Smart Real Estate News & Commentary by Chris McLaughlin January 25, 2012
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Foreclosures fell 12% in California, but…
The number of California homes entering foreclosure in the fourth quarter fell 11.9% from the same period in 2010 to the second-lowest level over the last four years, said DataQuick, a real estate information firm in San Diego. A total of 61,517 notices of default, which are filed to initiate foreclosures, were recorded on California properties during the fourth quarter. That was a 13.7% drop from the third quarter of 2011. Some economists say California and other states will probably see an increase in foreclosure actions as banks deal more aggressively with seriously delinquent mortgages. That increase probably will push home prices lower. Default notice filings fell sharply in December, particularly those involving loans from Bank of America and Bank of New York Mellon, and helped drag down the overall quarterly numbers. Average daily filings on behalf of Bank of New York Mellon dropped 75% from November to December; filings on behalf of Bank of America dropped 50%, Wells Fargo 20% and JPMorgan Chase 13%, DataQuick said Tuesday. The number of homes taken back through the foreclosure process also fell, by 11.8% from a year earlier to 31,260.
The majority of the loans entering the foreclosure process in the fourth quarter were made in 2005 to 2007, when poor lending practices by major institutions were rampant. Californian homeowners were a median nine months behind on their payments when they received a notice of default from their lender. Among the state’s largest counties, mortgages in San Francisco, Marin and San Mateo counties were the least likely to go into foreclosure. Homes were most likely to enter the foreclosure process in Sacramento, San Joaquin and Stanislaus counties, according to DataQuick. In Southern California, the number of default notices filed on properties fell 10.2% from a year earlier, and the number of homes taken back by banks fell 11%. Many foreclosures were delayed in 2011 as banks worked through issues surrounding mortgage servicing and foreclosure. Settlement negotiations among attorneys general, federal agencies and the mortgage industry over foreclosure and mortgage servicing abuses dragged on through most of last year.
Analysts attributed the delays to the uncertainty over the outcome of those talks. If a deal is struck among the parties and new foreclosure processes by banks are put in place, some analysts say the foreclosure machinery could ramp up again. Those negotiations continue to inch forward but could still fall apart. State attorneys general have received drafts of the deal with the banks, a $25-billion settlement that would overhaul foreclosure and mortgage servicing practices, according to two people familiar with the negotiations who aren’t authorized to speak publicly. A key component to any strong deal would be California’s participation. State Atty. Gen. Kamala D. Harris, who must make that decision for the Golden State, has not said whether she will sign on. Harris walked away from talks with the banks last year, saying they were asking for too much release from liability, but since then certain provisions have been added to the deal with the aim of getting her back to the table. Yesterday the Center for Responsible Lending gave the proposed $25-billion deal a tentative thumbs up, calling it “an important step forward in addressing foreclosure abuses.” The nonpartisan advocacy group noted that the deal would “provide an important template for ways banks can use principal reduction to reduce unnecessary foreclosures and put the country back on a path to economic recovery.”
GOP says Obama economic plan is a failure
President Barack Obama has resorted to “extremism” with stifling, anti-growth policies and has tried dividing Americans, not uniting them, Indiana Gov. Mitch Daniels said Tuesday in the formal Republican response to the president’s State of the Union address. He took particular aim at Obama’s efforts in recent months to raise taxes on the rich and castigate them. “No feature of the Obama presidency has been sadder than its constant effort to divide us, to curry favor with some Americans by castigating others,” Daniels said, according to excerpts of his remarks released before he and Obama spoke. “As in previous moments of national danger, we Americans are all in the same boat.” “The extremism that stifles the development of homegrown energy, or cancels a perfectly sane pipeline that would employ tens of thousands, or jacks up consumer utility bills for no improvement in either human health or world temperature, is a pro-poverty policy,” Daniels said.
Obama has halted work on the proposed Keystone XL oil pipeline from western Canada to Texas’ Gulf Coast. Republicans say the project would create thousands of jobs, a claim opponents say is overstated. The administration has also pursued policies aimed at reducing pollution and global warming. Daniels said Republicans prefer “a passionate pro-growth approach that breaks all ties and calls all close ones in favor of private sector jobs that restore opportunity for all and generate the public revenues to pay our bills.” Even before Obama spoke, Republicans in the Capitol and on the campaign trail accused him of three years of higher spending, bigger government and tax increases that have left the economy stuck in a ditch. “This election is going to be a referendum on the president’s economic policies,” which have worsened the economy, said House Speaker John Boehner, R-Ohio. “The politics of envy, the politics of dividing our country is not what America is all about.”
Olick – more plans from the president
“After several largely ineffective programs to help troubled borrowers and after fruitless attempts at budging the hard-line conservator of Fannie Mae and Freddie Mac, President Obama is proposing a brand new refinance program for borrowers who are current on their mortgages, regardless of who owns their loan; the catch is that this one has to go through Congress. ‘I’m sending this Congress a plan that gives every responsible homeowner the chance to save about $3,000 a year on their mortgage, by refinancing at historically low interest rates. No more red tape. No more runaround from the banks,’ the President announced in his State of the Union address. Unlike previous efforts in the refinance space, including a recently revamped and expanded government program for borrowers who owe more on their mortgages than their homes are currently worth, this plan would not be limited to those with loans backed by Fannie Mae and Freddie Mac, according to senior administration officials. The two mortgage giants own or guarantee about half of the nation’s mortgages. It would be open to all borrowers current on their loans.
The Obama administration is offering precious few details, promising more in the coming weeks, but several sources say the plan is to ask Congress to allow the government mortgage insurer, the Federal Housing Administration (FHA), to back refinances of underwater mortgages. No estimates were given as to how many borrowers such a plan could potentially help, only that this would be a voluntary, borrower-initiated plan, and not a blanket refinance of all borrowers. The costs, according to administration officials, would be modest, and the President would request that a portion of his financial crisis responsibility fee offset any of those costs, so there would be no addition to the federal debt. ‘A small fee on the largest financial institutions will ensure that it won’t add to the deficit, and will give banks that were rescued by taxpayers a chance to repay a deficit of trust,’ Mr. Obama added. Loan servicers could be faced with a flood of applications and could have to add resources to handle it all, but officials say the opportunity to generate revenues from the refinances would be incentive enough. Still many servicers have balked at the idea of mass refinancing, as the new loans could present more risk and less reward.
The idea is to remove the barriers and ‘frictions’ that have kept many borrowers out of refinancing to historically low rates. Some of those include high levels of negative equity, loan level price adjustments, loan origination dates, put-backs on loans that default, and borrower qualifications. Then there is the very basic problem of politics. Whatever the details of the plan are, Republicans, despite the fact that they have been calling for more refinances, are unlikely to hand President Obama a popular victory on the eve of a presidential election. They may also oppose anything that makes Fannie Mae and Freddie Mac bigger, when the two are allegedly winding down.”
Americans lead in debt reduction
Americans are cutting their debt faster than other countries and could already be halfway through the deleveraging process, setting the stage for the nation’s economic recovery, says a new report from McKinsey Global Institute. However, even when U.S. consumers finish deleveraging, they probably won’t be as powerful an engine of global growth as they were before the crisis, warns the report. According to McKinsey analysts, deleveraging happens in two stages: First, the private sector reduces debt, while economic growth is negative or minimal and government debt rises; then, growth rebounds and supports gradual government deleveraging. “Somewhat surprisingly, given the amount of concern over the U.S. economy, we find that the United States is furthest along in private-sector debt reduction and closest to beginning the second phase of deleveraging,” says the report. “The remaining obstacles for its return to growth are its unsettled housing market and its failure to lay out a credible medium-term plan for public debt reduction,” concludes the report.
Since the financial crisis, U.S. household debt has fallen by $584 billion, or 15 percentage points relative to disposable income, which is more than in any other country. At this pace, Americans could reach sustainable debt levels by the middle of 2013. The report also found that since the 2008-2009 financial crisis the world’s ten largest developed economies have seen their total debt increase, primarily due to growing government debt. The U.S., South Korea and Australia are the only countries that have seen a decline in the ratio of total debt to GDP during that time period. Moreover, the United Kingdom and Spain are deleveraging at a much slower pace, and it could take another decade until their private-sector debt returns to the pre-bubble levels. In the United States, most of the private-sector deleveraging has happened in the financial sector, where debt relative to GDP had declined to $6.1 trillion from $8 trillion, levels not seen since 2000.
MBA – mortgages down 5%
Mortgage applications decreased 5.0 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 20, 2012. The results include an adjustment to account for the Martin Luther King holiday. The Market Composite Index, a measure of mortgage loan application volume, decreased 5.0 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 13.8 percent compared with the previous week. The Refinance Index decreased 5.2 percent from the previous week. The seasonally adjusted Purchase Index decreased 5.4 percent from one week earlier. The unadjusted Purchase Index decreased 9.7 percent compared with the previous week and was 6.5 percent lower than the same week one year ago.
The four week moving average for the seasonally adjusted Market Index is up 4.12 percent. The four week moving average is up 0.47 percent for the seasonally adjusted Purchase Index, while this average is up 4.85 percent for the Refinance Index. The refinance share of mortgage activity decreased to 81.3 percent of total applications from 82.2 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 5.3 percent from 5.6 percent of total applications from the previous week. In December 2011, among refinance borrowers, 56.6 percent of applications were for fixed-rate 30-year loans, 24.3 percent for 15-year fixed loans, and 5.3 percent for ARMs. The share of refinance applications for “other” fixed-rate mortgages with amortization schedules other than 15 and 30-year terms was 13.8 percent of all refinance applications. The share for 30-year fixed increased from the previous month while the 15-year fixed, ARM and the “other” fixed category shares decreased from last month.
Markets down on possible Obama re-election
So far, the presidential election has not impacted stocks, but that could change if Mitt Romney appears unlikely to make it as the GOP nominee. For the past two days, Romney’s vulnerability to former House Speaker Newt Gingrich has been the talk of trading rooms. Gingrich beat Romney handily in the South Carolina primary Saturday, the second of three early contests that Romney lost. But the volatile Gingrich is not viewed as a strong candidate to beat President Obama. “Obama’s gone from 50 percent probability to 55 percent on Intrade,” said Dan Clifton, Strategas head of policy research. “This week he just kind of exploded once Gingrich won in South Carolina. The Intrade market is saying there’s a much greater chance of President Obama being re-elected.” Romney, the former governor of Massachusetts, is by far the preferred candidate on Wall Street, where many disagree with Obama’s policies and have been stung by what they call “class warfare.” “I don’t think it’s fully reflected in the market yet. The market is drifting. There’s a mild degree of anxiety, and that’s really because it’s overbought. Is there a gentle longing for a smoke-filled room? Yeah. There’s some yearning for that,” said Art Cashin, UBS director of floor operations. The S&P 500 broke its five-day winning streak Tuesday, finishing 1 point lower at 1314, but it is up 4.5 percent since the start of the year. Analysts believe if Romney loses the Florida primary next Tuesday, he will have a hard time stopping Gingrich’s momentum.
Huffington post – Romney on mortgages
Finally, a presidential candidate came out and honestly addressed the biggest problem in our economy, the enormous debt overhang in our mortgage market. A few days ago, Mitt Romney was at a forum in Florida talking about foreclosures, and his comments were actually refreshingly honest about our housing and banking situation and the need for a debt write-down. We’re just so overleveraged, so much debt in our society, and some of the institutions that hold it aren’t willing to write it off and say they made a mistake, they loaned too much, we’re overextended, write those down and start over. They keep on trying to harangue and pretend what they have on their books is still what it’s worth. Mitt Romney was pointing out that the banks are carrying debt on their books at inflated values. When was the last serious politician to make that point, openly? There’s more. In some cases, if the debt is not in something you can service, it’s like you have to move on and start over away from those debts. It’s helpful if you get an institution that’s willing to work with you, but if you don’t you have no other option.
Romney is now saying that if you can’t pay your debts and your lending institution won’t work with you, walk away. Perhaps this isn’t so surprising, though, as Romney is an expert in debt restructuring. This is actually just common business sense. And finally, he offered a real solution to the mortgage debt crisis. “The banks are scared to death, of course, because they think they’re going to go out of business… They’re afraid that if they write all these loans off, they’re going to go broke. And so they’re feeling the same thing you’re feeling. They just want to pretend all of this is going to get paid someday so they don’t have to write it off and potentially go out of business themselves. This is cascading throughout our system and in some respects government is trying to just hold things in place, hoping things get better… My own view is you recognize the distress, you take the loss and let people reset. Let people start over again, let the banks start over again. Those that are prudent will be able to restart, those that aren’t will go out of business. This effort to try and exact the burden of their mistakes on homeowners and commercial property owners, I think, is a mistake.”
See you at the top!
Chris McLaughlin
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About the author:
Chris McLaughlin is widely known as America’s top
Real Estate Attorney and Investment Consultant.
* As the top Florida foreclosure and pre-
foreclosure expert, he oversees more than
100 short sale & REO closings each month
* Long-time authority on real estate investing
and rapid reselling of distressed homes. Owns
portfolio of nearly 150 high-value, high-profit
properties
* Owner of one of Florida’s largest Real Estate firms,
running 4 different offices, supporting over
420 agents, uniquely positioning him to help
thousands of investors make money in the
biggest market opportunity ever!
* In 2010, Chris’ 4 Central Florida real estate offices
closed 2,786 sides for a closed sales volume of
$392,912,927!
* Highly sought-after speaker, consultant, and
seminar leader for current trends and hot topics
in Real Estate Investing, Entrepreneurship, and
Wealth Building
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