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Home prices declined almost 5% in 2011

Home prices decreased 4.7% in 2011 compared to the year before, marking the fifth consecutive year-end decrease in the CoreLogic home price index. Excluding distressed sales, home prices decreased 0.9% last year, which CoreLogic said gives an indication “of the impact of distressed sales on home prices in 2011.” Home sales last year also show month-over-month declines. December showed the fifth consecutive monthly decline with a drop of 1.4%, but rose 0.2% when distressed sales were removed from the equation.

The December decline followed a much larger drop of 4.3% in November, compared to November 2010. “While overall prices declined by almost 5% in 2011, nondistressed prices showed only a small decrease. Until distressed sales in the market recede, we will see continued downward pressure on prices,” said Mark Fleming, chief economist for CoreLogic. While national statistics may be bleak, a few states posted increases in the price of homes last year. Montana came in first with 4.4% appreciation with distressed sales included, followed by Vermont (+4%), South Dakota (+3.1%), Nebraska (+2.5%) and New York (+1.7%). Illinois had the biggest 2011 decline in prices, 11.3%, followed by Nevada at 10.6%. Nevada’s peak-to-current decrease stands at 60% (including distressed homes), compared with a national decrease of 33.7%.

Employment up

The pace of job creation surged in January, with the US economy generating 243,000 new positions while the unemployment rate dropped to 8.3%, according to government data released today. Both numbers were far better than consensus, which expected a growth of 150,000 jobs and a steady unemployment rate of 8.5%. The overall work week remained unchanged at 34.5 hours while wages rose an average of four cents an hour to $23.29. The closely watched labor-force participation number, which can skew the unemployment rate, fell to 63.7%, the lowest since May 1983. The number of those working part-time for economic reasons rose 1.2%. Job gains have been concentrated primarily in the service sector, particularly in retail and the food and beverage industries. Warehousing, manufacturing, mining and health care also have participated. True to form, services were responsible for 162,000 of the January swell, with manufacturing payrolls growing 50,000. Government cuts subtracted 14,000 from the total. The total number of unemployed fell below 13 million for the first time since February 2009, while the total amount of employed Americans rose to 141.6 million, an increase of 847,000 from December. The unemployment rate was last this low in February 2009. The so-called real unemployment rate, which measures discouraged workers as well and is referred to as the U-6, nudged lower to 15.1%.

Long-term unemployment, though, remains a problem, with the duration dropping from a near-record 40.8 weeks to 40.1 weeks. Also, the level of discouraged workers surged, rising 7% to its highest level since December 2010. Job growth remains one of the two missing pieces of the recovery puzzle, even though the rate has been on a steady trek lower. In December, the economy created 203,000 jobs and the unemployment rate slipped to 8.5%, well off its 10.1% cycle peak. The monthly jobs report generally draws considerable trader reaction, which as of late has been all negative.

Olick – rent vs own riles government policy

“Fannie Mae and Freddie Mac, the mortgage giants under government conservatorship, together owned 182,212 foreclosed properties as of the end of September. While they aggressively market and sell these homes to investors and owner-occupants alike, the numbers are still too high; these number could go far higher, as foreclosures previously stalled by paperwork issues come back into process. That’s why the federal regulator overseeing the two is launching a bulk sale program, offering investors the chance to buy foreclosed properties at a discount, as long as those investors turn the properties into viable rentals for a specified number of years. ‘This rental period could provide relief for local housing markets that continue to be depressed by the volume of foreclosed properties, and provide additional rental options to certain markets,’ according to a release from the regulator, the Federal Housing Finance Agency (FHFA).

The FHFA launched the initial phase of pre-qualification. Investors must prove they have ‘(a) the financial wherewithal to acquire the assets; (b) sufficient experience and knowledge in financial and business matters to analyze and bear the risks of the investment opportunity; and (c) agreement to keep certain information about the REO [Real Estate Owned, i.e. bank owned] and related matters confidential.’ That last part is to keep the prices competitive as the market starts to improve. Giving investors the opportunity to help clear the massive amount of distress in the housing market is crucial. The inventory of foreclosed properties is large, getting larger, and making it impossible for the overall market to achieve price stability. Witness a report today from CoreLogic which shows that home prices in December fell 4.7% year-over-year including sales of distressed properties. Excluding those properties, home prices fell less than one%.

Some, however, think the program is a negative: ‘People are brainwashed to think foreclosures are a bad thing for the housing market. Perhaps four years ago when a million loans all went into default and Foreclosure at the same time but not today. Today, 1st timers and investors — with an insatiable appetite for foreclosures, REO resales, and short sales — are the bedrock of this housing market.’ – Mark Hanson, Mortgage Analyst

‘Foreclosed homes are already meeting strong demand from investors when they come to market. We think these buyers are willing to pay a relatively full price, as they know the specific locations, and a large number of buyers have the ability to bid on the individual homes (doesn’t require significant capital)… Additionally, it will be difficult/expensive for investors to scale up operations given the broad geographic dispersion of properties vs. more traditional rental units, potentially limiting participation.’ – Dan Oppenheim, Credit-Suisse

Oppenheim also asks a valid question as to why the government would offer discounts to large investors buying in bulk, but not to individual investors buying perhaps a single property. There are plenty of Americans out there salivating over incredibly low-priced homes; rental income could be as much of a boon to them as perhaps a tax cut or a refinance. It was interesting yesterday, during his speech touting a proposed new government mortgage refinance program, President Obama, caught up in the moment, exclaimed, ‘No more renting!’ Putting aside the public relations blunder that was, given the fact that the FHFA had announced its REO to rent program not two hours before, it just drove home the conflict our government has between what it thinks Americans want to hear and what our economic reality dictates.

A few simple facts: There is not enough buyer demand to meet the number of homes for sale. A huge number of the homes for sale are empty, foreclosed properties. Too many Americans either cannot afford to buy a home or do not have the credit necessary to finance a home. Too many Americans cannot afford to sell their current homes in order to move or step up to a larger home. Rental demand is therefore strong and getting stronger. While homeownership may be a tenet of the ‘American Dream,’ renting is today’s actuality for a growing number of Americans. Whether it is large investor bulk programs or single investor incentives, adding to rental supply, thereby lowering rents, while at the same time clearing the market of foreclosed properties is a win. It may not be as politically palatable as offering ‘responsible’ borrowers a veiled tax credit in the form of a mortgage refinance, but it is good medicine for what ails housing.”

Pension threat for market investors

It’s no secret that the financial crisis and resulting malaise has taken its toll on bank stocks, commodities and Treasury yields. But it may be have triggered another ripple – one that has gone somewhat unnoticed. Pension funds have become seriously underfunded. According to a recent report from Credit Suisse some of the nation’s largest companies owe their pensions more than 25% of their market cap (after taxes). Although the problem is complex, at its core is simple math. Many firms forecast returns of 8% annually, and that just hasn’t happened. This developing situation is potentially market moving because it could require companies to make larger contributions – much larger. And if contributions ‘do’ go up, the money will have to come from someplace on the balance sheet.

“A pension accounting change at UPS will result in $527 million after tax charge in 2011,” says Joe Terranova. “And Sunoco said they have to contribute $80 million into their pension funds.” In other words, the need to fund pensions could drag down profits and, in turn, share price. In fact, the pension liability at AK Steel was cited by BofA as a reason behind their recent decision to downgrade the stock to ‘Underperform’ from ‘Neutral.” “I think in 2012 it will be a recurring issue,” Terranova says. John Ehrhardt of Milliman confirms the thesis. He tells us that investors should expect record numbers of earnings charges in 2012. “Record low interest rates result in historically high liabilities and the only remaining lever may be employer contributions.” And according to Ehrhardt this may be just the tip of the iceberg. “These companies are going to need 20-30% returns to fill the kinds of gaps we’re talking about.”

WSJ – Ally financial swings to loss

Ally Financial Inc., the US government-owned auto lender, swung to a $250 million net loss in the fourth quarter after taking a charge for regulatory penalties stemming from foreclosure matters. The Detroit-based lender, which provides financing for General Motors Co. and Chrysler Group LLC dealers and customers, continued to make money from its auto-lending operations, but the results were weighed down again by its mortgage unit, which is saddled with lawsuits over foreclosures and soured mortgage investments. The loss compares to a year-ago profit of $79 million. It had a core pretax loss, which reflects results from continuing operations before taxes and other expenses, of $24 million, down from $526 million. Excluding a $270 million foreclosure-related charge, core pretax income would have been $246 million.

“One of our key priorities remains aggressively addressing the risks related to the mortgage business and taking steps to protect the key franchises at Ally,” Michael Carpenter, the company’s chief executive, said in a statement. “This will be critical to advance plans to repay the US taxpayer.” Ally, which was formerly owned by GM, is one of at least five major mortgage servicers in discussions with state and federal regulators over a potential settlement of “robo-signing” and other alleged foreclosure offenses. Regulators are close to finalizing a deal worth as much as $25 billion that could also include Bank of America Corp., Citigroup Inc., J.P. Morgan Chase & Co. and Wells Fargo & Co. On Tuesday, Ally said it would record the $270 million charge in the fourth quarter for penalties from regulators and other government agencies related to foreclosure issues.

The charge was mainly related to its mortgage subsidiary, Residential Capital, which has been the subject of bankruptcy speculation for several months. The charge caused a temporary decline in ResCap’s tangible net worth below $250 million, breaching debt covenants of some of its lenders, Ally said. Ally has been trying to scale back its mortgage operations as it focuses on building up its auto business and online retail bank. In November, the company said it would significantly curtail its correspondent lending operations, which comprise the bulk of its mortgage originations.

See you at the top!
Chris McLaughlin

**************

Copyright Loss Mitigation Institute LLC 2011.
All Rights Reserved.

http://www.shortsalesriches.com

http://www.shortsalescoach.com

http://www.sixfigurebpo.com

http://www.reomillionaireclub.com

http://www.youtube.com/shortsalesriches

http://www.smartrealestatenews.com

(subscribe to this newsletter)

*************************************************

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

* Follow me on Twitter: http://twitter.com/mclaughlinchris

* Join my Facebook Fan Page: http://www.mclaughlinchris.com

Smart Real Estate News & Commentary by Chris McLaughlin February 2, 2012

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Foreclosure deal deadline postponed

The deadline for states to decide whether to join a proposed nationwide foreclosure settlement with banks was delayed to Feb. 6 from Feb. 3, the Iowa Attorney General’s Office said. States were given more time to evaluate the proposal, which may total $25 billion, after at least one asked for a delay, Geoff Greenwood, a spokesman for Iowa Attorney General Tom Miller, said yesterday in a phone interview. Miller is helping to lead negotiations. State and federal officials have been negotiating an agreement with mortgage servicers that would provide mortgage relief to homeowners and set requirements for how banks conduct foreclosures.

State officials are reviewing the agreement with Bank of America Corp., JPMorgan Chase & Co., Citigroup Inc., Wells Fargo & Co. and Ally Financial Inc., and are being asked to sign on. Greenwood declined to name the state that asked for more time or comment on state support for the deal. Nevada Attorney General Catherine Cortez Masto said in a Jan. 27 letter to Miller, the Justice Department and US Housing and Urban Development Secretary Shaun Donovan that she needed answers to 38 questions to evaluate the deal. The deadline was changed as Oregon Attorney General John Kroger said today in a statement that he would sign on to the settlement, joining Connecticut Attorney General George Jepsen, who also supports it. Delaware Attorney General Beau Biden has said he won’t sign on to the settlement.

Job cuts jump in January

The number of job cuts announced by employers jumped 28% in January, led by retailers and financial firms, according to the latest report by global outplacement firm Challenger, Gray & Christmas. Still, job losses announced last month were the lowest on record for a January, the month that typically sees the greatest number of layoffs, the firm said. Employers last month said they planned to cut 53,486 positions, compared with 41,785 job cuts announced in December. The January job cuts were 39% higher than during the same period a year earlier, when employers said they planned 38,519 cuts. Retailers and financial firms saw the greatest cuts, losing 12,426 and 7,611 jobs, respectively.

Challenger said the retail job losses were not related to seasonal hiring, and instead were the result of restructurings, store closings, and other cost-cutting measures. The financial sector saw the most job losses since September, when 31,167 cuts were announced. Challenger noted that most of those layoffs came from. Government job cuts continued to dwindle for a second straight month, with just 3,021 layoffs announced in January. “Of course, it is far too early to say whether we will continue to see low job-cut figures in government. It is highly unlikely, considering that many cities and states continue to struggle with budget deficits,” Challenger said in a statement. “And, then there is the federal level of government, which remains under intense pressure to cut costs. As a result, we expect government layoffs to be heavy again this year.”

LPS – house prices slow decline

Lender Processing Services, Inc. (LPS),  today announced that its LPS Applied Analytics division updated its home price index (LPS HPI) with residential sales concluded during November 2011. The LPS HPI summarizes home price trends nationwide by tracking sales each month in more than 13,500 ZIP codes. Within each ZIP code, the LPS HPI tracks five price levels from low to high. “Since the post-bubble drop in home prices eased in January of 2009, we’ve generally seen that prices for homes in the lowest 20% of local markets in the metropolitan areas covered by the LPS HPI now differ by more than the highest 20% from their levels 10 years ago,” said Kyle Lundstedt, managing director of LPS Applied Analytics. “In those metropolitan areas where lowest-priced homes have increased in value, the differences between the high and low ends of the market have usually shrunk; where they have decreased in value, the differences have grown.”

The LPS HPI national average home price for transactions during November 2011 was $199,000 – a decline of 0.6% during the month relative to October 2011, reaching a price level not seen since October 2002 (Figure 1, Table 1). This is the fifth consecutive month of price decreases. The partial data available for December suggests further price declines of approximately 0.8%. LPS reported partial data from November transactions in its December release, which proved a reasonable indicator for November’s performance: it showed a preliminary 0.5% estimated decline, compared to the 0.6% for the full month’s data. LPS HPI average national home prices continue the downward trend begun after the market peak in June 2006, when the total value of US housing inventory covered by the LPS HPI stood at $10.8 trillion. Since that peak, the value has declined 30.6% to $7.5 trillion. During the period of most rapid price declines, from June 2007 through December 2008, the LPS HPI national average home price dropped $56,000 from $282,000, which corresponds to an average annual decline of 13.8%. Since December 2008, prices have fallen more slowly, interrupted by brief seasonal intervals of rising prices. During this period of more slowly declining prices, the national average home price has fallen approximately $26,000 from $226,000.

The November national average price is down 3.4% from the average price at the beginning of the year. Home prices in November were consistent with the seasonal pattern that has been occurring since 2009. Each year, prices have risen in the spring, but have reverted in autumn to a downward trend that has not only erased the gains, but has led to an average 4.4% annual drop in prices to date. The national average home price has declined 4.8% over the most recent year to November 2011. Price changes were largely consistent across the country during November, increasing in 13% of the ZIP codes in the LPS HPI. Higher-priced homes had somewhat smaller declines: 0.55% for the top 20% of homes (prices above $311,000), compared to 0.60% for the bottom 20% (below $100,000). The highest-priced homes, the top 1% (prices above $839,000), declined 0.47%.

Claims and productivity both easing

New US claims for unemployment benefits fell last week, a government report showed today, pointing to more healing in the nations battered jobs market. Initial claims for state unemployment benefits dropped 12,000 to a seasonally adjusted 367,000, the Labor Department said. The prior week’s figure was revised up to 379,000 from the previously reported 377,000. Economists polled by Reuters had forecast claims falling to 375,000. Claims have been lower than 400,000 for eight of the last 10 weeks, holding below a level associated with labor market healing. The four-week moving average for initial claims, a trend measure that smooths out volatility, fell 2,000 to 375,750. A Labor Department official said there was nothing unusual in the state-level data and that no state had been estimated. Job growth has gained momentum in recent months and the unemployment rate dropped to a near three-year low of 8.5% in December. The number of people still receiving benefits under regular state programs after an initial week of aid fell 130,000 to 3.437 million in the week ended January 21, the lowest since September 2008. Economists had forecast so-called continuing claims at 3.55 million. The number of Americans on emergency unemployment benefits rose 100,392 to 3.022 million in the week ended January 14, the latest week for which data is available. A total of 7.67 million people were claiming unemployment benefits during that period under all programs, little changed from the prior week.

Meanwhile, productivity increased at a 0.7% annual rate, the Labor Department said today. Economists polled by Reuters had forecast productivity, which measures hourly output per worker, rising at a 0.8% rate. Productivity rose at a 1.9% pace in the third quarter. Over the entire year, productivity rose 0.7%, the slowest since 2008. Hourly compensation rose at a 1.9% rate in the last three months of the year after contracting in the previous two quarters. That is well below the US inflation rate, with consumer prices rising 3.0% in the 12 months through December. Subdued wage growth supports the US Federal Reserve’s view of a low inflation environment. This likely gives the US central bank more room to try to boost growth and tackle stubbornly high unemployment. Though productivity has slowed after growing rapidly as the economy emerged from the 2007-09 recession, businesses have maintained the bulk of the gains made during the recovery. Businesses, estimated to be sitting on a cash pile of about $2 trillion, continue to hold the line on costs. Unit labor costs rose at a 1.2% rate in the fourth quarter. Economists had expected fourth-quarter unit labor costs would increase at a 0.8% rate.

WSJ – GOP discusses Obama’s mortgage plan

President Barack Obama, in announcing a program to help struggling homeowners refinance their mortgages, is betting this plan will fare better than his administration’s earlier efforts to fix the housing market. But House Speaker John Boehner (R., Ohio) questioned why this program would work when others have failed. “One more time? One more time? How many times have we done this?” he asked reporters. “I don’t know why anyone would think that this next idea is going to work.” He added that the previous programs have led to a delay in “the clearing of the market,” or letting housing prices hit bottom by allowing foreclosures to happen more rapidly. Republicans see additional government intervention as doing little to improve the housing situation. Mitt Romney, the front-runner for the GOP presidential nomination, said in October that the government should not try to stop foreclosures but let the housing market “hit the bottom.” He has argued that Mr. Obama’s housing policies have failed.

The government already has programs that allow some homeowners who are current on their payments to refinance at lower interest rates, even if they owe more than their homes are worth or wouldn’t otherwise qualify. Those programs are limited to borrowers with mortgages backed by Fannie Mae and Freddie Mac. The latest proposal would extend that option to all homeowners, allowing borrowers who are current on payments to refinance into new loans backed by the Federal Housing Administration. That requires congressional approval, partly because it would cost money. Economists said the latest proposal—at least on paper—is more ambitious than previous plans because it would allow more borrowers to qualify. Until now, policy makers and elected officials have been hesitant to take bolder steps because the political will simply isn’t there, analysts said. Many of those solutions would mean spending more money or forcing banks and investors to take bigger losses. Instead, policy makers tried to steer a middle course. Many have worried that rewarding irresponsible behavior would create a “moral hazard” that might encourage more defaults.

The hitch is that the programs were designed to make sure they didn’t help borrowers who took on more debt than they could afford. And that “made these programs very complicated,” said David Stevens, chief executive of the Mortgage Bankers Association who spent two years as a top Obama administration housing official. Using the FHA to refinance at-risk borrowers isn’t a new idea. The Bush administration and Congress passed a program in 2008 called for Hope for Homeowners that also employed the agency to refinance at-risk homeowners. It included many restrictions and resulted in just a few hundred refinanced loans. The Obama administration rolled out a similar initiative without Congress two years ago. It resulted in around 700 refinances. “The banks decided not to participate,” said Peter Swire, a former housing adviser to Mr. Obama. “So now the administration is looking for another way to achieve the same goals.”

US still risks recession

In the United States, the manufacturing sector grew at its fastest pace in seven months in January as new orders improved, but Jim Walker, Founder and Managing Director of independent research firm, Asianomics, said that the US economy is going to face a slowdown this year owing to fiscal tightening.

“There’s going to be a significant slowdown in fiscal expenditure in the US, they’re going to have to control the fiscal side much more as the year goes on,” he said. On Wednesday, the US House of Representatives voted overwhelmingly to freeze wages for federal civilian workers until 2013, a move that will save taxpayers $26 billion. According to Walker, pullbacks in government spending will cut between 1 and 1.5% from US GDP in 2012. Walker also believes corporate investment is likely to slow after the federal depreciation allowance expired at the end of 2011. In a report for clients released in December, Walker said there was a 55% chance of a US recession.

He also argued that US consumers were due for another “period of reckoning”, despite improving consumer confidence and spending numbers. He listed a litany of reasons: “Home prices are still falling (on a mild deflation path), equity prices are still off their highs of the year, household credit outstanding is still contracting, real hourly compensation growth is still negative, employment growth is still sub par – and up until November – consumer confidence was fast approaching the recession lows of 2008.” Walker is much more bearish on Europe, which he says is destined for a recession, with GDP contracting 2 to 5% in 2012. He expects further monetary easing from global central banks, which he says will boost precious metals, most notably silver. But he says investors should short the Euro and avoid industrial metals such as copper, which will suffer from a global downturn.

Atlanta lags in housing recovery

Housing prices continue to fall nationwide, despite a few modest signs of improvement. But not all markets are equal. A sprawling Southern metropolis, Atlanta has become one of the biggest laggards in the economic recovery. In November, prices of single-family homes were down close to 12% compared with a year earlier, the largest decline among major metropolitan areas, according to data released on Tuesday in the Standard & Poor’s/Case-Shiller Home Price Index. Home prices regionally are now below their levels of 2000, making Atlanta one of only four metro areas to have experienced such a slide. The price of entry-level housing in the area — the lowest tier of the market, valued at just under $96,600 — fell by close to a third last year.

Even though the national economy shows signs of strengthening, the beleaguered housing market remains a significant drag on the recovery. Across a group of 20 metropolitan areas measured by S&P/Case-Shiller, prices of single-family homes were 3.7% lower in November compared with a year earlier, with average prices at their 2003 levels. Economists say prices are unlikely to hit a nadir until at least late spring. Tom Porcelli, chief United States economist at RBC Capital Markets in New York, projects that average prices could slip by as much as 5% nationally this year because of the large amount of distressed properties for sale and a shortage of buyers. Although Mr. Porcelli describes a “generally better outlook on housing” than he has over the last few years, he added, “we still have a long way to go.”

The reasons for Atlanta’s housing woes are both representative of the nation’s troubles and special to this former boomtown, where housing appreciated handsomely, though not to the lofty heights of Las Vegas, Miami and New York. Where the region once attracted thousands of prospective home buyers drawn by plentiful jobs and more affordable living, that influx has dwindled. Local unemployment, at 9.2%, is slightly higher than the national rate, in part because one in every four jobs lost was connected to real estate, a much higher rate than in the rest of the country. Those jobs have yet to return, while even people with work are having trouble qualifying for loans. The region, plagued by mortgage fraud and developers who dotted the exurban landscape with large luxury homes that never sold, is inundated with foreclosed properties. In fact, Atlanta has the most government-owned foreclosed properties for sale of any large city, according to the Federal Reserve.

See you at the top!

Chris McLaughlin

**************

Copyright Loss Mitigation Institute LLC 2011.

All Rights Reserved.

http://www.shortsalesriches.com

http://www.shortsalescoach.com

http://www.sixfigurebpo.com

http://www.reomillionaireclub.com

http://www.youtube.com/shortsalesriches

http://www.smartrealestatenews.com

(subscribe to this newsletter)

*************************************************

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

* Follow me on Twitter: http://twitter.com/mclaughlinchris

* Join my Facebook Fan Page: http://www.mclaughlinchris.com

Forward this e-mail to your friends!

Then they can subscribe directly at the following link:

http://www.smartrealestatenews.com/

*** Join Chris’ Facebook Fan Page–>

http://www.mclaughlinchris.com

*** Follow Chris on Twitter–>

http://www.twitter.com/mclaughlinchris

************************************************************

Foreclosures drawing private equity

Private equity firms are jumping into distressed housing as the US government plans to market 200,000 foreclosed homes as rentals to speed up the economic recovery.  GTIS Partners will spend $1 billion by 2016 acquiring single-family homes to manage as rentals, Thomas Shapiro, the fund’s founder said. That followed announcements this month that GI Partners, a Menlo Park private equity fund, expects to invest $1 billion, and Los Angeles-based Oaktree Capital Management LP will spend $450 million on similar housing.  “It’s a massive market,” Shapiro said in a telephone interview from New York. “We’re starting to see this as a billion dollar opportunity to buy rental housing.” Increasing rentals may reduce lenders’ losses on foreclosed and surrendered properties and curb declines in home prices, according to a Federal Reserve study Chairman Ben S. Bernanke sent to Congress on Jan. 4. Private equity funds began focusing on these investments in September, after the administration asked for proposals to sell the government’s inventory of foreclosed homes — about half of all houses seized from delinquent borrowers.

Private sector gains 170,000 jobs

The private sector created 170,000 jobs in January, boosted again by a surge in service-sector employment, according a report from ADP and Macroeconomic Advisors.  With economists looking for signs of life in the jobs market, the ADP number was close to consensus estimates and likely sets the stage for solid though not overwhelming overall growth when the government releases its monthly report Friday.  The private payrolls report showed service jobs growing by 152,000 in January, after rising a revised 241,000 in December.  Goods-producing jobs rose 18,000 while manufacturing added 10,000 and construction gained 2,000 for the month.  The total number of private sector jobs created is a substantial dropoff from December’s report that showed a revised 292,000, revised down from 325,000.  The Labor Department on Friday is expected to report nonfarm payrolls growth of 159,000 and an unchanged unemployment rate of 8.5%, according to StreetAccount estimates. Economists sometimes use the ADP numbers to adjust their projected unemployment estimates.  ADP’s numbers have been running on average 10,000 more than the government, though that number swelled to 92,000 in December, raising caution that seasonal distortions could be influencing the payroll firm’s figures.

November home prices down 3.7% from previous year

The average price of a single-family home fell again in November, with decreases in 19 of the 20 largest metropolitan areas during the month, according to the Standard & Poor’s/Case-Shiller index.  The ratings agency’s 20-city composite index and 10-city index both declined 1.3% from a month earlier. The larger, benchmark index drop 3.7% from November 2010 and the 10-city index for November was 3.6% lower than the year earlier.  S&P said both indices are one-third lower than the peak in the summer of 2006 and home prices are now at levels last seen in the middle of 2003.  Atlanta home prices for November were nearly 12% lower than the prior year, while Detroit at 3.8% and Washington with a 0.5% gain are the only metropolitan areas to post annual increases. Home prices in Atlanta, Las Vegas, Seattle and Tampa, Fla., all reached new lows in November, according to S&P/Case-Shiller.  “Despite continued low interest rates and better real GDP growth in the fourth quarter, home prices continue to fall,” said David Blitzer, chairman of the S&P index committee.  He said Phoenix, one of the hardest-hit areas in recent years, was the only MSA to post an increase in prices from October with a 0.6% gain.  “Annual rates were little better as 18 cities and both composites were negative,” Blitzer said. “The trend is down and there are few, if any, signs in the numbers that a turning point is close at hand.”  Analysts with Toronto-based Capital Economics agreed and said “there are still no signs that house prices are on the verge of turning around,” as the Case-Shiller indices fell for the seventh month in a row.  “But things should be different in six months’ time, when the recent rises in home sales will have helped to put a floor under prices,” the analysts said.

California is broke

California needs to come up with more than $3 billion to avoid burning through its cash by March, according to the state controller, who urged borrowing and delaying some payments.  “Assuming no additional revenue loss, erosion of borrowable internal funds, or significant spikes in spending, $3.3 billion of cash solutions are needed to address California’s liquidity needs during this period,” State Controller John Chiang said in a letter to the chairman and vice chairman of the Joint Legislative Budget Committee released on Tuesday.  Chiang said California does not need to issue IOUs again as it did during a cash crunch in 2009 or delay tax refunds, noting he has developed a plan with the state treasurer’s office and the state’s finance department that would postpone some payments and borrow from external sources and from state accounts to bolster the state’s cash.  “It is not an ideal solution, but it is the best way to manage the challenge without relying on IOUs or delaying tax refunds — actions that can disrupt the delivery of essential public services and slow California’s economic recovery,” Chiang said.  Senator Mark Leno, chairman of the Joint Legislative Budget Committee, said he expects the Senate and Assembly by the end the week will approve borrowing from state funds. Leno said he expects the internal borrowing will raise approximately $850 million.  Chiang noted California’s dwindling cash reflects revenue coming in below forecast in the state’s budget and spending exceeding expectations.

MBA – mortgage applications down

Mortgage applications decreased 2.9% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 27, 2012.  The Market Composite Index, a measure of mortgage loan application volume, decreased 2.9% on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index increased 9.0% compared with the previous week.  The Refinance Index decreased 3.6% from the previous week.  The seasonally adjusted Purchase Index decreased 1.7% from one week earlier. The unadjusted Purchase Index increased 17.1% compared with the previous week and was 4.3% lower than the same week one year ago.  The four week moving average for the seasonally adjusted Market Index is up 4.11%.  The four week moving average is up 2.48% for the seasonally adjusted Purchase Index, while this average is up 4.22% for the Refinance Index.

The refinance share of mortgage activity decreased to 80.0% of total applications from 81.3% 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.  “The Federal Reserve surprised the market last week by indicating that short-term rates were likely to stay at their current low-levels until the end of 2014.  Longer-term treasury rates dropped in response, and mortgage rates for the week were down slightly as a result,” said Michael Fratantoni, MBA’s Vice President of Research and Economics.  Fratantoni continued, “Although total application volume dropped on an adjusted basis relative to last week, refinance volume remains high, with survey participants reporting that the expanded Home Affordable Refinance Program (HARP) contributed to roughly 10% of their refinance activity.”  In December 2011, Connecticut had the largest increase in refinance applications, increasing by 80.1% from November. Maine saw a 30.8% increase in applications for home purchase, which was the largest state-increase in applications for home purchase. Only 12 states had a decrease in home purchase activity in December, while every state in the US saw an increase in refinance volume.

Europe on life support

The European Central Bank (ECB) has saved the euro zone from a heart attack, but its members face a long convalescence, made worse by the insistence that fiscal starvation is the right remedy for feeble patients.  Last week’s downgrading of its forecasts by the International Monetary Fund (IMF) shows the dangers. The IMF now forecasts a recession in the euro zone this year, with a decline of 0.5 per cent in overall gross domestic product (GDP).  GDP is forecast to fall sharply in Italy and Spain, and stagnate in France and Germany. This is a terrible environment for countries seeking to cut fiscal deficits. Forecasts are far from satisfactory for other high-income countries. But the euro zone is the most dangerous part of the world economy: only there do we see important governments — Italy and Spain — menaced by a loss of creditworthiness.

Elsewhere, governments of high-income countries can continue to support their economies, largely because they possess a central bank and an adjustable exchange rate. This combination has given them the ability to run large fiscal deficits. In post-crisis conditions, such deficits are both the natural counterpart and the principal facilitator of necessary private sector deleveraging.  The euro zone has no such internal mechanisms. When private external financing dried up, as happened to a number of countries, affected members needed both financing — in the short run — and a mechanism for adjusting their external accounts — in the longer run — other than via deep slumps.  The euro zone lacks both capacities. It has turned out, as a result, to have limited ability to cope with the global financial disease. As Donald Tsang, chief executive of Hong Kong, remarked in Davos: “I have never been as scared as I am now.” Astute observers have a sense that little stands between them and a wave of sovereign and banking defaults inside the euro zone, with ghastly global repercussions.

Olick – refinancing to go through FHA

“After announcing during his State of the Union address a new government refinance program for, ‘responsible’ but ‘underwater’ borrowers with privately held mortgages, President Obama is expected to detail the plan today.  It will go through the government mortgage insurer, the Federal Housing Administration (FHA) and could cost between 5 and 10 billion dollars, according to senior administration officials.  The cost of the program, officials say, would be covered by a tax on major lenders, which is likely to make it a no-go in Congress.  It would cover closing fees for borrowers and additional risk to the FHA, which doesn’t insure new loans where the borrower owes more than the home is worth.  Critics will also argue that the FHA, which now has an inordinately, historically large share of the mortgage market, is in no position to take on any more risk. The FHA could be considered ‘underwater’ itself, guaranteeing about $1 trillion in mortgages but sitting on just a $1.2 billion dollar cushion to cover losses.  To that end, officials say they could create a separate fund for these loans, not the regular mutual mortgage insurance fund (MMI). This would be a special risk fund, designed to handle high losses.  ‘In this program we’re talking about extraordinary circumstances,’ says Brian Chappelle of Potomac Partners. ‘People have played by the rules, they made payments in addition to the fact that their house is underwater, they’re paying excessively high rates. It’s a unique homeowner, not somebody looking for a handout.’

To be eligible, borrowers would have to be current on their mortgages, not having missed a payment in at least six months. They need a credit score (FICO) above 580, must be employed, and must have a conforming loan (between $271,050 and $729,750 depending on their location). No appraisal would be necessary, according to officials.  Estimates are that the plan could help 3.5 million borrowers in addition to the 11 million expected to qualify for the existing refinance program for those with Fannie Mae and Freddie Mac loans (HARP). The one sticking point could be the mortgage insurance premiums charged by the FHA. If rolled into the loan, they would put a borrower further underwater.  ‘To use taxpayer dollars to bail out the few who are current and don’t need payment assistance but are underwater is ludicrous and worsens their equity position,’ says JT Smith of Aristar Funding.  The plan would also require lenders to write down the value of the loan if it exceeded 140% of the value of the home. Administration officials say the trade-off for lenders is they get rid of a risky loan.

On the flip side, the government would then be backing that same risky loan, but officials argue they would offset some of that risk because in order to get closing fees paid, the borrower has to agree to use the lower interest rate savings on the refinance to pay off principal balance.  The plan faces many headwinds, first and foremost being Congressional approval; borrowers and lenders would also have to agree to all the requirements, as this is not an automatic plan but a voluntary, borrower-initiated deal. It would also rile Wall Street, as hundreds of thousands of loans could ‘pre-pay,’ which means the bondholders lose.  ‘Some say it undermines the value of existing [mortgage] securities, so they would build a premium in,’ notes Chappelle. That could make future loans for other Americans more expensive.”

US to charge European traders

US authorities are preparing to charge four former Credit Suisse employees with criminal and civil fraud related to write-downs on subprime mortgage derivatives at the height of the financial crisis, sources familiar with the matter said.  Credit Suisse will not be charged in the matter, which is being investigated by federal prosecutors and the US Securities and Exchange Commission (SEC), the sources said.  The four people to be charged were former Credit Suisse traders who were fired, another source said, but it was unclear when and for what reason.  The suspected illegal conduct took place roughly four years ago, the source said, adding that the bank had been cooperating with officials.  The investigation stems from $2.85 billion in write-downs that Credit Suisse took on collateralized debt obligations in 2008, said the sources, who spoke on the condition of anonymity.  Credit Suisse revealed those CDO losses in early 2008, and blamed them on a group of rogue traders – who the bank said had deliberately mispriced securities – and on a failure of internal controls.  Credit Suisse, the Federal Bureau of Investigation, the SEC and Manhattan US attorney Preet Bharara declined to comment on the matter.

WSJ – housing’s firmer foundation

The Case-Shiller index is closely watched for a reason. It was quicker than a US government price index to show just how bad things were as housing came off the rails in 2007.  But right now, the connection between what the S&P/Case-Shiller index says and what is actually going on with housing may be lukewarm at best.  The difference: The Federal Housing Finance Agency index includes only homes with mortgages guaranteed by Fannie Mae and Freddie Mac, while the Case-Shiller index includes those backed by jumbo and subprime mortgages.  Many homes that were backed by subprime mortgages are now being sold in foreclosure. They aren’t in nearly as good condition as when they were last bought, and are selling for less than if they had been properly maintained. Because the Case-Shiller index is based on repeat sales, such homes may be biasing it downward.  Moreover, the Case-Shiller index is based on a three-month average of sales, so its November level includes transactions that were completed in October and September. Consider that it takes about two months between a sale and a closing (often longer with mortgage hassles these days), and you are talking about deals agreed on in the summer, when recession fears filled the air. Things now look better. Home prices probably do, too.

See you at the top!
Chris McLaughlin

**************

Copyright Loss Mitigation Institute LLC 2011.
All Rights Reserved.

http://www.shortsalesriches.com

http://www.shortsalescoach.com

http://www.sixfigurebpo.com

http://www.reomillionaireclub.com

http://www.youtube.com/shortsalesriches

http://www.smartrealestatenews.com

(subscribe to this newsletter)

*************************************************

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

* Follow me on Twitter: http://twitter.com/mclaughlinchris

* Join my Facebook Fan Page: http://www.mclaughlinchris.com

Forward this e-mail to your friends!
Then they can subscribe directly at the following link:

http://www.smartrealestatenews.com/

*** Join Chris’ Facebook Fan Page–>

http://www.mclaughlinchris.com

*** Follow Chris on Twitter–>

http://www.twitter.com/mclaughlinchris

************************************************************

Washington state considers short sale protection

Banks could soon be barred from pursuing deficiency judgments against Washington state borrowers after a short sale. A Senate committee in the Washington State Legislature will hold a hearing over H.B. 2718, which states that if a bank “writes off debt from the short sale, they can’t then subsequently collect this debt from the seller. The bill was modeled after similar action passed in Oregon last summer. The bill if passed does not require the lender to accept a short sale offer. It would go into effect with 90 days of being passed. According to a Washington Realtors alert put out late last week, a borrower would report the write off to the Internal Revenue Service and take a tax deduction for the loss. This same amount is also counted as taxable income for the seller. “Providing certainty and consumer protections for short sale sellers is critical in the current real estate market,” the trade group said. “Successful short sales often prevent foreclosures that would harm consumers, tax revenue and economic recovery.” After the Oregon bill took effect in June, REO numbers became choppy and then began to fall at the end of the year. In September, repossessed homes totaled 1,420, according to RealtyTrac. That number increased to 2,057 the following month then slid to 936 in November and 874 in December. Some of that could be due to seasonal trends. Most lenders put repossessions on hold during the holiday season, but the December total was down 29% from the same month one year earlier.

S&P warns of rate cuts over health costs
Ratings agency Standard & Poor’s warned it may downgrade “a number of highly rated” Group of 20 countries from 2015 if their governments fail to enact reforms to curb rising healthcare spending and other costs related to aging populations. Developed nations in Europe, as well as Japan and the United States, are likely to suffer the largest deterioration in their public finances in the next four decades as more elderly strain social safety nets, S&P said in a report. “Steadily rising healthcare spending will pull heavily on public purse strings in the coming decades,” S&P analyst Marko Mrsnik wrote in the report. “If governments do not change their social protection systems, they will likely become unsustainable.” If no reforms are adopted, healthcare-related credit downgrades would likely start within three years, eventually leading to an increase in the number of junk-rated countries as of 2020, the study showed.

Olick – US Treasury forcing principal forgiveness

“Late Friday the US Treasury Department announced a major expansion of its Home Affordable Modification Program (HAMP). The three-year-old program has been largely deemed unsuccessful, as it has provided just about 750,000 borrowers with permanent loan modifications. The initial expectation from government officials was that it would help three to four million borrowers. ‘Clearly the initial program erred on the side of making sure taxpayers were protected, but it didn’t do enough to help the overall economy,’ said Michael Barr, former Asst. Treasury Secretary for Financial Institutions and one of HAMP’s original architects. Now taxpayers will pony up the cash, as Treasury is tripling the financial incentives to lenders and opening the program up to Fannie Mae, Freddie Mac and investors in rental properties. The money would come out of TARP funds, i.e. from the taxpayers. We still don’t know if Fannie and Freddie will participate, since their conservator, the FHFA’s Ed DeMarco, has been actively fighting principal write down for years. A week ago he sent a letter to members of congress explaining the math behind his argument.

But the Treasury may be forcing DeMarco’s hand. He claimed that writing down mortgage principal would cost $4 billion more than the modifications that Fannie and Freddie are doing now. Those involve interest rate reduction and principal forbearance. The newly expanded HAMP, however, with its triple- sized cash incentives, would shore up that $4 billion hole. Funny how he mentioned that hole on Monday, and the Treasury announced the new plan Friday. ‘If he [DeMarco] doesn’t get to yes, then he has no political leg to stand on,’ says FBR’s Ed Mills, who estimates the enhanced program could add one million borrowers to its ranks. Mills says a ‘no’ from DeMarco would enable the Obama Administration to replace him, which it tried to do once before, only to be blocked by members of Congress. ‘It would be an appropriate response for him to do it,’ says Barr of DeMarco. ‘I do think they should participate.’ I asked Barr why the Treasury waited three years to use the TARP funds for principal reduction. The obvious answer is that this is presidential election year, and the housing market is still floundering, but Barr claims the Treasury was just being careful. ‘It’s a use of taxpayer funds, and you want to make sure you’re not providing more of an incentive than is required,’ he said. ‘One person’s successful program is another person’s bailout.’”

Treasury department stirs the pot

The Treasury Department is investigating a report that Freddie Mac, the mortgage giant, bet against homeowners’ ability to refinance their loans even as it was making it more difficult for them to do so, Jay Carney, the White House spokesman, said yesterday. ProPublica and National Public Radio reported that Freddie Mac, which maintained slightly tighter restrictions than Fannie on homeowners’ eligibility to refinance, had a multibillion-dollar investment whose value hinged on borrowers continuing to pay higher interest rates. Beginning in 2010, Freddie bought several billion dollars’ worth of “inverse floater” securities — essentially the interest-paying portion of a bundle of mortgages — for its investment portfolio while selling the far less risky principal portion. Fannie and Freddie are supposed to be decreasing the size of their investment portfolios. There is no evidence that Freddie tailored its refinancing standards to its investing strategy, but “inverse floaters” make less money if the loans they cover refinance to a lower interest rate. Freddie issued a statement yesterday defending its commitment to helping homeowners. “Freddie Mac is actively supporting efforts for borrowers to realize the benefits of refinancing their mortgages to lower rates,” it said. The company said refinancing accounted for 78% of its loan purchases in 2011.

HAMP 2.0
The expansion of the Home Affordable Modification Program (HAMP) by the Treasury Department is expected to benefit special mortgage servicers, mortgage insurers and nonagency mortgage-backed securities holders, while having no material effect on agency MBS, Keefe, Bruyette & Woods said yesterday. Previously, if a borrower’s first-lien monthly mortgage payment was lower than 31% of income, the borrower was ineligible for HAMP. Factoring other debts to the evaluation will expand the pool of borrowers who can now qualify for HAMP. Investors also were given new incentives for accepting principal write-downs, with the financial benefits for such an action increasing from a range of 6 to 21 cents on the dollar to 18 to 63 cents. The Obama administration also extended the HAMP program deadline through December 2013. “We believe that the more flexible debt-to-income ratio and the inclusion of some investor properties will have a positive impact on modification activity,” KBW analysts said in its research note. “The impact of the increased principal reduction incentives remains unclear.

While it should help the nonagency sector, the impact would be far greater if there was GSE participation. The response from FHFA on Friday afternoon suggests that the GSEs might not participate,” according to KBW analysts. The research firm expects the changes to have “no material impact on agency MBS prepayment speeds.” However, special servicers in the mortgage industry are expected to benefit from the modifications. Ocwen Financial Corp. earned $28.3 million in HAMP incentive fees in the first nine months of 2011, and KBW believes other firms also will benefit from an expanded HAMP program. Barclays Capital analysts also see the changes as having no significant impact on agency MBS. “The reason is that the vast majority of debt forgiveness will be on delinquent loans, which are typically already bought out of the agency MBS trust,” Barclays wrote. “The only effect might be from the moral hazard side: if underwater borrowers in agency MBS pools start going delinquent on purpose to qualify for debt forgiveness, speeds will obviously rise. But we think this is unlikely to have a significant effect on agency speeds.”

See you at the top!
Chris McLaughlin

**************

Copyright Loss Mitigation Institute LLC 2011.
All Rights Reserved.

http://www.shortsalesriches.com

http://www.shortsalescoach.com

http://www.sixfigurebpo.com

http://www.reomillionaireclub.com

http://www.youtube.com/shortsalesriches

http://www.smartrealestatenews.com

(subscribe to this newsletter)

*************************************************

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

* Follow me on Twitter: http://twitter.com/mclaughlinchris

* Join my Facebook Fan Page: http://www.mclaughlinchris.com

Forward this e-mail to your friends!

Then they can subscribe directly at the following link:

http://www.smartrealestatenews.com/

*** Join Chris’ Facebook Fan Page–>

http://www.mclaughlinchris.com

*** Follow Chris on Twitter–>

http://www.twitter.com/mclaughlinchris

************************************************************

OC Register – investors are the answer

“According to a foreclosure sales report by RealtyTrac, foreclosure-related homes are still being gobbled up — they represent 20% of total transactions in 2011 Q3.  Foreclosures are usually viewed as a supply and price issue. High foreclosures keep home prices down, creating negative equity — and declining home prices keep foreclosures coming. This is a seemingly vicious cycle that feeds into the “shadow supply” problem and looks potentially like a never ending story.  But all vicious cycles eventually come to an end in a capitalist market system. Ironically, it is the enthusiastic response of investors and regular buyers to low-priced foreclosed homes, which could eventually break the foreclosure cycle.  Foreclosure-related home sales were one-fifth of total US home sales in the third quarter vs. 22% in the quarter before and 30% during the third quarter of 2010.

The decline in the market share of foreclosure-related home sales is partially explained by various hurdles to the efficient conclusion of the foreclosures process, but “even with the hurdles to selling foreclosures, foreclosure sales continue to represent a historical high percentage of all sales,” says RealtyTrac. Foreclosures’ shrinking share could also be caused by declining mortgage delinquencies, which have been dropping relatively quickly in California, according to the Mortgage Bankers Association.  In California, the share of foreclosure related sales was 44% in the third quarter. California has one of the most efficient foreclosure recycling processes in the nation, so temporary supply constraints are not that big of an issue as, for example, they may be in Florida.  Strong demand may be stabilizing the average sales price of home in foreclosure, too, which was up 1% from the previous quarter and down just 3% for the third quarter in 2010. The reported average discount for foreclosed properties relative to regular homes was 34% — but I wouldn’t read too much into these numbers because they are not quality adjusted.  Still, declining mortgage delinquencies and strong demand for foreclosure product could mean that the end may soon be here for the foreclosure business — and what’s lurking in the shadows.”

Income up, spending down

The Commerce Department said today that spending was the weakest since June and followed a 0.1% gain in November.  Economists polled by Reuters had expected spending, which accounts for more than two-thirds of US economic activity, to nudge up 0.1% last month. For all of 2011, spending rose 4.7%, the largest increase since 2007.  When adjusted for inflation, spending dipped 0.1%, breaking three straight months of gains. It increased 0.1% in November.  The government reported on Friday that consumer spending grew at a 2.0% annual pace in the fourth quarter, helping to lift gross domestic product 2.8% — acceleration from the third-quarter’s 1.8% rate.  Part of the spending, which has been concentrated in motor vehicles, has been funded from savings and credit cards as high unemployment constrains wage growth.

Wages rose last month, helping to prop-up incomes. Income advanced 0.5%, the largest gain since a matching increase in March, and followed a 0.1% rise in November. Economists had expected income to rise 0.4%.  Consumer spending is closely watched because it accounts for 70% of economic activity.  Unemployment stands at 8.5% — its lowest level in nearly three years after a sixth straight month of solid hiring.  For the final three months of 2011, Americans spent more on vehicles, and companies restocked their supplies at a robust pace.  Still, overall growth last quarter — and for all of last year — was slowed by the sharpest cuts in annual government spending in four decades. And many people are reluctant to spend more or buy homes, and many employers remain hesitant to hire, even though job growth has strengthened.

LPS – 2010-2011 originations good quality

The December Mortgage Monitor report released by Lender Processing Services shows mortgage originations continued their decline from 2011’s September peak, down 10.1% from the month before. At the same time, those loans originated over the last two years have proven to be some of the best quality originations on record. Likely a result of tighter lending requirements, 2010-11 vintage originations showed 90-day default rates below those of all other years, going back to 2005. December origination data also shows that recent prepayment activity – a key indicator of mortgage refinances – has remained strong, with 2008-09 originations, high credit score borrowers and government-backed loans having benefited the most from recent, historically low interest rates.

Looking at judicial vs. non-judicial foreclosure states, LPS found that half of all loans in foreclosure in judicial states have not made a payment in more than two years. Foreclosure sale rates in non-judicial states stood at approximately four times that of judicial foreclosure states in December. Still, on average, pipeline ratios (the time it would take to clear through the inventory of loans either seriously delinquent or in foreclosure at the current rate of foreclosure sales) have declined significantly from earlier this year.

The December mortgage performance data also showed that foreclosure starts continued to decline, remaining at multi-year lows as of the end of 2011; down 3.7% for the month, and nearly 40% for the year.  As reported in LPS’ First Look release, other key results from LPS’ latest Mortgage Monitor report include:

Total US loan delinquency rate:  8.15%

​Month-over-month change in delinquency rate:  0.0%

​Total U.S foreclosure pre-sale inventory rate:  ​4.11%

​Month-over-month change in foreclosure pre-sale inventory:  -1.3%

​States with highest percentage of non-current loans:  FL, MS, NV, NJ, IL

​States with the lowest percentage of non-current loans:  MT, WY, SD, AK, ND

Big banks hedge against EU

Five large American banks, including JPMorgan Chase and Goldman Sachs, have more than $80 billion of exposure to Italy, Spain, Portugal, Ireland and Greece, the most economically stressed nations in the euro currency zone, according to a New York Times analysis of the banks’ financial disclosures.  But these banks have made extensive use of a type of financial insurance, called credit default swaps, to help them offset any losses that might occur if defaults swamped the five troubled nations. Using these swaps, along with other measures, the five banks have cut their theoretical exposure to the troubled countries by $30 billion, to $50 billion. The analysis also shows that Citigroup has the greatest percentage of its exposure potentially protected at 47%, while Bank of America has bought the least protection at 12%.  Big banks have reduced their sovereign debt exposure, but they still have tens of billions of dollars of it.  Credit-default swaps have functioned well for big bankruptcies, but they were also a big source of systemic weakness in 2008, when the American International Group nearly collapsed because it could not make payments on its side of its swaps contracts. Some market participants now doubt they would work properly during periods of great financial instability.  “The likelihood of actually getting paid out from owning a credit default swap would be troubling to me if this were my hedge against a systemic shock — especially in a political environment unfriendly to more Wall Street bailouts,” Mark Spitznagel, chief investment officer at Universal Investments, a hedge fund, said through a spokesman.

Olick – foreclosure pipeline swells

“The number of new foreclosures in 2011 dropped nearly 40%, according to year-end numbers just released by Lender Processing Services (LPS); there is, however, little cause for celebration.  The fall is largely due to moratoria and process reviews stemming from the so-called ‘robo-signing’ foreclosure paperwork scandal.  Mortgage delinquency rates were largely unchanged from last year, which means all that distress will be pushed forward to 2012 and beyond.  To give you an idea of just how much the ‘robo’ scandal is toying with the numbers, LPS compared states that require foreclosures to go through the courts versus states that don’t (judicial versus non-judicial) and found the following:

- 50% of loans in foreclosure in judicial states have not made a payment in two years, as opposed to 28% in non-judicial states.

- Foreclosure sale rates in non-judicial states are about four times those in judicial states.

‘Nationally, foreclosure pipelines remain at historic highs, but they are clearing at very different rates depending upon state procedures,’ says Herb Blecher of LPS Applied Analytics.  With the nation essentially split between judicial and non-judicial foreclosure states, it’s safe to say the foreclosure crisis will linger longer than anyone expected, especially with negotiations for a settlement between big banks and state attorneys general hitting yet another roadblock.  California Attorney General Kamala Harris rejected the latest proposal this week, calling it inadequate.  ‘Our state has been clear about what any multistate settlement must contain: transparency, relief going to the most distressed homeowners, and meaningful enforcement that ensures accountability. At this point, this deal does not suffice for California,’ she wrote in a statement.  Bank sources say that without California the value of the settlement would drop by billions and banks would still have major liability for foreclosure fraud. About one fifth of the nation’s foreclosures are in California.”

Replacements to help drive economy

Four years after the downturn began, the replacement cycle shows signs of kicking into a higher gear in the United States even among small businesses, and it could give an unexpected boost to growth and employment this year.  In the United States, large corporations have already dug into huge cash piles to upgrade plant and equipment, adding incrementally to an economy that grew by 2.8% in the fourth quarter.  Now small businesses, which drive about half of US economic growth and a big chunk of job creation, are increasing their spending on equipment, too, an important precursor to stronger hiring.  For the early signs of this small business revival, Ian Shepherdson, chief US economist at High Frequency Economics, points to two factors: access to credit has improved markedly as shown by a surge in banks’ commercial and industrial lending, and an index of capital expenditure intentions, as measured by the National Federation of Independent Business (NFIB), is climbing. NFIB policy analyst Holly Wade said anecdotally she hears of more businesspeople talking of increasing their budgets.  “They have stretched out their machinery and equipment and would have normally invested in replacement, but they were waiting as long as possible. Now they are starting to see better sales and earnings, and they are more comfortable investing some of those dollars in capex,” she said.  “In the next three to six months, it wouldn’t be surprising to see the same rate of growth in capital outlays we have seen recently.”

FHA – originations down, delinquencies up

The serious delinquency rate for Federal Housing Administration (FHA) mortgages reached 9.6% in December, the highest level in more than two years, the Department of Housing and Urban Development (HUD) said.  More than 711,000 FHA-insured loans were seriously delinquent, up 18.9% from one year earlier, according to the HUD report. It’s also a 3.2% increase from the month before. The delinquency rate has been steadily increasing since passing 8.2% last summer.  Meanwhile, originations are down. In December, the FHA insured 93,700 mortgages, a nearly 30% decline from the 133,000 insured in December 2010.  In its fiscal year 2011, the FHA Mutual Mortgage Insurance Fund slipped to a 0.24% capital ratio from 0.5% the year prior. By law, the fund must remain above 2%.  FHA officials attempted to temper fears that the fund would need a bailout. An independent study done showed home prices would have to deteriorate significantly before an injection of tax dollars would be needed.

“It would take very significant declines in home prices in 2012 to create a situation where FHA would need additional support,” said FHA Acting Commissioner Carole Galante when the projections came out.  American Enterprise Institute Fellow Edward Pinto isn’t convinced. His study claimed that FHA is actually undercapitalized by as much as $53 billion using more traditional accounting rules.  The FHA put new guidelines in place this week that would tighten restrictions on lenders seeking approval to write FHA mortgages. Also, the changes would force more firms to buyback defaulted home loans and reduce seller concessions, which Pinto said would have the most impact, according to Pinto.  “We need to get back to where the mortgages themselves stand on their own regardless of what happens with house price inflation or deflation,” Pinto said.

Bakersfield.com – no kudos for the POTUS

President Obama’s announcement in last week’s State of the Union address that he has created a new unit to probe mortgage abuse earns no cheers from us. Instead, we are reminded how shamefully little has been done to address the housing crisis that continues to plague so many Americans.  The Making Home Affordable mortgage relief program has been an utter flop. An attempt by the Department of Justice to broker a multistate settlement with major banks over foreclosure abuses that would fund relief for struggling homeowners has gone nowhere. There have been no meaningful prosecutions, no significant relief for homeowners and few new fraud protections.  Now, what little break has been granted to troubled homeowners — in the form of tax relief on canceled mortgage debt — is due to expire at year’s end and too few seem aware of the looming deadline.

Normally, debt that is forgiven or canceled by a lender in a foreclosure or short sale must be included as income on tax returns and is taxable. However, the Mortgage Forgiveness Debt Relief Act of 2007 excluded the reporting of up to $1 million in canceled debt on a primary residence for tax purposes. But not for long.  Local real estate agents report no frenzy of calls or uptick in clients wanting to carry out short sales. Scott Tobias, president of the Bakersfield Association of Realtors, told The Californian last week that “I think, basically, homeowners don’t know about” the tax relief expiring on Dec. 31, 2012.  With nearly half of all Bakersfield mortgages underwater, it’s essential for people to know of the upcoming tax break expiration, especially considering that it can take months to close a short sale.  The housing market is nowhere near recovery; Congress ought to extend the tax relief. But no one should rely on Congress to act. It’s imperative for underwater homeowners to understand their options and be informed about the looming tax deadline.

See you at the top!
Chris McLaughlin

**************

Copyright Loss Mitigation Institute LLC 2011.
All Rights Reserved.

http://www.shortsalesriches.com

http://www.shortsalescoach.com

http://www.sixfigurebpo.com

http://www.reomillionaireclub.com

http://www.youtube.com/shortsalesriches

http://www.smartrealestatenews.com

(subscribe to this newsletter)

*************************************************

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

* Follow me on Twitter: http://twitter.com/mclaughlinchris

* Join my Facebook Fan Page: http://www.mclaughlinchris.com

Forward this e-mail to your friends!

Then they can subscribe directly at the following link:

http://www.smartrealestatenews.com/

*** Join Chris’ Facebook Fan Page–>

http://www.mclaughlinchris.com

*** Follow Chris on Twitter–>

http://www.twitter.com/mclaughlinchris

************************************************************

60 BOA short sales in Florida

Only 60 Floridians have received cash from a Bank of America (BOA) program that pays up to $20,000 to homeowners who sell distressed properties in a short sale.  The lender still expects thousands more in the Sunshine State to collect the money before the pilot program ends in August. Bank spokesman Richard Simon said it’s too early to judge the results.  “There are some encouraging signs in this early stage,” he said. “This is just the start of the process.”  Several Realtors and title agents around Tampa Bay said deals are in the pipeline, but none has finalized any of the sales.  Real estate agents say some lenders have been closing the deals in 45 to 60 days instead of a year or longer.  Bank of America had targeted 20,000 of the 1.1 million mortgages it services in Florida.  In the program, qualified homeowners would get 5% of the unpaid mortgage balance as of August 2011, with a minimum payout of $5,000. And so on up to a maximum of $20,000. The sales price does not impact the payout.  By offering the incentive, Bank of America saves attorney fees, court costs and property taxes by avoiding foreclosure. It also speeds the process of getting bad loans off its books and gets the properties back on the market faster.  To sweeten the deal further, the lender said it would consider waiving the deficiency on the mortgages, which would allow homeowners to sell the house for less than they owe for it without having to make up the difference to the bank.  The bank tested the program only in Florida because of the higher foreclosure rates.

Asia to drive natural gas demand

Despite natural gas prices falling to near 10-year lows last week, Royal Dutch Shell’s CEO Peter Voser says demand for gas will be much higher than oil in the long term with the Asia-Pacific region driving the sector’s growth.  “I think you cannot travel around Asia at the moment without getting the question, ‘can you sell us some LNG (liquefied natural gas)?’” Voser at the World Economic Forum in Davos.  Low demand and high inventory levels in the US has deterred some companies from future investments, but according to Voser, America’s waning demand doesn’t reflect what is happening in the rest of the world.  “If you’re talking about North American gas, clearly the current price levels are not sufficient to actually bring all the developments forward. You have seen a lot of companies starting to cut their production.”  With oil and gas production normally taking seven to eight years to come on stream, Voser says Shell is sticking to its long-term strategy to produce more natural gas.  “We produce more gas in 2012 now, 52% versus 48% oil,” he said. “Clearly Asia-Pacific, that’s going to be the driver.”

WSJ – mortgage rates rise

Rates for fixed mortgages moved higher over the past week amid positive signals from the long-suffering US housing market, according to Freddie Mac’s weekly survey of mortgage rates.  “Fixed mortgage rates ticked up this week as the housing market ended 2011 on a high note,” said Freddie Mac Chief Economist Frank Nothaft, noting encouraging data like a report that existing home sales rose 5% at the end of the year to 4.61 million houses, the largest amount since May 2010.  The 30-year fixed-rate mortgage averaged 3.98% for the week ended Thursday, up from 3.88% the previous week, though below 4.8% a year ago. Rates on 15-year fixed-rate mortgages averaged 3.24%, up from 3.17% last week and below 4.09% a year earlier.  Five-year Treasury-indexed hybrid adjustable-rate mortgages, or ARM, averaged 2.85%, up from 2.82% last week and below 3.7% a year ago. One-year Treasury-indexed ARM rates averaged 2.74%, matching the prior week and below 3.26% last year.  To obtain the rates, 30-year and 15-year fixed-rate mortgages required an average 0.7 percentage point and 0.8 percentage point payment, respectively. Five-year and one-year adjustable rate mortgages required an average 0.7 percentage point and 0.6 percentage point payment, respectively. A point is 1% of the mortgage amount, charged as prepaid interest.

Growth up in Q4

US gross domestic product expanded at a 2.8% annual rate, the Commerce Department said on Friday, a sharp acceleration from the 1.8% clip of the prior three months and the quickest pace since the second quarter of 2010.  It was, however, a touch below economists’ expectations for a 3.0% rate.  Consumer spending, which accounts for about 70% of US economic activity, stepped to a 2% rate from the third-quarter’s 1.7% pace – largely driven by pent-up demand for motor vehicles.  Spending was also lifted by moderate inflation.  A price index for personal spending rose at a 0.7% rate in the fourth-quarter, the slowest increase in 1-1/2 years, after rising at a 2.3% pace in the July-September period.  A core inflation measure, which strips out food and energy costs, increased at a 1.1% rate after rising 2.1% in the third quarter.  The increase last quarter was the smallest in a year and put this measure well below the Fed’s 2% target.

Growth in the fourth quarter got a temporary boost from the rebuilding of business inventories, which was the fastest since the third quarter of 2010, after they declined in the third-quarter for the first time since late 2009.  Inventories increased $56.0 billion, adding 1.94 percentage points to GDP growth. Excluding inventories, the economy grew at a tepid 0.8% rate, a sharp step-down from the prior period’s 3.2% pace.  The robust stock accumulation suggests the recovery will lose a step in early 2012.  Also pointing to slower growth, business spending on capital goods was the slowest since 2009, a sign the debt crisis in Europe was starting to take its toll.  Expectations of soft growth led the Federal Reserve on Wednesday to say it expected to keep interest rates at rock bottom levels at least through late 2014.  Fed Chairman Ben Bernanke said the central bank, which forecast growth this year in a 2.2% to 2.7% range, was mulling further asset purchases to speed up the recovery.  The Fed warned the economy still faced big risks, a suggestion the euro zone debt crisis could still hit hard.

Absorption rates to improve in 2012?

Net absorption rates in the US turned positive during 2011 for all major property types, according to CBRE Econometrics, which expects the trends to continue in 2012 on the heels of employment growth and then accelerate in 2013.  The absorption rate is the percentage of units expected to be rented or purchased over a period of time.  After a downturn across all property types, annualized apartment absorption turned positive at the beginning of 2010, office by mid-2010, industrial in 2010, and finally retail in mid-2011, analysts at Barclays Capital said.  In the apartment sector, CBRE forecasts a 0.7% absorption rate in 2012 and then 1.2% in 2013. Office property, the company said, will experience a 0.6% rate in 2012 and 1% in 2013, while the industrial sector should see a 1.1% rate in 2012 and 1.5% in 2013. Retail property will have a 0.7% absorption rate in 2012 and then 1.2% in 2013.  Grubb & Ellis said the overall outlook for the office market is stronger for 2012. The real estate services firm also expects the industrial sector to experience increased demand this year with total net absorption of 110 million square feet.  Net absorption rates usually follow employment growth. An exception came during the recent downturn when each property type outperformed relative to the levels of job losses suffered during 2008 and 2009.  Given the positive net absorption across property types and almost no new construction, occupancy rates, or the number of occupied units at a given time, began to improve in the third quarter.  According to CBRE, apartment occupancy rose 0.8% from a year earlier to 95%. Office occupancy increased 0.6% to 83.8%, while the industrial sector inched higher 0.9% to 86.3%. Retail, the only laggard, is down 0.1% from a year earlier to 86.8%.

See you at the top!
Chris McLaughlin

**************

Copyright Loss Mitigation Institute LLC 2011.
All Rights Reserved.

http://www.shortsalesriches.com

http://www.shortsalescoach.com

http://www.sixfigurebpo.com

http://www.reomillionaireclub.com

http://www.youtube.com/shortsalesriches

http://www.smartrealestatenews.com

(subscribe to this newsletter)

*************************************************

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

* Follow me on Twitter: http://twitter.com/mclaughlinchris

* Join my Facebook Fan Page: http://www.mclaughlinchris.com

Forward this e-mail to your friends!

Then they can subscribe directly at the following link:

http://www.smartrealestatenews.com/

*** Join Chris’ Facebook Fan Page–>

http://www.mclaughlinchris.com

*** Follow Chris on Twitter–>

http://www.twitter.com/mclaughlinchris

************************************************************

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

**************

Copyright Loss Mitigation Institute LLC 2011.
All Rights Reserved.

http://www.shortsalesriches.com

http://www.shortsalescoach.com

http://www.sixfigurebpo.com

http://www.reomillionaireclub.com

http://www.youtube.com/shortsalesriches

http://www.smartrealestatenews.com

(subscribe to this newsletter)

*************************************************

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

* Follow me on Twitter: http://twitter.com/mclaughlinchris
* Join my Facebook Fan Page: http://www.mclaughlinchris.com

Forward this e-mail to your friends!
Then they can subscribe directly at the following link:

http://www.smartrealestatenews.com/

*** Join Chris’ Facebook Fan Page–>

http://www.mclaughlinchris.com

*** Follow Chris on Twitter–>

http://www.twitter.com/mclaughlinchris

************************************************************

Existing home sales up

The National Association of Realtors said Friday that sales increased 5% last month to a seasonally adjusted annual rate of 4.61 million, the best level since January 2011 and the third straight monthly increase. For the year, sales totaled only 4.26 million. While that’s up from 4.19 million the previous year, it’s below the 6 million that economists equate with healthy housing markets. Sales are increasing at a time when the market is flashing other positive signs. Mortgage rates are at record-low levels. Homebuilders have grown slightly less pessimistic because more people are saying they might be open to buying a home this year. And home construction picked up in the final quarter of last year. The median sales price rose 2.3% to $164,500 in December. Still the housing market has a long way to go before it is fully recovered from the housing bust four years ago. In the last four years, home sales have slumped under the weight of foreclosures, tighter credit and falling price. Fewer first-time buyers, who are critical to a housing recovery, are in the market for a home. Purchases by that group fell last month to make up only 31% of sales. That’s down from 35% in November. In healthy markets, first-time buyers make up at least 40%. At the same time, homes at risk of foreclosure made up a third of all sales last month. In healthy markets, they comprise 10% of sales. Investors are increasingly buying homes priced under $100,000. Still, Sales rose across the country in December. They increased on a seasonal basis by more than 10% in the Northeast, 8.3% in the Midwest, 2.9% in the South and 2.6% in the West. The glut of unsold homes declined to 2.38 million homes. At last month’s sales pace, it would take a nearly 7 months to clear those homes. Analysts say a healthy supply can be cleared in about six months.

US and Europe to face more ratings cuts?

The string of sovereign debt downgrades in recent months could be just the beginning. The US, Europe—even Germany—could face further ratings cuts over the next three years, according to a lengthy analysis this week by Citigroup. The European Union got a slight reprieve late Friday as Standard & Poor’s backed it’s triple-A/A-1+ rating on the EU. It had been under review and at risk of a downgrade. The outlook remains “negative.” In announcing its decision, S&P said the EU “benefits from multiple layers of debt-service protection sufficient to offset the current deterioration we see in member states’ creditworthiness.” The US is at the top of Citi’s list for possible downgrades because its debt and deficit troubles are unlikely to be resolved with the political infighting in Washington. Some of the other usual suspects also are on Citi’s list – the European peripheral nations in particular such as Greece and Spain. But even mighty Germany, seen as the continent’s most secure economy, could face a downgrade as the sovereign debt crisis escalates and a European recession spreads through the region. “We expect a string of further ratings downgrades for advanced-economy sovereign debt, and do not expect any ratings upgrades,” Citi analysts Michael Saunders and Mark Schofield wrote. That includes American debt, which Standard & Poor’s downgraded in August in a move that set off a more than 600-point one-day selloff in the Dow industrials.

Citi said it is keeping its outlook unchanged on US debt in the near term but sees trouble looming for the American rating over the next two to three years. Indeed, the list of potential downgrades is ominous and serves as a reminder that while the US equity markets seem conveniently to have forgotten about the world’s debt troubles, some stern and punitive reminders are on the way. Further downgrades for the US, and the initial downgrade for Germany, could be a few years away. But in the next six months, the ratings agencies are likely again to start rattling their sabers, starting with the declaration of a Greek default that is approaching a near-certainty in March. In fact, in the next six months, Citi expects Moody’s to cut ratings for Italy, Spain, Portugal and Greece, with the nascent recovery in Ireland allowing it to be the only one of the “PIIGS” nations to escape the downgrade scalpel. Additionally, France and Austria are deemed likely for a “negative outlook,” while Greece will be placed into either “selective default” or “outright default.” Going out further, the next two to three years are likely to see downgrades not only to the US but also to Japan, France, Italy, Spain, Austria, Belgium, Finland, the Netherlands and Portugal.

DSNews.com – FHA steps up lender requirements
The Federal Housing Administration (FHA) on Friday announced new measures to strengthen standards for the lenders it works with – measures the agency says will help it better manage the risk that comes with insuring mortgages against default. The new regulations institute tighter requirements for lenders authorized to insure mortgages on the agency’s behalf under the Lender Insurance mortgagee program.FHA says these institutions will be required to meet stricter performance standards to obtain and maintain their approval status. More than 80% of all FHA forward mortgages are insured through lenders participating in the Lender Insurance program. FHA’s second mortgagee program – the Direct Endorsement program – requires the agency’s approval for endorsement. In order to be eligible to participate in the FHA single-family programs as a Lender Insurance mortgagee, a lender must be an unconditionally approved Direct Endorsement mortgagee that is high performing. Under the new rule, a Lender Insurance mortgagee must demonstrate a two-year seriously delinquent and claim rate at or below 150% of the aggregate rate for the states in which the lender does business. HUD and FHA will review Lender Insurance mortgagee performance on an ongoing basis to ensure participating lenders continue to meet the program’s eligibility standards. The new rule also establishes a process by which new HUD-approved lenders created through corporate mergers, acquisitions, or reorganizations may be considered for Lender Insurance authority. In addition, FHA has shored up its processes for requiring lenders to cover potential losses from insurance claims paid on mortgages that involve fraud or that are found not to meet the agency’s underwriting guidelines, which could force lenders to buy back more defaulted loans. For those loans insured by Lender Insurance lenders, HUD may require indemnification for “serious and material” violations of FHA origination requirements and for fraud and misrepresentation. In a separate notice to be published soon, FHA plans to propose to reduce the maximum amount allowed for seller concessions, in which the seller contributes a share of the purchase price toward the buyer’s closing costs.

FHA says it will bring the maximum allowable amount to a level more in line with industry norms. The current level exposes FHA to excess risk by creating incentives to inflate appraised value, the agency explained in a press statement. FHA says these measures will help to protect and strengthen its Mutual Mortgage Insurance Fund, which has fallen below the level mandated by Congress, while enabling the agency to continue to fulfill its mission of providing qualified borrowers with access to homeownership. “Taken together, the changes announced today will protect FHA’s insurance fund from unnecessary and inappropriate risks while offering clear guidance to lenders regarding HUD’s underwriting expectations,” said Carol J. Galante, FHA’s acting commissioner. “FHA must continue to strike a balance between managing risks to its insurance funds and ensuring that FHA products are offered as widely as possible to qualified borrowers,” Galante continued. “We hope that the added clarity and certainty provided through these rules will enable lenders to extend financing opportunities to larger numbers of American families.”

Growth but few jobs

The National Association for Business Economics’ industry survey found that two-thirds of respondents expected no change in employment at their companies over the first half of the year. That was the highest share in recent quarters. Although the US jobless rate fell to a near three-year low of 8.5% in December, fewer businesses said they would hire more workers, compared with the previous industry poll. The survey, which was conducted between December 15 2011, and January 5 2012, found that 65% of respondents expect gross domestic product growth to exceed 2% between the fourth quarter of last year and the last quarter of 2012. That was higher than the 1.6% growth rate economists polled by Reuters found. About two-thirds of the companies surveyed said the European debt crisis would have little impact on their sales over the first half the year, while 27% of respondents said they expected to see a decline in sales of 10% or less.

CMBS delinquency rate higher than 9% in 2011

The delinquency rate of loans in commercial mortgage-backed securities (CMBS) bounced higher in December and remained above 9% all year. Delinquency rates were mixed across the five commercial property types in December with hotel and multifamily rates declining while office, retail and industrial rose. Moody’s Investors Service said the rate rose to 9.32% last month from 9.27% in November and from 8.79% a year earlier. The ratings agency said there were $3.7 billion of newly delinquent loans in December, including Bank of America Plaza in Atlanta, while $3.5 billion were resolved or worked out. The $1.4 billion of new CMBS deals was more than offset by $5.5 billion of seasoned loan dispositions and payoffs, pushing the CMBS universe to $582.8 billion, analysts said. The $363 million loan that went into arrears in Atlanta is the seventh largest delinquent loan overall, according to Moody’s. The delinquent rate in the hotel sector fell to 12.96% from 13.54% a month earlier, while multifamily declined to 14.44% from 14.88%, which remains the highest rate among the core asset classes, Moody’s said. Retail delinquencies rose to 7.22% from 6.97% in November; industrial climbed to 12.09% from 11.5%; and office increased to 8.65% from 8.39%. Moody’s specially serviced loan tracker fell to 11.97% in December from 12.1% the prior month.

See you at the top!
Chris McLaughlin

**************

Copyright Loss Mitigation Institute LLC 2011.
All Rights Reserved.

http://www.shortsalesriches.com

http://www.shortsalescoach.com

http://www.sixfigurebpo.com

http://www.reomillionaireclub.com

http://www.youtube.com/shortsalesriches

http://www.smartrealestatenews.com

(subscribe to this newsletter)

*************************************************

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

* Follow me on Twitter: http://twitter.com/mclaughlinchris

* Join my Facebook Fan Page: http://www.mclaughlinchris.com

Forward this e-mail to your friends!

Then they can subscribe directly at the following link:

http://www.smartrealestatenews.com/

*** Join Chris’ Facebook Fan Page–>

http://www.mclaughlinchris.com

*** Follow Chris on Twitter–>

http://www.twitter.com/mclaughlinchris

************************************************************

Foreclosures at 49 month low in December

An annual report of foreclosure activity in the US found the number of properties subject to default notices, scheduled auctions or bank repossessions in 2011 dropped 34% from the previous year, according to a RealtyTrac report released today. In addition to the overall decline in foreclosures, the report found that December activity was at the lowest level since August 2007. However, the report cautions 2012 could likely see an upswing in activity.  For the fifth straight year, Nevada recorded the most foreclosure activity of any state in the nation. While 1.45% of housing units nationwide had at least one foreclosure filing in 2011, the Nevada rate was 6%. That translates into foreclosure filings for 1 in 16 housing units in the state.  Despite having the distinction of the country’s highest foreclosure rate, the situation in Nevada has improved significantly from years past. Foreclosure activity in 2011 was down 31% from that of 2010. Default notice filings dropped 70% in the fourth quarter compared to the third quarter. However, that decrease may be largely attributed to a change in Nevada state law that requires an additional affidavit before beginning the foreclosure process.

Other states with an above-average percentage of homes with at least one foreclosure filing in 2011 represent almost every region except New England:

-  Arizona – 4.14%

-  California – 3.19%

-  Georgia – 2.71%

-  Michigan – 2.21%

-  Florida – 2.06%

-  Illinois – 1.95%

-  Colorado – 1.78%

-  Idaho – 1.77%

BOA rebounds

Bank of America (BOA) matched profit expectations and exceeded revenue estimates for quarterly earnings, sending shares that had been trading below $5 just a month ago spiking higher in premarket trading.  BOA posted fourth-quarter earnings excluding items of 15 cents per share, up from 4 cents in the year-earlier period.  Net income was $2 billion, compared to a loss of $1.2 billion in the same period a year ago.  Analysts had expected the company to report earnings excluding items of 15 cents.  After the earnings announcement, the company’s shares jumped 6.4% in pre-market trading.  After struggling along the way to deal with regulatory requirements and blowback from the European debt crisis, BOA posted a full-year profit of $1.4 billion against a loss of $2.2 billion in 2010.  The company has been busy shedding non-care assets, moves that resulted in a 43% cut in credit losses and $34 billion in proceeds.  In particular, BOA said it made $2 billion in the fourth quarter by selling its stake in a Chinese bank and selling debt. That offset losses and higher legal expenses in its mortgage business.

A million homeowners may get writedowns

About one million American homeowners would get writedowns in the size of their mortgages under a proposed deal with banks over shady foreclosure practices, US Housing and Urban Development Secretary Shaun Donovan said yesterday.  The deal, which could be struck within weeks, would mark the largest cut in the mortgage load since the start of the credit crisis.  “We’re very close to a settlement that would both fix the servicing problems, but also help over a million families around the country stay in their homes and get help,” Donovan said at a US Conference of Mayors meeting in Washington.  Talks involving federal officials, state attorneys general and major banks to resolve allegations of “robo-signing” and other misconduct in foreclosures have dragged into their second year.  Donovan’s announcement came the same day that two big regional US banks disclosed they had set aside funds related to mortgage servicing matters, a sign that lenders beyond the five largest mortgage servicers may join the expected settlement.  In exchange for between $20 billion to $25 billion in relief to distressed homeowners, the banks — Bank of America, Wells Fargo, JPMorgan Chase, Citigroup and Ally Financial — will put behind them potential government lawsuits about improper foreclosures and abuses in originating and servicing the loans.  Using Donovan’s estimate, the settlement could provide roughly a $20,000 reduction each for the one million borrowers.

Unemployment down

The number of people seeking unemployment benefits plummeted last week to 352,000, the fewest since April 2008. The decline added to evidence that the job market is strengthening.  Weekly applications fell 50,000, the biggest drop in the seasonally adjusted figure in more than six years, the Labor Department said Thursday. The four-week average, which smooths out fluctuations, dropped to 379,000. That’s the second-lowest such figure in more than three years.  A department spokesman cautioned that volatility at this time of year is common. Applications had jumped two weeks ago, largely because companies laid off thousands of temporary workers hired for the holidays.  When weekly applications fall consistently below 375,000, it usually signals that hiring is strong enough to push down the unemployment rate.

Hiring improved in the second half of 2011. In December, employers added 200,000 jobs. That marked the sixth straight month in which the economy added at least 100,000 jobs. And the unemployment rate fell to 8.5%, a three-year low.  For all of 2011, the economy added 1.6 million jobs. That was up sharply from 940,000 in 2010. Economists say they expect roughly 1.9 million more jobs to be added this year, according to a survey by The Associated Press.   Still, the job market has a long way to go before it fully recovers from the damage of the Great Recession, which wiped out 8.7 million jobs. More than 13 million people remain unemployed. Millions more have given up looking for work and so are no longer counted as unemployed.  The manufacturing sector remains a bright spot. Factory output jumped 0.9% in December, the Federal Reserve said this week. That was the sharpest monthly gain in a year. Manufacturing gained 225,000 jobs last year, the most since 1997.  The economy likely grew at an annual rate of about 3% in the final three months of last year, economists estimate.  That would be a sharp improvement over the 1.8% annual growth rate in the July-September quarter. Rising consumer spending is thought to be fueling much of the gain in the current quarter.  Even so, economists worry that growth could slow in the first half of 2012. Europe is almost certain to fall into recession because of its financial troubles. And wages failed to keep pace with inflation last year. Without more jobs and higher pay, consumers might have to cut back on spending. That would weigh down growth next year. Consumer spending accounts for about 70% of the economy.

Olick – do apartments face a bubble?

“A huge surge in rental demand and comparatively little apartment supply created a boom in multi-family construction in the last year, but with the single family housing market slowly beginning to show signs of life, the concern among banks and investors is that all that supply will hit the market just as rental demand drops off.  Based on preliminary estimates of Q4 ’11 activity, multi-family loan origination volume increased to $82 billion in 2011, up from $50 billion in 2010, according to Chandan Economics. Understandably, some lenders and investors are starting to ask questions.  ‘While 2012 should be another good year for apartment REITs, there is concern amongst some investors and managements that market expectations may be hard to beat,’ say analysts at Sandler O’Neill. ‘Based on discussions with managements, revenue growth should match sentiment but expense growth may be the wildcard.’

Rents have been rising steadily as apartment vacancies drop and ’rental nation’ pervades consumer sentiment, but 2012 will likely not see as robust rent growth as 2011; housing affordability continues to improve and renting is becoming ever more expensive than owning.  ‘A stretched consumer is beginning to push back harder against rental increases, and new supply and a slowly healing single-family market will begin to equalize what has been a lopsided, renter-dominated housing market for over 5 years,’ say analysts at Green Street Advisors.  Mortgage applications surged 23% last week, according to the Mortgage Bankers association, although most of that was refinances. Another positive came from the NAHB’s home builder sentiment index, which saw big gains in builder confidence, citing improved sales and buyer traffic. So is there real cause for concern about apartment demand?  ‘Only in some markets,’ says Sam Chandan of Chandan Economics. ‘Austin is a case in point. The supply response has been unusually strong there. Apart from specific cases like that, we do not anticipate a strong reversal in the rental bias until jobs accelerate markedly.’

Since 2004, when homeownership rates peaked, the population of 20-34-year-olds grew by 2.8 million, according to researchers at CoStar Group, a commercial real estate information company. But the number of households shrunk by 300,000. In other words, younger Americans were doubling up with roommates or moving back in with their parents.  ‘This suggests big pent up demand – as much as 1.4 million new households within this prime renting cohort,’ says CoStar’s Suzanne Mulvee.  We also have to remember that many Americans now have either damaged credit or not enough of a downpayment to qualify for today’s low interest rate mortgages. That could keep them as renters for many more years, as credit standards aren’t likely to loosen any time soon.  Pent-up demand will, like everything else in real estate, vary from market to market. In Washington, DC, for example, investors in multi-family are still very bullish, as home prices are strengthening and apartment supply is still limited. In other areas, like Las Vegas, where distressed homes are selling at big discounts, rental demand may wane more quickly for apartments, as those unwilling to buy choose to rent single family homes.  Another headwind to the multi-family sector could be more investors buying foreclosed single-family homes in bulk to rent. With federal regulators and the Obama administration seriously considering a program to sell bulk foreclosures owned by Fannie Mae and Freddie Mac, there could suddenly be a large supply of single family rentals competing against multi-family buildings. Again, that would largely be in the sand states, as there are far fewer foreclosed homes in major cities where apartments are and will likely continue to see big gains.”

See you at the top!
Chris McLaughlin

**************

Copyright Loss Mitigation Institute LLC 2011.
All Rights Reserved.

http://www.shortsalesriches.com

http://www.shortsalescoach.com

http://www.sixfigurebpo.com

http://www.reomillionaireclub.com

http://www.youtube.com/shortsalesriches

http://www.smartrealestatenews.com

(subscribe to this newsletter)

*************************************************

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

* Follow me on Twitter: http://twitter.com/mclaughlinchris

* Join my Facebook Fan Page: http://www.mclaughlinchris.com

Forward this e-mail to your friends!
Then they can subscribe directly at the following link:

http://www.smartrealestatenews.com/

*** Join Chris’ Facebook Fan Page–>

http://www.mclaughlinchris.com

*** Follow Chris on Twitter–>

http://www.twitter.com/mclaughlinchris

************************************************************

Orlando short sales 12% higher price

The median price of homes sold in Orlando during December 2011 ($118,000) was 12.38 percent higher than the median price in December 2010 ($105,000). During 2011, Orlando’s median price climbed 24.34 percent from a low of $94,900 in January to a high of $118,000 in December. The median price of “normal” sales that closed in December 2011 was $159,900 (representing a decrease of 0.06 percent compared to December 2010). The median price for short sales in December 2011 was $105,000 (an increase of 10.53 percent compared to December 2010), and the median price for bank-owned sales in December was $80,000 (an increase of 6.67 percent compared to December 2010). Orlando Regional Realtor Association (ORRA) members participated in 13.86 percent less home sales in December of this year than in December of 2010: 2,125 and 2,467, respectively. At year’s end, the number of sales for all of 2011 (27,703) was 3.48 less than in all of 2010 (28,701).

In month-over-month comparisons, sales of foreclosed homes declined 56.29 percent in December 2011 compared to December 2010. Short sales and “normal” sales both increased (by 24.41 percent and 14.15 percent, respectively) in December 2011 compared to December 2010. Normal sales (871) accounted for 40.99 percent of all transactions in December 2011, while short sales (785) accounted for 36.94 percent and bank-owned sales (469) made up the remaining 22.07. The Orlando average interest has dropped to a new low once again. Buyers who purchased an Orlando area home in December paid an average interest rate of 3.99 percent, which is the lowest since the ORRA began tracking the statistic in January of 1995. Homes of all types spent an average of 103 days on the market before coming under contract in December 2011, and the average home sold for 92.40 percent of its listing price. In December 2010 those numbers were 97 days and 94.45 percent, respectively.

New York’s factory index up

The New York Fed’s “Empire State” general business conditions index rose to 13.48 from a revised 8.19 in December, topping economists’ expectations of 11.0. It was the highest level since April 2011. New orders climbed to 13.70 from a revised 5.99, while inventories also gained to 6.59 from minus 3.49. The survey of manufacturing plants in the state is one of the earliest monthly guideposts to U.S. factory conditions. Employment gauges showed strength. The index for the number of employees rose to 12.09 from 2.33 and the average employee workweek index climbed to 6.59 from minus 2.33. Manufacturers were also more optimistic about their outlook with the index of business conditions six months ahead rising to its highest level since last January at 54.87 from 45.61.

More failed HAMP trials

Mortgage servicers are putting more failed Home Affordable Modification Program (HAMP) trials through foreclosure than they were one year ago. According to Treasury Department data released last week, 10.6% of the more that 615,000 canceled HAMP trials completed the foreclosure process as of Nov. 1. That’s more than double the 4.4% of failed HAMP trials foreclosed on as of November 2010. While foreclosures are increasing, alternative modifications on these loans are dropping. Of the canceled HAMP trials, 39.7% went through the bank’s own private programs, down from 45.4% over the same time period, according to Treasury data. Foreclosure completions as a percentage of borrowers never accepted into HAMP trials are lower but still increasing as well. Of the 1.8 million borrowers denied a HAMP trial, 7.6% completed the foreclosure process as of Nov. 1, up from 5% one year before. Roughly 26.5% of these borrowers received alternative modifications, which held flat over the last year.

The increase in more foreclosure completions on failed HAMP trials occurred at nearly every large servicing shop participating in the program. Citigroup saw the highest jump. Of the 71,808 HAMP trials it canceled, roughly 13.5% completed the foreclosure process as of Nov. 1, up from 3.1% one year ago. At Ally Financial, the percentage increased to 12.8% from 6.4% over the same period. At JPMorgan Chase, the increase went to 11.3% from 6.2%. And at Bank of America, the largest servicer in the program, 9.3% of failed HAMP trials went through foreclosure compared to just 1.9% the year before. The highest percentage is currently held by OneWest Bank. It foreclosed on more than 19% of its roughly 20,000 failed HAMP trials, up from 10% last year. Interestingly, Wells Fargo has one of the lowest percentages of completed foreclosures on these mods at 6.7%, almost the exact same percentage one year before.

According to the Office of the Comptroller of the Currency, 17% of the 108,000 HAMP modifications began in the second quarter of 2010 went 60 or more days delinquent within one year. That’s compared to a 31% redefault rate for other private programs. D. Corwyn Jackson, whose company The Corwyn Group helps to train housing counselors for foreclosure prevention, said servicers are getting mixed signals from the government-sponsored enterprises Fannie Mae, which administers HAMP, Freddie Mac and other stakeholders across the country. “The servicers are mandated to stick to the agreed upon foreclosure time lines by state,” Jackson said. “But other stakeholders such as nonprofit housing counseling agencies across the nation are requesting servicers during the negotiation to exhaust their loan workout options before starting the foreclosure process.”

The GSEs charge servicers for taking too long to complete the foreclosure process under specific, state-by-state guidelines. Servicers are expected to still consider the borrower for the GSE programs, but time is of the essence. BofA, for example had to pay Fannie and Freddie $1.3 billion in foreclosure delay penalties in the first nine months of 2011. GSE policies and the failed HAMP trial foreclosure rates is beginning to show in the overall economy. Over the same time period covered by the Treasury data, the shadow inventory of homes in foreclosure or on the verge it has been declining. According to CoreLogic, roughly 1.6 million homes sit in this inventory, down from 2.1 million in November 2010.

DOJ steps up ratings probe

The Justice Department (DOJ) has stepped up its investigation of Standard & Poor’s (S&P) mortgage bond ratings during the financial crisis, the Wall Street Journal reported today. At least five former S&P analysts have been contacted by federal prosecutors in recent weeks, after some had not heard from investigators for more than six months, the newspaper said. The McGraw-Hill Cos Inc unit disclosed in September it had received a Wells notice from the Securities and Exchange Commission indicating it could face civil charges for its ratings of a 2007 mortgage bond deal called Delphinus 2007-1. It has not yet disclosed any investigation by the DOJ, which the WSJ reported is a civil probe. Prosecutors are examining whether S&P managers pushed to weaken standards the company had set for rating the mortgage deals, and whether the company followed its established criteria in assigning ratings. The recent interviews lasted two to three hours, and the former employees were told they would likely by contacted again, the Wall Street Journal said.

DSNews.com – vacant foreclosures cost money

A recent study from the Government Accountability Office (GAO) found that non-seasonal vacant properties across the United States rose 51 percent over the span of a decade, from nearly 7 million in 2000 to 10 million in April 2010. Ten states saw vacancies go up by 70 percent or more as a result of high foreclosure rates. Those with the largest increases over the last decade were Nevada (126 percent), Minnesota (100 percent), New Hampshire (99 percent), Arizona (92 percent), and Florida (90 percent). Georgia, Michigan, Colorado, Rhode Island, and Massachusetts also experienced increases above 70 percent. The elevated number of vacant homes carries with it a hefty price tag for lenders that must resume ownership after foreclosure. GAO found that in 2010, Fannie Mae and Freddie Mac reimbursed servicers and vendors over $953 million for property maintenance costs. However, it’s local governments, many of which are already dealing with depleted funds, that are feeling “significant” pressures from the rise in home vacancies, according to GAO.

The agency notes that other studies have concluded vacant foreclosed properties may reduce prices of nearby homes by as much as $17,000 per property. As a result, municipalities report being out millions of dollars in lost tax revenues. That’s in addition to extra expenditures to put staff, systems, and programs in place to ensure local property ordinances are met, as well as costs associated with addressing public safety issues posed by extended periods of vacancy or improper property maintenance. GAO says the localities it studied are all engaged in multiple strategies to try to minimize the costs and other negative impacts that vacant properties create for their communities.

Efforts range from simple data-gathering to more precisely identifying vacant properties, to acquisition and rehabilitation or, in some cases, demolition of abandoned properties. In addition, some local governments have tasked servicers with additional responsibilities for maintaining properties, amended their code enforcement rules to establish greater incentives for property maintenance, and established specialized housing courts to address vacant property and other housing issues. These strategies, however, face various challenges, particularly the lack of financial support to effectively address such a large-scale problem, according to GAO. As a result, governments in many of the communities GAO examined are reaching out to members of the community – including neighborhood groups and private developers – in an attempt to leverage all available resources. In addition, local governments have called for increased federal funding and greater attention by federal regulators to servicers’ role in managing vacant properties.

See you at the top!
Chris McLaughlin

**************

Copyright Loss Mitigation Institute LLC 2011.
All Rights Reserved.

http://www.shortsalesriches.com

http://www.shortsalescoach.com

http://www.sixfigurebpo.com

http://www.reomillionaireclub.com

http://www.youtube.com/shortsalesriches

http://www.smartrealestatenews.com

(subscribe to this newsletter)

*************************************************

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

* Follow me on Twitter: http://twitter.com/mclaughlinchris

* Join my Facebook Fan Page: http://www.mclaughlinchris.com