Smart Real Estate News & Commentary by Chris McLaughlin June 1, 2011
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WSJ – foreclosures down in April
Banks initiated fewer foreclosures in April than in any month since late 2008, even though the number of loans in foreclosure remains near records, offering the latest evidence that banks are struggling to repair hobbled foreclosure processes. Mortgage companies started foreclosures on 187,400 properties last month, a 31% decline from March and a 15% decrease from one year ago, according to LPS Applied Analytics, a data firm. The decline came in a month in which 14 banks signed consent orders with federal banking regulators to revamp their foreclosure processes. The orders were prompted by last fall’s document-handling problems that had led major banks to suspend some foreclosures. Foreclosure time lines are likely to stretch out as banks slow the pace of foreclosures. The average loan that went through foreclosure in April had been delinquent for 567 days, up from 548 days in March and 523 days in January. Foreclosures accelerated last summer, but they have fallen in all but one month since last September, when the “robo-signing” scandal, where bank employees were improperly signing high volumes of foreclosure filings, erupted.
Nationally, bank repossessions are down by 32% since last September. But the LPS data show that many states that have tougher scrutiny of banks’ paper work, including those where banks must seek a judge’s approval to foreclose, have had even larger declines. Foreclosure activity is down by 91% in the District of Columbia, by 79% in New York and Maryland, and by 77% in New Jersey. In these places, foreclosures need judicial approval and courts have some of the most stringent oversight of the foreclosure process. Foreclosure sales in April dropped most sharply among loans held on bank balance sheets and on loans backed by Fannie Mae and Freddie Mac. Those loans are most likely to be serviced by banks that fell under last month’s consent orders, a sign that the decline was driven largely by the orders. Foreclosure sales rose on loans that are in private-label mortgage-backed securities, which aren’t guaranteed by government entities and which are serviced by nonbank companies that weren’t subject to the consent orders.
The delays in the foreclosure process threaten to raise expenses for banks. They also cause considerable uncertainty for the housing market, which remains a big drag on the economy. In the short run, delays could limit the flow of foreclosures onto fragile markets, putting less pressure on prices. But they also could lengthen any housing-market recovery by extending the time it takes to clear out the inventory of bank-owned properties.
Ford raises car prices
For the third time this year, Ford is raising prices. The latest increase is .03% or $124. Year to date, Ford has raised new car prices 1.3% or $375. The latest increase, like the previous two, is due to Ford having to keep up with higher commodity prices. As Ford has faced higher prices for steel, aluminum, rubber, oil (used for resins), and a host of other raw materials used for building cars and trucks. While some of these costs have eased in recent weeks, Ford is still facing higher prices. The automaker told dealers about the price increase in the last two weeks. Overall, the auto industry has increased prices 1% with Ford competitors announcing price hikes in the last couple of months.
Olick – why are home sales bad if interest rates are low?
“As mortgage rates continue to fall, so too are home sales. That wouldn’t make sense in a normal housing market, but these are very unique times. Credit, or lack thereof, coupled with extremely weak consumer confidence is keeping potential buyers on the fence. Contracts to purchase existing homes plunged a far weaker-than-expected 11.6% in April, the heart of the spring housing season. The National Association of Realtors’ Pending Home Sales Index is now 26% below its cyclical high in April of 2010, which was the deadline for the now-expired home buyer tax credit. ‘The pullback in contract signings is disappointing and implies a slower than expected market recovery in upcoming months,’ said NAR chief economist Lawrence Yun.
The drop in new contracts comes as mortgage rates continue to fall, just last week to the lowest level of the year so far. Freddie Mac reported 4.60% on the 30-year fixed, but analysts say even that’s not enough to move this tough housing market. ‘Because mortgage rates have been so historically low for so long, the law of diminishing of returns has set in with respect to the low rates being the main influence and catalyst in purchasing a home,’ says Peter Boockvar of Miller Tabak. ‘Pricing, job outlook and access to credit will remain the key factors influencing the decision to buy a home, and I don’t think those reasons will superseded by another move down in mortgage rates in getting a buyer off the fence,’ Tabak went on to say.
Only the Northeast saw a slight bump up in new sales contracts, barely 2%. The South led the drop, down 17%, but that was largely due to extremely bad weather. Still the Midwest and West posted drops of 10 and 9% respectively. The Realtors also blame tight mortgage underwriting for the drop in sales and today called on the banks to start moving more money. ‘A robust economic and housing market recovery cannot occur as long as banks continue to hold onto huge cash reserves,’ writes Yun in the report. ‘We simply have to get back to sound, common-sense lending standards to provide mortgages to creditworthy borrowers who are buying homes well within their means. Bank balance sheets show rising cash reserves and declining loan balances – it’s time to loosen the purse strings,’ Yun added.”
Internet economy huge
McKinsey Global Institute released a study Wednesday that claims the Internet accounts for roughly 3.4% of economic activity in 13 of the world’s largest countries. The Internet contributed about $1.67 trillion to global gross domestic product in 2009, the study’s researchers found. That edges just slightly past the entire GDP of Canada, which came in at $1.34 trillion that same year, and the $1.46 trillion economy of Spain. Roughly 2 billion people now use the Internet and exchange $8 trillion each year through e-commerce. In the United States alone, the Internet drove 15% of the country’s economic growth between 2004 and 2009, thanks largely to its business-boosting effects. Internet maturity — measured by local penetration and usage frequency — also correlates closely with rising living standards and increased labor productivity, McKinsey found. The study examined the G8 countries, along with Brazil, China, India, South Korea and Sweden. Those nations overall account for 70% of the global economy. Among those countries, the Internet contributed an average of 11% to gross domestic product during the five-year period the researchers studied.
Fannie Mae issuance drops
Fannie Mae issued $34.5 billion in guaranteed mortgage-backed securities in April, down from $54 billion one month ago and the lowest level since January 2009, when the government-sponsored enterprise issued $21 billion. The highest level since then was at $130 billion in June 2009. Not only did the secondary market see a slower pace in April, but pending home sales on the origination side showed a significant drop as well. Fannie also cut its mortgage portfolio for the 10th straight month in April, as its gross mortgage portfolio declined at a compound annualized rate of 15.8% in April. Under the conservatorship agreements issued in September 2008, Fannie and Freddie Mac must cut their mortgage portfolios to less than $729 billion by Dec. 31. Freddie Mac is already there, dropping to $692 billion early in 2011. Although Fannie has been making cuts since July, it remains above the threshold at $748.8 billion as of April. Federal Housing Finance Agency (FHFA) Acting Director Edward DeMarco, the chief regulator for the GSEs, said in a House subcommittee hearing Wednesday that Fannie is expected to be below the limit by the end of the year. The last time Fannie added to the portfolio was in June when the gross mortgage portfolio increased to $817.8 billion. In April, the serious delinquency rate on Fannie Mae mortgages dropped to 4.27%, down 17 basis points and the lowest level since July 2009. In February 2010, the serious delinquency rate increased to 5.59% and has dropped every month since.
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Chris McLaughlin
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About the author:
Chris McLaughlin is widely known as America’s top
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The Home Valuation Code of Conduct (HVCC), which came into effect on May 1 of this year, is hurting the housing industry instead of helping it, according to industry participants. HVCC, which was introduced with the idea of preventing inflated home valuations, requires lenders to hire appraisers only through an independent appraisal-management company. Fannie Mae and Freddie Mac do not buy home loans that do not comply with HVCC. Mortgage brokers, homebuilders, and realtors say that HVCC is leading to poor appraisals, incorrect valuations, delays in closing sales, and ultimately abortion of housing transactions.
The Obama administration is mulling new ways of helping homeowners in the wake of rising foreclosures. According to a new plan, homeowners who are slipping into delinquency will surrender ownership but can stay in their home if they pay a rent for their stay. A Treasury spokeswoman said that “we are constantly reviewing new ways to help struggling homeowners and stabilize the housing market. This is just one idea among many that has been considered, but no decisions are imminent on the matter.” Dean Baker, a researcher with the Center for Economic Policy Research, proposed the idea of struggling homeowners becoming renters a couple of years ago. “It is a very simple, clean way to help these people,” said Baker. A bankruptcy court will determine a fair rent for the property. Banks will be able to sell the property in default, but the renter’s lease will remain in effect. The administration officials are evaluating how this plan can be put in place without disrupting mortgage markets. John Taylor, the president of the National Community Reinvestment Coalition, says non-profit agencies which manage properties might be interested in participating in the rental program. “It could be a ‘win-win’ for the homeowner, the lender who has a troubled borrower and the non-profit,” said Taylor.
Economic downturn will lead to a drop in construction activity this year and next, according to the American Institute of Architects (AIA). In its report, AIA says spending on construction of offices, retail centers, and hotels will fall 16% in 2009 and 12% in 2010. “We’ve had a really rocky six months in the economy and in the construction sector,” said Kermit Baker, AIA’s chief economist. “People are seeing a real tough environment out there and not a lot of incentive to invest in projects.” Economists do not see any of the indicators being conducive to growth in commercial construction. Jobless rate is nearing 10% while consumer sentiment is showing no signs of improvement. Economic recovery is critical to commercial construction since non-residential construction lags behind the economy. “Why do you build new office buildings? You need to see job numbers pick up,” Baker said. “Why do you build new retail centers? You need to see consumer spending pick up.” According to AIA, hotel construction is likely to drop 26% in 2009 and 17% in 2010, while industrial spending will drop 0.8% in 2009 and 28% in 2010.
While analysts say buyers are getting great deals in the housing market, home buyers are not finding it easy to get a loan. Blame it on tightening of credit norms; even people with good credit score are denied loan. In addition, new norms such as borrowers having to produce at least 2 years of sufficient tax returns are posing problems for first-time buyers who have just begun their career. Bankers and brokers believe many borrowers who are being refused home loans now would have most definitely been accommodated in the past when lending norms were lot more lenient. “The credit pendulum is stuck at ‘stupid,’” said Lou Barnes, an owner of Boulder West Financial Services, a mortgage bank. “I am turning down loans every day that my grandfather in his Ponca City, Okla., savings and loan in 1935 would have been happy to make. And he was tough.” Fannie Mae recently changed its policies to count only 70% of the value of stocks and bonds towards valuing borrowers’ assets while considering their loan application. Earlier, 100% of the value was considered. Stuart Fraass of Guaranteed Rate, says, “If you’re self-employed, you have virtually no chance of getting a mortgage now.” While no one wants to return to lax lending standards of 2006 which led to the housing bubble, analysts believe excessive tightening of credit norms could hurt a housing market recovery. Banks, having been bitten, are shy now; at least for the time being.
According to a report prepared by the State 
