foreclosures

Short sales new normal in Seattle and California

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.”

Foreclosure squatters beware

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.

WSJ – foreclosures fall, but…

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.

What the foreclosure settlement does

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.