The rise of short sales in Metro Detroit is helping keep the number of foreclosures down, according to an analyst for a foreclosure tracking company.  Half of the states in the nation saw foreclosure activity rise in April, but Michigan continued to rack up double-digit losses — experiencing a 28% decline from a year ago, according to Irvine, Calif.-based RealtyTrac. In April, Metro Detroit saw a 32% plunge in default notices, sheriff’s auctions and lender repossessions from a year ago, though activity increased 4% from the previous month.  The total number of April foreclosure filings for Macomb, Oakland and Wayne counties amounted to 4,791, compared with 7,081 in April 2011. It was the 18th consecutive month that foreclosure activity dropped in the region. 

RealtyTrac earlier this year predicted an increase of at least 20% in foreclosure filings for the first half of this year because of a nationwide settlement of faulty practices in mortgage signings. Analysts expected that to unleash a backlog of foreclosed properties.  Instead, short sales have nearly doubled. In Metro Detroit, short sales in January jumped 69% over the same time the year before, said RealtyTrac analyst Daren Blomquist.  In April, short sales made up 12% of all residential real estate sales in Metro Detroit, according to the monthly report by residential listing service Realcomp II Ltd., a Farmington Hills multiple listing service.  Another reason foreclosure filings may not have risen as expected is because lenders worry about flooding the market with distressed property and driving down prices, according to Clear Capital, a California-based housing consulting firm.

Jobs static

Initial claims for state unemployment benefits held steady at a seasonally adjusted 370,000, the Labor Department said.  The prior week’s figure was revised up to 370,000 from the previously reported 367,000.  Economists polled by Reuters had forecast claims falling to 365,000 last week. The four-week moving average for new claims, considered a better measure of labor market trends, fell 4,750 to 375,000.  “We are really not showing much momentum in the labor market at this time,” said Sean Incremona, an economist at 4Cast in New York.  The data comes on the heels of three straight months of slowing employment gains. Companies added 115,000 new jobs to their payrolls in April, the fewest in six months.  Thursday’s report on claims covered the week for May’s payrolls survey. The four-week average of new applications fell marginally between the April and May survey periods, suggesting not much change in labor market conditions.

Olick – foreclosures move east

Foreclosure activity in April fell nationally to the lowest level since the summer of 2007, but government intervention and the recent $25 billion mortgage servicing settlement are now changing the face of the crisis.  Foreclosure filings, which include default notices, scheduled auctions and bank repossessions, fell 5% in April from March, according to a new report from RealtyTrac, and are down 14% from April of 2011. One in every 698 US housing units had a foreclosure filing during the month.  “Rising foreclosure activity in many state and local markets in April was masked at the national level by sizable decreases in hard-hit foreclosure states like California, Arizona and Nevada,” said Brandon Moore, CEO of RealtyTrac in a release. “Those three states, and several other non-judicial foreclosure states like them, more efficiently processed foreclosures last year, resulting in fewer catch-up foreclosures this year.”

Major banks are also suspending foreclosure actions, as they comply with the mortgage servicing settlement that was the result of so-called “robo-signing” in foreclosure document processing. Bank of America recently announced that it was beginning a summer-long campaign to contact 200,000 borrowers, and offer them principal reduction, as part of the settlement; foreclosure actions, bank representatives said, would be suspended until the bank had reached them all and determined if they were eligible for new loan modifications.  Lenders are also responding more efficiently to requests for short sales, which is when the home is sold for less than the value of the mortgage. New financial incentives from the government and new streamlined programs at Fannie Mae and Freddie Mac are behind much of that.  “Our preliminary first quarter sales data show that pre-foreclosure sales, typically short sales, are on pace to outnumber sales of bank-owned properties during the quarter in California, Arizona and 10 other states,” adds Moore.

As also reported today by the Mortgage Bankers Association, there is a big discrepancy between foreclosure activity in states that require a judge in the process (judicial) and states that do not (non-judicial). The MBA reported a rising number of loans in the foreclosure process in judicial states, but a falling number in non-judicial states during the first three months of the year. For April, RealtyTrac reports foreclosure activity down 7% from March and down 29% from a year ago. In judicial states, activity was down just 3% month to month but still up 15% from a year ago.  The judicial/non-judicial split is pushing the foreclosure crisis east, as some of the worst-hit states like California, Arizona and Nevada are able to clear through the backlog more quickly. The 11 cities with annual increases in foreclosure activity were all in the Midwest, South or on the East Coast, while six of the nine cities with annual decreases were out West in California, Arizona and Washington, according to RealtyTrac. California and Nevada, however, still post the top foreclosure rates, along with judicial Florida.

The supply of bank-owned properties in non-judicial states is also falling, as a growing cadre of investors sweeps in to buy distressed properties at the courthouse steps. One California Realtor speaking at the National Association of Realtors’ midyear conference this week told the conservator of Fannie Mae and Freddie Mac, “We don’t need a bulk REO sale program, we have no inventory!”  Bank repossessions (REO) are down for the third straight month, according to RealtyTrac. Lenders took back 51,415 properties in April.

Ryan on debt woes

Asked what he would be willing to give up to address the US debt crisis, Rep. Paul Ryan stood his ground Tuesday and insisted it was Democrats who needed to cede ground.  “I’m not interested in negotiating with myself on television. It’s futile, in my opinion,” he said on CNBC’s “The Kudlow Report.”  Ryan said,  “The Senate has chosen not to pass a budget in three years.  The president has chosen to disavow the fiscal commission, to not put a budget that attempts to deal with any of these issues. We have passed solutions.”  Ryan, R-Wis., who chairs the House Budget Committee, backed the idea of tax reform that would lower rates and eliminate or reduce deductions to “broaden the base,” which would lead to increased revenues.  “We think that is a good offer,” he said.  “We have yet to see any movement on the other side on fundamental entitlement reform,” he said.  “If you simply chase higher spending with higher revenues, you’ll end up shutting down the economy and not solving the debt crisis. The debt crisis is a spending-driven crisis, and there’s never been a moment where the other side has been willing to do fundamental entitlement reform that is necessary to preventing a debt crisis in the first place.”

MBA – delinquencies down

The delinquency rate for mortgage loans on one-to-four-unit residential properties decreased to a seasonally adjusted rate of 7.40% of all loans outstanding as of the end of the first quarter of 2012, a decrease of 18 basis points from the fourth quarter of 2011, and a decrease of 92 basis points from one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey. The non-seasonally adjusted delinquency rate decreased 121 basis points to 6.94% this quarter from 8.15% last quarter.  The percentage of loans on which foreclosure actions were started during the fourth quarter was 0.96%, down three basis points from last quarter and down 12 basis points from one year ago. The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure. The percentage of loans in the foreclosure process at the end of the first quarter was 4.39%, up one basis point from the first quarter and 13 basis points lower than one year ago. The serious delinquency rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 7.44%, a decrease of 29 basis points from last quarter, and a decrease of 66 basis points from the first quarter of last year.  The combined percentage of loans in foreclosure or at least one payment past due was 11.33% on a non-seasonally adjusted basis, a 120 basis point decrease from last quarter and was 98 basis points lower than a year ago. This was the lowest that this measure has been since 2008.

On a seasonally adjusted basis, the overall delinquency rate decreased for all loan types except VA loans for the fourth quarter of 2011. The seasonally adjusted delinquency rate decreased five basis points to 4.07% for prime fixed loans and decreased 17 basis points to 9.05% for prime ARM loans. The delinquency rate decreased 34 basis points to 19.33% for subprime fixed loans and decreased 24 basis points to 22.16% for subprime ARM loans. FHA loans also saw a decline, with the delinquency rate decreasing 36 basis points to 12.00, while the delinquency rate for VA loans increased two basis points to 6.57.  The% of loans in foreclosure, also known as the foreclosure inventory rate, increased overall from last quarter to 4.39%. Broken down, the foreclosure inventory rate for prime fixed loans increased seven basis points to 2.59% and the rate for prime ARM loans increased four basis points from last quarter to 8.76%. The rate for subprime ARM loans decreased 62 basis points to 21.55% and the rate for subprime fixed loans decreased 17 basis points to 10.48.  The foreclosure inventory rate for FHA loans increased 29 basis points to 3.83 while the rate for VA loans increased nine basis points to 2.46.  The non-seasonally adjusted foreclosure starts rate remained unchanged for prime fixed loans at 0.62%, decreased eight basis points for prime ARM loans to 1.75%, decreased 20 basis points for subprime fixed to 2.13% and 57 basis points for subprime ARMs to 3.22%. The foreclosure starts rate increased eight basis points for FHA loans to 0.96% and five basis points for VA loans to 0.65%.

Compared with the first quarter of 2011, the foreclosure inventory rate: decreased 77 basis points for prime ARM loans, remained unchanged prime fixed loans, decreased five basis points for subprime fixed, decreased 71 basis points for subprime ARM loans, increased 48 basis points for FHA loans and increased seven basis points for VA loans.  Over the past year, the non-seasonally adjusted foreclosure starts rate: decreased six basis points for prime fixed loans, decreased 21 basis points for prime ARM loans, decreased 43 basis points for subprime fixed, decreased 45 basis points for subprime ARM loans, increased three basis points for FHA loans and decreased eight basis points for VA loans.

Banks have to raise $566 billion

The world’s largest banks must raise a combined $566 billion to satisfy new capital requirements, Fitch Ratings said on Thursday, as the authorities demand that banks hold more cash in reserve to protect against future financial shocks.  The figure represents a 23% increase on what the banks currently hold in reserve and will most likely reduce return on equity, a critical figure used to gauge a firm’s profitability, Fitch said.  The banks affected are the 29 “systemically important financial institutions” as designated by the global Financial Stability Board. They include the likes of Goldman Sachs, JPMorgan Chase, HSBC of Britain and the Mizuho Financial Group of Japan. In total, the firms hold roughly $47 trillion in combined assets.  Under new regulatory rules, known as Basel III, the firms must have a Tier 1 common equity ratio, a measure of a bank’s ability to weather financial shocks, of roughly 9.5% by 2019, though officials are eager for banks to meet the targets as soon as possible.  To meet the deadline, Fitch says the 29 banks will probably hold onto future earnings and cut shareholder dividends, wind down exposure to risky investments like underperforming real estate portfolios, and tap investors for new cash.

NAHB – housing starts up

Nationwide housing production gained 2.6% from an upwardly revised pace in March to hit a seasonally adjusted annual rate of 717,000 units in April, according to newly released figures from the US Census Bureau and HUD. This modest gain was seen in both the single- and multifamily sectors, which registered growth of 2.3% and 3.2%, respectively.  “April’s increase in housing production comes on top of strong upward revisions to the previous month’s data, and is an encouraging sign that we are returning to a gradual, upward trend that should continue in the year ahead as builders respond to improving demand for new homes in certain markets,” said Barry Rutenberg, chairman of the National Association of Home Builders (NAHB) and a home builder from Gainesville, Fla. “Unfortunately, overly restrictive lending conditions for builders and buyers are slowing the pace of this trend considerably.”  “While still less than half the pace of what we would expect in a fully healthy market, the rate of housing production in April was very solid for this point of the recovery and in keeping with the findings of our latest builder surveys that have registered modest improvements in buyer traffic and near-term sales expectations for single-family homes,” said NAHB Chief Economist David Crowe.

The 2.6% gain in housing production this April was due to a 2.3% increase on the single-family side to a seasonally adjusted, annual rate of 492,000 units and a 3.2% increase on the multifamily side to a 225,000-unit rate.  Regionally, starts were mixed in April, with the Midwest and South posting gains of 6.7% and 11.6%, respectively, and the Northeast and West posting respective declines of 20.7% and 8.1%.  Permit issuance – which can be an indicator of future building activity – fell 7.0% to a seasonally adjusted annual rate of 715,000 units in April following an unsustainably large gain in the previous month. The decline was entirely on the more volatile multifamily side, where permits fell 20.8% to a 240,000-unit rate that is essentially back to trend. Single-family permits gained 1.9% to 475,000 units.  Regionally in April, permit activity held unchanged in the Northeast while declining 12.3% in the Midwest, 3.2% in the South and 13.9% in the West, respectively.

Fannie Mae and Freddie Mac, the nation’s two largest mortgage backers, will implement their new short sale guidelines on June 15. The changes require mortgage servicers to make a decision within 30 days of receiving a short sale offer. They also must consider requests for pre-approved short sales within that same timeframe.  If the lender needs more than 30 days, it must give borrowers weekly status updates and a decision within 60 days of the initial application. This extension gives lenders more time to determine the value of the property or to get the approval of a mortgage insurer.  The moves are aimed at streamlining the short sale process, which often takes months to complete. Faster response times could help thousands of homeowners. Short sale transactions can get so complicated that many prospective buyers won’t even consider making an offer on a short sale property. And many of those who bid often walk away from the offer because lenders take so long to make a decision.  ”Short sales are more complex than routine home sales since they may involve multiple parties and long-distance negotiating,” said Tracy Mooney, a Freddie Mac senior vice president. The new rules “are intended to help make the decision process more transparent and timely.”

Banks have also caught on to the benefit of approving short sales. Foreclosures take more time for the bank to recoup their money, and it costs upwards of $50,000 to process a foreclosure. But in the wake of the robosigning scandal, banks are more apt to help and even encourage a homeowner to pursue via a short sale.  In addition to the benefits of the bank, the homeowner comes out much better in the long run.  Along with a new home, their credit has been salvaged to a respectable level as opposed to letting a home go due to foreclosure. With a foreclosure it can take up to seven years for your credit to show signs of improvement.

Jobless claims stay high, jobs stall

Initial claims for state unemployment benefits dropped by 1,000 to a seasonally adjusted 388,000, the Labor Department said today. The prior week’s figure was revised up to 389,000 from the previously reported 386,000.  The four-week moving average for new claims, a closely followed measure of labor market trends, rose 6,250 to 381,750, its highest since the week that ended Jan. 7.  Economists polled by Reuters had forecast new claims falling to 375,000 last week. The reading was the latest example of fizzling momentum in the labor market recovery. New claims fell sharply during early winter but the improvement has largely stalled in recent weeks.  The number of people still receiving benefits under regular state programs after an initial week of aid rose 3,000 to 3.315 million in the week ended April 14.  The number of Americans on emergency unemployment benefits fell 45,930 to 2.73 million in the week ended April 7, the latest week for which data is available.  A total of 6.68 million people were claiming unemployment benefits during that period under all programs, down 87,160 from the prior week.  Employers added 120,000 new jobs to their payrolls in March, the least since October, after averaging 246,000 jobs per month over the prior three months.  Many economists believe a mild winter boosted payrolls growth earlier in the year and view recent stagnation as payback for those gains.

Foreclosures up in half of all American cities

More than half of US major cities showed an increase in foreclosures since the end of last year, according to RealtyTrac.  Mortgage servicers put a freeze on the process in 2010 to correct affidavit problems and resolve investigations from federal regulators and the state attorneys general. A $25 billion settlement approved in March brought new standards and relief requirements for struggling homeowners.  As servicers adjusted, foreclosures began to increase in different areas of the country during the first quarter.  Filings increased in 26 of 50 largest cities, led by Pittsburgh, where foreclosures jumped 49% from the previous three months.  Some cities still showed continued declines from the end of last year. Filings dropped 28% in Portland, Ore. and fell 26% in Las Vegas. Servicers put Vegas filings on pause since a new state law took effect bringing new affidavit requirements and stronger enforcement for violations. As a result, Stockton,

California held the highest metro foreclosure rate in the first quarter, where one in every 60 homes received a filing.  Vegas dropped all the way to eighth on a 61% decline from the first three months of last year, but it wasn’t the only city with filings well below year-ago levels.  Of the 50 major cities, 33 reported filings were down from the first quarter of 2011. Vegas showed the largest drop over that time, followed by a 53% decrease in Seattle and a 51% drop in Austin, Texas.  “First quarter metro foreclosure trends were a mixed bag,” said Brandon Moore,CEO of RealtyTrac. “While the majority of metro areas continued to show foreclosure activity down from a year ago, more than half reported increasing foreclosure activity from the previous quarter — an early sign that long-dormant foreclosures are coming out of hibernation in many local markets.”

Fed doing more harm than good?

The Federal Reserve is doing more harm to the US economy than good by keeping interest rates artificially low and continuing its “monetary medicine”, Peter Boockvar, portfolio manager and equity strategist at Miller Tabak said.  “Bernanke has put the US economy over the past bunch of years into monetary Fantasyland,” Boockvar said today. “When you have rates at zero, when you have an expanded balance sheet of about $3 trillion, the economy is not real.”  Boockvar’s comments followed the Fed’s policy statement on Wednesday that it would hold its key interest rate near zero. The Fed also indicated the economy would have to improve before it changes its policy. A 9-1 vote accompanied the statement, which renewed the pledge to keep rates low through 2014.  Boockvar said the Fed’s policy of keeping rates at zero misallocates capital and does not create a firm foundation for growth because “the cost of money is artificial.  It’s on monetary medicine, painkillers you can say,” he said. “The Fed to me is an impediment, not a boost, and they should just stop what they are doing.”  The Fed’s quantitative easing or bond-buying over the past several years has coincided with gains in stock markets, but it has also stoked fears of inflation and worries the Fed won’t be able to exit without causing turmoil in the bond markets and a jump in interest rates.  “At some point, the extraordinary policy (of bond buying) has to be reversed and it’s going to be a complete mess when it happens,” Boockvar said. “If they (the Fed) think they’re going to do it orderly, I have a big problem with that belief.”

NAR – recovery is here!

Pending home sales increased in March and are well above a year ago, another signal the housing market is recovering, according to the National Association of Realtors (NAR).  The Pending Home Sales Index, a forward-looking indicator based on contract signings, rose 4.1% to 101.4 in March from an upwardly revised 97.4 in February and is 12.8% above March 2011 when it was 89.9.  The data reflects contracts but not closings.  The index is now at the highest level since April 2010 when it reached 111.3.  The PHSI in the Northeast slipped 0.8% to 78.2 in March but is 21.1% above March 2011.  In the Midwest the index declined 0.9% to 93.3 but is 16.9% higher than a year ago.  Pending home sales in the South rose 5.9% to an index of 114.1 in March and are 10.6% above March 2011.  In the West the index increased 8.7% in March to 108.0 and is 9.0% above a year ago.

Lawrence Yun, NAR chief economist and incorrigible optimist, said 2012 is expected to be a year of recovery for housing.  Of course, he said that about 2010 and 2011 as well, but who’s counting?  “First quarter sales closings were the highest first quarter sales in five years.  The latest contract signing activity suggests the second quarter will be equally good, ” he said.  “The housing market has clearly turned the corner.  Rising sales are bringing down inventory and creating much more balanced conditions around the county, which means home prices will be rising in more areas as the year progresses.”

Olick – noisy numbers or recovery?

“The spring housing numbers aren’t coming in along expectations.  That can’t be, right?  Unemployment has been easing, mortgage delinquencies falling, and affordability is off the charts. That means housing should be bouncing back with verve and vigor this Spring, except it’s not.  It’s not crashing again, it’s just bouncing along a bottom, which means the recovery, as we’ve been warning all along, becomes increasingly local.  Let’s look at some data out this week:  Sales of new homes dropped, but only after a large upward revision in February. That of course leads everyone to blame the weather.  S&P/Case-Shiller’s home price index reached new lows, but the amount of the annual drop was smaller than the previous month, so that’s an improvement, sort of.  Mortgage applications fell, even as the rate on the thirty year fixed hit a new low on the Mortgage Bankers Association’s weekly survey. Refis fell hard and purchase applications rose a little, although the four week moving average is down.  Zillow.com reports that home values rose from February to March (0.5%), ‘marking the largest monthly increase since May 2006, before home values peaked.’ That led analysts there to exclaim the headline: ‘Majority of Markets Covered by Zillow Home Value Forecast to Hit Bottom by Late 2012.’  Trulia.com released a report which mixes three indicators, construction starts, existing home sales and delinquency and foreclosure rates in order to gauge the housing recovery. Apparently it slipped backward in March ‘after a few strides forward.’  Then Federal Reserve Chairman Ben Bernanke said, ‘The ongoing weakness in the housing market still represents a headwind to economic recovery.’

No wonder economists at Freddie Mac concluded in its April forecast that the data are, ‘noisy.’ Then they too blamed it all on the weather.  So what are we to think, and how are we to play housing, here at the almost, sort of, bottom in some markets but not in others?  ‘Investor demand will drive many markets this spring and summer,’ says David Stiff, chief economist at Fiserv. ‘This means that, at the moment, the MBA purchase application index is a less reliable predictor of sales activity.’  Stiff says he thinks the housing market has bottomed out, but that won’t be obvious until next year. He also makes clear that the recovery will be driven by investors, and investors largely buy in the lower cost markets.  The one truth I heard in all the heated talk of housing today came from CNBC’s Jim Cramer, with whom I often disagree. He said, ‘aggregate numbers make you no money.’ He was talking specifically about housing.”

“Buyer traffic is strong, supply of homes for sale is low, and yet home prices continue to defy the usual formula, falling again in March. Prices usually rise as supply shrinks, but demand is still too low to make those historical ‘norms’ compute, not to mention that the type of supply available is largely distressed.  Foreclosures and short sales accounted for 47.7% of sales, in a three month running average measured by Campbell/Inside Mortgage Finance. That’s the 25th month in a row that distressed sales have topped 40% of the market.  ‘With nearly half of the market being distressed, we’re a long way from a return to a normal market,’ said Thomas Popik, research director at Campbell Surveys. ‘Agents responding to our survey say that homeowners with well-maintained properties in good locations are very reluctant to list at today’s prices. That’s why inventory is low–and also why forced REO and short sales are such a big proportion of the remaining market.’  Home prices for non-distressed properties fell 5.7% in March year-over-year, according to the survey. Prices for ‘damaged’ REO (bank-owned properties) fell 5.7% and for move-in ready REO fell 2.5% during the same period. The real sticker shock is in short sales. Prices of those homes fell 14.3% from March of 2011.

Short sales have been ramping up of late, as banks attempt to comply with the so-called ‘robo-signing’ mortgage settlement. Those are part of the losses the banks are required to take in the $25 billion deal. Over the past six months, short sales have moved from 17.8% of all sales to 19.9%, according to the Campbell/IMF survey. They now represent the number one segment for distressed properties.  That share is likely to grow, as the conservator of Fannie Mae and Freddie Mac, the Federal Housing Finance Agency (FHFA), last week announced it was directing the two mortgage giants to ‘develop enhanced and aligned strategies for facilitating short sales, deeds-in-lieu and deeds-for-lease in order to help more homeowners avoid foreclosure.’ It includes a requirement that mortgage servicers review and respond to short sale requests within thirty days.  Lengthy timelines have long been the biggest complaint in the short sale sector.

Fannie Mae and Freddie Mac hold hundreds of thousands of distressed loans, and accelerating the process will surely move the numbers up quickly, although the rules don’t go into effect until June 1. The FHFA is requiring the two make final decisions on these sales within 60 days. Previously, short sales could take up to a year and even beyond, with buyers often dropping out in frustration.  ‘This could put short-term downward pressure on home prices, as short sales by their nature occur more quickly than foreclosures,’ writes Jaret Seiberg, analyst at Guggenheim Partners. ‘That could raise questions about the status of the housing recovery, which could be negative for those with housing exposure. That would include homebuilders, mortgage lenders and mortgage insurers.’  On the plus side, short sales tend to sell at higher prices than foreclosures. It appears, however, that regardless of the FHFA edict, banks are already ramping up the short sales. Some began doing so in the aftermath of the robo-signing scandal, as foreclosures stalled. Even now, foreclosures falling as short sales rise. The good news is that sales of distressed properties are rising, but the headlines will likely focus more on the falling prices, than the much-needed clearing of these homes.”

No QE expectations

Wall Street is not expecting additional quantitative easing (QE) from the Federal Reserve at its meeting this week but increasingly believes in the Fed’s promise to keep interest rates low until late 2014, according to the latest CNBC Fed Survey.  Just a third of the 53 economists, fund managers, and strategists who responded to the CNBC survey see additional QE from the Fed in the next 12 months, unchanged from the March survey. And just a quarter expect Operation Twist to be extended beyond its expiration in June.  The survey found that 49% now believe the Fed will keep interest rates “exceptionally low” through late 2014, up from just 40% in March. The same percentage, however, disagree, showing that while there has been improvement, Fed Chairman Ben Bernanke has not yet made believers of all investors.  James Paulsen of Wells Capital Management called on the Fed “to move beyond its crisis mindset and appropriately normalize policy to reflect the maturation of the US economic cycle from crisis to recovery. Failure to do so soon risks creating another crisis — an inflation crisis!”  In fact, 42% of respondents agreed with the statement that the Fed’s forecast that it will keep interest rates low through 2014 is a mistake that could undermine the Fed’s credibility; 38% said it’s a good decision that has helped drive down interest rates.

Home prices drop

Home prices dropped in February in most major US cities  for a sixth straight month, a sign that modest sales gains haven’t been  enough to boost prices.  The Standard & Poor’s/Case-Shiller home-price index shows that prices dropped in February from January in 16 of the 20 cities it tracks.  The steepest declines were in Atlanta, Chicago and Cleveland. Prices rose in Phoenix, San Diego and Miami. They were unchanged in Dallas.  The declines partly reflect typical offseason sales. The month-to-month prices aren’t adjusted for seasonal factors.  Still, prices fell in 15 of the 20 cities in February compared with the same month in 2011. That indicates that the housing market remains far from healthy despite the best winter for sales in five years.

Bloom – economy stuck in “Death Valley”

Having raised hopes of a self-sustaining recovery, the US economy has disappointed and finds itself stuck in “Death Valley”, says David Bloom, the global head of the FX strategy team at HSBC.  He believes the data is neither weak enough to guarantee a third round of quantitative easing nor strong enough to convince the market the Federal Reserve is about to end its extraordinary measures.  “At this stage the economy worsened markedly, eventually leading the Fed to its commitment to keep rates low for an extended time period. The point is that we are now neither at the stage where the economy has deteriorated markedly, nor are we seeing the economy improve to the extent where the Fed is certain not to add stimulus” said Bloom in a research note.  With the market looking for clues on what the Fed will do next when Ben Bernanke holds a press conference on Wednesday, Bloom believes euro/dollar is stuck in a tight range as a game of chicken and egg is played out in the euro zone.  “We have the uncertainty of the French and Greek elections and the recent blow-out in Spanish bond yields. Meanwhile, the ECB (European Central Bank) is sending out signals that it is reluctant to engage in another LTRO (long-term refinancing operation). Once again a game of chicken is being played out in the euro zone,” said Bloom.  So until we get confirmation of which direction the US economy is heading into or evidence that investors are negative on the euro area as a whole and not just Spain, Bloom believes the euro will remain on the sidelines despite volatility elsewhere.

WSJ – ready for another Dodd-Frank spat?

Get ready for another spat over Dodd-Frank mortgage lending rules.  It’s been more than a year since regulators unveiled the first set of proposed (and yet-to-be completed) mortgage rules resulting from the 2010 financial overhaul law.  Now a new consumer regulator is hashing out a separate rule that will define what kind of loans mortgage lenders will be able to make.  At issue is a part of the Dodd-Frank law, known as the “qualified mortgage” rule. It is designed to protect consumers from the kind of risky lending practices that shook the financial system in 2008.

The Consumer Financial Protection Bureau (CFPB), also created by the Dodd-Frank law, has the difficult task of completing these rules, which were initially proposed by the Federal Reserve last year. The idea is to provide an incentive for the industry to make safer loans, and ensure that they lenders consider a borrower’s ability to repay the loan.  Loans made under the qualified-mortgage standard will receive a degree of protection from lawsuits, though the level of that shield is a matter of intense debate.  In a speech last week, Raj Date, the consumer bureau’s deputy director, gave some broad outlines of the consumer bureau’s thinking:  “We want to ensure that consumers are not sold mortgages they do not understand and cannot afford. We want to minimize compliance burden where possible, in part through the careful definition of those lower-risk “qualified mortgages.” We want to ensure that, as the market stabilizes over time, every segment of prudent loans has the benefit of sufficient investor appetite and a competitive market.”

It’s a daunting challenge, given that the mortgage-lending market has contracted since the housing market went bust. Mortgage lenders have tightened their standards dramatically, eliminating most of the problem loans that helped cause the housing market’s woes. Many argue that tight lending is hampering the economic recovery, so a misstep by the CFPB could harm the housing market further.  The Dodd-Frank law mandates that the mortgage rule exclude certain exotic varieties of loans that fed the housing boom — such as “option” adjustable-rate mortgages, which only require low minimum payments and allow the principal balance to increase, and “interest-only” loans, which don’t require principal payments for several years.

Other pieces are much less clear. One key issue that’s been debated in policy circles is how much limits the mortgage rule should place on the amount of debt that consumers can take on.  One joint proposal between an industry group and three consumer organizations attempts to solve this problem.  It says that qualified mortgages should automatically include any loans made to borrowers who are spending no more than 43% of their pretax income on all debt, including home loans, credit card debt and car loans. Loans could be allowed up to a 50% debt-to-income ratio if the borrower’s housing costs only comprise 31% of income, or if the borrower demonstrates stable income or cash reserves.

Still, it remains to be seen whether the consumer bureau will accept this approach. And many in the lending and real estate industry say they are worried that the regulator will enact requirements that could crimp lending.  One big concern, particularly for small lenders, is that the rule will lack the industry’s top priority — a shield against lawsuits for loans that meet guidelines set out by the consumer bureau.  Without those legal protections “lending is going to become more conservative,” said Bill Cosgrove, chief executive of Union National Mortgage Co. in Strongsville, Ohio. “That is a problem. It’s a problem for the housing recovery.”  Richard Cordray, the consumer bureau’s director, told lawmakers last month that the legal protections sought by the industry wouldn’t necessarily choke off lawsuits, although reducing litigation is one of the bureau’s goals. “We don’t want this to be punted into the courts,” Mr. Cordray said.  Consumer groups say they aren’t trying to spark a barrage of lawsuits against the mortgage industry. Instead, they argue that the threat of litigation will give lenders an incentive to comply with the new lending rules.

RealtyStore has completed a new study of the foreclosure status in three major housing markets, finding the amount of pending listings exceeds the amount of active foreclosures listed for sale by a margin of over 2 to 1. This shadow inventory of foreclosed homes illustrates the significant overhang of foreclosure listings that are anticipated to be unleashed on the housing in the wake of resolving the so-called foreclosure robo-signing situation in late 2010. The study was conducted for Cook County, IL (including metro Chicago), Miami-Dade County, FL (including metro Miami) and Maricopa County, AZ (including metro Phoenix).  Foreclosure counts in each location were tabulated by owner, including bank or lender owned homes, foreclosures owned by Fannie Mae or Freddie Mac, and HUD homes. Although Arizona had previously been one of the hardest hit areas for foreclosure activity, Cook County, IL shows a near equal total amount of foreclosed homes. Miami-Dade foreclosures number at roughly half the count of either other market.

The breakdown of active foreclosure listings vs pending, or shadow inventory, foreclosures listings was consistent across each market surveyed. On average, 29% of total foreclosures across the counties are currently listed for sale. Cook County, IL foreclosures were most heavily represented with active listings, with 32% of its foreclosures presently being marketed to buyers, and 68% of foreclosures pending listing. Maricopa County, AZ foreclosure listings for sale represent only 25% of recorded foreclosures in the county, with 75% of local foreclosures yet to be listed for re-sale. Miami-Dade, FL currently offers 29% of its total foreclosures on the market for re-sale, with 71% of its foreclosure inventory awaiting listing on the market.  According to RealtyStore, median list prices of foreclosures for sale in Cook, Maricopa and Miami-Dade counties continue to run below average home prices. Cook County foreclosures are listed at a median price of just $72,650 and an average price of $95,997. Miami-Dade foreclosures list at a median price of $106,900 and average $145,059, while Maricopa lists foreclosed homes slightly higher with a median of $109,900 and the average foreclosure listed at a price of $168,744.

The foreclosure median list prices come in at 56% and 42% below the median sales prices of single-family homes selling in metro-Chicago and Miami, respectively, as reported by the NAR in Q4, 2011. Metro-Phoenix posts a smaller price gap at 7%, suggesting foreclosure saturation may be peaking in Maricopa County.  Individual foreclosure listings continue to cover all portions of the pricing spectrum, ranging from as low as $5,900 for a single family foreclosed home in Chicago, IL to as high as a foreclosed estate in Paradise Valley, AZ listed at $5,700,000.

Jobless claims up

Initial claims for state unemployment benefits slipped 2,000 to a seasonally adjusted 386,000, the Labor Department said. But the prior week’s figure was revised up to 388,000 from the previously reported 380,000.  The four-week moving average for new claims, considered a better measure of labor market trends, rose 5,500 to 374,750.  Economists polled by Reuters had forecast claims falling to 370,000 last week.  The claims data covered the week for April’s nonfarm payrolls survey. The four-week average of new applications rose marginally between the March and April survey periods, suggesting not much change in labor market conditions.  Employers added 120,000 new jobs to their payrolls in March, the least since October, after averaging 246,000 jobs per month over the prior three months. Most economists have viewed the pull-back in job growth as payback after the weather-induced gains in the previous months.  The number of people still receiving benefits under regular state programs after an initial week of aid rose 26,000 to 3.30 million in the week ended April 7.  The number of Americans on emergency unemployment benefits fell 19,419 to 2.78 million in the week ended March 31, the latest week for which data is available.  A total of 6.77 million people were claiming unemployment benefits during that period under all programs, down 187,807 from the prior week.

CoreLogic – First Quarter 2012 Multifamily Applicant Risk Index Report

CoreLogic today announced that CoreLogic SafeRent, provider of the nation’s leading suite of screening and risk management services designed for the multifamily housing industry, released its first quarter 2012 multifamily applicant risk (MAR) index report. The first quarter MAR Index value increased one point from the fourth quarter 2011 and three points from a year ago, indicating an increase in national renter credit quality and slightly better applicant pool.  The MAR Index for first quarter 2012 is based exclusively on applicant traffic credit quality scores from the CoreLogic SafeRent statistical lease screening model (Registry ScorePLUS) and is updated quarterly to provide property owners and managers with a benchmark against which to evaluate their applicant credit quality trends against market based MAR Index trends. This comparison indicates the relative strength of their property portfolio to attract and secure applicants with higher credit quality and an increased likelihood of fulfilling lease obligations.

When comparing applicants for one- versus two-bedroom units, the first quarter 2012 MAR Index is slightly higher for one-bedroom units at 102, compared with 101 for two-bedroom units.  Regionally, the South and Midwest reflected the lowest MAR Index, each with values of 98, a one point increase from the fourth quarter 2011. The Northeast continues to maintain the highest MAR Index with a value of 111.  The three Metropolitan Statistical Areas (MSA) with the steepest decreases in the MAR Index were Cincinnati-Middletown, Ohio, Ky., Ind.; Columbus, Ohio; and Birmingham-Hoover, Ala.; each with decreases of three points. The three MSAs with the greatest increases in the MAR Index were Chicago-Naperville-Joliet, Ill., Ind., Wis.; Denver-Aurora, Colo.; and Salt Lake City, Utah; each with increases of four points. 

Understanding the Multifamily Applicant Risk Index (MAR Index)

The MAR Index is published quarterly by CoreLogic SafeRent. It provides trends of national and regional traffic credit quality scores whereby a lower index value indicates an applicant pool with a higher risk of not fulfilling lease obligations. A MAR Index value of 100 indicates that market conditions are equal to the national mean for the index’s base period of 2004. A MAR Index value greater than 100 indicates market conditions with reduced average risk of default relative to the index’s base period mean. A value less than 100 indicates market conditions with increased average risk of default relative to the index’s base period mean. The MAR Index is derived from the statistical screening model from CoreLogic SafeRent, which is the multifamily industry’s only screening model that is both empirically derived and statistically validated. The statistical screening model was developed from historical resident lease performance data to specifically evaluate the potential risk of a resident’s future lease performance. The model generates scores for each applicant indicating the relative risk of the applicant not fulfilling lease obligations. A lower score indicates a more risky applicant.

BOA tops estimates

Bank of America (BOA) reported lower first-quarter profit as the second-largest US bank took accounting charges related to its debt, but results topped analysts’ estimates as credit quality improved.  The bank reported charges of $4.8 billion related to changes in the value of its debt, partially offset by gains of $3.4 billion from equity investments and debt-related transactions.  Excluding debt valuation adjustments, it earned 31 cents a share.  First-quarter net income was $653 million, or 3 cents a share, down from $2.05 billion, or 17 cents per share, a year earlier.  Revenue declined to $22.3 billion from $26.9 billion.  The Charlotte, N.C.-based bank took a loan-loss provision of $2.4 billion, compared with $3.8 billion a year ago.  In its capital markets operations, Bank of America reported sales and trading revenue of $3.8 billion, up from $1.5 billion in the fourth quarter but down from $4.6 billion a year ago.

California foreclosure reform moves forward

Seven bills reforming some foreclosure rules passed committees in the California state legislature this week.  The bills were introduced in February. One set of bills extends protections to tenants, giving them 90 days before eviction after the foreclosure sale of the property. Another increases penalties to banks that fail to maintain blighted homes.  Servicers would be required to provide documentation to the borrower establishing its right to foreclose before the filing first step in the process, under other passed bills. Evidence of ownership and chain of title must also be shown to the borrower.  Two other bills charge servicers a $25 fee for every notice of default recording. The money will fund investigations for California AG Kamala Harris. Another piece of legislation passed by committee allows Harris to convene a grand jury to investigate financial crimes in different jurisdictions.  “All Californians have been impacted by the toll the mortgage and foreclosure process has taken on our neighborhoods,” Harris said. “Our California Homeowner Bill of Rights will provide relief for homeowners, tenants and communities. I thank the authors and supporters of these important bills.”

In an effort to make the short sale process more transparent, Freddie Mac and Fannie Mae are updating their timelines and also requiring servicers to provide weekly updates when decisions take more than 30 days after the receipt of a complete application for a short sale under the Obama Administration’s Home Affordable Foreclosure Alternative (HAFA) initiative or Freddie Mac’s traditional requirements. All decisions must be made within 60 days.  Today’s announcement marks the newest part of the Servicing Alignment Initiative (SAI) Freddie Mac and Fannie Mae launched in 2011 at the direction of their regulator, the Federal Housing Finance Agency, to set consistent servicing and delinquency management requirements. Last year Freddie Mac completed 45,623 short sales, a 140% increase since the housing crisis began.

Facts:

-  Freddie Mac and Fannie Mae’s new short sale timelines require servicers to make a decision within 30 days of receiving either 1) an offer on a property  under Freddie Mac and Fannie Mae’s traditional short sale program or 2) a completed Borrower Response Package (BRP) requesting consideration for a short sale under HAFA or Freddie Mac and Fannie Mae’s traditional short sale program.  (BRPs are standardized assistance applications developed as part of the Servicing Alignment Initiative.)

-  If more than 30 days are needed, borrowers must receive weekly status updates and a decision no later than 60 days from the date the complete BRP is received.  This will help servicers who may need more time to obtain a broker price opinion or a private mortgage insurer’s approval on a BRP or property offer.

-  In the event a servicer makes a counteroffer, the borrower is expected to respond within five business days. The servicer must then respond within 10 business days of receiving the borrower’s response.

-  Freddie Mac and Fannie Mae will use the new timelines to evaluate servicer compliance with the SAI and its own servicing requirements.

-  Freddie Mac completed 45,623 short sales in 2011, a 140% increase since 2009.  Overall, Freddie Mac has also helped more than 615,000 distressed borrowers avoid foreclosure since the housing crisis began.

Whitney reverses call on Citigroup

Meredith Whitney, who made the prescient call in 2007 that Citigroup would cut its dividend, has now upgraded the very stock that brought her celebrity status among equity analysts during the credit crisis.  Shares of Citigroup yesterday rallied as news of the upgrade to a “hold” from “underperform” spread beyond Whitney’s direct clients. The stock is up 34% so far on the year.  “C shares continue to trade well below tangible book value (70%), despite relatively lower mortgage and European exposures than its large-cap bank brethren,” wrote Whitney, who founded Meredith Whitney Advisory Group in 2009. “On the capital question, we believe C will handily make its capital target of +8% by the end of 2012.”  Whitney had a “Sell” or “Underperform” rating on Citigroup since starting coverage on the stock at her new firm in April 2009.  At the end of October 2007, while working for Oppenheimer & Co., Whitney made waves by predicting that Citigroup might have to cut its dividend payout to raise capital.  The call drew the scorn of the company and fellow analysts, but turned out to be right after Citigroup cut its dividend in January of 2008 as more of the subprime mortgage securities that Whitney had warned about went sour on the company.

Mortgage applications up

Mortgage applications increased 6.9% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 13, 2012.   The Market Composite Index, a measure of mortgage loan application volume, increased 6.9% on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index increased 6.5% compared with the previous week.  The Refinance Index increased 13.5% from the previous week.  The seasonally adjusted Purchase Index decreased 11.2% from one week earlier. The unadjusted Purchase Index decreased 10.4% compared with the previous week and was 13.9% lower than the same week one year ago.  The four week moving average for the seasonally adjusted Market Index is up 1.60%.  The four week moving average is down 0.52% for the seasonally adjusted Purchase Index, while this average is up 2.36% for the Refinance Index.  The refinance share of mortgage activity increased to 75.2% of total applications from 70.5% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 5.3% from 5.5% of total applications from the previous week.

“Renewed concerns about sovereign debt in Europe led to a drop in rates last week, with the 30-year rate tying our survey low, reached in early February.  Refinance activity picked up in response, increasing 13.5% for the week.  Participants in our survey indicated that about 32% of this refinance volume was for HARP loans,” said Jay Brinkmann, MBA’s Chief Economist and SVP of Research and Education.  “While purchase activity declined sharply for the week, this was mostly due to a 23% drop in applications for FHA purchase loans.  This drop follows big increases in the demand for FHA loans over several weeks in anticipation of the FHA mortgage insurance premium increases that went into effect last week.  This was the largest weekly drop in the government purchase index since the expiration of the first-time homebuyer tax credit in May 2010.  The demand for conventional purchase loans was down only slightly.”  The average loan size of all loans for home purchase in the US was $233,381 in March 2012, up from $225,463 in February 2012. The average loan size for a refinance was $214,593, down from $222,048 in February.  The largest purchase loans were made in the Pacific region at $ 337,227. The largest refinance loans were also made in the Pacific region at $ 290,711.

Spain bail-out; not if – when

Economic experts watching Spain don’t know how much money will be needed or precisely when, but some are near certain that Madrid will eventually seek a multi-billion euro bailout for its banks, and perhaps even for the state itself.  Prime Minister Mariano Rajoy has repeatedly said Spain doesn’t need or want an international bailout, and the European Union, which along with the IMF has already rescued Greece, Ireland and Portugal, also dismisses such talk.  But economists believe that Spanish banks will have to turn to the euro zone’s rescue fund, the European Financial Stability Facility (EFSF), for help in covering losses caused by a property market crash which has yet to end.  Madrid is likely to hold out for some time. “The underlying picture in Spain is dramatic, but is it dramatic in the way that it needs a bailout package tomorrow? No,” Brzeski said. “But if you look ahead, let’s say the next six months, I would not be surprised if they (the banks) have to get some kind of European support.”  Market concerns about the euro zone’s fourth largest economy have deepened in the past week. Yields on the government’s 10-year bonds, which reflect the risk investors attach to owning Spanish debt, have risen above 6%, a level that has proved a trigger point for other troubled euro zone countries.  At the moment the EU is backing Madrid. Jean-Claude Juncker, who chairs the Eurogroup of euro zone finance ministers, said Spain was taking the necessary steps to get its economy back on track, despite a recession and unemployment at 24%.

“As I look at my screen and Spain 10-year yields are up at 6% – things are starting to get worrying again,” said Peter Westaway, chief economist for Europe at Vanguard, an investment management firm overseeing $1.8 trillion in assets.  “If they go up to 6.5 to 7%, that could become very problematic, and if Italy started to go back above Spain again, then that would be really serious.”  Spain has one thing on its side. It has already raised nearly half the 86 billion euros it needs to borrow from financial markets this year, sucking up some of the 1 trillion euros of cheap three-year loans that the European Central Bank has pumped into the euro zone banking sector.  This means the government could hang on for months before having to turn to the EU for help with its own funding needs.  However, that still leaves the banks. One of the critical “unknowables’ for Spain is just how bad a situation its banks are in. The Spanish housing market, once a driver of the economy, has been in turmoil for more than four years, but prices still haven’t fallen as much as economists think is needed to squeeze the air out of the bubble.  Only when prices have bottomed will assessors be able to calculate how just much bad mortgage debt is sitting on the banks’ balance sheets, and therefore how much extra capital the sector requires to return it to health.

Olick – a tale of two housing markets

The numbers are in, the analysts are out, and given the volatility of this particular economic indicator, the spin is at full speed:  “Good News on Housing Permits More Than Offsets the Bad News on Starts”— HIS Global Insight;  “Housing Starts Decline Again” – Capital Economics;  “March Multifamily Starts Down; Permits Continue Upward Trend”— KBW;  “March Construction Numbers Aren’t As Bad as They Look”— Trulia.com;  “Housing Starts Lacking Consumer Confidence” — Sageworks Inc.  Here’s the problem: We are living a tale of two housing markets, single and multi-family. Depending on what kind of builder or investor you are, you’re going to see the housing starts numbers differently. Let’s weed through it first:  Total starts fell 5.8%, driven by a nearly 20% drop in multi-family. Single family was essentially flat month-to-month. But remember, multi-family is a very volatile number and can swing 20-30% monthly due to large local projects. Yes, they are both ahead from last year, but 2011 was the worst year in the history of US home building.  “The further fall in housing starts in March means that about a third of the past year’s improvement in homebuilding has now been undone. But the continued rise in building permits is an encouraging sign which suggests that housing starts will improve again later this year,” writes Paul Diggle at Capital Economics.

Building permits are always seen as a better indicator of construction, or at least more dependable and less influenced by weather. Single family permits dropped 3.5% month to month, but multi-family surged ahead 24% to the highest level in four years.  “The pickup in multifamily construction is taking place most noticeably in the South and West—again, not a big surprise—since 46 of the 50 fastest-growing metro-area populations from 2010 to 2011 were in the South or West, according to the Census Bureau,” writes IHS Global Insight’s Patrick Newport.  Clearly we’re still seeing big demand in the multi-family sector, but single family is still faltering.  “Single family is more of a restocking issue,” said Morgan Stanley’s Oliver Chang on CNBC. “In order to meet baseline demand, they [builders] have to build.”  Chang says real growth in single family demand just isn’t there, due to a still tightening credit market. On the flip side, he claims that distressed housing has stabilized and distressed home prices have bottomed; that’s because investors largely use cash. 

So if there’s all this demand for single family rentals, and investors are rushing to get in, is there still enough demand for all this multi-family construction?  “Bottom line, with the secular decline in home ownership, multi-family construction will be where it’s at for a few years but still only make up about 30% of total starts. Single family starts still have the intense competition with foreclosures and now rent seekers,” writes Peter Boockvar of Miller Tabak.  So why, as we asked yesterday after the disappointing builder sentiment report, did single family starts, permits and sentiment rise through the fall and the winter only to slam on the breaks? Newport calls that one a “head scratcher,” and adds, “If the builders have gotten ahead of the game, single-family construction will go through a demoralizing slowdown later this year.”

Is gold headed down?

For the past decade, gold has been an incredible investment, rising from under $300 per ounce to as high as $1,900 per ounce before retreating to around $1,650 in recent trading.  For the bulls, gold’s recent drop is nothing more than a temporary setback on its inexorable march toward $2,000 and beyond. The case for gold rests primarily on factors familiar to anyone who’s even remotely familiar with the metal: easy money from central banks around the world and rising demand from emerging economies, notably China and India. But all good things must come to an end and Yoni Jacobs, chief investment strategist at Chart Prophet, believes gold’s best days are behind it. In fact, Yoni believes there’s a bubble in precious metals that’s about to collapse as detailed in his book, Gold Bubble: Profiting from Gold’s Impending Collapse.  While tipping his hat to the bullish arguments and sympathetic to reasons why people own gold, Jacobs says the metal’s inability to rally despite Europe’s ongoing crisis and renewed tensions in the Middle East are negative signs. “The froth is coming off,” he says.

Technically, the strategist cites heavy volume during gold’s sell-off last September and the negative divergence between gold and gold miners as warning signs. In the past six months, the Market Vectors Gold Miners ETF (GDX) is down 20% while the Gold ETF (GLD) is essentially flat.  Furthermore, gold is vulnerable to the global economic slowdown, he says, noting China just reported its slowest quarter in three years.   Finally, Jacobs cites “over-speculation” in gold, its “parabolic increase” in recent years, the “mass publicity” the metal has received, and the extreme emotions of its advocates as signs of it being in bubble territory.  Based on historical trends and technical patterns, Jacobs predicts gold will fall below the key $1,000 per ounce level on its way to the $700 area. He recommends shorting the GLD or GDX or buying out-of-the-money puts on gold as a way to profit from gold’s demise.

WSJ – GOP Senators say no to write-downs

Two US Senate Republicans are urging the Treasury Department to cancel its plans to subsidize debt forgiveness for troubled homeowners, saying the money would be better off reducing the federal debt.  In a letter sent Tuesday to Treasury Secretary Timothy Geithner, Sens. David Vitter (R., La.) and Jim DeMint (R., S.C.) criticized an Obama administration plan to encourage mortgage giants Fannie Mae and Freddie Mac to reduce borrowers’ loan balances. Earlier this year, the administration announced it would use money from the 2008 financial industry rescue to encourage those write-downs.  The letter adds further heat to an intense political debate over whether the two government-controlled companies should reverse their policy and allow loan write-downs.  The two companies, which buy up loans and package them into investments, and their federal regulator have been facing pressure from Democrats and the Obama administration, which want to see write-downs. Republicans, however, are concerned that doing so will encourage borrowers to intentionally default.  In their letter, Messrs. Vitter and DeMint also argue that big banks that hold second mortgages such as home equity loans will benefit from write-downs. The plan “will pay off the mega banks with taxpayer cash in exchange for reducing the principal balance on some mortgages,” the lawmakers wrote. “We write to urge you, on behalf of the taxpayers, to reconsider and, instead, return this money to the Treasury to pay down the national debt.”

Bank of America’s (BOA) payoff to Florida homeowners who do a short sale instead of dragging out a foreclosure has averaged $12,000 per deal and helped close 678 contracts statewide since it debuted in October.  The Florida-only plan originally targeted 20,000 homeowners with incentives of between $5,000 and $20,000 to forgo the more than two-year foreclosure process and leave their home in “broom swept” condition for a new owner.  Bank of America spokesman Rick Simon said the Charlotte, N.C.-based company remains “enthused” about the pilot program, which generated 3,900 purchase offers and 11,000 verbal agreements from customers who said they were interested in participating.  “We’ve quietly done a little experimentation with a similar plan in one of the non-judicial states, but we are not to the point of announcing a major expansion,” said Simon, adding that monthly short sale volume has more than doubled this year.  “Of particular note is the response from ‘hand-raisers’ who heard about the program and asked to be included without us reaching out to them.” 

To participate, purchase offers had to be submitted by mid-December. Sales must close by Aug. 31.  Attorney Adam Seligman said his North Palm Beach firm of Cohen, Norris, Wolmer, Ray, Telepman and Cohen has closed about a dozen Bank of America short sales in which owners received a cash incentive.  “It’s just difficult dealing with them because they can’t seem to put into writing who qualifies,” Seligman said about Bank of America. “They have general guidelines, but nothing specific.”  Florida was a testing ground for Bank of America because of the state’s high foreclosure rates. Wells Fargo and JPMorgan Chase have similar plans.  In March, Florida ranked fourth nationally in foreclosure activity, with one in every 336 homes receiving some type of foreclosure notice, according to a RealtyTrac report that was released Thursday.  The same report said it takes an average of 861 days to foreclose on a home in Florida.  Short sale incentive money is meant to dissuade struggling borrowers from going through a prolonged foreclosure, which can cost the bank more in the end then a cash payout up front. Typically, the bank also is willing to waive a deficiency judgment, which is the remaining balance on the home seller’s mortgage after the short sale is completed.

Retail up

Total retail sales increased 0.8%, the Commerce Department said on Monday, after rising 1% in February.  Last month’s gains, which surpassed economists’ expectations for only a 0.3% rise, could prompt analysts to raise their first-quarter growth forecasts from an annual pace of around 2.5% currently.  The economy grew at a 3% rate in the fourth quarter.  The rise in sales last month was broad-based, even though Americans paid 27 cents more per gallon of gasoline than they did the prior month.  Motor vehicle sales rose 0.9% after increasing 1.3% in February. Auto sales have accelerated in recent months, boosted by pent-up demand by households.  Excluding autos, retail sales climbed 0.8% last month after advancing 0.9% in February. 

Elsewhere, gasoline sales receipts increased 1.1% after rising 3.6% in February. Excluding autos and gasoline, sales advanced 0.7% in March, adding to the prior month’s 0.5% gain.  Details of the report showed some strength, suggesting consumer spending will continue to support growth.  Last month, clothing store receipts rose 0.9%, while sales at building materials and garden equipment suppliers jumped 3.0% — the largest gain since December.  So-called core retail sales, which exclude autos, gasoline and building materials, rose 0.5% after increasing by the same margin in February. Core sales correspond most closely with the consumer spending component of the government’s gross domestic product report. Sales at restaurants and bars edged up 0.3%, while receipts at sporting goods, hobby, book and music stores rose 0.5%. Sales of electronics and appliances increased 1.0%, the largest gain since October, while receipts at furniture stores climbed 1.1%.

Spring recovery?

Five years after the US housing bust sent sales and prices plunging, the spring home-buying season is pointing to a long-awaited recovery.  Reduced prices, record-low mortgage rates, higher rents and an improving job market appear to be emboldening many would-be buyers.  Open houses are drawing crowds. A wave of foreclosures is leading investors to grab bargain-priced homes.  And many people seem to have concluded that prices won’t drop much further. In some areas, prices have begun to tick up.  Interviews with more than two dozen potential buyers, sellers, brokers, Realtors and economists suggest that confidence is up and that sales will move slowly but steadily higher.  The spring buying season got an early lift-off from an uncommonly warm January and February — a winter that was the best for sales of previously occupied homes in five years. Permits to build houses and apartments rose in February to their highest level since 2008.

Some analysts detected a slight uptick in prices for February and March. CoreLogic, a real estate data firm, says prices for homes not at risk of foreclosure — about two thirds of the market — rose 0.7% in February. It was the first increase in four years. Price gains occurred both in some hard-hit areas, such as Phoenix, and some still-thriving areas like New York and Washington.  In Miami, the average sales price has surged 14% in the past year, according to Trulia, a real estate data firm. In Phoenix, the average is up 13%, in Pittsburgh 9%.  Earnings reports Friday from two big banks suggested that more people are taking out mortgages. JPMorgan Chase issued 6% more mortgages from January through March than it did a year ago and got 33% more applications. Wells Fargo issued 54% more mortgages and received 84% more applications.  Still, few think the housing industry is nearing a return to full health. For that to happen, a robust job market would be needed. More hiring would give more people the money and job security to buy. That would help boost sales and prices.  Such areas as Atlanta, suburban Las Vegas and central California show few signs of recovery. And in some others — from Seattle to Cleveland — home prices have continued to slip. The average has dropped 9% in Seattle over the past 12 months and 7% in Cleveland.

US can handle higher gas prices and 30% taxes

Cheer up, Treasury Secretary Timothy Geithner says not to worry!  According to him, the US economy is in a better position to deal with high gasoline prices and taxes. He added that unseasonably warm winter had lowered overall energy costs for consumers.  “The economy is in a much better position to deal with those pressures … because natural gas prices are down, the overall cost of energy for consumers is down,” Geithner said on ABC’s “This Week” program.  A spike in gasoline prices caused economic growth to brake sharply in the first half of last year. Gasoline prices have risen 64 cents since the start of this year, leaving many Americans with a sense of deja vu, which was further reinforced by a slowdown in the pace of job creation last month.  However, Geithner said it was too early to tell whether the economy, which he described as getting stronger, would go through a repeat of last year. “We can’t tell yet. Obviously, we’ve got a lot of challenges ahead and some risks and uncertainty ahead. And some of those risks are, of course, Europe is still going through a difficult crisis,” he said.  He also dismissed suggestions that the country’s huge budget deficit put it at risk of being the next Greece, adding that the challenge was to bring the deficit down without compromising economic growth.  In a separate interview, Geithner said a proposal to impose at least 30% income tax on Americans making more than a million dollars a year will not hurt the economy by stifling investment and growth.

NAHB – builder confidence down

Builder confidence in the market for newly built, single-family homes declined for the first time in seven months this April, sliding three notches to 25 on the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index, released today. The decline brings the index back to where it was in January, which was the highest level since 2007.  “Although builders in many markets are noting increased interest among potential buyers, consumers are still very hesitant to go forward with a purchase, and our members are realigning their expectations somewhat until they see more actual signed sales contracts,” noted Barry Rutenberg, chairman of the National Association of Home Builders (NAHB) and a home builder from Gainesville, Fla.  “What we’re seeing is essentially a pause in what had been a fairly rapid build-up in builder confidence that started last September,” said NAHB Chief Economist David Crowe. “This is partly because interest expressed by buyers in the past few months has yet to translate into expected sales activity, but is also reflective of the ongoing challenges that are slowing the housing recovery – particularly tight credit conditions for builders and buyers, competition from foreclosures and problems with obtaining accurate appraisals.”

Derived from a monthly survey that NAHB has been conducting for 25 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores from each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor. Each of the index’s components registered declines in April. The component gauging current sales conditions and the component gauging sales expectations in the next six months each fell three points, to 26 and 32, respectively, while the component gauging traffic of prospective buyers fell four points to 18. (Note, the overall index and each of its components are seasonally adjusted.)  Regionally, the HMI results were somewhat mixed in April, with the Northeast posting a four-point gain to 29 (its highest level since May of 2010), the West posting no change at 32, the South posting a three-point decline to 24 and the Midwest posting an eight-point decline to 23.

Fitch – builder confidence should be up

Fitch Ratings believes single-family housing starts will increase 10% in 2012, while new home sales will rise 8%, according to the firm’s latest US homebuilding update.  Still, the ratings giant sees an erratic homebuilding market after witnessing disappointing results for 2011.  “Single-family housing finished well below expectations at the beginning of the year,” Fitch said in its update. “Single-family starts fell 8.5%, while new home sales declined 5.9%. Existing home sales, meanwhile, improved 1.7%.”  Despite challenges in the housing market and the expectation that home prices will remain soft, Fitch expects builders to fare better in 2012 with the market peppered with less competitive rent options and new home inventories at historic lows.  Fitch’s outlook for homebuilders runs from stable to negative, with most builders rated as stable.   The sector continues to face headwinds from a an anemic job market and what Fitch calls “negative buying psychology,” where people are afraid to buy a home, fearing home prices are still vulnerable to decline.  Going forward, Fitch believes public homebuilding firms will add selectively to their developed lot holdings while committing resources to partially or undeveloped land.  “The still irregular flow of appropriately priced land from banks and other sources tends to support this strategy,” Fitch said. “However, if the operating environment becomes more challenged. Fitch expects builders will be more cautious as to land purchase and will preserve cash.”

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.

As many as 1.25 million of America’s least cared for homes are headed for auction after a year-long probe into foreclosure practices kept them off the market.  Sales of repossessed properties probably will rise 25% this year from 1 million in 2011, according to Moody’s Analytics Inc. Prices for the homes could drop as much as 10% because they deteriorated as they were held in reserve during investigations by state officials resolved in February, according to RealtyTrac Inc. That month, 43% of foreclosures were delinquent for two or more years, from a 21% share in 2010, according to Lender Processing Services Inc. in Jacksonville, Florida.  “The longer a foreclosed home is in the mill, the bigger the losses,” said Todd Sherer, who manages distressed mortgage investments for Dalton Investments LLC, a Los Angeles-based hedge fund that oversees $1.5 billion. “We have a bulge of these properties coming through the system.”  Homes stockpiled less than a year sell for about 35% below the value set by lenders, according to a March 15 report by the Federal Reserve Bank of Cleveland. At two years, the loss is close to 60%. A surge of cheap foreclosures may erode prices in the broader real estate market, even as the economy expands and residential building increases, said Karl Case, one of the creators of the S&P/Case-Shiller home-price index.

Small business lending down

Lending to small business in the United States barely grew in February, supporting the view that economic growth was lackluster at the start of the year.  The Thomson Reuters/PayNet Small Business Lending Index, which measures the overall volume of financing to US small businesses, edged up to 98.3 in February from 98.2 a month earlier, PayNet said today.  Borrowing rose 14% from a year earlier, the lowest 12-month growth rate since September.  “It’s pretty uninspired,” PayNet founder Bill Phelan said in an interview. “We see this faltering as a sign that there’s caution on the part of small business owners.”  Economists forecast US economic growth slowed in the first quarter to around 2 to 2.5%, down from a 3% annual rate in the previous quarter. Federal Reserve Chairman Ben Bernanke said last month growth needs to accelerate to bring down the country’s 8.3% jobless rate.  The December and January readings for PayNet’s lending index were both revised downward.  PayNet tracks borrowing by millions of small US businesses, and the index is correlated with changes in US gross domestic product a quarter or two in the future.

LPS – mortgage monitor

The latest Mortgage Monitor report released by Lender Processing Services, Inc. (NYSE: LPS) shows that February foreclosure starts and sales reversed course, declining on a month-over-month basis after January’s sharp increase in activity. Foreclosure starts were down 15% from the month prior, with sales down 19% for the same period. Foreclosure sales decreased in both judicial and non-judicial foreclosure states, dropping 22 and 19% month-over-month respectively in February.  The LPS mortgage performance data showed that, while January’s increase in foreclosure sales was most pronounced in loans held on bank portfolios, the February drop was broad-based across all investor classes. Even accounting for the decrease in foreclosure sales, national pipeline ratios continue to decline off their peaks, but still differ sharply by region. As of the end of February, the average pipeline ratio in judicial states stood at 84 months, as compared to 33 months in non-judicial states. Pipeline ratios continue to be most pronounced in the Northeast, particularly in New York and New Jersey, where average pipelines remain at 846 and 772 months respectively.  The February mortgage performance data also showed that continued declines in new problem loan rates support improved delinquency rates nationwide. Seasonal patterns are also evident in cures from delinquency, with increased cure rates across almost all categories of delinquent loans. Additionally, first-time foreclosures remained stable as repeat foreclosures saw an 8% month-over-month decrease. At the same time however, new mortgage originations remain depressed, continuing a four-month decline.

As reported in LPS’ First Look release, other key results from LPS’ latest Mortgage Monitor report include: 

Total US loan delinquency rate:​  7.57 %​

Month-over-month change in delinquency rate:​  -5.0 %​

Total US foreclosure pre-sale inventory rate:​  4.13 %​

Month-over-month change in foreclosure pre-sale inventory rate:​  -0.5 %​

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

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

 *Non-current totals combine foreclosures and delinquencies as a% of active loans in that state.
Notes:
(1) Totals are extrapolated based on LPS Applied Analytics’ loan-level database of mortgage assets.
(2) All whole numbers are rounded to the nearest thousand.

Auto sales up

The auto industry looks set to ride the appeal of smaller cars to its best monthly performance in almost four years.  The consulting firm LMC Automotive predicts US sales of new cars and trucks reached 1.37 million last month, up 6% from March of 2011 and the highest number since May of 2008. Industry analysts say sales could run at an annual rate of 14.1 million to 14.5 million vehicles, continuing a strong performance in January and February.   Some companies could break sales records.  Chrysler Group was the first automakers to report sales Tuesday. Its US sales jumped 34% in March on strong sales of Fiat small cars and Chrysler sedans.  It was the best month for the company in four years as consumers grow confident enough in the economic recovery to buy new cars.  Chrysler says Fiat sales hit 3,712, compared to just 500 last March when the car was first on the market. The subcompact Fiat is growing in popularity as new dealerships open and fuel prices rise.  Sales of Chrysler’s 200 and 300 sedans each doubled over last March. Both cars have recently been revamped and have better fuel economy than previous models, which is attracting new buyers.  Jeep brand sales rose 36% on the strength of the Jeep Grand Cherokee.  Incentives on trucks also helped lure buyers in March. Chrysler said its Ram pickup sales were up 23% over last March. General Motors Co. and Ford Motor Co. also were expected to report big gains in truck sales.

Olick – housing “paralysis?”

“In an unexpected reversal, both newly started foreclosures and finalized foreclosures dropped precipitously in February.  So-called foreclosure starts fell 15.2% month-to-month. Foreclosure sales, the final stage of the process (not sales of already bank-owned properties) fell 19% month-to-month, according to a new report from Lender Processing Services.  Most had expected both starts and sales to ramp up, following the $25 billion dollar settlement between five of the nation’s largest banks and state attorneys general and federal agencies over the now infamous ‘robo-signing’ scandal. The drop in finalized foreclosures was nationwide, in states where a judge is involved in the process as well as in non-judicial states.  ‘For both foreclosure starts and sales, we’re finding that so far, the sustained increase isn’t there, though we do see sporadic ‘bursts’ of activity,’ says Herb Blecher of LPS Applied Analytics. ‘These are sometimes focused around particular investors (i.e., Fannie Mae and Freddie Mac foreclosure starts) and may reflect seasonal trends, loss-mitigation activities, legislative impacts, or other operational factors. We can’t say specifically what those bursts correlate to, because we just don’t see that in the data.’

This sudden stall, however, if prolonged, could lead to an overall drop in home sales, given that foreclosures are such a large share of the market. That has at least one well-known analyst warning of more problems ahead for housing.  ‘Through relentless meddling with delusions that ‘foreclosures are bad,’ they effectively destroyed the macro housing market,’ says California-based mortgage analyst Mark Hanson, referring to government intervention in the housing market. ‘Contrary to popular thinking, the eradication of foreclosures will lead this housing market into paralysis, not recovery.’  Hanson claims that the lack of ready and available distressed supply, ‘portends big trouble’ for the overall housing market, but more pointedly for California, Nevada and Arizona, where distressed supply and sales are the bulk of the market.  ‘It will soon become apparent that ‘foreclosure prevention’ was one of the biggest housing and finance policy blunders of all time. That’s because it circumvented interest rate policy in part aimed at household de-leveraging, kicked the problem forward and spread it out over many more years.’  The drop in foreclosure starts and sales is likely due to the big banks trying to modify more loans under the settlement agreement, and in some cases dropping loan principal. Some of the modifications, claims Hanson, are even more ‘exotic’ than the loans borrowers defaulted from in the first place, like 2% interest-only loans, 40 year amortizations, 33% forbearance, and five-year fixed rate loans. This as more than 11 million borrowers (22% of homeowners with a mortgage) owe more on that mortgage than their homes are currently worth, so-called ‘underwater.’  ‘Legacy borrowers are now more levered than ever,’ worries Hanson.

Distressed sales, which include foreclosures and short sales (when the home is sold for less than the value of the mortgage) now make up just over one third of all existing home sales nationally, according to the National Association of Realtors, but more than half of all sales in California and other states hardest hit by the housing crash. Investors are rushing in to buy up all these properties, hoping to cash in on what is fast becoming an historic rental market.  In an effort to entice large investors to buy more properties and rent them out, the Federal Housing Finance Agency, regulator of Fannie Mae and Freddie Mac, recently launched a pilot program, offering 2,500 foreclosed properties on the GSE’s books for sale in bulk discount deals. Bank of America also just announced a program to turn troubled borrowers into renters, offering deeds in lieu of foreclosure to borrowers who would like to stay in their homes.  Both bulk sales and an intensified drive to modify more troubled loans will drain the supply of distressed properties on the market, leaving little for individual investors and first time home buyers with cash. They had been helping to put a floor on home prices, by increasing competition in the space. With the non-distressed market still running far behind normal volumes, a dramatic surge in non-distressed sales would have to occur to make up for the drop in distressed sales.  Given how many homeowners are stuck in place due to negative equity, and with home prices still falling annually, not to mention still-weak consumer sentiment in housing, that surge is highly unlikely.”

Irony – Obama warns against “radical” GOP budget

In an election-year pitch to middle-class voters, President Barack Obama is denouncing a House Republican budget plan as a “Trojan horse,” warning that it represents “an attempt to impose a radical vision on our country” that would hurt the pocketbooks of working families.  Obama, in a speech to newspaper executives, is sharply criticizing a $3.5 trillion budget proposal pushed by Rep. Paul Ryan, R-Wis., which passed on a near-party-line vote last week and has been embraced by GOP presidential hopefuls. The plan has faced fierce resistance from Democrats, who say it would gut Medicare, slash taxes for the wealthy and lead to deep cuts to crucial programs such as aid to college students and highway and rail projects.  “It’s a Trojan horse. Disguised as deficit reduction plan, it’s really an attempt to impose a radical vision on our country,” Obama said in excerpts of his speech released Tuesday. “It’s nothing but thinly veiled social Darwinism.”  Ryan’s proposal aims to lower the deficit and the size of government while offering sharply lower tax rates in return for eliminating many popular tax breaks.

WSJ – write-downs get a new push

The Obama administration’s offer to subsidize write-downs of mortgage-loan balances for some heavily indebted homeowners is putting the federal regulator who oversees Fannie Mae and Freddie Mac in a bind by forcing the agency to rethink its long-held opposition.  For years, the federal regulator overseeing the taxpayer-backed mortgage-finance giants has resisted calls to have the firms cut loan balances, often referred to as principal write-downs. But in recent weeks he has come under intense pressure to change course, especially now that the US Treasury is offering to split the cost.  In an interview this past week, Edward DeMarco, acting director of the Federal Housing Finance Agency, said while he’s still skeptical about the benefit of principal reductions, “we said all along, if money came from another source, we’d have to reconsider our position.” He says his agency will make a decision by mid-April.  The offer by the Treasury Department to help pay for principal write-downs has put Mr. DeMarco in a tough spot: He’s consistently argued that his mandate to reduce losses at the firms means putting the narrow interests of the firms ahead of broader housing market policy. The Treasury’s subsidies could reduce those costs, but don’t change his underlying doubts about whether principal reductions are good policy.

Fannie and Freddie back roughly half of the 11 million mortgages where borrowers owe more than the homes are worth. But any principal forgiveness program would be targeted to a small percentage of underwater borrowers—those owing at least 125% of the value of their property and who are behind on their mortgage payments. Economists who have studied the issue say the proposal could reach about 300,000 homeowners.  The newly offered incentives come from unspent housing-aid funds, which in turn came from the $700 billion bank rescue that Congress passed in 2008. The upshot is that even if write-downs reduce the cost to Fannie and Freddie, they don’t necessarily change taxpayers’ costs.  “It’s like overdrawing one account and pulling out a fresh new checkbook,” said Tim Rood, a former Fannie Mae executive and managing director at the Collingwood Group, a housing-finance consultancy.

JP Morgan exec is fined $750,000

One of London’s most prominent bankers was fined 450,000 pounds ($720,000) on Tuesday for passing on inside information in a case that will embarrass his employer JP Morgan Cazenove and which marks a new resolve by authorities to target high-profile figures.  Top dealmaker Ian Hannam resigned to fight the fine imposed by the Financial Services Authority in relation to 2008 emails that contained information about a his client, oil company Heritage Oil.  The former special forces soldier and engineer is the fifth person to be fined this year by the British regulator, which had previously been accused of ineffectiveness.  JP Morgan informed staff in an internal memo of Hannam’s resignation from his position as JP Morgan’s Global Chairman of Equity Capital Markets, after two decades at the firm.  The case is a fresh blow for the reputation of investment banking, as Hannam joins the list of big names targeted by the regulator, which is seeking to clamp down on market abuse and insider dealing.  Hannam’s fine, detailed in a decision notice dated February 27, is among the largest levied against an individual for market abuse, though it is dwarfed by the 3.6 million pounds hedge fund investor David Einhorn incurred earlier this year over trading abuses.

Undaunted that legislators killed a bill requiring that lenders prove their right to foreclose on a home backers of the failed proposal have filed it as a ballot initiative with a harder approach: Foreclosures can’t happen unless all loan papers are properly recorded with the county first.  That means anytime a lender sells or transfers a note, as has been the practice for several years in the mortgage-backed securities business, the holder must file it with the county recorder of deeds.  Colorado has not required assignments — the legal word for when a mortgage or note exchanges hands — to be recorded for years, a critical part of the problem in determining who actually owns a note during a foreclosure, proponents of the initiative say.  “The intent is to ensure there are no gaps in the line of title,” attorney Stephen Brunette said. “Title records now are being totally messed with. Colorado’s foreclosure process today is fundamentally unsound.”  The ballot initiative — called the Foreclosure Due Process and Fraud Prevention Initiative — squarely takes on Colorado law that uniquely allows for “no-doc” foreclosures, where lenders can take a home without ever having to prove they have that right.

Opponents of House Bill 1156 who helped kill it in a Republican-controlled committee March 13 said the initiative could push lenders from the market.  “Our one concern is that nothing hurt lending in Colorado,” said Don Childears, president of the Colorado Bankers Association. “We’re not jumping to a conclusion that it’s automatically bad and have organizations against it tomorrow. But we’re aggressively thinking through its impact.”  HB 1156 sought to have lenders provide proof — theoretically a certified copy of a mortgage or loan note — that they had the right to foreclose on a property. It also would have required a judge to review the paperwork and certify a lender’s standing before ordering the public auction of a foreclosed home.  The proposed initiative is scheduled for a hearing at the Legislative Council on April 6, the first step to reaching November’s ballot. The proposal would need more than 87,100 validated signatures to get on the ballot, according to the Colorado secretary of state’s office.

3 major banks brace for downgrades

Moody’s Investors Service, one of the two big ratings agencies, has said it will decide in mid-May whether to lower its ratings for 17 global financial companies. Morgan Stanley, which was hit hard in the financial crisis, appears to be the most vulnerable. Moody’s is threatening to cut the bank’s ratings by three notches, to a level that would be well below the rating of a rival like JPMorgan Chase.  Bank of America and Citigroup may also fall to the same level as Morgan Stanley, but those two are helped by having higher-rated subsidiaries.  Credit ratings are particularly important for financial companies, which greatly depend on the confidence of their creditors and the companies they trade with. A high credit rating enables banks to put up less money, which they can borrow cheaply, while a lower credit rating can mean they have to put up more money and perhaps pay more for their loans.  The three banks that stand to be the most affected by a ratings downgrade have already said that they would have to put up billions of dollars more in collateral to back trading contracts.

Olick – investors swarm housing

“The number of homes sold to investors more than doubled last year, as rising rents and low-priced distressed properties fueled demand. Investors, half of them using no mortgage, bought 1.23 million homes in 2011, a 65% jump from 2010, according to the National Association of Realtors. Half of the homes purchased were distressed properties, that is, foreclosures or short sales (when the bank allows the home to be sold for less than the value of the mortgage).  ‘Rising rental income easily beat cash sitting in banks as an added inducement,’ says NAR’s chief economist Lawrence Yun. ‘In addition, 41% of investment buyers purchased more than one property.’  Half of investment buyers said they purchased primarily to generate rental income, according to the Realtors’ report. 34% wanted to diversify their investments, as 2011 saw a volatile stock market due to the debt crisis at home and overseas.

While nearly half of investment buyers said they were likely to purchase another property within two years, housing and mortgage analyst Mark Hanson calls them a ‘thin cohort’ and worries that they add ever more volatility to the current housing recovery.  ‘They are fickle and volatile. They will go away on the slightest of conditions changes. They also won’t chase prices higher or buy new homes from builders. Lastly, without the heavy flow of distressed supply, there is no US housing market recovery. Distressed sales ARE the market,’ says Hanson.  Foreclosure supply is still running high, with 65,000 completed foreclosures in February of this year, according to a just-released report from CoreLogic. 862,000 foreclosures were completed in the twelve months ending in February. While there are still 1.4 million homes in the foreclosures process, all of these numbers are coming down, albeit very slowly, and sales of bank-owned properties (REO) are speeding up.  Even the Realtors are concerned, like Hanson, that new programs by the government and banks to sell foreclosed properties in bulk discounts to large-scale investors, will cut off a robust individual sales market for smaller investors.  ‘Small-time investors are helping the market heal, since REO inventory is not lingering for an extended period,’ says Yun, clearly looking out for his Realtor constituents. ‘Any government program to sell REO inventory in bulk to large institutional companies should be limited to small geographic areas.’”

Consumer spending up

The Commerce Department said on Friday consumer spending rose 0.8%, as households probably stepped up purchases of motor vehicles, despite a spike in gasoline prices.  January’s spending was revised up to 0.4% from a previously reported 0.2% gain. Economists polled by Reuters had expected spending, which accounts for two-thirds of US economic activity, to rise 0.6% last month.  When adjusted for inflation, spending rose 0.5%, the largest gain since September, after gaining 0.2% in January. That could cause analysts to raise their forecasts for 2% first-quarter growth.  The economy expanded at an annual rate of 3% in the final three months of 2011 as it got a boost from restocking by businesses, a stimulus that is expected to be lost this quarter.  Consumer spending rose at a 2.1% rate in the fourth quarter and last month’s increase suggested consumers were taking surging gasoline prices in stride, and saving less to supplement their low income.  Spending on goods meant to last more than three years rose 1.6% in February after advancing 1.4% the prior month. Spending on services rose 0.4%. Unseasonably warm weather had curbed demand for utilities in the prior months.

WSJ – investors buying vacation homes

In its annual survey of investment- and vacation-home sales, the National Association of Realtors found that the number of homes purchased by investors rose 65% during 2011 to 1.2 million, accounting for 27% of all home sales. In 2010, investment properties accounted for 17% of all sales.  The number of homes purchased as second or vacation homes jumped 7% last year to 502,000—accounting for 11% of all transactions, up from 10% of all sales in 2010.  While the majority of homes sold last year went to traditional buyers who plan to use the home as a primary residence, their presence in the market declined to 61% from 73% in 2010.  During the housing boom, speculators were blamed for helping to inflate the bubble by snapping up homes, especially new homes, and then quickly reselling them as prices rose higher. That led to overbuilding. Some economists now believe that investors are helping to stabilize the market by buying up excess inventory.

In some of the hardest-hit housing markets, investors are the largest category of buyers. But unlike during the boom years, when many investors were buying properties to “flip” quickly for a profit, many of today’s investors buy the homes with plans to rent them out and sell them when the market improves.  “Obviously, it’s a great rental market, and it’s going to be a great rental market for a while,” said Geoffrey Jacobs, principal at Empire Group, a developer that has amassed a portfolio of nearly 1,000 single-family homes in Phoenix since 2009. Because the typical home that he buys is only about 10 years old, “it’ll compete well with a new home down the road when we go to sell the houses,” Mr. Jacobs said.   Amid increased demand from investors, real-estate agents say there aren’t enough foreclosed homes in good condition available in some markets, including parts of California and Florida. Thirty% of vacation-home buyers said they plan to use the property as a primary residence in the future, indicating that buyers who can afford to take advantage of low prices and low interest rates to buy their future retirement homes are doing so.

Housing markets bottomed in 2009?

The housing industry fell apart quickly and then began a protracted recovery.  Many housing markets hit bottom three years ago in early 2009 when prognosticators claimed that home prices had much further to fall, according to data released by Pro Teck Valuation Services.  The Waltham, Mass.-based real estate valuation firm explored the turnover rate (number of non-distressed sales divided by the total housing stock in a region) as an indication of future home prices. The analysis, the firm says, demonstrates that home prices in many areas are already rebounding from the bottom of the market.   “The Miami and Los Angeles markets are highly representative of what we foresee for most of the important coastal US real estate markets,” Pro Teck Chief Executive Tom O’Grady said. “In particular, we see stabilizing and then gradually increasing prices over the next few years.”  According to Pro Teck, the significant decline in prices in 2009 made home values so compelling that both new owner-occupant homebuyers and astute US and foreign investors came into these markets. The new demand prevented further declines, they say, creating the longer-term “bouncing around the bottom” prices seen today. 

In addition to sales activity, the firm released a listing of the 10 best and 10 worst performing metros as ranked by its market condition-ranking model. The rankings are run for the single-family home markets in the top 200 statistical areas and based on the number of active listings, average listing price, number of sales, average active market time, average sold price, number of foreclosure sales and number of new listings.  “In March, the top ranked metros show a strong connection to states such as Texas and Oklahoma, which directly benefit from the resurgence in the US oil exploration industries,” Michael Sklarz, principal at Collateral Analytics, said. “In addition, most of these markets did not experience price bubbles during the mid-2000s boom period and, thus, never became overpriced in the first place.”

The Mortgage Bankers Association said its seasonally adjusted index of overall mortgage application activity, which includes both refinancing and home purchase demand, fell 2.7% in the week ended March 23.  The MBA’s gauge of loan requests for home purchases rose 3.3%, though the measure of refinancing applications dropped 4.6%.  The decline in refinancing was driven by a 12.0% drop in government refinance activity, while conventional applications fell just 3.4%, the report said.  The refinance share of total mortgage activity slipped to its lowest level since July of last year at 71.9% of applications from 73.4%.  Fixed 30-year mortgage rates jumped to their highest level since November to average 4.23%, up 4 basis points from 4.19%.  The survey covers over 75% of US retail residential mortgage applications, according to MBA.

As election nears, Obama considers strategic oil

The United States asked France to join it for a possible emergency oil stock release, the French Energy Minister said yesterday.  Asked by reporters after the weekly ministers’ meeting whether France would join a US-UK move to release strategic stocks, Eric Besson said: “It is the United States which has asked and France has welcomed favorably this hypothesis.”  Le Monde daily said on Wednesday, citing presidential sources, that France was in contact with Britain and the United States on a possible release of strategic oil stocks “in a matter of weeks” to push fuel prices down.  France is in contact with Britain and the United States on a possible release of strategic oil stocks “in a matter of weeks” to push  fuel prices down, Le Monde daily said on Wednesday, citing presidential sources.  France would join a UK-US cooperation on a release of strategic oil stocks that is expected within months, two British sources said earlier this month, in a bid to prevent fuel prices choking economic growth in a US election year.

Olick – remodeling on a roll

“America’s housing market is still struggling to find solid footing amid millions of delinquent loans and foreclosed properties.  But as the wider economy begins to strengthen, and Americans start to feel better about their current and future finances, they are dipping their toes back into the housing waters, in the form of remodeling.  ‘Residential remodeling this winter is as strong as it has been in more than five years. We expect residential remodeling to continue to grow throughout 2012,’ says Joe Emison of Texas-based BuildFax, a division of BUILDERRadius and creator of the BuildFax remodeling index.  Residential remodeling, as measured by building permits in January, were at an annual rate of, up 13% from December and 11% from a year ago, according to BuildFax. The index shows particular strength in the Midwest and the West.

Sales of foreclosed properties may be helping the numbers, as investors have swarmed the market, buying up distressed properties and turning them into rentals. Many of those properties have been either abandoned or vandalized and need at the very least basic refurbishing and at the most full renovations.  Great news for US companies that serve the remodeling market, and of course their stocks. Sherwin Williams, which gets 77% of its revenue from the US market, is trading at an all time high, going back to its IPO in 1964. Home Depot is seeing the best levels since April of 2002, and shares of Lowes are at a high not seen since 2007. Both get all of their revenue from US customers.  Others poised to profit: Weyerhaeuser, which takes about 65% of its revenue from US sales and of course US Gypsum, whose shares are up 103% in the last three months, United Rentals, which rents construction equipment, shares up 44% this year, and MASCO, which makes all kinds of building products.  This entire sector is exceptionally well placed because it can profit off not only distress in the overall housing market, but improvements in it as well.  As homebuyers trickle back in this spring, they will fuel further renovations, and as banks work through distressed loans and sell foreclosures off to investors, there will be ever more housework to be done.”

Supreme Court split along ideological lines

Sharp questioning by the Supreme Court’s conservative justices has cast serious doubt on the survival of the individual insurance requirement at the heart of President Barack Obama’s radical health care plan.  Arguments at the high court Tuesday focused on whether the insurance requirement “is a step beyond what our cases allow,” in the words of Justice Anthony Kennedy.  He and Chief Justice John Roberts are emerging as the seemingly pivotal votes.  Justices Antonin Scalia and Samuel Alito appeared likely to join with Justice Clarence Thomas to vote to strike down the key provision. The four Democratic appointees seemed ready to vote to uphold it.  “If the government can do that, what else can it” do? asked Scalia, referring to the individual mandate portion of the Patient Protection and Affordable Care Act.  The congressional requirement to buy health care insurance is the linchpin of the law’s aim to get medical insurance to an additional 30 million people, at a reasonable cost to private insurers and state governments. Virtually every American will be affected by the court’s decision on the law’s constitutionality, due this summer in the heat of the presidential and congressional election campaigns.

Scalia, as well as Roberts, Alito and Kennedy, pressed Solicitor General Donald Verrilli on whether people can be forced to buy things like cars, broccoli and burial insurance if the government can make them buy health insurance.  Kennedy at one point said that allowing the government mandate would “change the relationship” between the government and its citizens.  “Do you not have a heavy burden of justification to show authority under the Constitution” for the individual mandate? asked Kennedy, who is often the swing vote on cases that divide the justices along ideological lines.  Scalia repeatedly pointed out that the federal government’s powers are limited by the Constitution, with the rest left to the states and the people. “The argument there is that the people were left to decide whether to buy health insurance,” Scalia said.  Scalia and Roberts noted that the health care overhaul law would make people get insurance for things they may not need, like heart transplants or pregnancy services. “You can’t say that everybody is going to participate in substance abuse services,” Roberts said.  One demonstrator opposing the law wore a striped prison costume and held a sign, “Obama Care is Putting the US Tax Payer in Debtors Prison.”  Rep. Michele Bachmann of Minnesota, a former Republican presidential candidate, joined a tea party press conference of opponents of the law. Calling the law “the greatest expansion of federal power in the history of the country,” she said, “We are calling on the court today: Declare this law unconstitutional.”

Toll CEO optimistic

There are “encouraging” signs the high-end housing market is recovering in many US markets, Toll Brothers CEO Douglas Yearley said yesterday.  It’s been the “best spring in five years,” he said. In 2012 “our orders are up significantly and continue to be up significantly. I’m optimistic right now.”  He said that “25% of our communities have seen a price increase since Jan 1. That’s encouraging. There are places where we don’t have pricing power (but) we’re not dropping prices. We haven’t dropped prices in over a year.”  In New York, Toll has “huge pricing power. We’re raising prices every week,” he said, adding the company is diversifying into the urban high-end high-rise market including properties in parts of New York and Brooklyn and Hoboken.  In the corridor between Boston and Washington, D.C., which did not have the overhang from foreclosures and where Toll does 60% of its business, the market is strong, land is hard to find and “we have pricing power in many of those local markets.”  Phoenix is hot for housing, having gone from 14 to 16 months of supply down to four or five months. “In the last month, Phoenix is back in a big way,” Yearley said.  So is California — both the northern and southern parts of the state — where it’s also hard to find land, he said. The Carolinas, including the Raleigh area, are doing quite well as is the second-home market in Florida, which he said is “beginning to come back and we haven’t seen that in five years.”  Texas is booming, but the midwest, as well as parts of Nevada such as Las Vegas and Reno, are not, he said.  “We’re bumping along the bottom in certain locations but we’re clearly off the bottom in other locations,” Yearley said.

Gas prices up

The price of an average gallon of regular gas surpassed the $3.90 mark Wednesday, moving to within a dime of the $4 threshold.  The average price rose 1.3 cents to $3.911 in the latest daily survey conducted for the motorist group AAA. The price has risen for 19 consecutive days.  The current price compares to just below $3.70 a month ago, and just below $3.59 a year ago.  Gasoline averages more than $4 a gallon in 10 states and the District of Columbia. At $4.55 a gallon, Hawaii has the nation’s highest pump price.  Prices are less than a nickel away from $4 a gallon in Nevada and Wisconsin.  Wyoming has the nation’s lowest gas prices, averaging nearly $3.51 a gallon.  Gas prices have been rising on the back of soaring oil prices, which shot up in early 2012 amid fears that tensions with Iran could lead to an all-out war that causes a disruption in oil supplies. But the latest Lundberg Survey said gas prices may be peaking, as the price of crude oil has remained relatively steady in March.

WSJ – home prices fall, but at a slower pace

Home prices fell to new lows in January, but the rate of decline appeared to be easing, offering the latest hint that prices may be at or near a bottom.  Prices dropped 0.8% in the three-month period that ended in January, according to the Standard & Poor’s/Case-Shiller index that tracks 20 US metro areas. While that lowered the index to levels not seen since the end of 2002, the monthly decline improved from a drop of 1.1% in December and 1.3% in November.  House prices tend to weaken during the winter months, when sales activity slows and the share of “distressed” home sales, such as foreclosures, rises. After adjusting for seasonal factors, prices were flat in January compared with December.  Compared with one year ago, home prices fell 3.8% in January. That also represented an improvement over the 4.1% year-over-year decline for December.

Yesterday’s report “adds to other evidence that the housing market is on the mend,” said Paul Dales, senior US economist for Capital Economics. “We expect that 2012 will go down in history as the year that the most severe house-price crash on record ended.”  Home prices fell to new lows in nine cities, led by Atlanta, which was down 14.8% from a year ago. But three cities posted year-over-year increases: Detroit (1.7%), Phoenix (1.3%) and Denver (0.2%).  On a seasonally adjusted basis, half of the 20 markets showed flat or increasing prices in January when compared with December. 

Housing markets face significant headwinds. Nearly 11 million homeowners owe more on their mortgages than their houses or apartments are worth, and more than one million homes could sell out of foreclosure this year, putting pressure on prices. Credit standards are tight and show few signs of easing, leaving housing markets with fewer buyers at a time when more will be needed to soak up the excess supply.  Any stabilization in home prices, however, could offer a big boost to fragile consumer psychology.  “When you ask people why are they in the market right now they tell you, ‘Because home prices have stopped falling in some sickening way,’” said Glenn Kelman, chief executive of Redfin Corp., a Seattle-based brokerage. “They worry they could lose a little bit, but there was a time you really had to close your eyes before signing an offer, and hope you weren’t going to lose 10% of your equity in 12 months.”  Inventories of homes for sale are down sharply from one year ago and sales of new and existing homes for the first two months of the year have posted sizable increases compared with one year ago.  Most economists anticipate total levels of home construction and sales will increase this year, leaving home prices as the last metric that hasn’t yet reached a bottom.