since peaking at $1,921.15 an ounce last year, spot bullion has exceeded the 20% decline twice before, in both September and December, and is 1.8% lower in 2012 after gaining for the past 11 years.  June-delivery bullion lost as much as 1.6% to $1,532.70 an ounce in New York, declining more than 20% from its record. Futures have also dropped into a bear market twice since reaching the record last year.  The Dollar Index, a six-currency gauge, climbed for a 14th day, the longest winning run since its inception in 1973. The euro dropped to $1.2699, the weakest since Jan. 17.  Holdings in gold-backed exchange-traded products fell 0.1% to 2,379.367 metric tons yesterday, according to data tracked by Bloomberg. Investor George Soros increased his holdings in the SPDR Gold Trust in the first quarter, while John Paulson maintained his stake, filings showed yesterday.  Spot gold’s so-called 14-day relative strength index dropped to 21.07, below the level of 30 that some analysts regard as signaling a rebound. One ounce of gold bought as much as 56.0702 ounces of silver today, the most since Jan. 9, according to Bloomberg data.

Olick – foreclosures down – a bad thing?

“A new report came out [yesterday] with a curious headline: ‘Foreclosure Activity Declines, Hurting Investors.’ I read it twice. You would think declines in foreclosure activity would be a good thing, that is, would help, not hurt. Not in this bizarre housing market. The report is from Foreclosure Radar, a foreclosure sales and analytics website.  Foreclosure starts, the first stage in the foreclosure process, fell in April in the hardest hit states of California, Arizona and Nevada, according to Foreclosure Radar. California saw the steepest slide, with Notice of Default filings down nearly 16% from a year ago and nearly 70% from the peak in March of 2009.  Foreclosure sales (sales of these properties at the courthouse steps, not sales of already bank-owned, or REO, properties) also declined, as the investor share of these purchases soared to a record high. ‘Nevada investors purchased more than 50% of foreclosure sales for the first time at 50.7%,’ according to the Foreclosure Radar report. ‘The low number of sales, combined with a record% purchased on the courthouse steps, left very little to become Bank Owned (REO). This further depletes the inventory of Bank Owned homes, as REO sales continue to outpace the addition of new inventory.’

Why all the declines? Unfortunately it’s not an overall improvement in the housing market, nor an increasing ability of borrowers to stay current on their mortgage payments.  ‘Instead we are seeing unprecedented government intervention into the foreclosure process, leaving underwater homeowners in limbo, while stealing opportunity from investors and first-time buyers,’ says Foreclosure Radar CEO Sean O’Toole, who cites new legislation in Nevada which brought foreclosure activity to a near halt, and similar pending legislation in California. ‘The reality is that these laws don’t solve anything, as they fail to address the real problem—negative equity – while instead they punish real estate professionals, homebuyers, and investors far more than the banks they were aimed at,’ argues O’Toole.  The recent $25 billion mortgage servicing settlement between the nation’s five largest lenders, state attorneys general and the US Department of Justice, has sent servicers back to the drawing board on many thousands of delinquent loans and loans that were already in the foreclosure process. Bank of America alone has suspended 200,000 foreclosure actions, as it offers principal reduction modifications to comply with its $11 billion share of the settlement.

Government and private sector programs are both trying to mitigate the foreclosure crisis, but as the rental market shows no sign of cooling off, investors are increasingly arguing that these troubled mortgages should be allowed to run their course through to foreclosure. That of course benefits investors but ignores the human toll inflicted on so many desperate American families. But again, as O’Toole argues, we’re doing none of these homeowners any good by keeping them in homes in which they will likely never see any equity; underwater borrowers are effectively renting already anyway, not to mention that they are stuck in place because they can’t sell.  Government intervention in the mortgage market, be it foreclosure mitigation, subsidized refinancing, or artificially low interest rates will not abate in an election year because politics always trump fundamental economics. What’s so interesting this year is that while politicians have consistently vilified investors throughout the housing crash, they need them now more than ever to help clear the distressed homes from the market and provide much needed rental housing.  At some point even the politicians will have to look past who did or did not act ‘responsibly’ during the run-up to the housing crash and focus on who has the best chance of setting things right again.”

First shots fired in the debt-ceiling debate

Republican speaker John Boehner vowed yesterday that the House will not wait until after November elections to find a way to avoid a year-end “fiscal cliff” – and that House Republicans will, again, refuse to raise the national debt limit, unless Congress offsets the hike with spending cuts.  “Previous Congresses have encountered lesser precipices with lower stakes and made a beeline for the closest lame-duck escape hatch,” Mr. Boehner said, at a speech at a fiscal summit sponsored by the Peterson Foundation in Washington.  “Let me put your mind at ease. This Congress will not follow that path, not if I have anything to do with it.”  With Congress putting off its challenges until the lame-duck session between the November elections and the new year, it could be said that all of Capitol Hill is staring down a massive financial collision. Whether to extend the Bush tax cuts and the budget-slashing “sequester,” raise the debt ceiling, extend unemployment benefits and the payroll tax holiday, and fix payments to physicians from Medicare may all have to be resolved in only six short weeks if the Democrats get their way.  By contrast, Boehner aims to get to work before November elections, offering by far the most concrete plans to get to work ahead of the lame-duck session of any congressional leader. The House will hold votes on the expiring Bush tax cuts before the elections, he said. It will also put together a process for an “expedited” path to tax reform in the new year.  “If we do this right, we will never again have to deal with the uncertainty of expiring tax rates,” Boehner said.

WSJ – architectural billings index slips

After five months of positive readings, the Architecture Billings Index slipped back into negative territory during April, an indication that demand for design services declined.  The score for April was 48.4, compared with 50.4 in March. A score above 50 means billings increased. The index, compiled by the American Institute of Architects (AIA), is considered an early indicator of future construction, given that developers need designs before they build. AIA economist Kermit Baker said the volatility in the index isn’t surprising considering “the continued volatility in the overall economy.”  He also noted that weather patterns may have played a role in the latest reading. “Favorable conditions during the winter months may have accelerated design billings, producing a pause in projects that have moved ahead faster than expected,” he said.

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.

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.”

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).

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.”

As the housing market works to find a new direction, new data shows short sales may be the way to go.  The number of distressed properties is on the rise and in some places, account for more than half of all home sales in the first three months of 2012.  According to Washington Property Solutions, a third of all home sales in Seattle and on the Eastside were short sales or bank-owned properties.  In Pierce and Snohomish counties the numbers are even higher. 51% of home sales in Snohomish County involved distressed properties. In Pierce County, it’s 54%.  Many banks, including Chase and Bank of America, now have incentive programs for homeowners to complete a short sale.  Banks forgive the debt, and the homeowner can pocket up to $30,000 to help maintain the property and see the sale through. 

California mortgage defaults fell to their lowest level in almost five years as banks cut their backlog of distressed property with more short sales, in which homes are sold for less than the amount owed, DataQuick said.  First-time notices of default totaled 56,258 in the first quarter, down 8.5% from the previous three months and 18% from a year earlier, the San Diego-based data seller said today in a statement. Default notices are the beginning of the foreclosure process in the most populous US state.  Short sales increased to an estimated 20% of deals, up from 18% a year earlier. Areas in the state with median home values of less than $200,000 had the most defaults, at 8.9 per 1,000 homes, almost four times the number in neighborhoods with a median greater than $800,000, where the rate was 2.3 per 1,000.

Durable goods down

Durable goods orders tumbled 4.2%, the largest decline since January 2009, the Commerce Department said on Wednesday after a downwardly revised 1.9% increase in February.  Economists had forecast orders for durable goods, which range from toasters to aircraft, falling 1.7% after a previously reported 2.4% rise in February.  Orders were dragged down by a 12.5% plunge in bookings for transportation equipment — the most since November 2010.  Excluding transportation, orders fell 1.1% after a 1.9% rise in February. Economists had forecast this category rising 0.5%.  The report added to signs that manufacturing exited the first quarter with less momentum. Data last week showed industrial production was flat in March for a second straight month, while some gauges of regional factory activity weakened in April.

The plunge in orders for transportation equipment reflected a 47.6% drop in bookings for civilian aircraft. Boeing received only 53 orders for aircraft, according to the plane maker’s website, down from 237 in February.  Orders for motor vehicles barely rose last month.  Adding to the report’s weak tenor, non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, fell 0.8% after an upwardly revised 2.8% rise the prior month.  Economists had expected this category to rise 0.9% after a previously reported 1.7% increase.  But shipments of non-defense capital goods orders excluding aircraft, which go into the calculation of gross domestic product, rose 2.6% after increasing 1.4% in February.  This suggests that growth in business investment in capital goods increased in the first quarter, but probably not as much as in previous periods.

MBA – mortgage applications down

Mortgage applications decreased 3.8% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 20, 2012.  The Market Composite Index, a measure of mortgage loan application volume, decreased 3.8% on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index decreased 3.3% compared with the previous week.  The Refinance Index decreased 5.6% from the previous week, with the Conventional Refinance Index decreasing by 6.1% and the Government Refinance Index decreasing by 2.1%.  The seasonally adjusted Purchase Index increased 2.7% from one week earlier. The unadjusted Purchase Index increased 3.6% compared with the previous week and was essentially unchanged from the same week one year ago. 

The four week moving average for the seasonally adjusted Market Index is up 1.23%.  The four week moving average is down 0.67% for the seasonally adjusted Purchase Index, while this average is up 1.92% for the Refinance Index.  The refinance share of mortgage activity decreased to 73.4% of total applications from 75.2% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 5.6% from 5.3% of total applications from the previous week.  Within refinance applications taken in March 2012, 58.8% were for fixed-rate 30-year loans, 23.1% for 15-year fixed loans and 5.2% for ARMs.  The share of refinance applications for “other” fixed-rate mortgages with amortization schedules other than 15 and 30-year terms was 12.8% of all refinance applications.

Hundreds of banks struggling to repay TARP

A total of 390 banks, many of them community firms, still struggle to repay a Troubled Asset Relief Program (TARP) recapitalization fund with no clear exit plan, according to the Special Inspector General of TARP.  “The status of those banks is one of the major issues facing TARP nearly four years after the financial crisis,” according to a SIGTARP report sent to Congress Tuesday.  There is still $118.5 billion outstanding under TARP. The massive bailout package is expected to cost taxpayers $60 billion in the end, according to the most recent estimate.  The Treasury Department paid $204.9 billion in TARP Capital Purchase Program money to 707 banks ranging from smaller operations in local communities to global firms with more than $1 trillion in assets.  As of March 31, only 43% of the banks left TARP by actually paying back the taxpayer.  In September 2011, the Treasury allowed 137 healthier banks to refinance their dividend and capital repayments and exit TARP through a special program called the Small Business Lending Fund. 

Those remaining face a dividend raise to 9% in late 2013 from 5% owed now. Of the 351 remaining banks that received funds through the specific TARP CPP, one-third missed five or more dividend payments and face formal enforcement actions by regulators.  “We’ve already recovered more than we invested in TARP’s bank programs through repayments and other income,” said Treasury Assistant Secretary Tim Massad. “Moving forward, while there’s no one-size-fits-all approach, you’ll continue to see us make significant additional progress winding down the program in the year ahead through repayments, sales, and other methods.”  Law required the Treasury to allow banks to refinance out of TARP. Roughly $2 billion in bailouts were refinanced using the SBLF program, equal to about 1% of the $245 billion spent through all of the TARP bank programs.  Capital levels at banks gone from the program are in far better shape than those remaining. According to SIGTARP, less than 4% of the banks able to refinance out of TARP held a Tier 1 common capital ratio below 7%. Of those still in the program, more than 20% have a Tier 1 level that low.  Banks in the Southeast and Midwest had the most trouble exiting the program.  SIGTARP recommended Treasury develop a clear exit path to ensure as many community banks can exit the program as possible and “prepare to deal with the banks that cannot.”  “It is unclear how the remaining banks will exit TARP,” said SIGTARP Director Christy Romero. “Getting these banks back on their feet without government assistance must remain a high priority of Treasury and the federal banking regulators.”

“Buyer traffic is strong, supply of homes for sale is low, and yet home prices continue to defy the usual formula, falling again in March. Prices usually rise as supply shrinks, but demand is still too low to make those historical ‘norms’ compute, not to mention that the type of supply available is largely distressed.  Foreclosures and short sales accounted for 47.7% of sales, in a three month running average measured by Campbell/Inside Mortgage Finance. That’s the 25th month in a row that distressed sales have topped 40% of the market.  ‘With nearly half of the market being distressed, we’re a long way from a return to a normal market,’ said Thomas Popik, research director at Campbell Surveys. ‘Agents responding to our survey say that homeowners with well-maintained properties in good locations are very reluctant to list at today’s prices. That’s why inventory is low–and also why forced REO and short sales are such a big proportion of the remaining market.’  Home prices for non-distressed properties fell 5.7% in March year-over-year, according to the survey. Prices for ‘damaged’ REO (bank-owned properties) fell 5.7% and for move-in ready REO fell 2.5% during the same period. The real sticker shock is in short sales. Prices of those homes fell 14.3% from March of 2011.

Short sales have been ramping up of late, as banks attempt to comply with the so-called ‘robo-signing’ mortgage settlement. Those are part of the losses the banks are required to take in the $25 billion deal. Over the past six months, short sales have moved from 17.8% of all sales to 19.9%, according to the Campbell/IMF survey. They now represent the number one segment for distressed properties.  That share is likely to grow, as the conservator of Fannie Mae and Freddie Mac, the Federal Housing Finance Agency (FHFA), last week announced it was directing the two mortgage giants to ‘develop enhanced and aligned strategies for facilitating short sales, deeds-in-lieu and deeds-for-lease in order to help more homeowners avoid foreclosure.’ It includes a requirement that mortgage servicers review and respond to short sale requests within thirty days.  Lengthy timelines have long been the biggest complaint in the short sale sector.

Fannie Mae and Freddie Mac hold hundreds of thousands of distressed loans, and accelerating the process will surely move the numbers up quickly, although the rules don’t go into effect until June 1. The FHFA is requiring the two make final decisions on these sales within 60 days. Previously, short sales could take up to a year and even beyond, with buyers often dropping out in frustration.  ‘This could put short-term downward pressure on home prices, as short sales by their nature occur more quickly than foreclosures,’ writes Jaret Seiberg, analyst at Guggenheim Partners. ‘That could raise questions about the status of the housing recovery, which could be negative for those with housing exposure. That would include homebuilders, mortgage lenders and mortgage insurers.’  On the plus side, short sales tend to sell at higher prices than foreclosures. It appears, however, that regardless of the FHFA edict, banks are already ramping up the short sales. Some began doing so in the aftermath of the robo-signing scandal, as foreclosures stalled. Even now, foreclosures falling as short sales rise. The good news is that sales of distressed properties are rising, but the headlines will likely focus more on the falling prices, than the much-needed clearing of these homes.”

No QE expectations

Wall Street is not expecting additional quantitative easing (QE) from the Federal Reserve at its meeting this week but increasingly believes in the Fed’s promise to keep interest rates low until late 2014, according to the latest CNBC Fed Survey.  Just a third of the 53 economists, fund managers, and strategists who responded to the CNBC survey see additional QE from the Fed in the next 12 months, unchanged from the March survey. And just a quarter expect Operation Twist to be extended beyond its expiration in June.  The survey found that 49% now believe the Fed will keep interest rates “exceptionally low” through late 2014, up from just 40% in March. The same percentage, however, disagree, showing that while there has been improvement, Fed Chairman Ben Bernanke has not yet made believers of all investors.  James Paulsen of Wells Capital Management called on the Fed “to move beyond its crisis mindset and appropriately normalize policy to reflect the maturation of the US economic cycle from crisis to recovery. Failure to do so soon risks creating another crisis — an inflation crisis!”  In fact, 42% of respondents agreed with the statement that the Fed’s forecast that it will keep interest rates low through 2014 is a mistake that could undermine the Fed’s credibility; 38% said it’s a good decision that has helped drive down interest rates.

Home prices drop

Home prices dropped in February in most major US cities  for a sixth straight month, a sign that modest sales gains haven’t been  enough to boost prices.  The Standard & Poor’s/Case-Shiller home-price index shows that prices dropped in February from January in 16 of the 20 cities it tracks.  The steepest declines were in Atlanta, Chicago and Cleveland. Prices rose in Phoenix, San Diego and Miami. They were unchanged in Dallas.  The declines partly reflect typical offseason sales. The month-to-month prices aren’t adjusted for seasonal factors.  Still, prices fell in 15 of the 20 cities in February compared with the same month in 2011. That indicates that the housing market remains far from healthy despite the best winter for sales in five years.

Bloom – economy stuck in “Death Valley”

Having raised hopes of a self-sustaining recovery, the US economy has disappointed and finds itself stuck in “Death Valley”, says David Bloom, the global head of the FX strategy team at HSBC.  He believes the data is neither weak enough to guarantee a third round of quantitative easing nor strong enough to convince the market the Federal Reserve is about to end its extraordinary measures.  “At this stage the economy worsened markedly, eventually leading the Fed to its commitment to keep rates low for an extended time period. The point is that we are now neither at the stage where the economy has deteriorated markedly, nor are we seeing the economy improve to the extent where the Fed is certain not to add stimulus” said Bloom in a research note.  With the market looking for clues on what the Fed will do next when Ben Bernanke holds a press conference on Wednesday, Bloom believes euro/dollar is stuck in a tight range as a game of chicken and egg is played out in the euro zone.  “We have the uncertainty of the French and Greek elections and the recent blow-out in Spanish bond yields. Meanwhile, the ECB (European Central Bank) is sending out signals that it is reluctant to engage in another LTRO (long-term refinancing operation). Once again a game of chicken is being played out in the euro zone,” said Bloom.  So until we get confirmation of which direction the US economy is heading into or evidence that investors are negative on the euro area as a whole and not just Spain, Bloom believes the euro will remain on the sidelines despite volatility elsewhere.

WSJ – ready for another Dodd-Frank spat?

Get ready for another spat over Dodd-Frank mortgage lending rules.  It’s been more than a year since regulators unveiled the first set of proposed (and yet-to-be completed) mortgage rules resulting from the 2010 financial overhaul law.  Now a new consumer regulator is hashing out a separate rule that will define what kind of loans mortgage lenders will be able to make.  At issue is a part of the Dodd-Frank law, known as the “qualified mortgage” rule. It is designed to protect consumers from the kind of risky lending practices that shook the financial system in 2008.

The Consumer Financial Protection Bureau (CFPB), also created by the Dodd-Frank law, has the difficult task of completing these rules, which were initially proposed by the Federal Reserve last year. The idea is to provide an incentive for the industry to make safer loans, and ensure that they lenders consider a borrower’s ability to repay the loan.  Loans made under the qualified-mortgage standard will receive a degree of protection from lawsuits, though the level of that shield is a matter of intense debate.  In a speech last week, Raj Date, the consumer bureau’s deputy director, gave some broad outlines of the consumer bureau’s thinking:  “We want to ensure that consumers are not sold mortgages they do not understand and cannot afford. We want to minimize compliance burden where possible, in part through the careful definition of those lower-risk “qualified mortgages.” We want to ensure that, as the market stabilizes over time, every segment of prudent loans has the benefit of sufficient investor appetite and a competitive market.”

It’s a daunting challenge, given that the mortgage-lending market has contracted since the housing market went bust. Mortgage lenders have tightened their standards dramatically, eliminating most of the problem loans that helped cause the housing market’s woes. Many argue that tight lending is hampering the economic recovery, so a misstep by the CFPB could harm the housing market further.  The Dodd-Frank law mandates that the mortgage rule exclude certain exotic varieties of loans that fed the housing boom — such as “option” adjustable-rate mortgages, which only require low minimum payments and allow the principal balance to increase, and “interest-only” loans, which don’t require principal payments for several years.

Other pieces are much less clear. One key issue that’s been debated in policy circles is how much limits the mortgage rule should place on the amount of debt that consumers can take on.  One joint proposal between an industry group and three consumer organizations attempts to solve this problem.  It says that qualified mortgages should automatically include any loans made to borrowers who are spending no more than 43% of their pretax income on all debt, including home loans, credit card debt and car loans. Loans could be allowed up to a 50% debt-to-income ratio if the borrower’s housing costs only comprise 31% of income, or if the borrower demonstrates stable income or cash reserves.

Still, it remains to be seen whether the consumer bureau will accept this approach. And many in the lending and real estate industry say they are worried that the regulator will enact requirements that could crimp lending.  One big concern, particularly for small lenders, is that the rule will lack the industry’s top priority — a shield against lawsuits for loans that meet guidelines set out by the consumer bureau.  Without those legal protections “lending is going to become more conservative,” said Bill Cosgrove, chief executive of Union National Mortgage Co. in Strongsville, Ohio. “That is a problem. It’s a problem for the housing recovery.”  Richard Cordray, the consumer bureau’s director, told lawmakers last month that the legal protections sought by the industry wouldn’t necessarily choke off lawsuits, although reducing litigation is one of the bureau’s goals. “We don’t want this to be punted into the courts,” Mr. Cordray said.  Consumer groups say they aren’t trying to spark a barrage of lawsuits against the mortgage industry. Instead, they argue that the threat of litigation will give lenders an incentive to comply with the new lending rules.

Median home prices in Illinois snapped a 20-month streak of price declines in March, a turnaround coinciding with the start of the spring selling season.  The statewide median price in March came in at $130,000, even with March 2011, according to the Illinois Association of Realtors. It’s the first time the state’s median price hasn’t decreased since June 2010.  “There’s no doubt that these are strong numbers to open the spring selling season,” said IAR President Loretta Alonzo. “To see such good sales numbers, coupled with a measure of price stability is encouraging news no matter what side of a real estate transaction you happen to be on.”  Illinois home sales posted the best March sales numbers since 2007. Home sales (including single-family homes and condominiums) in the month totaled 9,575, expanding 21.1% from 7,904 home sales a year earlier.  In the nine-county Chicago Primary Metropolitan Statistical Area, 6,590 homes were sold in March, up 23.8% from March 2011 sales of 5,323 homes. The median price in March was $151,850 in the Chicago PMSA, down 3.9% compared to a year earlier when it was $158,000.  “Sales volumes are up, time-on-the-market levels are down significantly from a year ago and prices appear to be stabilizing in Illinois although continuing to fall in Chicago,” said Geoffrey Hewings, director of the Regional Economics Applications Laboratory at the University of Illinois.  “Further, in the last month there was a more even spread of sales prices compared to previous months where homes sold for less than $200,000 dominated the market,” Hewings added.

Hiring going up?

The National Association of Business Economics’ (NABE) industry survey found that 39 percent of respondents expect hiring will pick up in their companies and industries during the next six months, up from 27 percent in January.  Some 48 percent of respondents expect hiring will hold steady. While that is down from 64 percent in January, it still underscores the slow pace of recovery in the labor market following the 2007-2009 recession.  The survey was conducted between March 20 and April 10.  The NABE surveyed 55 members from companies and trade organizations. Not all responded to every question.  The uptick in demand for labor could be leading companies to offer bigger paychecks. Some 44 percent of respondents said wages and salaries were rising, up from 26 percent in January.  The poll also showed 63 percent of respondents expected U.S. gross domestic product to grow between 2.1 and 3 percent in the fourth quarter from a year earlier.  In the NABE’s previous poll released in January, 60 percent of respondents expected growth in that range.

Olick – Phoenix turns around

“Mike Ripson hasn’t built a home in three years, but he is about to. He has been sitting on one hundred sixty acres of land just outside Phoenix, Arizona, which he intends to divide into 121 one-acre lots.  ‘Now’s the time because we’ve been studying the marketplace, and we noticed beginning late last summer, early fall, that for homes priced less than $100,000, the market was becoming very tight,’ says Ripson, whose company is celebrating its ten year anniversary this week.  ‘Over the last several months that price point has increased such that today, homes priced less than 300,000 dollars, there’s less than a thirty-day supply in the marketplace,’ Ripson adds.  The supply of homes for sale in the Phoenix area is down 42 percent from a year ago, and foreclosures are down 52 percent, according to Michael Orr, of the Real Estate Center at ASU. That is bringing demand back to the builders.  Ripson is building about 40 miles outside of Phoenix in Wittmann, where there is less competition from foreclosures.  ‘To give you an example, within a five mile radius of where we sit here at Sonoran Acres, two months ago there were 18 homes on the market. Today there’s only one,’ says Ripson.  That’s why he re-opened his model home two weeks ago, and immediately saw high buyer traffic. He filed permits for two new homes, which he expects to sell in the next few weeks, thanks to his low, $200,000 price point. 

Closer in to Phoenix, prices are a bit lower, thanks to a higher supply of distressed properties, but those properties are selling fast as well, as large scale and institutional investors flood the market.  ‘I really think we’re at the top of the first inning in terms of this opportunity, and there will be ebbs and flows, ups and downs, people will come in and come out,’ says Justin Chang, principal at Colony Capital, which intends to invest over a billion dollars in distressed properties this year.  ‘But if you’re looking to build a business over the next five to seven years, this is the first inning, and we’re pretty excited about it,’ Chang goes on to say.  Colony has a history of investing in commercial real estate, but about a year ago they saw the potential as well in the single family rental market. They began building an infrastructure, and started buying homes last month from banks, the government and at auction.  They own 170 homes in three states so far and intend to close on fifty more this week. They spend $3,000 to $5,000 rehabbing each home and readying it to rent. Their team is entirely internal, which they say saves them extra costs.  ‘We’ve got our internal team doing acquisitions, we’ve got our internal team doing the rehab and we’ve got an internal team doing the property management. These are employees,’ explains Jay McKee, COO of Colony American Homes.  ‘We have 120 people on our payroll, W-2 employees, right now doing this work. A lot of other folks are doing it by outsourcing to third parties,’ says McKee. ‘We think by doing it in house, we can do it without markups.’

At a Colony home in Laveen, AZ, a suburb of Phoenix, workers were installing new appliances into a former foreclosure, as the old ones had been stolen. Nearby, a large development from Pulte Homes advertised new construction starting at $100,000. McKee is not concerned.  ‘There are people who cannot buy those homes, and those are our clients. The people that lost their home to foreclosure, are repairing their credit, or just decided they don’t want to be owners of properties anymore, they’re our client,’ confirms McKee.  Colony is considering a program to help their renters become buyers, much like some rent-to-own programs being considered by banks and the government. Colony has also been pre-approved to bid on Fannie Mae foreclosures through a new pilot program by the Federal Housing Finance Agency (FHFA).  ‘We really understand what they want to accomplish, and we think we can be good partners,’ says Chang. ‘The pilot programs that are out there now are very smart, and I hope they are the first of many.  Colony is just one of a growing cadre of investment teams buying distressed real estate to rent. Chang expects to see returns of anywhere from 15 to 25 percent on his investment. Cash flow is almost immediate. He says he can rehab a home in three days and have it rented in less than a month. 85 percent of Colony’s homes are already rented.  As for competition in the space, which Chang calls a pioneering asset class, he’s not concerned.  ‘The opportunity is so vast that there’s room for a lot of companies,’ Chang says. ‘Eight to ten million homes will be foreclosed over next 3-5 years. That’s $800 billion in capital required. Fifty other firms could do it, and it still would be a drop in the bucket. We’re really just a small part of the game at this point.’”

Gas prices down

The average retail price of a gallon of gasoline in the United States declined for the first time since mid-December, dropping 5.44 cents over the past two weeks, the nationwide Lundberg Survey showed.  The national average for a gallon of regular gasoline fell to $3.9127 on April 20, from $3.9671 on April 6, according to the survey of gasoline retailers in the continental United States.  Still, drivers are paying 3.27 cents more for a gallon than they did a year ago.  “The decline began in California about six weeks ago,” survey editor Trilby Lundberg said, adding that prices peaked there on March 9 at $4.3162 and fell in subsequent surveys by nearly 15 percent to $4.1669.  Drivers in Chicago continued to pay the most at the pump — $4.26 per gallon — even though prices fell nearly 19 cents from April 6.  Prices in Tulsa, Oklahoma, remained lowest at $3.52 per gallon.  “If crude oil does not shoot back up we may find another price decline of 5-10 cents in the coming weeks,” Lundberg said.  Average diesel prices fell 4.15 cents to $4.1735 compared with two weeks earlier.

California Bay area sales up

March home sales in California’s Bay Area reached their highest level for the month in five years, the result of lower prices, low interest rates and an improving economy.  About 7,700 new and resale houses and condos sold in the nine-county Bay Area in March, up 34.9% from 5,702 in February, and up 9.1% from 7,051 a year earlier, according to San Diego-based DataQuick.  The February to March sales jump is normal for the season, but the latter’s sales count was the highest for the month since 8,317 homes were sold in 2007. Since 1988, March sales have ranged from 4,898 in 2008 to 12,645 in 2004, with an average of 8,812.  “This is the time of year when buying patterns usually start to normalize,” said DataQuick President John Walsh. “And while the changes we’re seeing are incremental, they’re incremental in a positive direction. That said, there’s a long way to go.”  The median price paid for all new and resale houses and condos sold in the Bay Area in March totaled $358,000, a 10.2% increase from $325,000 in February, but down 0.6% from $360,000 in March 2011. 

To put these figures in perspective, the low point of the current real estate cycle fell to $290,000 in March 2009, while the peak rose to $665,000 in June/July 2007.  Statewide median home prices posted their first year-over-year increase in 16 months. The California Association of Realtors members said tight inventory (4.1 months) throughout the state and particularly robust sales in the San Francisco Bay area helped fuel the price increase.  “Two of the big issues to watch closely are how fast distressed properties are being put on the market, and the availability of, or lack of availability of, mortgage financing,” DataQuick’s Walsh said.  Distressed property sales, according to the firm, made up 44.3% of the resale market, down from 48.8% in February and 48.2% a year earlier.  Foreclosure resales accounted for 24.9% of resales in March, falling from 26.4% in February, and down from 31.5% in the year-ago period. Foreclosure resales averaged about 10% over the past 17 years.  Short sales made up 19.4% of Bay Area resales in the month, down from 22.4% in the previous month and up from 16.7% a year earlier.

In an effort to make the short sale process more transparent, Freddie Mac and Fannie Mae are updating their timelines and also requiring servicers to provide weekly updates when decisions take more than 30 days after the receipt of a complete application for a short sale under the Obama Administration’s Home Affordable Foreclosure Alternative (HAFA) initiative or Freddie Mac’s traditional requirements. All decisions must be made within 60 days.  Today’s announcement marks the newest part of the Servicing Alignment Initiative (SAI) Freddie Mac and Fannie Mae launched in 2011 at the direction of their regulator, the Federal Housing Finance Agency, to set consistent servicing and delinquency management requirements. Last year Freddie Mac completed 45,623 short sales, a 140% increase since the housing crisis began.

Facts:

-  Freddie Mac and Fannie Mae’s new short sale timelines require servicers to make a decision within 30 days of receiving either 1) an offer on a property  under Freddie Mac and Fannie Mae’s traditional short sale program or 2) a completed Borrower Response Package (BRP) requesting consideration for a short sale under HAFA or Freddie Mac and Fannie Mae’s traditional short sale program.  (BRPs are standardized assistance applications developed as part of the Servicing Alignment Initiative.)

-  If more than 30 days are needed, borrowers must receive weekly status updates and a decision no later than 60 days from the date the complete BRP is received.  This will help servicers who may need more time to obtain a broker price opinion or a private mortgage insurer’s approval on a BRP or property offer.

-  In the event a servicer makes a counteroffer, the borrower is expected to respond within five business days. The servicer must then respond within 10 business days of receiving the borrower’s response.

-  Freddie Mac and Fannie Mae will use the new timelines to evaluate servicer compliance with the SAI and its own servicing requirements.

-  Freddie Mac completed 45,623 short sales in 2011, a 140% increase since 2009.  Overall, Freddie Mac has also helped more than 615,000 distressed borrowers avoid foreclosure since the housing crisis began.

Whitney reverses call on Citigroup

Meredith Whitney, who made the prescient call in 2007 that Citigroup would cut its dividend, has now upgraded the very stock that brought her celebrity status among equity analysts during the credit crisis.  Shares of Citigroup yesterday rallied as news of the upgrade to a “hold” from “underperform” spread beyond Whitney’s direct clients. The stock is up 34% so far on the year.  “C shares continue to trade well below tangible book value (70%), despite relatively lower mortgage and European exposures than its large-cap bank brethren,” wrote Whitney, who founded Meredith Whitney Advisory Group in 2009. “On the capital question, we believe C will handily make its capital target of +8% by the end of 2012.”  Whitney had a “Sell” or “Underperform” rating on Citigroup since starting coverage on the stock at her new firm in April 2009.  At the end of October 2007, while working for Oppenheimer & Co., Whitney made waves by predicting that Citigroup might have to cut its dividend payout to raise capital.  The call drew the scorn of the company and fellow analysts, but turned out to be right after Citigroup cut its dividend in January of 2008 as more of the subprime mortgage securities that Whitney had warned about went sour on the company.

Mortgage applications up

Mortgage applications increased 6.9% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 13, 2012.   The Market Composite Index, a measure of mortgage loan application volume, increased 6.9% on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index increased 6.5% compared with the previous week.  The Refinance Index increased 13.5% from the previous week.  The seasonally adjusted Purchase Index decreased 11.2% from one week earlier. The unadjusted Purchase Index decreased 10.4% compared with the previous week and was 13.9% lower than the same week one year ago.  The four week moving average for the seasonally adjusted Market Index is up 1.60%.  The four week moving average is down 0.52% for the seasonally adjusted Purchase Index, while this average is up 2.36% for the Refinance Index.  The refinance share of mortgage activity increased to 75.2% of total applications from 70.5% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 5.3% from 5.5% of total applications from the previous week.

“Renewed concerns about sovereign debt in Europe led to a drop in rates last week, with the 30-year rate tying our survey low, reached in early February.  Refinance activity picked up in response, increasing 13.5% for the week.  Participants in our survey indicated that about 32% of this refinance volume was for HARP loans,” said Jay Brinkmann, MBA’s Chief Economist and SVP of Research and Education.  “While purchase activity declined sharply for the week, this was mostly due to a 23% drop in applications for FHA purchase loans.  This drop follows big increases in the demand for FHA loans over several weeks in anticipation of the FHA mortgage insurance premium increases that went into effect last week.  This was the largest weekly drop in the government purchase index since the expiration of the first-time homebuyer tax credit in May 2010.  The demand for conventional purchase loans was down only slightly.”  The average loan size of all loans for home purchase in the US was $233,381 in March 2012, up from $225,463 in February 2012. The average loan size for a refinance was $214,593, down from $222,048 in February.  The largest purchase loans were made in the Pacific region at $ 337,227. The largest refinance loans were also made in the Pacific region at $ 290,711.

Spain bail-out; not if – when

Economic experts watching Spain don’t know how much money will be needed or precisely when, but some are near certain that Madrid will eventually seek a multi-billion euro bailout for its banks, and perhaps even for the state itself.  Prime Minister Mariano Rajoy has repeatedly said Spain doesn’t need or want an international bailout, and the European Union, which along with the IMF has already rescued Greece, Ireland and Portugal, also dismisses such talk.  But economists believe that Spanish banks will have to turn to the euro zone’s rescue fund, the European Financial Stability Facility (EFSF), for help in covering losses caused by a property market crash which has yet to end.  Madrid is likely to hold out for some time. “The underlying picture in Spain is dramatic, but is it dramatic in the way that it needs a bailout package tomorrow? No,” Brzeski said. “But if you look ahead, let’s say the next six months, I would not be surprised if they (the banks) have to get some kind of European support.”  Market concerns about the euro zone’s fourth largest economy have deepened in the past week. Yields on the government’s 10-year bonds, which reflect the risk investors attach to owning Spanish debt, have risen above 6%, a level that has proved a trigger point for other troubled euro zone countries.  At the moment the EU is backing Madrid. Jean-Claude Juncker, who chairs the Eurogroup of euro zone finance ministers, said Spain was taking the necessary steps to get its economy back on track, despite a recession and unemployment at 24%.

“As I look at my screen and Spain 10-year yields are up at 6% – things are starting to get worrying again,” said Peter Westaway, chief economist for Europe at Vanguard, an investment management firm overseeing $1.8 trillion in assets.  “If they go up to 6.5 to 7%, that could become very problematic, and if Italy started to go back above Spain again, then that would be really serious.”  Spain has one thing on its side. It has already raised nearly half the 86 billion euros it needs to borrow from financial markets this year, sucking up some of the 1 trillion euros of cheap three-year loans that the European Central Bank has pumped into the euro zone banking sector.  This means the government could hang on for months before having to turn to the EU for help with its own funding needs.  However, that still leaves the banks. One of the critical “unknowables’ for Spain is just how bad a situation its banks are in. The Spanish housing market, once a driver of the economy, has been in turmoil for more than four years, but prices still haven’t fallen as much as economists think is needed to squeeze the air out of the bubble.  Only when prices have bottomed will assessors be able to calculate how just much bad mortgage debt is sitting on the banks’ balance sheets, and therefore how much extra capital the sector requires to return it to health.

Olick – a tale of two housing markets

The numbers are in, the analysts are out, and given the volatility of this particular economic indicator, the spin is at full speed:  “Good News on Housing Permits More Than Offsets the Bad News on Starts”— HIS Global Insight;  “Housing Starts Decline Again” – Capital Economics;  “March Multifamily Starts Down; Permits Continue Upward Trend”— KBW;  “March Construction Numbers Aren’t As Bad as They Look”— Trulia.com;  “Housing Starts Lacking Consumer Confidence” — Sageworks Inc.  Here’s the problem: We are living a tale of two housing markets, single and multi-family. Depending on what kind of builder or investor you are, you’re going to see the housing starts numbers differently. Let’s weed through it first:  Total starts fell 5.8%, driven by a nearly 20% drop in multi-family. Single family was essentially flat month-to-month. But remember, multi-family is a very volatile number and can swing 20-30% monthly due to large local projects. Yes, they are both ahead from last year, but 2011 was the worst year in the history of US home building.  “The further fall in housing starts in March means that about a third of the past year’s improvement in homebuilding has now been undone. But the continued rise in building permits is an encouraging sign which suggests that housing starts will improve again later this year,” writes Paul Diggle at Capital Economics.

Building permits are always seen as a better indicator of construction, or at least more dependable and less influenced by weather. Single family permits dropped 3.5% month to month, but multi-family surged ahead 24% to the highest level in four years.  “The pickup in multifamily construction is taking place most noticeably in the South and West—again, not a big surprise—since 46 of the 50 fastest-growing metro-area populations from 2010 to 2011 were in the South or West, according to the Census Bureau,” writes IHS Global Insight’s Patrick Newport.  Clearly we’re still seeing big demand in the multi-family sector, but single family is still faltering.  “Single family is more of a restocking issue,” said Morgan Stanley’s Oliver Chang on CNBC. “In order to meet baseline demand, they [builders] have to build.”  Chang says real growth in single family demand just isn’t there, due to a still tightening credit market. On the flip side, he claims that distressed housing has stabilized and distressed home prices have bottomed; that’s because investors largely use cash. 

So if there’s all this demand for single family rentals, and investors are rushing to get in, is there still enough demand for all this multi-family construction?  “Bottom line, with the secular decline in home ownership, multi-family construction will be where it’s at for a few years but still only make up about 30% of total starts. Single family starts still have the intense competition with foreclosures and now rent seekers,” writes Peter Boockvar of Miller Tabak.  So why, as we asked yesterday after the disappointing builder sentiment report, did single family starts, permits and sentiment rise through the fall and the winter only to slam on the breaks? Newport calls that one a “head scratcher,” and adds, “If the builders have gotten ahead of the game, single-family construction will go through a demoralizing slowdown later this year.”

Is gold headed down?

For the past decade, gold has been an incredible investment, rising from under $300 per ounce to as high as $1,900 per ounce before retreating to around $1,650 in recent trading.  For the bulls, gold’s recent drop is nothing more than a temporary setback on its inexorable march toward $2,000 and beyond. The case for gold rests primarily on factors familiar to anyone who’s even remotely familiar with the metal: easy money from central banks around the world and rising demand from emerging economies, notably China and India. But all good things must come to an end and Yoni Jacobs, chief investment strategist at Chart Prophet, believes gold’s best days are behind it. In fact, Yoni believes there’s a bubble in precious metals that’s about to collapse as detailed in his book, Gold Bubble: Profiting from Gold’s Impending Collapse.  While tipping his hat to the bullish arguments and sympathetic to reasons why people own gold, Jacobs says the metal’s inability to rally despite Europe’s ongoing crisis and renewed tensions in the Middle East are negative signs. “The froth is coming off,” he says.

Technically, the strategist cites heavy volume during gold’s sell-off last September and the negative divergence between gold and gold miners as warning signs. In the past six months, the Market Vectors Gold Miners ETF (GDX) is down 20% while the Gold ETF (GLD) is essentially flat.  Furthermore, gold is vulnerable to the global economic slowdown, he says, noting China just reported its slowest quarter in three years.   Finally, Jacobs cites “over-speculation” in gold, its “parabolic increase” in recent years, the “mass publicity” the metal has received, and the extreme emotions of its advocates as signs of it being in bubble territory.  Based on historical trends and technical patterns, Jacobs predicts gold will fall below the key $1,000 per ounce level on its way to the $700 area. He recommends shorting the GLD or GDX or buying out-of-the-money puts on gold as a way to profit from gold’s demise.

WSJ – GOP Senators say no to write-downs

Two US Senate Republicans are urging the Treasury Department to cancel its plans to subsidize debt forgiveness for troubled homeowners, saying the money would be better off reducing the federal debt.  In a letter sent Tuesday to Treasury Secretary Timothy Geithner, Sens. David Vitter (R., La.) and Jim DeMint (R., S.C.) criticized an Obama administration plan to encourage mortgage giants Fannie Mae and Freddie Mac to reduce borrowers’ loan balances. Earlier this year, the administration announced it would use money from the 2008 financial industry rescue to encourage those write-downs.  The letter adds further heat to an intense political debate over whether the two government-controlled companies should reverse their policy and allow loan write-downs.  The two companies, which buy up loans and package them into investments, and their federal regulator have been facing pressure from Democrats and the Obama administration, which want to see write-downs. Republicans, however, are concerned that doing so will encourage borrowers to intentionally default.  In their letter, Messrs. Vitter and DeMint also argue that big banks that hold second mortgages such as home equity loans will benefit from write-downs. The plan “will pay off the mega banks with taxpayer cash in exchange for reducing the principal balance on some mortgages,” the lawmakers wrote. “We write to urge you, on behalf of the taxpayers, to reconsider and, instead, return this money to the Treasury to pay down the national debt.”

 Mortgage servicing provider Lender Processing Services reported in early March that US foreclosure starts jumped 28% in January.  More conclusive national data is not yet available. But watchdog group, 4closurefraud.org which helped uncover the “robo-signing” scandal, says it has turned up evidence of a large rise in new foreclosures between March 1 and 24 by three big banks in Palm Beach County in Florida, one of the states hit hardest by the housing crash.  Although foreclosure starts were 50% or more lower than for the same period in 2010, those begun by Deutsche Bank were up 47% from 2011. Those of Wells Fargo’s rose 68% and Bank of America’s, including BAC Home Loans Servicing, jumped nearly seven-fold — 251 starts versus 37 in the same period in 2011. Bank of America said it does not comment on data provided by other sources. Wells Fargo and Deutsche Bank did not comment. 

Housing experts say localized warning signs of a new wave of foreclosure are likely to be replicated across much of the United States.  Online foreclosure marketplace RealtyTrac estimated that while foreclosures dropped slightly nationwide in February from January and from February 2011, they rose in 21 states and jumped sharply in cities like Tampa (64%), Chicago (43%) and Miami (53%).  RealtyTrac CEO Brandon Moore said the “numbers point to a gradually rising foreclosure tide as some of the barriers that have been holding back foreclosures are removed.”

One big difference to the early years of the housing crisis, which was dominated by Americans saddled with the most toxic subprime products — with high interest rates where banks asked for no money down or no proof of income — is that today it’s mostly Americans with ordinary mortgages whose ability to meet payment have been hit by the hard economic times.  “The subprime stuff is long gone,” said Michael Redman, founder of 4closurefraud.org. “Now the folks being affected are hardworking, everyday Americans struggling because of the economy.”

Crackdown on tax havens

As regulators clamp down on money flows around the globe, governments, even those that prided themselves on the strength of their secrecy laws, like Switzerland, are facing pressure to share banking information and change their policies.  Now, private banks and wealth managers are scrambling to convert so-called black money — assets that have not been disclosed — into accounts that are above board.  The shift may provide opportunities for the industry. As more funds become legitimate, analysts say financial institutions will be able to sell extra wealth management products to affluent people and enter markets that had previously been off limits.  “There’s much less black money now than three years ago,” said Jean Schaffner, head of the Luxembourg tax practice at the law firm Allen & Overy. “It’s in the banks’ interests for clients to come forward with their money.”  For decades, Western governments tolerated offshore tax havens, places where the wealthy could park millions away from the gaze of their domestic authorities. Switzerland, in particular, developed a reputation as a place where the wealthy could rely on secrecy laws.  But the tide began to turn in 2008, particularly after the financial crisis prompted many governments to act in concert.  As Switzerland and other locales tightened their financial controls, many people initially flocked to other tax havens like Singapore and Hong Kong, which still offer some of the world’s most secret accounts. But these places, too, are facing new pressures.

NAHB – 101 improving housing markets

The list of housing markets showing measurable improvement expanded slightly to include 101 metropolitan areas in April, according to the National Association of Home Builders (NAHB)/First American Improving Markets Index (IMI), released today. Thirty-five states (including the District of Columbia) are now represented by at least one market on the list. The index identifies metropolitan areas that have shown improvement from their respective troughs in housing permits, employment and house prices for at least six consecutive months. The 101 markets on the April IMI represent a net gain of two from March, with 13 metros being added and 11 markets slipping from the list while 88 markets retained their places on it. Among the new entrants, areas as diverse as Rome, Ga.; Coeur d’Alene, Idaho; Greenville, N.C.; Brownsville, Texas; St. George, Utah; and Huntington, W.Va., are now represented on the IMI.  The IMI is designed to track housing markets throughout the country that are showing signs of improving economic health. The index measures three sets of independent monthly data to get a mark on the top improving Metropolitan Statistical Areas.

The three indicators that are analyzed are employment growth from the Bureau of Labor Statistics, house price appreciation from Freddie Mac, and single-family housing permit growth from the US Census Bureau. NAHB uses the latest available data from these sources to generate a list of improving markets. A metropolitan area must see improvement in all three areas for at least six months following their respective troughs before being included on the improving markets list.  A complete list of all 101 metropolitan areas currently on the IMI, and separate breakouts of metros newly added to or dropped from the list in April, is available at: www.nahb.org/imi.

Job improvement slows

US payrolls rose far less than expected in March, keeping the door open for further monetary policy support from the Federal Reserve, even as the unemployment rate fell to a three-year low of 8.2%.  Employers added 120,000 jobs last month, the Labor Department said on Friday, the smallest increase since October.  Economists polled by Reuters had expected nonfarm employment to increase 203,000 and the unemployment rate to hold at 8.3%.  The slowdown in employment growth last month likely reflected the fading boost from unseasonably warm winter weather. It supported the caution on the labor market from Fed Chairman Ben Bernanke last week.  Bernanke expressed doubts the recent job gains could be sustained, and March’s weak report was in line with expectations that economic growth slowed to an annual pace of 2% in the first quarter from the 3% rate in the October-December period. 

The weakness in hiring last month was concentrated in the vast private services sector, which added only 90,000 after increasing payrolls by 204,000 in February. Retail employment fell dropped 33,800 after falling 28,600 the prior month.  Construction hiring fell 7,000, the second straight monthly decline. Temporary help fell 7,500 after rising 54,900 in February.  However, manufacturing enjoyed another month of strong job gains, with factories adding 37,000 new positions, helped by carmakers trying to meet pent-up demand for motor vehicles. Factory jobs increased by 31,000 in February.  Government employment edged down 1,000 after rising 7,000 in February. Despite the weak employment gains last month, average hourly earnings rose 5 cents.  The workweek dipped to 34.5 hours from 34.6 hours in February.

WSJ – Fed in favor of the banks’ foreclosure-rental approach

Last month, Bank of America Corp. announced a plan to allow homeowners at risk of foreclosure to hand over deeds to their houses and sign leases that will let them rent the houses back from the bank at a market rate.  In addition, Fannie Mae is selling 2,500 homes in eight metropolitan areas around the country. The government-controlled mortgage firm is selling the $320 million portfolio to investors, who would be required to turn them into rental properties.  The Federal Reserve set out new polices for banks that decide to rent out foreclosed homes, endorsing a strategy for managing the huge number of distressed properties that have piled up during the housing bust. The central bank said in a six-page policy statement Thursday that the Fed’s regulations permit the rental of foreclosed properties to tenants “in light of the extraordinary market conditions that currently prevail.” The policy clarified that banks that would otherwise be required to sell off the properties more quickly can turn to rental as a strategy. 

Federal Reserve Chairman Ben Bernanke and other central bank officials have spoken publicly about the need to encourage banks to rent out foreclosures. “With home prices falling and rents rising, it could make sense in some markets to turn some of the foreclosed homes into rental properties,” Mr. Bernanke said in a February speech.  The central bank said that banks holding large numbers of foreclosures should establish detailed policies for renting foreclosures, including a process to determine whether the properties are safe to occupy and meet local building code requirements.  The Fed said banks should set up criteria by which properties are picked to be rental properties. The banks should establish plans that “describe the general conditions under which the organization believes a rental approach is likely to be successful,” the central bank said.