The number of Federal Housing Administration-insured home loans entering foreclosure jumped in March after half the mortgages it modified to ease repayment terms were in default again a year or more later.  The FHA’s role in lending to first-time buyers with poor credit and limited cash expanded after the 2008 collapse of the mortgage market put it at the center of government efforts to revive housing. The FHA allows down payments as low as 3.5 percent for borrowers with a credit score of 580, below the 640 defined as subprime by the Federal Reserve.  n increase in FHA foreclosures may lead to further demands for stricter standards that could shut buyers out of the real estate market as it shows signs of stabilizing after a six-year slump. Mark Calabria, director of financial regulation studies at the Cato Institute in Washington, in a February report called for Congress to tighten the agency’s lending qualifications to protect taxpayers, who insure the loans. First-time homebuyers accounted for 33 percent of real estate sales in March, according to the National Association of Realtors.

Borrowers with mortgages for homes bought in 2010, the FHA’s peak lending year, now owe almost 7 percent more than their homes are worth if they used the minimum down payment, according to S&P/Case-Shiller home price index data. That year, the agency insured 1.1 million loans to purchase single-family homes, more than four times the total of 261,165 in 2007.  Lenders initiated foreclosures on 36,400 FHA-backed mortgages, twice the number in April 2011, according to Lender Processing Services. The increase for Fannie Mae and Freddie Mac loans was 13 percent, the Jacksonville, Florida-based mortgage- data company said.  A Treasury Department study of modified government- guaranteed mortgages in the fourth quarter found that 49 percent were delinquent again after 12 months. The Treasury report analyzed a group of loans that was 80 percent FHA, 15 percent Veterans Administration mortgages and 5 percent Department of Agriculture rural home loans. The rate for Fannie Mae and Freddie Mac was 27 percent.  The share of government-guaranteed loans being paid on time dropped to 84.2 percent in the fourth quarter from 85.2 percent in the prior three months, the Treasury’s Office of the Comptroller of the Currency said in its March 28 report. It was the third consecutive quarterly decline.  The U.S. housing market is showing signs of having hit a bottom after prices fell 35 percent since peaking in 2006. Values in 20 U.S. cities fell 3.5 percent in February, the smallest 12-month drop since February 2011, the S&P/Case-Shiller index showed last month. New homes sold at an annual pace of 328,000 in March, up 7.5 percent from a year earlier, the Commerce Department said.

Identity theft and tax fraud

After checking employment records, the Treasury Inspector General for Tax Administration (TIGTA) said it found more returns may have been sent to tax filers using stolen identities than the IRS initially estimated.  If the IRS does not do more to catch improper refunds, up to $26 billion could be refunded to identity thieves in the next five years, J. Russell George, head of TIGTA, told a congressional hearing on Tuesday. He said IRS may have issued $5.2 billion more in refunds through ID tax fraud than the agency had earlier estimated.  The IRS did not dispute the watchdog’s figures, but said estimates for ID theft tax fraud would be lower if updated to include new IRS practices, said Steven Miller, IRS deputy commissioner for services and enforcement.

MBA – mortgage applications up

Mortgage applications increased 1.7 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending May 4, 2012.  The Market Composite Index, a measure of mortgage loan application volume, increased 1.7 percent on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index increased 2.0 percent compared with the previous week.  Increases to the seasonally adjusted Market Composite and Purchase indices were driven by increases in their Conventional components.  Application activity within the Government market decreased for both of these measures from last week.  Likewise, the Refinance Index increased 1.3 percent from the previous week, driven by a 1.8 percent increase to the Conventional Refinance Index, while the Government Refinance Index decreased 2.3 percent.  The seasonally adjusted Purchase Index increased 3.4 percent from one week earlier, spurred by a 5.4 percent increase in the seasonally adjusted Conventional Purchase Index. The unadjusted Purchase Index increased 3.8 percent compared with the previous week and was 0.4 percent lower than the same week one year ago.

The four week moving average for the seasonally adjusted Market Index is up 1.13 percent.  The four week moving average is down 0.82 percent for the seasonally adjusted Purchase Index, while this average is up 1.81 percent for the Refinance Index.  The refinance share of mortgage activity decreased to 72.1 percent of total applications from 72.6 percent the previous week.  This is the lowest refinance share since April 6, 2012.  The government purchase share decreased over the week from 37.0 percent to 35.8 percent of all purchase applications.  This is the lowest government purchase share since March 27, 2009.  The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 4.01 percent from 4.05 percent, with points decreasing to 0.41 from  0.44 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.  This is the lowest 30-year fixed interest rate recorded in the history of the survey.   The effective rate decreased from last week.

Oil down

Oil fell for a sixth day in New York, the longest run of declines in almost two years, after crude stockpiles advanced in the U.S., the world’s largest consumer of the commodity.  Futures slid as much as 0.8 percent after dropping 8.6 percent in the past five days. U.S. inventories increased 7.8 million barrels last week to 378 million, the highest level since August 1990, the American Petroleum Institute said yesterday. A government report today may show supplies rose 2 million barrels, according to a Bloomberg News survey. Oil is poised to rebound as global refiners increase purchases, Societe Generale SA predicts.  “U.S. inventory levels are preventing oil having the traditional dead cat bounce after such a steep fall,” said Christopher Bellew, a senior broker at Jefferies Bache Ltd. in London, who predicts prices will rebound this month. “The lows we’ve seen this week will probably hold, and crude will likely rise as buying by funds and weakness in the dollar assist with a recovery.”  Crude for June delivery fell as much as 76 cents to $96.25 a barrel in electronic trading on the New York Mercantile Exchange and was at $96.53 at 8:58 a.m. London time. It slipped 1 percent yesterday to $97.01, the lowest close since Feb. 6. Front-month prices are down 2.2 percent this year. The six-day decline is the longest since July 2010.  Brent for June settlement was at $112.50 a barrel, down 0.2 percent, on the London-based ICE Futures Europe exchange. The European benchmark contract’s premium to West Texas Intermediate was at $15.83, little changed from $15.72 yesterday.  The Organization of Petroleum Exporting Countries said its basket of crudes was at $109.58 a barrel yesterday, the first time the grades have fallen below $110 since Jan. 3.

WSJ – Freddie drops fee

In the latest bid to help homeowners hit by the housing crash, Freddie Mac, the U.S.-supported mortgage giant, is set to drop a fee associated with refinancing deeply underwater loans.  The firm plans to eliminate a fee of 0.5 percentage point, called a “cash adjustor,” on loans refinanced under the Home Affordable Refinance Program with balances greater than 125% of the property’s value, said Paul Mullings, a senior vice president at Freddie Mac. He spoke at a Mortgage Bankers Association conference on Monday.  Dropping the fee represents the latest sign that the government-sponsored enterprises and their regulator are determined to extend the reach of the refi program. Changes last year eliminated the loan-to-value cap and relieved banks of some liabilities that could arise with homeowners willing to default.  Freddie Mac had earlier this year dropped the cash adjustor on HARP refinancings for mortgages with loan-to-value ratios ranging from 105% through 125%, and encouraged the lenders to pass the savings to consumers. (The fee was created to help offset some of the increased risk seen in such refis.)

Where manufacturing is gaining

After hemorrhaging jobs during the recession , manufacturing has been one of the few bright spots, restoring 489,000 jobs since the beginning of 2010.  But there have been some significant geographic distinctions in that recovery, as well as some toppled assumptions, one of which is that factory jobs have steadily shifted from the Midwest to the South.  A new report from the Brookings Metropolitan Policy Program shows that since the beginning of 2010, manufacturing employment has increased by 5.2 percent in the Midwest, while it has gone up by only 2.2 percent in the South.  Southern regions remain relatively strong in manufacturing, with eight metropolitan areas on that list. But the usual narrative of an inexorably declining Rust Belt seems not quite accurate – or at least for now.

“It’s possible that this bounce-back is just a bounce-back and won’t last,” said Howard Wial, an economist and fellow at the Brookings Institution who was one of the authors of the report. “But there is an opportunity for it to be more.”  The study also examined the clustering of manufacturing companies in particular regions. Very high-tech manufacturing companies are concentrated in the Northwest and West, for example, while chemical companies are found mostly in the South.  The authors indicated that most state and local governments do little to foster a thriving manufacturing industry when they offer tax breaks and other incentives to companies or pass right-to-work laws that tend to suppress wages. Instead, they say, governments should focus on research and development and work-force training aimed at specific manufacturing sectors.  Mr. Wial said that there was some evidence that manufacturing could make more of a comeback in the United States because labor costs are rising in developing countries and “many large companies are starting to reconsider the costs and benefits of offshoring.”

CoreLogic – Market Pulse

CoreLogic today released its May CoreLogic MarketPulse report. The monthly economic publication provides insight into the current and future health of the U.S. economic climate with particular focus on housing and mortgage metrics. CoreLogic Chief Economist Mark Fleming and Senior Economist Sam Khater authored the articles and commentary.  Key findings in the May MarketPulse Report include:

-  The national housing market is transitioning to more stability in sales and home prices, with reasonable inventory levels and a declining share of REO sales.

-  Short sales, modifications, and other foreclosure alternatives are playing a larger role than in years past, and the flow of new foreclosures is declining with an improving economy.

-  Mortgage performance is experiencing a slow and steady improvement as the 90+ day serious delinquency rate in March fell to 7.0 percent, the lowest rate since July 2009. “This decline in serious delinquency represents a significant reduction of approximately three quarters of a million borrowers,” said Fleming in the report.

-  Overall home sales activity continues to improve, with total sales eclipsing 410,000, up more than 20 percent from a year ago and the highest March sales rate since 2007.

-  While the national market continues to improve, it masks regional variation where some local markets are improving much more rapidly than others. The most improved markets from a year ago are Phoenix, Boise and Salt Lake City.

-  Home prices are at, or very close to, the bottom as the Memorial Day weekend approaches.

For at least the last six months or so, a lot of people were talking about a “new wave” of foreclosures threatening to smother the U.S. housing market in gloom once again.  The reasoning was that because of the “robo-signing” scandal, and the subsequent foreclosure freezes, a huge number of foreclosures had been put on pause, and that the banks would eventually have to deal with their delinquent borrowers, and foreclosures would re-start in a big way.  According to data released this week by LPS Applied Analytics and CoreLogic, the waters are still relatively calm: no big waves on the horizon just yet.  LPS’s March “Mortgage Monitor” report shows that while foreclosure inventory remains near-historic highs, and newly started foreclosures are up 8.1% on a monthly basis, they’re still 31.1% below where they were in March 2011. Delinquencies are down 8.8%. The number of borrowers who are either in foreclosure, or 90 days behind on their mortgage payments is down, too, by 6.7%.

CoreLogic’s monthly foreclosure report, released Tuesday, has similar results.  March of this year saw 69,000 completed foreclosures, compared with 85,000 in March 2011, CoreLogic said. Delinquency rates remain unchanged, at their lowest levels since July 2009, in the thick of the financial crisis. And in some of the most troubled markets for foreclosures in the past, like Nevada, Arizona and California, delinquency rates are actually improving, a promising sign for the stability of those markets.  “What we’re seeing so far in the data, it doesn’t amount to a flood. There are regional bursts of activity here and there, but not that wave of foreclosures that people were expecting,” said Herb Blecher, senior vice president at LPS Applied Analytics.

One reason for the low numbers could be February’s $25 billion foreclosure-servicing settlement.  It requires banks to spend $17 billion to help homeowners, receiving different “credits” depending on the type of relief. About $10 billion of that amount must go towards writing down loan balances for borrowers who are at risk of foreclosure. Banks can also get credit for “short sales” — those that allow the borrower to sell the property for less than the total mortgage amount.  With all of this going on, it may take time for banks to sort through their books to figure out which borrowers are eligible for relief. As a result, one of the former believers in the looming foreclosure wave isn’t so sure anymore.  Of course, things could get worse. With millions of potentially troubled loans in the so-called “shadow inventory,” a big wave could always hit.  But for now, it’s fairly calm waters. Leave the Dramamine at home.

Job growth flat

April’s job report lived up to muted expectations, with the economy creating a meager 115,000 jobs during the month as the unemployment rate fell to 8.1 percent.  Job creation in the private sector was slightly better at 130,000, but overall the report painted a picture of a jobs market that had gotten a boost from unseasonably warm winter weather but now has cooled.  The service sector again accounted for most of the job creation, growing 101,000 while manufacturing added just 16,000, according to the Bureau of Labor Statistics. Governments cut a net 15,000 jobs for the month. The average work week was unchanged at 34.5 hours.  Though the headline number indicated job creation, the total employment level for the month actually fell 169,000. The disparity likely emanates from a drop in the labor force participation rate — or the level of Americans actively looking for jobs or otherwise employed — from 63.8 percent to 63.6 percent, its lowest level since December 1981.  The amount of discouraged workers swelled from 865,000 to 968,000, an increase of 12 percent. Those working part-time for economic reasons surged 181,000 to more than 7.8 million.  Temp jobs grew by 21,000 for April while retail added 29,000. Hospitality and leisure employment rose 20,000 — and is up 576,000 since February 2010 — while health care added 19,000.

Wall Street economists had been expecting the Bureau of Labor Statistics report to show 170,000 new jobs created and the unemployment rate holding steady at 8.2 percent.  The unemployment rate, which estimates the total percentage of jobless Americans but does not count those not actively looking for work, was last this low in January 2009, when President Obama took office. Total job creation, though, remains narrowly negative for the president and likely will be a contentious interview as Obama seeks a second term.  The miss in total job creation led to a negative reaction on Wall Street, with stock market futures indicating a lower open.  An alternative measure of unemployment which counts those who have stopped looking for work held steady at 14.5 percent.  Long-term unemployment remains a problem, though it eased somewhat in April. The total amount of those out of a job for more than 27 weeks dipped from 5.3 million to 5.1 million, while the average duration of unemployment fell from 39.4 weeks to 39.1 weeks.  “This remains a weak economy, and the job counts in March and April — which have come in at considerably below 200,000 per month — may perhaps continue right through the summer,” said Kathy Bostjancic, director of macroeconomic analysis at The Conference Board.

BOA downgrades could cost billions

Bank of America Corp (BOA) would have been required to post $5.1 billion in collateral under derivatives contracts as of March 31 if major ratings agencies had downgraded its debt by two notches, the bank said in a quarterly filing yesterday.  The bank’s estimate comes as one of three major ratings agencies, Moody’s Investors Service Inc, has said it’s considering a possible downgrade of the company’s long-term debt rating, as well as its banking subsidiary’s long-term and short-term debt ratings. Moody’s is reviewing 17 financial institutions with global capital markets operations.  Credit ratings are opinions on a company’s creditworthiness used by counterparties to determine its ability to repay loans and price the risk. Downgrades can also trigger counterparties to require banks to post additional collateral under derivatives contracts or to terminate contracts.  Moody’s is expected to conclude its review between early May and the end of June, according to the filing. The agency has offered guidance that a downgrade to the bank’s ratings, if any, would likely be one notch, the filing said.

A one-notch downgrade would have required the company to post $2.7 billion in collateral, the filing said. The bank’s estimates contemplate a downgrade by all three major ratings agencies and quantify the impact for a historical point in time.  In addition, under a one-notch downgrade of certain ratings, the derivative liability that would be subject to termination by counterparties was $3.3 billion as of March 31, against which Bank of America has already posted $2.5 billion of collateral, the filing said. Under a two-notch downgrade, the derivative liability subject to termination was an additional $5 billion, against which the bank has already posted $4.7 billion of collateral.

Obama to make drilling harder

The Obama administration wants to clamp down on shale gas drilling on public lands and set standards that proponents of tougher regulation hope will provide a blueprint for drilling oversight nationwide.  Industry sources said the Interior Department could propose a new rule on hydraulic fracturing, or fracking, as early as today.  Fracking has been essential to unlocking the nation’s massive shale gas reserves, but critics argue that the practice has polluted water and hurt the environment.  The administration has said it supports shale oil and gas development, but has also called for strong oversight.  Administration officials have said they hope the rules could provide a template for states, which handle most of the regulation of fracking.  The Bureau of Land Management estimates that companies use the fracking technique on about 90 percent of wells drilled on federal lands.

Mortgage rates at record lows

Mortgage rates are continuing to plumb record lows, as signs of slowing economic growth raised doubts about the strength of the economic recovery.  Rates on the 30-year fixed-rate mortgage averaged 3.84% for the week ending May 3, down from 3.88% last week and 4.71% a year ago, according to the most recent Freddie Mac survey of conforming rates, released on Thursday.  Fifteen-year fixed-rate mortgages averaged 3.07%, down from 3.12% last week and 3.89% a year ago. Rates on five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 2.85%, unchanged from last week and down from 3.47% a year ago. And one-year Treasury-indexed ARMs also hit a record low at 2.7%, down from 2.74% last week and 3.14% a year ago.  To obtain the rates, the 30-year fixed-rate mortgage required payment of an average 0.8 point, while the 15-year fixed-rate mortgage and the 5-year ARM required an average 0.7 point. The 1-year ARM required an average 0.6 point. A point is 1% of the mortgage amount, charged as prepaid interest.

Two GOP congressmen:  no principal reductions

Two Republican Congressmen advised Federal Housing Finance Agency Acting Director Edward DeMarco to oppose principal reductions for GSE-backed loans.  The letter, submitted by House government oversight committee Chairman Darrell Issa, R-Calif., and Rep. Patrick McHenry, came two days after Reps. Elijah Cummings, D-Md., and John Tierney, D-Mass., sent a letter to DeMarco in support of principal reduction.  In that letter, the Democratic congressmen pointed out Fannie Mae records show the GSE and its regulator approved and then quickly shut down a pilot principal forgiveness program in 2010 that could have saved the company approximately $410 million.  But Reps. Issa and McHenry conveyed a different message in their latest letter to DeMarco, saying FHFA “occupies a unique position in our system of government in which its independence rests upon the need for technical expertise free from coercive influences.”

Issa and McHenry said it was regretful DeMarco was caught in the middle, but urged him not to be bullied and to continue to recognize the potential cost of a principal reduction to taxpayers. They even cited a letter DeMarco previously sent to Rep. Cummings in which he estimated principal forgiveness on all first-lien underwater mortgages owned by the enterprises would require funding of nearly $100 billion to pay down the mortgages backing the homes. They also pointed out that DeMarco recently said the net cost of write-downs to the taxpayer could amount to $2.1 billion.  In addition, Issa and McHenry warned DeMarco about the prospect of using HAMP funds to subsidize the performance of principal reductions, writing that it “contravenes Congressional intent with respect to TARP and HAMP.”  The two congressmen also warned that such an action could turn into a back-door bailout for banks holding second liens on enterprise-owned or guaranteed properties.  ”As you know, the principal modification on a first-lien mortgage improves the position of a subordinate lien holder to the degree that the second lien is more likely to be repaid,” the congressmen wrote. “Even where the second lien is modified similar to the first lien, as in HAMP, the second lien holder benefits by sharing in any overall losses with the first lien holder.”  The pair claim such a set-up would allow second-lien holders to potentially recover more than they would have in a default.

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

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

Private sector employment sluggish

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

MBA – mortgage applications up

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

US has to deleverage

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

Olick – where are the foreclosures?

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

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

People renouncing US citizenship to escape taxes

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

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

Pushback against ideology in principal reduction debate

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

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

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

CoreLogic today released its National Foreclosure Report for March, which provides monthly data on completed foreclosures, foreclosure inventory and 90+ day delinquency rates. There were 69,000 completed foreclosures in March 2012 compared to 85,000 in March 2011 and 66,000* in February 2012. Through the first quarter of 2012, there were 198,000 completed foreclosures compared to 232,000 through the first quarter of 2011. Since the start of the financial crisis in September 2008, there have been approximately 3.5 million completed foreclosures.   Approximately 1.4 million homes, or 3.4% of all homes with a mortgage, were in the national foreclosure inventory as of March 2012 compared to 1.5 million, or 3.5%, in March 2011 and 1.4 million, or 3.4%, in February 2012. The number of loans in the foreclosure inventory decreased by nearly 100,000, or 6.0%, in March 2012 compared to March 2011.   

The share of borrowers nationally that were more than 90 days late on their mortgage payment, including homes in foreclosure and real estate owned (REO) assets, fell to 7.0% in March 2012 from 7.5% in March 2011, and remained unchanged from 7.0% in February 2012.  Also in March, the inventory of REO assets held by servicers nationwide grew more slowly than the pace of REO sales, as measured by the distressed clearing ratio.  The distressed clearing ratio is calculated by dividing the number of REO sales by the number of completed foreclosures. The higher the distressed clearing ratio, the faster the pace of REO sales relative to the pace of completed foreclosures.  The distressed clearing ratio for March 2012 was 0.81, up from 0.76 in February 2012.

 Highlights as of March 2012

-  The five states with the largest number of completed foreclosures for the 12 months ending in March 2012 were:  California (150,000), Florida (92,000), Michigan (62,000), Arizona (58,000) and Texas (57,000). These five states account for 49.1% of all completed foreclosures nationally.

-  The% of homeowners nationally who were more than 90 days late on their mortgage payments, including homes in foreclosure and REO, was 7.0% for March 2012 compared to 7.5% for March 2011, and 7.0% in February 2012.   

-  The five states with the highest foreclosure rates were:  Florida (12.1%), New Jersey (6.6%), Illinois (5.4%), Nevada (4.9%) and New York (4.9%).

-  The five states with the lowest foreclosure rates were:  Wyoming (0.7%), Alaska (0.8%), North Dakota (0.8%), Nebraska (1.1%) and South Dakota (1.4%).

-  Of the top 100 markets, measured by Core Based Statistical Areas (CBSAs) population, 35 are showing an increase in the year-over-year foreclosure rate in March 2012, two more than in February 2012 when 33 of the top CBSAs were showing an increase in the year-over-year foreclosure rate.   

*February data was revised.  Revisions are standard, and to ensure accuracy CoreLogic incorporates newly released data to provide updated results.

BOA to cut 400 jobs

Bank of America (BOA) is planning to cut up to 400 jobs in its investment banking, corporate banking, and sales and trading units, The Wall Street Journal reported, citing people familiar with the situation.  An expected sale of the bank’s non-US wealth-management operations in Asia, Latin America, and Europe would eliminate up to 2,000 jobs, the Journal reported.  Reuters reported on April 17 that Bank of America was looking to sell its wealth-management units outside the US for as much as $3 billion.  BOA declined to comment on the Journal report.  Last spring, the bank announced a cost-cutting program called Project New BAC that aims to eliminate 30,000 consumer banking and technology jobs over the next few years.  The bank has said it expects to wrap up plans for the second phase of the program, which focuses on investment banking, commercial banking, and related support jobs in May. The second phase is expected to cut fewer jobs than the first because it covers a smaller, more efficient part of the bank.  At the end of March, Bank of America had about 278,700 employees worldwide.

Olick – renter nation

“More Americans are renting homes, and fewer are owning them; it’s not as if this is news to anyone who follows the US housing market, but a new report from the Census Bureau today really put an historical exclamation point on the trend.  The share of US household renting reached a fifteen year high, and home ownership reached a 15-year low. Funny how those numbers travel together.  34.6% of households were renters in the first quarter of this year, and that number is climbing, as lack of credit or sufficient down payment keeps Americans young and old from becoming home owners. Rental vacancies are therefore falling, the lowest rate out West, where foreclosures have run the highest during this housing crash. That is also where investors are rushing in to buy foreclosed properties and put them up for rent. Single family homes for rent, in fact, surpassed multi-family units, taking 52% of the $3 trillion rental market, according to CoreLogic.

Both rental and homeowner vacancies are down, which is a general positive for the housing market, because empty houses are a blight on communities. ‘The vacancy rates will only decline if household formation is increasing or units are being destroyed,’ notes ISI Group’s Stephen East.  While banks have bulldozed some foreclosed properties here and there, the practice is by no means popular or widespread. That should mean that household formation is increasing, which is generally a product of an improving jobs picture. Younger Americans who have been living together or with their parents may finally be getting into their own homes, more likely into rentals, but at least they’re forming their own households. That is thanks to a small drop in the unemployment rate among 25-34 year olds to its lowest rate in three years. The home ownership rate now stands at 65.4%, down a full percentage point from a year ago, and down from just over 69% at the peak in 2004.  Since the recession began, growth in overall new households has been about 50% short of trend lines, according to analysts at Goldman Sachs. While household formation is rebounding for single or un-related Americans, formation among families is still waning; that may be due to the types of homes they need, i.e. larger, single-family homes. It thus stands to reason that pent-up demand will show itself first in single family rentals in the future and less in multi-family. No wonder investors are flooding the foreclosure market.”

No more easing?

Two top Federal Reserve officials — one with a dovish, employment-focused bent, and the other a self-avowed inflation hawk — yesterday both said they see no need for the US central bank to ease monetary policy any further.  But the comments, from San Francisco Fed President John Williams and Dallas Fed President Richard Fisher, do not mean they believe the central bank should quickly move to raise rates, which it has kept near zero for more than three years.  The economy grew at a 2.2% pace last quarter, down from its 3% growth rate in the final three months of the year. Recent economic data, including a gauge of business activity in the US Midwest, signal growth may slow further this quarter.  “I don’t think we are ready to exit yet,” Fisher, an inflation hawk, told Reuters at the Milken Institute Global Conference in Los Angeles.  Fisher said he would oppose the extension of Operation Twist, the Fed bond-buying program that is set to end in June, but stopped short of calling for outright monetary tightening.  “We’ll have to see how the year works out,” he said.

US home ownership sets new record – down

The US homeownership rate fell to the lowest level in 15 years in the first quarter as borrowers lost homes to foreclosure and tighter inventory and credit kept buyers off the market.  The rate dropped to 65.4% from 66% in the fourth quarter and fell a full percentage point from a year earlier, the Census Bureau said in a report today. That is the lowest level since the first quarter of 1997, and down from a record 69.2% in June 2004.  Mounting foreclosures are displacing borrowers, while a lack of inventory has kept home sales from accelerating amid record affordability, the National Association of Realtors reported April 19. Stricter mortgage standards are also limiting purchases as rental demand surges, said Paul Diggle, property economist with Capital Economics Ltd. in London.  “Although house prices and mortgage rates have fallen to a level that makes buying preferable to renting, ongoing problems accessing mortgage credit are preventing many households from taking advantage,” he wrote in a note today.  The US apartment vacancy rate fell to 4.9% in the first quarter, an 11-year low, according to New York-based Reis Inc. (REIS).  The vacancy rate for rental homes was 8.8% in the first quarter, compared with 9.7% a year earlier, the Census Bureau said in today’s report.

Of the estimated 132.6 million US homes, 18.5 million, or 13.9%, were vacant in the first quarter. A year earlier, about 19 million homes were vacant, according to the report. That includes homes for sale or rent or held off the market, and vacation properties used seasonally.  The ownership rate may drop below 64% by the end of 2015 and stay there for years, Scott Simon, the mortgage bond head of Pacific Investment Management Co. in Newport Beach, California, said in an e-mail today.  “It will be lower by 2017,” he said. “It will be lower in 2020.”  About 6 million borrowers will lose their properties in the next five years because of inability to pay, creating 4 million new rental households, Simon said in an April 24 interview on Bloomberg Television.  The homeownership rate fell 3 percentage points from a year earlier to 61.4% in the first quarter for people aged 35 to 44, the biggest drop of any age group. The Northeast had the biggest regional decline, with the ownership rate falling 1.4 percentage points to 62.5%. The West had the lowest ownership rate at 59.9%, down 1 percentage point from a year earlier. 

The US homeownership rate rose to a record in 2004 when President George W. Bush, running for re-election, called for expanding home-loan availability to create an “ownership society.” The current rate of 65.4% matches the average since 1965, when the Census Bureau began reporting the figures, according to data compiled by Bloomberg.  Home prices fell 3.5% in February from a year earlier and are 35% below their July 2006 peak, according to the S&P/Case-Shiller index of 20 US cities. The average rate for a 30-year fixed loan was 3.88% last week and reached 3.87% in February, the lowest level in at least four decades, according to Freddie Mac.  About 2.37 million homes were listed for sale in March, a and 6.3 month supply and down 22% from a year earlier, the Realtors association said on April 19. A six-month supply is considered a healthy market, according to the group.

Banks that made reckless home loans in south Florida have been tiptoeing away from foreclosures in a tactic designed to cut their losses. The result: Orphaned, dilapidated homes dot the landscape from Kendall to Lake Worth.  There are no owners willing to claim and care for them.  A months-long Sun Sentinel investigation of property code violations involving abandoned homes uncovered case after case in which banks launched foreclosure lawsuits but then stalled or avoided taking ownership. In effect, the banks legally sidestepped responsibility for the empty homes, causing great harm to neighborhoods.  The real estate industry calls such properties “bank walkaways.” They are no longer maintained by their legal owners, whether they were investors bailing out of unwise deals or families in financial ruin who decamped.  Nor are they being tended to by lenders, which have halted foreclosure proceedings because the remaining equity in the properties is deemed inadequate to cover the banks’ costs to reclaim title and maintain, refurbish and sell them.  The practice has contributed to South Florida’s foreclosure “limbo” problem in which thousands of vacant homes are stuck in unsettled court proceedings for years.

Spending down, income up

A Commerce Department report showed that personal spending increased 0.3% in the month, well down from the 0.9% jump in spending the month before. That was much weaker than the 0.5% gain in spending forecast by economists surveyed by Briefing.com.  Income increased a little faster, rising 0.4%, which was an improvement from the 0.2% rising the previous month. It was the first time since December that income growth outpaced spending increases, as consumers dipped into savings the previous two months in order to deal with rising prices, such as increases in gasoline prices.  But inflation moderated in March, and it allowed consumers to increase their savings again. The report showed that the savings rate, which compares after-tax income to the level of spending, edged up to 3.8% from 3.7% in February. That means the average family was saving $38 out of every $1,000 in take-home pay in the month.

ResCap bankruptcy could cost $1.2 billion

A bankruptcy filing on the ResCap mortgage unit could cost parent company Ally Financial between $400 million and $1.25 billion, according to a financial disclosure by the bank Friday.  “If a ResCap bankruptcy were to occur, we could incur significant charges, substantial litigation could result, and repayment of our credit exposure to ResCap could be at risk,” according to the filing.  On April 17, Ally disclosed the troubled mortgage unit missed an interest payment on its debt and would be considered in default if it wasn’t made within 30 days. More than $473 million on the debt is outstanding.  The unit actually forged a $191 million profit in the first quarter. But according to the filing Friday, Ally estimates the losses from litigation matters and repurchase obligations could reach as high as $4 billion over time.  Barclays Capital analysts predicted the unit could be placed into bankruptcy within one to two months, and outlined why selling the servicing rights would be critical for investors in ResCap issued mortgage-backed securities.  The unit has stopped lending to real estate developers and homebuilders in the US, according to the Ally filing Friday.

Student loans are a hot potato

In the political campaigns still taking shape, President Barack Obama, Republican challenger Mitt Romney and lawmakers of both parties say they want to protect college students from a sharp increase in interest rates on federally subsidized loans.  Agree, they might, and act they surely will. But first, they settled effortlessly into a rollicking good political brawl.  In less than 72 hours, what might have looked like a relatively simple matter mushroomed into a politically charged veto showdown that touched on the economy and health care, tax cuts and policies affecting women. Accusatory campaign commercials to follow, no doubt.  “This is beneath us. This is beneath the dignity of this House and the dignity of the public trust that we enjoy,” protested House Speaker John Boehner, R-Ohio as Democrats maneuvered for position on the student loan bill.

“It shouldn’t be a Republican or a Democratic issue. This is an American issue,” Obama said in North Carolina last week as he broached the topic of legislation in a move to gain support students in the fall election. He urged his listeners to tweet their lawmakers and urge them to block an increase in interest rates on federally subsidized loans issued beginning July 1.  There was partisan pop behind Obama’s message, though.  Over two days of campaign-style appearances on college campuses, he quoted one unnamed Republican lawmaker as saying she had “very little tolerance for people who tell me they graduate with debt because there’s no reason for that.” Another GOP lawmaker likened student loans to “stage three cancer of socialism,” he said. Both Republicans quickly said they had been quoted out of context. 

Within a day, Romney told reporters he agreed on the need to prevent the rate increase, while conceding nothing to Obama in the search for political advantage. “I support extending the temporary relief on interest rates for students,” he said, and cited “extraordinarily poor conditions in the job market” in a jab at the president’s handling of the economy.  Congressional Democrats announced they would write legislation to prevent a doubling of the current 3.4% interest rate, and cover the $6 billion cost by requiring more wealthy individuals to pay Social Security and Medicare payroll tax.  It was a not-so-subtle reprise of a campaign perennial, the allegation that Republicans want to cut programs benefiting those who aren’t rich to protect tax cuts for those who are.  “Let’s be honest,” said Senate Republican leader Mitch McConnell of Kentucky. “The only reason Democrats have proposed this particular solution to the problem is to get Republicans to oppose it, to make us cast a vote they think will make us look bad to the voters they need to win the next election.”  He then accused Democrats of wanting to pay for the legislation “by raiding Social Security and Medicare, and by making it even harder for small businesses to hire.”

TARP exec pleads guilty to fraud

Reginald Harper, former CEO of First Community Bank of Hammond, La., pleaded guilty to defrauding the firm out of millions of dollars in phony mortgages.  Harper faces up to five years in prison and a $250,000 fine. His sentencing is scheduled for Sept. 13. First Community applied for and was approved for $3.3 million in Troubled Asset Relief Program bailouts in 2008 but withdrew its application afterward.  Four years prior, Harper loaned $2 million to real estate developer Troy Foquet in 2004 to build out parcels of real estate, according to the charges.  Once it became difficult to find qualified homebuyers, Harper would loan potential buyers money to make it appear to the mortgage lender the borrower had more cash than they actually did. He also used “straw” buyers to obtain mortgages, which were used to pay off the original loans to Foquet.  Foquet also paid Harper with insufficient checks, which were credited as a loan payment in order to avoid reporting the delinquency.  Foquet pleaded guilty to the charges in March.  Executives had the choice of writing off losses on bad loans or covering up those losses through fraud,” said Special Inspector General for TARP Director Christy Romero. “Harper chose the latter and concealed the status of the loans from others at First Community Bank, from the bank’s regulators and in the bank’s TARP application.”

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

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

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

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

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

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

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

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

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

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

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

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

* The MANP should not be disclosed to the borrower. 

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

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

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

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

*The MANP should not be disclosed to the borrower.

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

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

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

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

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

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

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

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

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

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

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

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

Economic growth flat

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

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

Olick – foreclosures return

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

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

Treasury Secretary wants to open markets to China

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

Remodelling Market Index (RMI) flat

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

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

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

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

Durable goods down

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

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

MBA – mortgage applications down

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

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

Hundreds of banks struggling to repay TARP

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

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

The golden age for foreclosure squatters may soon be coming to an end now that the $26 billion mortgage settlement has been approved.

The settlement, agreed to by the nation’s five largest mortgage lenders, is expected to speed up the foreclosure process by providing stricter guidelines for the banks to follow when repossessing homes.  The banks involved include Bank of America, JPMorgan Chase, Citibank, Wells Fargo and Ally Financial.  Many foreclosures have been in limbo since fall 2010 following the so-called robo-signing scandal, when banks allowed employees to sign off on thousands of foreclosure documents a month with little verification.  Lenders hit the pause button on foreclosures because they “were afraid that anything they did would be under a microscope,” said Eric Higgins, a professor of business at Kansas State University.  As a result, borrowers who were seriously delinquent on their loans have been able to stay in their homes for months or even years without making a single payment. Nationwide, the average time it takes to foreclose on a home — from the first missed payment to the final bank repossession — stretched to 370 days during the first quarter, almost twice as long as it took five years ago, according to Daren Blomquist, the marketing director at RealtyTrac. 

In some states, delinquent borrowers have been squatting in their homes much longer. In Florida, the average time was 861 days, and in New York it was 1,056 days — close to three years.  “Perhaps a million foreclosures could have been pursued last year but weren’t,” said Rick Sharga, executive vice president for real estate investment company, Carrington Holdings.  But that’s all about to change, he said. “We’re going to see an increase in the speed of foreclosures and a higher number of foreclosure starts.”  In fact, there are indications that the pace of foreclosures are already starting to pick up.

While overall foreclosure activity was down during the first quarter, filings were up 10% in the 26 states where foreclosures must undergo court scrutiny, according to RealtyTrac.  It was in these judicial states that the processing of foreclosures slowed the most following news of the robo-signing scandal, said Blomquist.  Many banks in these states stopped filing foreclosures unless they were extremely confident it would pass muster in the court. (In non-judicial states, foreclosures are reviewed by a trustee, which is a third party such as a title company and less likely to parse every legal document).  But now lenders can move more confidently, said Brandon Moore, RealtyTrac’s CEO.  In the judicial state of Indiana, for example, foreclosure filings were up 45% year-over year. And in Florida, they were up by almost 26%, according to RealtyTrac.  “The dam may not burst in the next 30 to 45 days, but it will eventually burst, and everyone downstream should be prepared for that to happen — both in terms of new foreclosure activity and new short sale activity,” Moore said in a statement.  The resulting flood could bring home prices down even further — yet another impetus for the banks to clear out their foreclosure pipeline as quickly as possible, said Kansas State’s Higgins.  Then, industry thinking is, the housing market would be able to get back to normal and home prices could eventually find their true value. Some industry analysts, such as the chief economist for listing site Zillow, Stan Humphries, are predicting that could happen as soon as the end of the year.  Zillow estimates that home values nationwide will fall another 3.7% by the end of 2012, and that price will likely bottom out by early 2013.  Should home prices hit a bottom then stabilize, it would push many potential buyers off the fence, according to Mike Fratantoni, a vice president at the Mortgage Bankers Association. House hunters would no longer be afraid of investing in assets that were losing money.  “The market is already on the verge of turning the corner on prices and this will help,” said Fratantoni.

Inflation up

The Labor Department said on Friday its Consumer Price Index increased 0.3% after advancing 0.4% in February. That was in line with economists’ expectations.  Outside the volatile food and energy category, inflation pressures appeared to be modest. Core CPI edged up 0.2% after gaining 0.1% in February.  The US Federal Reserve has said it will probably hold interest rates super low into 2014 to help the economy, which is limping back from the 2007-2009 recession.  Amid recent signs of weakness in the labor market, investors are betting the Fed could unleash further monetary stimulus to boost growth, although comments by Fed officials this week suggested the central bank is on hold as it waits to see whether the recovery gains traction.  Last month, overall inflation was pushed up by gasoline prices, which rose 1.7%. That was a much more mild increase than the 6% gain in February.  But electricity prices fell 0.8%, the steepest decline since June.  Food prices climbed 0.2% last month.  Overall consumer prices rose 2.7% year-on-year, down from a reading of 2.9% in February.  In the 12 months to March, core CPI increased 2.3% after rising 2.2% in February. This measure has rebounded from a record low of 0.6% in October.

Wells Fargo has record earnings

Wells Fargo, the largest mortgage lender in the US, reported record earnings in the first quarter.  The San Francisco-based bank earned $4.2 billion, or 75 cents per share, a 10% increase from the $3.8 billion profit one year prior.  Revenue jumped to $21.6 billion in the first quarter from $20.6 billion last year. It’s the highest quarterly revenue in more than two years, the bank said.  Wells still held nearly $2 billion in provision for credit losses at the end of the first quarter. It did release $400 million from its loan loss reserve, compared to a $600 million release in the previous three months.  Wells Chief Financial Officer Tim Sloan said he expects expenses to drop by as much as $700 million in the second quarter. Roughly $100 million in expenses during the first quarter came from consent orders signed with federal regulators last spring to settle mortgage servicing issues.  Mortgage originations totaled $129 billion in the first three months of 2012, up significantly from $75 billion in the same period last year and up from $121 billion in the last quarter of 2011.  The bank did say 15% of the originations during the first quarter were workouts under the Home Affordable Refinancing Program.  Demand is also increasing at Wells. The bank reported $188 billion in mortgage applications as of the end of the quarter, up 20% from the previous three months.

New bubble

According to Citigroup economist Steven Wieting health care is the next big bubble looming in the distance.  And to make matters all the more worrisome, his analysis suggests it’s like nothing we’ve seen before.  “It’s not a single asset price that’s about to pop (like housing) and it doesn’t have a cyclical component,” he said.  Rather, “It’s a fundamental bubble that will have a large impact on the economy.”  Wieting says the trouble is spiraling health care costs that are growing at a fast and furious pace, a pace that will become all but impossible to support.  “Ultimately there will be a price to pay” he says.  With the lion’s share of health care costs shouldered by companies and governments, he thinks the rising costs will ultimately hit budgets.  “We’ll either have to raise taxes or increase budget deficits in order to finance it. And it will crowd out other things. Already we’re starting to see it impact education and infrastructure spending.”  Going forward, Wieting tells us areas in health care that will be hardest hit are areas that operate at high margins. Those companies will probably see their margins squeezed.

DSNews.com – strategic default here to stay

With reports that around 20% of mortgages are underwater, about 46% of bank risk professionals surveyed by FICO expect to see the volume of strategic defaults in 2012 exceed 2011 levels.  “After five years of a brutal housing market, many people now view their homes more objectively and with less sentimentality,” said Dr. Andrew Jennings, chief analytics officer at FICO and head of FICO Labs. “Regardless of legal or ethical issues around strategic defaults, lenders must account for this risk when they evaluate mortgage applications in declining markets. Many homeowners who find themselves upside down on mortgages in the future are likely to consider strategic default as an acceptable exit strategy.”  Combined with concerns over strategic default are disconcerting results about consumer priorities. Only 29% of bankers said the current generation of homeowners considers their mortgage to be their most important credit obligation, while 49% said its not a priority. 

Even with this discouraging data, 53% of survey respondents expect to see the housing market improve by the end of 2012, compared to 24% who said the market would deteriorate.  Also, 64.8% of respondents think mortgage delinquencies will decrease or stay the same, an 11.3% increase from the previous quarter.  “If job creation continues, banks will be more likely to embrace mortgage lending once again. A healthy job market is essential for improving the quality of mortgage applications and reducing default risk,” said Jennings.  Most respondents, 56%, expect demand for residential mortgage credit to exceed supply over the next six months. A similar majority, 53%, project demand for the supply of credit for mortgage refinancing surpass supply.  The survey included responses from 263 risk managers at banks throughout the US in February 2012 and was a joint effort between FICO, provider of analytics and decision management technology, and the Professional Risk Managers’ International Association, a nonprofit that works to define and implement the best practices of risk management through education.

First-quarter foreclosures declined 16% from a year earlier, falling to their lowest quarterly total since 2007, according to the latest report from market researcher RealtyTrac.  The number of foreclosure filings in the first quarter fell 2% sequentially. Default notices, scheduled auctions and bank repossessions were reported on 572,928 US properties in the latest quarter, the lowest level since the fourth quarter of 2007, when 527,740 properties with foreclosure filings were reported. One in every 230 US housing units had a foreclosure filing during the quarter.  In March, there were 198,853 US properties in varying stages of foreclosure, down 17% from a year earlier and 4% from the prior month.  RealtyTrac reported the decline in foreclosure activity is primarily due to decreasing activity in states that use the nonjudicial foreclosure process. Foreclosure filings in these 24 states and the District of Columbia, which represented more than half of the nation’s total during the quarter, fell 28% on the year. States that primarily use the judicial foreclosure process saw a 10% year-over-year increase in foreclosure activity in the first quarter.

RealtyTrac Chief Executive Brandon Moore warned that the low foreclosure numbers in the latest period do not indicate that the massive amount of distressed properties built up over the past few years has evaporated.  “There are hairline cracks in the dam, evident in the sizable foreclosure activity increases in judicial foreclosure states over the past several months, along with an increase in foreclosure starts in many judicial and non-judicial states in March,” Moore said in a statement. “The dam may not burst in the next 30 to 45 days, but it will eventually burst, and everyone downstream should be prepared for that to happen–both in terms of new foreclosure activity and new short sale activity.”  Completing the foreclosure process took an average of 370 days in the first quarter, up from 348 days in the prior quarter. However, RealtyTrac noted the average foreclosure timeline fell in bellwether states like California, Colorado, Utah, Massachusetts and Nevada.

Nevada’s foreclosure activity fell 62% on the year and 26% from the prior quarter, but the state again posted the nation’s highest foreclosure rate. In the latest period, one in every 95 Nevada housing units received a foreclosure filing.  California had the second highest rate, though the state’s default activity also decreased on a quarterly and annual basis. One in every 103 California housing units had a foreclosure filing in the first quarter. The state also had the highest number of properties with foreclosure filings.  Arizona had the third highest foreclosure rate, with one in every 106 housing units receiving a foreclosure filing.

Jobless claims up

Initial claims for state unemployment benefits increased 13,000 to a seasonally adjusted 380,000, the Labor Department said on Thursday, defying economists’ expectations for a drop to 355,000.  The four-week moving average for new claims, considered a better measure of labor market trends, rose 4,250 to 368,500.  Some economists blamed the Easter holidays for the spike in claims and expected applications to trend lower in coming weeks.  “It’s very difficult to know the extent to which that’s driven by seasonal effects from Easter or not,” said Eric Green, chief economist at TD Securities in New York.  The claims data comes in the wake of Friday’s disappointing employment report for March, which showed the economy created 120,000 new jobs, the smallest amount since October.  Despite the rise in claims last week, both first-time applications for unemployment aid and the four-week average held below the 400,000 mark, implying steady job gains.

Olick – higher prices coming?

“A response to a recent RealtyCheck blog on home prices included the following:  ‘Someone needs to explain to Ms. Olick what these ‘price declines’ really represent because they most assuredly do not measure how much home values have changed. They simply measure the statistical midpoint for all home sales. So in an economy where people are buying smaller homes that number moves down. That doesn’t mean that every house lost that % value.’  Thanks, but no explanation necessary, as I believe I covered that a while back. But I would like to elaborate a bit on this theme, as we’re starting to see some changes mortgage applications; specifically the average loan amount is rising, which might suggest a turnaround in pricing, due to a change in the type of homes being bought.  The average size of a mortgage purchase application increased 9% from December to the end of March, from $214,500 to $233,300 in March, according to the Mortgage Bankers Association. ‘That points to underlying improvement in borrowers’ appetite for mortgage credit,’ notes Paul Diggle of Capital Economics. 

Just yesterday analysts at Goldman Sachs said both Toll Brothers and Pulte Homes should benefit from more positive sentiment among high end buyers. Their survey showed 63% of respondents expect home prices to be either stable or rise, but 83% of respondents with an annual income above $120,000 expect home prices to be either stable or rise. That’s up from 75% six months ago.  If in fact the higher end buyers start getting back into the market, or at least the move-up buyers, that will shift the volume to a higher price range and consequently the median price, which gets all that national attention. 72% of home sales in February were of homes priced less than $250,000, according to the National Association of Realtors.  Of course, as I always say, all real estate is local, as are all home prices, and let us not forget that.”

Producer prices flat

US producer prices were unchanged last month after advancing 0.4% in February.  Economists polled by Reuters had expected prices at farms, factories and refineries to rise 0.3%.  Wholesale prices excluding volatile food and energy costs rose 0.3% after February’s 0.2% gain.  That was a touch above economists’ expectations for a 0.2% advance and marked the fifth successive month of increases in core PPI.  Over one-third of the rise in core PPI was attributed to prices for light motor trucks. Higher costs for passenger cars, soaps and detergents also contributed to the advance in core PPI.  However, manufacturers have limited scope to pass on these increased costs to consumers given the still considerable slack in the economy.  Overall producer prices were held back by a 2.0% fall in gasoline, the largest decline since October, after a 4.3% jump in February. That offset a 0.2% rise in food prices, which halted three straight months of declines.  However, gasoline prices rose 7.5%, when seasonal factors are excluded.  In the 12 months to March, wholesale prices increased 2.8%, the smallest increase since June 2010, after advancing 3.3% in February.  Outside food and energy, producer prices were pushed up by light motor trucks prices, which rebounded 0.7% after falling 0.4% in February. Passenger car prices rose 0.8% after edging up 0.1% the prior month.  The increases likely reflected strong demand for automobiles.  In the 12 months to March, core producer prices increased 2.9% after rising 3.0% the previous month.

Loan demand improves

Loan demand in the banking industry, as well as residential and commercial real estate activity, improved in most Federal Reserve districts across the US, according to the latest Beige Book from the Fed.  The survey, which develops a consensus on economic activity by interviewing industry contacts in every Federal Reserve district, reported that the US economy continued to grow at a modest pace from mid-February to late March.  Residential real estate activity also improved in most districts, with Cleveland and San Francisco remaining outliers with lackluster real estate activity.  Nationwide construction of multifamily housing units grew in most Fed districts, with most of the construction centered around apartments and senior housing.  Meanwhile, home prices continued to fall in key areas like Boston, New York and Minneapolis. Prices remained flat in San Francisco.  Mild winter weather during the first part of the year delivered a slight boost in real estate activity in the areas of Boston, Philadelphia and Kansas City. 

Conditions in the financial services and banking industry remained “stable” as demand for lending increased modestly. While lending remained unchanged in St. Louis, it expanded in New York, Philadelphia, Cleveland, Richmond, Chicago, Kansas City, Dallas and San Francisco.  “In general, the demand for commercial and industrial loans remained steady, while several districts reported an increase in commercial real estate lending activity,” the Beige Book said.  “The Philadelphia and Cleveland districts reported increased lending for multifamily housing and health care, and contacts in Richmond cited increased lending to small business to finance inventory and capital expenditures.”  Overall, residential real estate showed signs of modest improvement and multifamily housing construction continued to grow. On the banking side, credit quality increased and financial firms noted improvement in loan demand.

The $26 billion foreclosure settlement has finally been given the green light, making it possible for roughly two million of the nation’s hardest hit borrowers to see a significant reduction in their mortgage payments.  Agreed to between the nation’s five largest banks and attorneys general from 49 states and the District of Columbia, the deal settles charges of foreclosure processing abuses dating back to 2008.  The settlement, the details of which were first announced in early February, has been in the works for more than a year. Here’s what the banks agreed to and what borrowers can expect in the days ahead.

The banks and servicers have committed at least $17 billion to reduce principal for borrowers who 1) owe far more than their homes are worth 2) are behind on payments.  The amount of principal reduction will average about $20,000 per borrower in the cases of four of the banks. The Bank of America reductions will be even steeper, averaging $100,000 or more, according to spokesman Rick Simon.  Another $3.7 billion will go toward refinancing mortgages for borrowers who are current on their payments. This will enable them to take advantage of the historically low interest rates that are currently available.  The banks will pay $5 billion to the states and the federal government, the only hard money involved in the deal. Out of that fund will come payments of $1,500 to $2,000 to homeowners who lost their homes to foreclosure.

Other funds will be paid to legal aid and homeowner advocacy organizations to help individuals facing foreclosure or experiencing servicer abuses.  Another $1 billion will be paid directly by Bank of America to the Federal Housing Administration to settle charges that its subsidiary, Countrywide Financial, defrauded the housing agency.  In addition, the banks agreed to eliminate robo-signing altogether and to use proper and legal procedures when putting homeowners through the foreclosure process. They also agreed to end servicer abuses, like harassing delinquent borrowers for payments, and to include principal reductions more often in their mortgage modifications programs.

Iran sanctions to cost 25 cents a gallon

Twenty-five cents a gallon — that’s about how much some international energy experts say the tough US sanctions on Iran’s oil industry are costing Americans at the pump.  As US consumers cope with gas prices that are approaching an average of $4 a gallon, some international trade experts say the cost of the sanctions the US imposes — as in the case of the Iran measures — is something political leaders should discuss more openly. Instead, they say, most politicians act as if sanctions affect only the country targeted — something these experts say isn’t true.  Energy experts say it’s difficult to pinpoint precisely how much sanctions on Iran are costing consumers as they filter down to the gas pump. But Lucian Pugliaresi, president of the Energy Policy Research Foundation, a Washington nonprofit organization that studies energy economics, says it’s possible to make an estimate.  The sanctions the US and other countries have slapped on Iran’s energy sector and on its central bank (aimed at curtailing its oil exports) are costing Iran about 300,000 barrels a day in exports, Mr. Pugliaresi estimates. When added to other factors affecting the international oil market, that decrease in exports may have added about $10 to the current price of a barrel for crude, he says.  And that $10 increase translates roughly to about a 25-cent increase in the cost of a gallon of gas in the US, Pugliaresi says.

FHA delays collections rule

The Federal Housing Administration (FHA) rescinded and will delay a rule that as of April 1 prohibited borrowers with more than $1,000 in disputed collections accounts from getting a federally backed mortgage, according to a notice sent late Friday.  FHA postponed the rule until July, and will take public comment from lenders, builders and others in the industry until then to clarify guidance.  “There is clearly a bigger ripple effect here than the Department of Housing and Urban Development might have anticipated going into this revision,” said Lisa Jackson, senior vice president of research and business development with John Burns Real Estate Consulting. “Any measure that impacts even 10% of sales is meaningful and our analysis shows it would be far greater in some markets.”  The FHA attempted to ease the original proposal, allowing borrowers to provide written documentation on “life event” disputed accounts with them, such as bills stemming from illness, divorce or unemployment in order to obtain an exemption.  Borrowers could previously show the lender they arranged a payment plan to settle other accounts too in order to qualify, including credit card and utility bills.  According to the alert sent Friday, the FHA ensured lenders they would not be in violation of the new rule for loans written between April 1 and April 8.  Until July, the old guidance will be put back into place.

Analysts from JPMorgan Chase said the rule would affect many first-time homebuyers the most, those most likely to carry such debt. The analysts estimated the rule could cut FHA demand by up to 20%, and the damage would affect homebuilders differently depending upon how much of their business hinged on these borrowers.  Many questioned the timing and the murkiness of the rule. The FHA previously said it adopted the rule in order to reduce default risk for newer books of business. Mortgages written during the housing bubble continue to haunt the agency. The FHA emergency Mutual Mortgage Insurance fund dropped to nearly 0.2% last year was in danger of needing a bailout from the Treasury Department if insurance premiums were not hiked and some lucrative settlements were not struck.  “There are two positives to this latest decision: HUD is willing to analyze the real implications of the housing market before they put a new measure in place, plus they are engaging feedback on the issue,” Jackson said.

Stock market on a cliff?

For the stock market, it was a triumphant first quarter. But for earnings growth, the past three months were just ho-hum.  Analysts are expecting earnings for companies in the Standard & Poor’s 500 index to decline 0.1% compared to a year ago, according to FactSet. It’s a tiny number but a significant turning point. Earnings growth was on a winning streak for the previous nine quarters. Year-over-year earnings growth has been at least 10% for all but the most recent period, when it was 6%.  The reasons for the expected slowdown range from global (a weak Europe hurts everybody) to mathematical (it’s hard to top double-digit quarters). Whatever the cause, the stagnation in earnings growth is a stark reminder that the economy’s problems are far from solved. Just three months ago, analysts were predicting 3% earnings growth for the first quarter.  We’ll soon see if the expectations are on target. Earnings season gets under way Tuesday when the aluminum producer Alcoa becomes the first major US company to release its first-quarter results.  Should this batch of earnings contain a lot of bad surprises, it could upend a stock market rally that pushed the S&P 500 index up 12% in the first three months of the year.

63% of HAMP-eligible second liens modified

Mortgage servicers started modifications on 63% of eligible second liens under the Home Affordable Modification Program (HAMP), according to Treasury Department data released Friday.  Through February, servicers participating in 2MP started 71,133 second-lien workouts of the 113,774 eligible loans. More than 15,600 of them have been fully extinguished. More than one-third of the second-lien mods occurred in California, according to the Treasury.  Of the $29.9 billion allocated for HAMP, roughly $2.7 billion is set aside for modifying second liens, according to the Special Inspector General for the Troubled Asset Relief Program.  In January, the Treasury boosted incentives to investors who allow the workouts, doubling the pay from earlier in the program.  In order for a loan to be eligible for the second-lien program under HAMP, the servicer must receive notification of a match with a permanent first lien modification, according to program guidelines. The Treasury said roughly 315,000 HAMP first-lien mods have been matched to a second, but many are deemed ineligible because of a redefault on the first lien, an extinguishment before it entered HAMP.  In some cases, the Treasury said some homeowners with an eligible second decline to participate in 2MP.  Bank of America has nearly 40,000 eligible second-liens, the most of any servicer, and has started modifications on 62% of them.  Wells Fargo started workouts on 71% of its 16,300 eligible seconds, the highest percentage of any servicer.  Overall, servicers start modifications on between 2,000 and 5,000 second-liens under 2MP. The median monthly payment reduction was $161 for borrowers.  Servicers started 1.8 million trial modifications and completed 974,000 permanent workouts under the first-lien program through February.