housing

BOA Florida plan draws 678 short sales

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.”

Smart Real Estate News & Commentary by Chris McLaughlin March 21, 2012

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Fed to fine banks

The Federal Reserve says that it plans to fine eight additional US bank holding companies for improperly foreclosing on homeowners. The financial firms — EverBank, Goldman Sachs Group, HSBC Holdings PLC, PNC Financial Services Group, MetLife, OneWest Bank, SunTrust Banks and US Bancorp — were not part of last month’s settlement over alleged foreclosure abuses. Suzanne G. Killian, a senior associate director at the Federal Reserve, called the fines “appropriate” during a congressional hearing in Brooklyn, New York. Killian offered few details about the size of the fines or when they will be levied. The nation’s five biggest lenders — Bank of America, Wells Fargo, JPMorgan Chase, Citigroup and Ally Financial — last month agreed to a $25 billion settlement with state and federal government agencies last month after a 16-month probe. As part of that settlement, the five banks agreed to reduce mortgages for about 1 million homeowners. They also will pay into a fund that will send $2,000 to 750,000 homeowners who were improperly foreclosed upon. Separately, government regulators last April ordered 14 mortgage lenders and servicers to reimburse homeowners who were improperly foreclosed upon. Since then, letters have been sent to 4.3 million borrowers who were at risk of foreclosure during 2009 and 2010. The deadline for borrowers to seek money under the orders is July 31. So far, nearly 122,000 homeowners have asked for an auditor to review their foreclosures.

North America the next middle east for oil?

Increased production of energy from a number of sources including deepwater drilling, natural gas exploration and Canada’s oil sands could make North America the next Middle East, according to a new report from Citigroup. The bank estimates that total North American energy production will rise from 15.4 million barrels per day in 2011 to almost 26.6 million barrels per day by 2020, boosting gross domestic product (GDP) and creating ripple effects throughout the economy. Citigroup analysts say the US will see large gains in oil production from deepwater drilling, while Mexico will begin to reverse recent declines in output. Production of shale gas liquids will increase by 3.8 million barrels per day by 2020. The report says this new production would amount to about 7% of additional global production, “a higher growth rate than OPEC can sustain.” That increase in energy supply will also be accompanied with a decline in demand. US consumption of oil products has fallen by 2 million barrels per day since its peak in 2005, and the Citi report says demand will fall by another 2 million barrels per day over the next decade.

Citgroup expects the shift in energy supply and demand to increase real GDP by between 2 and 3.3%. It also estimates that some 550,000 new jobs will be created directly in the oil and gas extraction sector by 2020. An additional 2.2 to 2.3 million new jobs will be created from the resulting economic stimulus effects of new production by 2020. In its analysis, Citigroup acknowledges infrastructure bottlenecks and legislation that blocks exports of crude oil of US origin. It also points out that new environmental regulations could prevent the scenario from playing out. But the analysts point out the surge in energy production could be game-changing. “It would not only improve incomes and create jobs, but also improve national energy security and reverse perennial current account deficits.”

MBA – mortgage applications down

Mortgage applications decreased 7.4% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending March 16, 2012. The Market Composite Index, a measure of mortgage loan application volume, decreased 7.4% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 7.1% compared with the previous week. The Refinance Index decreased 9.3% from the previous week. The seasonally adjusted Purchase Index decreased 1.0% from one week earlier. The unadjusted Purchase Index decreased 0.6% compared with the previous week and was 1.9% lower than the same week one year ago. The four week moving average for the seasonally adjusted Market Index is down 2.79%. The four week moving average is up 3.25% for the seasonally adjusted Purchase Index, while this average is down 4.31% for the Refinance Index.

The refinance share of mortgage activity decreased to 73.4% of total applications, the lowest since July 2011, from 75.1% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 5.6% from 5.8% of total applications from the previous week. “With the rate increase last week, refinances are obviously slowing, and the refinance share at 73% is down to its lowest level since last July. With rate/term refinances falling as we go forward, HARP will be a bigger percentage of refinances but will be more concentrated in certain states,” said Jay Brinkmann, MBA’s Senior Vice President of Research and Education. Brinkmann continued, “Some of the largest institutions are reporting that the HARP share of their refinances remained at about 30% last week, but HARP volume is not equal across the country. The states that I started referring to years ago as the sand states that had the worst delinquencies we now should start calling the HARP states for mortgage refinances. We saw big state-level differences in refinance applications for February over January: Florida was up 49%, Arizona was up 61%, and Nevada was up 71%. Refinances in the rest of the country were generally flat or even down. For example, Texas had no change, Colorado was down 3%, Connecticut was up only 2%, and Virginia was up 1%. HARP clearly is a driving force in those states that saw the most defaults and the biggest drops in home equity.”

The average loan size of all loans for home purchase in the US was $225,463 in February 2012, up from $216,888 in January. The average loan size for a refinance was $222,048, down from $227,563 in January. The largest purchase loans were made in the Pacific region at $ 324,606. The largest refinance loans were also made in the Pacific region at $ 305,949.

US exempts EU from sanctions

The United States on Tuesday exempted Japan and 10 EU nations from financial sanctions because they have significantly cut purchases of Iranian crude oil, but left Iran’s top customers China and India exposed to the possibility of such steps. The decision is a victory for the 11 countries, whose banks have been given a six-month reprieve from the threat of being cut off from the US financial system under new sanctions designed to pressure Iran over its nuclear program. The list did not, however, include China and India, Iran’s top two crude oil importers, nor US allies South Korea and Turkey, which are among the top-10 consumers of Iranian oil. A US official held up Japan’s estimated 15-22% cut in oil purchases from Iran in the second half of last year as an example for other nations, saying it did so after the “tragedy” of the earthquake that caused the Fukushima nuclear disaster. “Japan was a model,” State Department Special Envoy and Coordinator for International Energy Affairs Carlos Pascual told lawmakers. “If Japan was able to do what it did … that should be an example to others that they could potentially do more.”

Olick – rising rates may not hurt housing

“It was barely a few weeks ago that mortgage rates were sitting at record lows. The idea of rates over 4% on the 30-year fixed seemed a distant memory. And here they are now at 4.05% on the Bankrate.com overnight, thanks to the recent rise in Treasury yields. The housing market, it seems, just can’t catch a break. Or can it? As the economy improves, the job market improves, and that is a key driver for housing. But on the flip side, as the economy improves, investors finally crawl out of the Treasury bunkers, driving yields higher, and mortgage rates generally follow the 10-year Treasury. ‘We will definitely see a freeze up in refi’s immediately but the decision on a purchase still won’t be impacted until rates get at least to 4.5% I believe,’ says Peter Boockvar at Miller Tabak. ‘Assuming a $200k mortgage, going from 4 to 4.5% in mortgage rate adds about $60 per month to one’s payments, and while an extra $700 per year matters, I’m not sure if it’s a deal breaker.’

While rates have moved a good quarter of a% in the past few weeks, most analysts don’t think they’ll go much higher. ‘Mortgage rates were too high anyway, relative to the 10-year Treasury, so I don’t think you will see a parallel shift,’ says FBR’s Paul Miller, who spoke to several bankers today. They told him mortgage volume is good, which helps keep rates competitive. ‘But it does take time for this stuff to flow through the markets,’ he adds. And then there could be one other phenomenon, as described by Freddie Mac’s chief economist Frank Nothaft: ‘When rates tick up, you may see some potential home buyers who have been sitting on the sidelines, suddenly they may get up, as they are concerned that maybe this is the beginning of a trend, and they don’t want to miss out on these 60-year low mortgage rates. In the near term it can encourage buyers.’”

Oil up to $107 per barrel

Oil prices rose to near $107 a barrel Wednesday after a report showed US crude supplies fell unexpectedly, a sign demand may be improving in the world’s largest economy. By early afternoon in Europe, benchmark oil for May delivery was up 49 cents to $106.56 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell $2.49 to settle at $106.07 per barrel in New York on Tuesday after Saudi Arabia said it could pump more oil to cover any shortages. In London, Brent crude for May delivery was up 27 cents at $124.39 a barrel on the ICE Futures exchange. The American Petroleum Institute said late Tuesday that crude inventories fell 1.4 million barrels last week, breaking a two-month trend of growing supplies. Analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., had predicted an increase of 2.1 million barrels. Inventories of gasoline fell 1.4 million barrels last week while distillates rose 600,000 barrels, the API said.

LPS – first look report
Lender Processing Services, Inc. (NYSE: LPS), a leading provider of integrated technology, data and analytics to the mortgage and real estate industries, reports the following “first look” at February 2012 month-end mortgage performance statistics derived from its loan-level database of nearly 40 million mortgage loans.

Total US loan delinquency rate:7.57%
Month-over-month change in delinquency rate: -5.0%
Year-over-year change in delinquency rate: -14.0%
Total U.S foreclosure pre-sale inventory rate: 4.13%
Month-over-month change in foreclosure presale inventory rate: -0.5%
Year-over-year change in foreclosure presale inventory rate: -0.3%
Number of properties that are 30 or more days past due, but not in foreclosure: (A) 3,781,000
Number of properties that are 90 or more days delinquent, but not in foreclosure:1,722,000
Number of properties in foreclosure pre-sale inventory: (B) 2,065,000
Number of properties that are 30 or more days delinquent or in foreclosure: (A+B) 5,846,000
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
The company will provide a more in-depth review of this data in its monthly Mortgage Monitor report, which includes an analysis of data supplemented by in-depth charts and graphs that reflect trend and point-in-time observations.

Money printing going out of style

The era of quantitative easing—a process by which central banks buy assets such as government bonds to inject funds in the markets—may be coming to an end, according to a survey of fund managers. According to a March survey by Bank of America Merrill Lynch, investors are more upbeat about the future and the prospects for growth and they no longer expect further quantitative easing measures to be taken by the Federal Reserve or the European Central Bank. In the survey, 28% of fund managers said they expected the global economy to strengthen in the next 12 months, up from 11% in February. This was the highest reading since March last year. But the report did find that fund managers still see sovereign debt as the biggest tail risk to the global recovery. Investors do foresee higher inflation, with a net 13% expecting it to rise in the coming year.

WSJ – housing mixed

US home building fell in February, but permits for new construction reached their highest levels in nearly 3½ years, reflecting housing’s uneven and protracted recovery. Home construction decreased 1.1% from January to a seasonally adjusted annual rate of 698,000, the Commerce Department said yesterday. Construction of single-family homes, which makes up more than 70% of housing starts, fell by 9.9% – the largest drop in a year. Meanwhile, multifamily homes with at least two units, a volatile part of the market, posted a 21.1% gain. Still, January’s figures were raised to 706,000 starts overall, a 3.7% improvement from December and the highest level since October 2008.

In a positive sign for future construction, the February data showed new building permits rose by 5.1% from a month earlier to an annual rate of 717,000 – also the highest level since October 2008. The housing sector has been healing slowly after prices collapsed more than five years ago. A National Association of Home Builders (NAHB) report on Monday showed that US home builders’ confidence in the market held steady in March at the highest level since 2007. “The level of activity still remains far short of the pace implied by the NAHB index so we look for further gains over the next few months in both sales and starts,” said Ian Shepherdson, chief US economist at High Frequency Economics. “Housing will add to growth all year, and beyond.”

But Joshua Shapiro, chief US economist at MFR Inc., said that so far, the home builders association’s level of confidence hasn’t been matched by actual construction. “Our view remains that single-family housing starts are in a long-term bottoming process but that an enormous overhang of existing single-family home supply will prevent sharp gains in single-family starts in the near to medium term,” Mr. Shapiro said. NAHB said Monday that its members continue to face obstacles, including tight credit for both builders and buyers and a large inventory of inexpensive, foreclosed homes in many markets. The Commerce Department data showed that housing starts were mixed across four US regions. The Northeast posted a 12.3% decline, while starts in the West dropped 5.9% last month. Starts rose 3% in the Midwest and 1.5% in the South. Actual housing starts, calculated without seasonal adjustments, grew to 48,100 in February from 46,500 in January. Lumber and commodities markets watch those numbers closely to gauge demand.
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Chris McLaughlin

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Smart Real Estate News & Commentary by Chris McLaughlin March 16, 2012

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Whistleblower wins $18 million

Attorney Lynn Szymoniak had spent a career investigating insurance fraud when a bank moved to foreclose on her Florida home in 2008. Almost four years later, the fraud she said she uncovered by combing through mortgage documents earned her $18 million.  Szymoniak, 63, is among six whistle-blowers who will pocket $46.5 million as part of a $25 billion national foreclosure settlement that state and federal officials reached in February with five banks, including Bank of America Corp. and JPMorgan Chase & Co. (JPM), according to the US Justice Department.  Szymoniak’s examination, in which she relied on her experience as an insurance-fraud investigator, led to her claims against banks for submitting fraudulent documents to the federal government asserting that they owned loans insured by the Federal Housing Administration, she said.  The national foreclosure settlement with the five banks, which resolves claims of abusive foreclosure practices, provides mortgage relief to borrowers, pays $1.5 billion to those who lost their homes to foreclosure, and sets standards for how the banks service mortgage loans.

As part of the agreement, whistle-blower claims are being settled for about $228 million, according to court papers filed in federal court in Washington. A group of six whistle-blowers will receive $46.5 million out of that amount, said Alisa Finelli, a Justice Department spokeswoman.  Szymoniak’s foreclosure case began in July 2008 when Deutsche Bank AG (DBK), as trustee for a mortgage securitization trust, sued to seize her Palm Beach Gardens, Florida, home, which was once worth $1.3 million. The bank couldn’t prove it owned her loan and claimed it had lost the mortgage note, she said.  Szymoniak said she was first alerted to problems in the paperwork on her foreclosure when Deutsche Bank said it acquired her mortgage note in October 2008, three months after the bank sued her over the loan.  “So I began doing what I’ve done for years — go out and investigate,” she said. “It was pretty obvious to me that the paperwork was fraudulent.”  Her work quickly uncovered widespread document fraud in the mortgage industry, she said, and eventually led to the filing of her whistle-blower cases in 2010.  The whistle-blower claims resolved in the national settlement include a case filed in Atlanta in 2006 in which banks are accused of defrauding military veterans and the US government.  The banks violated rules under a Department of Veterans Affairs program for refinancing mortgage loans by charging improper fees to veterans, according to the complaint. The banks hid those fees and obtained government guarantees on the loans, according to the complaint.

Inflation leaps, gas leads

The Labor Department said its Consumer Price Index increased 0.4% after advancing 0.2% in January. That was in line with economists’ expectations. Gasoline accounted for more than 80% of the rise in consumer prices last month, the department said.  Outside the volatile food and energy category, inflation pressures were generally contained. Core CPI edged up 0.1% after gaining 0.2% in January. The February increase was below economists’ expectations in a Reuters poll for a 0.2% rise.  The Federal Reserve said on Tuesday that the recent spike in energy costs would likely push up inflation temporarily. Over the long-term, inflation was likely to run at or below the its 2% target, it said.

While the US central bank reiterated its expectation that overnight interest rates would remain near zero until at least through late 2014, it offered no clues on whether it would launch a third round of bond buying or quantitative easing, to keep borrowing costs low to stimulate the recovery.  Last month, overall inflation was pushed up by gasoline prices, which soared 6%, the largest increase since December 2010, after rising 0.9% in January.  Although surging gasoline prices are a strain on consumers, they have so far not caused a sharp pull back in spending, thanks to a strengthening jobs market.  Food prices were flat last month after rising 0.2% in January. Food prices were the weakest since July 2010.  Overall consumer prices rose 2.9% year-on-year after increasing by the same margin in January.  Core consumer prices were last month restrained by apparel prices, which fell 0.9% — the most since July 2006 — after rising 0.9% in January. There were also declines in the prices of tobacco, airline tickets and used cars and trucks.  But new motor vehicle prices rose 0.6% after being flat in January. While housing costs held up, owners’ equivalent rent rose only 0.1% last month after increasing 0.2% the prior month.  In the 12 months to February, core CPI increased 2.2% after rising 2.3% in January. This measure has rebounded from a record low of 0.6% in October and the Fed would like to see that closer to 2%.

Olick – Miami condos – bust or boom?

“South Florida real estate developer Martin Margulies has been sitting on prime ocean-front property for five years, waiting for the condo market to rise from the grave. When the market here crashed in 2007, amid overzealous speculators and an abundance of cheap and easy credit, condo construction ground to a halt. The joke had been that the unofficial bird of Miami was the crane, but that bird flew the coop. Apparently it is now swooping back in.  ‘This is the moment because we’re going to be delivering this property next year, and so by that time there will be good demand, there is good demand now,’ says Margulies, who began construction on a brand new high-end condo tower in December.  And he is right. Foreign buyers, largely from South America, but also from Europe, Russia and China, are flooding into the Miami area, and that has developers rushing to keep up with demand.  ‘The music started again in South Florida,’ says Peter Zalewski of CondoVultures, a Florida real estate data and investment firm. ‘We have an arms race of developers moving into the marketplace trying to put up condos or planned condos in anticipation of a recovery in the next two years or so.’

And they are doing it fast. Twenty five new towers with 5200 units are proposed while there are still 4200 unsold units left from the crash. Sounds crazy, but the foreign demand developers and real estate agents are seeing now is just that hot.  ‘The foreign buyer is coming in looking for wealth preservation or taking advantage of the weak US dollar, or coming in because of problems back home, whether it’s Venezuela or Mexico with the drug war,’ says Zalewski, who has been watching and working this market for the past decade.  Foreign buyers are investing as well as foreign developers, like the Melo group, a family business from Argentina. They began construction last August on the first new tower in Miami in at least four years. A lot of people thought they were crazy, but now the tide has decidedly turned. The Melo’s say they have pre-sold the entire building, and they required buyers to put 50% down. Most of their buyers, again, are foreigners with cash.

This new condo boom, while reminiscent of the recent one, is not built on easy credit. In fact, credit is still very tight here, especially for developers. Martin Margulies tried to get a construction loan for his Hollywood project, the Bellini, but could only get 50% financing along with putting up collateral. He called that ‘onerous,’ and instead took out a personal loan, using his massive art collection as collateral. He says he’s not concerned, as his buyers will be putting down 30% on one to four million dollar units.  ‘The kind of buyers we get they don’t need financing, they’re all cash buyers,’ says Margulies. ‘It’s a lifestyle they have, so they’re not reliant on a bank to give the money.’  Most of the foreign buyers in Miami are renting the properties to locals who have either lost their homes to foreclosure or whose credit is not good enough to get a home loan in today’s tough US mortgage market. The question now is, what happens to all these renters when Florida’s single family housing market recovers and credit opens up again?

Will all these foreign investors want to unload their units at the same time?  ‘You wonder if we’re not kicking the can, where we dealt with the problem at hand by dumping it off to foreign buyers, and now as the domestic buyer starts to move back into the marketplace, is that domestic buyer going to pay the same price that the foreign buyer is willing to pay or take the same chances that the foreign buyer is willing to pay?’ asks Zalewski.  It all sounds frighteningly familiar.”

Industrial output down

The Federal Reserve said Friday that the output of the nation’s factories rose 0.3% last month. That followed even stronger increases in January and December, which combined for the best two month stretch since 1998.  Overall industrial production, which includes output by mines and utilities, was unchanged. Mining activity declined sharply and utilities were flat.  Factory output has risen 17.4% since the depths of the recession in June 2009. It remains 6.7% below its pre-recession peak, reached in December 2007.  Growth at US factories was a little slower in February because auto production edged lower after big gains in December and January. Manufacturers made more electronics, energy products and electrical equipment.  Still, manufacturing has strengthened substantially since last summer, when it faltered because of global supply disruptions caused by the Japan earthquake and tsunami. Factories are benefiting from strong auto sales and growing business investment in machinery and other equipment.

Sales up 14% in San Francisco

San Francisco Bay Area home sales grew 14.2% from last year in February with the region recording 5,702 sales, up from 4,991 a year ago, DataQuick said.  The San Diego-based real estate research firm said sales are up over year-prior levels for the eighth straight month, suggesting a tepid recovery could be under way.  New and existing home prices continue drag, with the February median of $325,500 down 0.3% from $326,000 in January and 3.6% from $337,250 a year ago.  Prices in San Francisco hit their peak of $665,000 in June 2007 before plummeting to $290,000 in March 2009 after the nation fell into a prolonged recession.  Much like the Southern California market, distressed home sales accounted for half of the Bay Area’s resale market in February. Foreclosure sales alone made up 27.4% of all resales in the market, while short sales represented 23.1%.  The average monthly mortgage payment in the Bay Area hit $1,225 in February, down from $1,233 in January and $1,440 a year earlier.

Obama to release emergency oil in front of election?

Britain is poised to cooperate with the United States on a release of strategic oil stocks that is expected within months, two British sources said, in a bid to prevent fuel prices choking economic growth in a US election year.  A formal request from the United States to the UK to join forces in a release of oil from government-controlled reserves is expected “shortly” following a meeting on Wednesday in Washington between President Barack Obama and Prime MinisterDavid Cameron, who discussed the issue, one source said.  Britain would respond positively, the two sources said, and Cameron said a release was worth considering.  “We didn’t make any decision, this has to be discussed broadly. We’ve got to look at this issue carefully, it’s something worth looking at. Short-term should we look at reserves? Yes, we should,” Cameron said during a meeting with students in New York.  “We’d both like to see global oil prices at a lower level than they are.”  Details of the timing, volume and duration of a new emergency drawdown have yet to be settled but a detailed agreement is expected by the summer, one of the sources said.  Other countries may also be approached by Washington to contribute, a further source said, Japan among them.   Rising world oil prices have pushed the cost of gasoline in the US up sharply, threatening to stall economic recovery ahead of Obama’s bid for re-election in November.

Renting jeopardizing affordable housing

More Americans are renting houses instead of buying them, a trend that could disrupt price affordability, analysts say.  With more homeowners unable to secure mortgages and uncertain about future finances, renting is the only sure-fire way to live in a single-family property, according to Capital Economics.  But as more Americans turn to home renting, the influx of demand is set to squeeze the nation’s rental supply, pushing monthly rents even higher.  Paul Dales, senior economist with Capital Economics said that rental vacancy rates will fall again in the future, pushing prices up. The median rent is already up to $712 per month—well above the average monthly mortgage cost of $647, Dales reported.  He estimates vacancies in the home-rental market will push average rental rates up as much as 5% by early 2013, compared to 2.4% in January.  “We expect the annual rate at which rents are rising will rise to 3% this year and remain at that level in 2013,” Dales said. “Assuming that the economic recovery gains firmer footing, in future years there is scope for rents to rise by around 4% a year.”

And as single-family renters head into the market, the supply of rentals is unlikely to meet new demand.  This reality is playing itself out in Denver, where the vacancy rate for home rentals fell from 3.4% in the third quarter to 2.1% in the fourth quarter. At the same time, the vacancy rate edged up slightly from the 2% level reported in the fourth quarter of 2010.  “The vacancy rate went up slightly year-over-year,” said Ryan McMaken, a spokesman for the Colorado Division of Housing. “That doesn’t mean much, though, because when you’re looking at vacancy rates below 3%, the bottom line is that the market is tight. For many people, it’s not easy to buy a house right now, so they’re renting.”

See you at the top!
Chris McLaughlin

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

Copyright Loss Mitigation Institute LLC 2011.
All Rights Reserved.

http://www.shortsalesriches.com

http://www.shortsalescoach.com

http://www.sixfigurebpo.com

http://www.reomillionaireclub.com

http://www.youtube.com/shortsalesriches

http://www.smartrealestatenews.com

(subscribe to this newsletter)

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

About the author:

Chris McLaughlin is widely known as America’s top
Real Estate Attorney and Investment Consultant.

* As the top Florida foreclosure and pre-
foreclosure expert, he oversees more than
100 short sale & REO closings each month

* Long-time authority on real estate investing
and rapid reselling of distressed homes.  Owns
portfolio of nearly 150 high-value, high-profit
properties

* Owner of one of Florida’s largest Real Estate firms,
running 4 different offices, supporting over
420 agents, uniquely positioning him to help
thousands of investors make money in the
biggest market opportunity ever!

* In 2011, Chris’ 4 Central Florida real estate offices
closed 3,336 sides for a closed sales volume of
$430,902,643!

* Highly sought-after speaker, consultant, and
seminar leader for current trends and hot topics
in Real Estate Investing, Entrepreneurship, and
Wealth Building

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

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

Smart Real Estate News & Commentary by Chris McLaughlin March 12, 2012

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Fannie and Freddie CFOs make more than CEOs

The Federal Housing Finance Agency’s (FHFA) announcement of salary cuts for Fannie Mae and Freddie Mac executives doesn’t go as far as some would like.  The FHFA detailed a $500,000 cap on salaries Friday, in particular for the incoming CEOs of the government-sponsored enterprises. That remains above the federal pay scale and falls short of compensation caps in standing legislation, and includes deferred payments that boost potential pay to $30.73 million for the top 10 executives.  Fannie and Freddie’s chief financial officers are exempt from the base salary cap, meaning they’d make more than the new chief executives. CFOs Ross Kari and Susan McFarland will make $675,000 and $600,000, respectively, in 2012.  Patrick Lawler, FHFA chief economist, said candidates the agency contacted for CEO positions requested subordinates make a competitive salary.  “We’re going to try and fill these two positions at a very low wage rate, but we just don’t think there’s any chance on the others,” Lawler said.

Three Freddie executives are also set to receive a raise, albeit at or below the $500,000 barrier.  These levels do represent a sharp reduction since the government took Fannie and Freddie into conservatorship. Compensation for the top 15 executives at each GSE is down 63%, according to the FHFA.  Members of Congress, however, weren’t keen on the changes.  “That may (be) an appropriate level for the private sector, but as long as the GSEs live off the taxpayers, these companies are owned by taxpayers and their staff should be paid accordingly,” Rep. Spencer Bachus, R-Ala., said in a statement Friday.  A House bill sponsored by Bachus would limit GSE executive pay at $218,978 for 2011. It passed the committee level in November.  Jeff Emerson, a spokesman for Bachus, said that bill could come up before a full House vote soon. Bachus called the FHFA’s change “long overdue,” but said it doesn’t go far enough.

Another measure, attached to a House and Senate-approved congressional insider trading bill, would put Fannie and Freddie employees on a federal pay scale with a maximum $275,000 salary and no bonuses.  Both chambers approved separate versions, each with the GSE provision, in February, but have yet to reconcile the two measures.  Sen. Jay Rockefeller, D-W.Va., cosponsored the GSE amendment in the Senate and called the FHFA’s move a “good first step.”  “Even a $500,000 salary is too much,” Rockefeller said in a statement. “Excessive executive pay at taxpayer-funded entities has already been going on for too long and must end — period.”  The FHFA said any further salary reduction from its $500,000 benchmark or uncertainty around it would “heighten safety and soundness concerns.”  “A sudden and sharp change in pay from these levels would certainly risk a substantial exodus of talent, the best leaving first in many instances,” FHFA acting director Ed DeMarco said in a release. “A significant increase in safety and soundness risks and in costly operational failures would, in my opinion, be highly likely.”

Legislators in Washington railed against executive pay at Fannie and Freddie during committee hearings in the fall, including before the House Oversight Committee. That committee, chaired by Rep. Darrell Issa, R-Calif., issued a critical report on GSE pay, calling executives “government-sponsored moguls.”  “I’m encouraged to see that (the) FHFA took the Oversight Committee’s recommendation to reevaluate the bonus structure for these executives,” Issa said Friday in a release.  The $500,000 salary cap, however, only refers to bimonthly or weekly payments, according to FHFA documents. The pay structure includes “deferred payments,” which the FHFA does not consider bonuses, delayed by a year for each quarter.  The top 10 executives can still earn that $30.73 million with deferred payments included, a 13% reduction from roughly $35.3 million in 2011. Executives ultimately brought in $30.1 million last year with these payments.

Deferred payments are subject to reductions based on conservatorship and personal performance, as well as continued employment up to Jan. 31 2014. Early-exit provisions make up 70% of deferred salary.  The FHFA included that provision to encourage executives to stay, Lawler said.  “This is an unusual pay structure that’s designed for a very unusual situation,” Lawler said. “It doesn’t look 100% like the private sector, but it certainly isn’t the government either.”  Charles “Ed” Haldeman and Michael Williams, Freddie and Fannie’s outgoing CEOs, could earn up to $5.4 million in 2012, including $900,000 in base salary. Haldeman, however, recently asked not to receive $2 million in incentives tied to 2009 and 2010, according to a regulatory filing and first reported by The Wall Street Journal.  But both have said they’d leave before year-end, with $2.88 million in deferred salary tied to retention reductions.

Stress tests expected to show progress

The Federal Reserve will release the results of its latest stress tests this week, and they are expected to show broadly improved balance sheets at most institutions.  While unpleasant surprises are possible, analysts are counting on the Fed to find banks largely healthy. That would stand in marked contrast with the holes, in the tens of billions of dollars, found on balance sheets in the first round of stress tests in 2009.  The examination is not merely an intellectual exercise. If institutions fall short, they could be required to raise billions in new capital, depressing their shares. If they pass, dividend increases and stock buybacks by the strongest institutions will follow as they did after the second round of tests a year ago, pleasing investors whose banks’ stocks still trade at levels far below where they where before the collapse of Lehman Brothers in September 2008.

Under the tests, Federal Reserve specialists are trying to predict how capital levels at the 19 largest banks would withstand an economic downturn even more severe than the one that followed the Lehman collapse.  In addition to a 50% stock market decline and an 8% contraction in real gross domestic product, the tests envision an unemployment rate of 13%, well above the 10.2% peak recorded in October 2009. A surge in unemployment would increase losses for banks on mortgage and credit card debt.  If all that were not enough, the Federal Reserve is considering what would happen to bank assets if a market shock hit Europe and reverberated in the United States, gauging the extent of losses that have not loomed large for American institutions, despite the continuing problems in Greece and weaker European borrowers.

Regulators are walking a fine line: if they permit the banks to return too much capital now, that might leave the industry vulnerable in the event of a downturn and lead others to think the industry was returning to its risky ways. On the other hand, a raft of negative results would alarm investors just as calm seems to be returning to the markets.  For banks to pass the tests, they must show that their Tier 1 capital ratio – the strictest measure of a bank’s ability to absorb financial blows – will be at 5% or better, even in the Fed’s nightmare case. To raise dividends or buy back stock, the ratio would have to remain above 5%, after capital was returned to shareholders.  Tier 1 capital ratios for the 19 largest banks have improved since the depths of the financial crisis, rising to 10.1% in the third quarter of 2011 from 5.4% in the first quarter of 2009. Actual capital in dollar terms has jumped to $741 billion from $420 billion.

Olick – homebuilding stocks too hot?

“Improvement in the jobs market, improvement in potential buyer traffic, improvement in existing home sales, no change in record low mortgage rates…no surprise the analysts are starting to upgrade the nation’s public home builders. Not to mention that we’re getting an unusually warm start to the spring market.  ‘We are raising our targets for the builders, and are upgrading DHI, LEN, and TOL to Outperform (from Neutral), and also upgrading MTH and RYL to Neutral (from Underperform),’ wrote Credit Suisse’s Dan Oppenheim in a note this morning, that then sent the stocks of all the builders on a tear.  Not that they haven’t been on a tear since last fall, with the S&P home builder’s index nearly doubling. If that happened even before all this new spring energy in the market, then the obvious question is, how much farther do these stocks have to go?

That will depend entirely on the spring results, which we won’t get until summer. We want to focus on new orders and new home sales, but we also need to pay close attention to the distress in the market, since many foreclosed homes are relatively new construction, left over from the building boom barely six years ago.  ‘There will likely be added supply/competition as more foreclosures come to market following the robo-signing agreement, and a significant backlog of 6.6 million delinquent loans/foreclosures still needs to be worked off (though foreclosure pricing seems to have bottomed and there are plenty of investor buyers of foreclosures),’ writes Oppenheim.

He also cites increases in FHA mortgage insurance premiums. FHA is a favorite loan product for first time home buyers, and first time buyers are major clients of the new home builders. And while bargain-basement foreclosures may be hurting the home builders in the short term, the rental boom due to all these foreclosures may actually provide builders with another opportunity.  ‘Bowing to the realities of today’s for-sale housing market, a growing cadre of market-rate builders are warming to the concept of houses as an alternative rental product,’ writes Lew Sichelman in National Mortgage News.  That’s right, building houses to rent, not sell. Not so crazy, given rising rents and rising demand. If the multi-family developers can do it, why can’t single family builders?  As for the stocks of the big guys, are they too hot? Most builders are pricing in order increases of 20% at least, according to CNBC’s Bob Pisani.  ‘That seems to be happening, which would leave little room for price run-ups, but remember, this market is very under-owned by a lot of investors, so these stocks could go beyond reasonable valuations very easily,’ says Pisani.”

Obama defends energy policy

President Obama is stepping up defense of his record amid concern higher oil prices may lift gasoline to $5 a gallon in some parts of the country this summer, posing a potential threat to the president’s bid for reelection on November 6.  Republicans point out that Obama policies have hobbled the energy industry with red tape and point to the administration’s blockage of TransCanada Corp’s Keystone XL oil pipeline project to back their charge that he is hostage to environmentalists in his political base.  Obama visited election battleground states North Carolina and Virginia last week to promote his message and will speak at the White House on Monday with local television stations serving key swing states, including Colorado, Nevada and Pennsylvania.

BOA and MBIA battle over evidence

Bank of America (BOA) is defending itself after insurer MBIA filed a letter with a court asking for sanctions against BOA over alleged delays or failure to produce records compelled in discovery.  MBIA, which is suing Countrywide over alleged misrepresentations made about the quality of Countrywide loans that MBIA insured as securities, is requesting documents that could shed light on allegations of fraud within the former subprime lending giant. BOA purchased Countrywide in 2008.  In a letter to Judge Eileen Bransten with the New York State Supreme Court, MBIA claims BOA failed to produce documents requested on fraud allegations, delayed the production of requested materials and dumped thousands of documents on MBIA at the last minute, making it difficult for the insurer to conduct an appropriate investigation before depositions in the case.

Bank of America responded with its own letter to the court. The bank said the allegations are baseless and blamed the mass release of documents on a coding error that was disclosed to MBIA.  Furthermore, in its letter, BOA claims MBIA refused to wait for the coding error situation to be remedied, which led to the production of documents on a rolling basis. The bank claims MBIA knew the process would take weeks and says BOA devoted significant resources to the document production.  MBIA views the recent discovery spat in a different light.  “Over the course of the last three weeks, Bank of America has produced nearly 170,000 pages of new, relevant, successor liability documents,” MBIA attorneys wrote. “These productions, which are continuing, have forced postponement of a number of successor liability depositions and compelled MBIA to agree to a brief extension of the successor liability discovery schedule. This is just the latest conduct by BAC to sabotage the discovery schedule and cause MBIA significant prejudices, and is part of an indefensible pattern of delay and discovery abuses by both the BAC and Countrywide defendants.”

MBIA’s request for discovery sanctions also claim Countrywide failed to produce documents related to allegations of fraud on Countrywide home loans.  “This includes withholding important categories of documents on specious grounds and then selectively producing certain of such documents that it believes are favorable on the eve of (or during) depositions,” MBIA said in its filing.  Bank of America denies the discovery process has prejudiced MBIA and says MBIA’s sanction requests are baseless in a letter to the court.

See you at the top!

Chris McLaughlin

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

Copyright Loss Mitigation Institute LLC 2011.

All Rights Reserved.

http://www.shortsalesriches.com

http://www.shortsalescoach.com

http://www.sixfigurebpo.com

http://www.reomillionaireclub.com

http://www.youtube.com/shortsalesriches

http://www.smartrealestatenews.com

(subscribe to this newsletter)

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

About the author:

Chris McLaughlin is widely known as America’s top
Real Estate Attorney and Investment Consultant.

* As the top Florida foreclosure and pre-
foreclosure expert, he oversees more than
100 short sale & REO closings each month

* Long-time authority on real estate investing
and rapid reselling of distressed homes.  Owns
portfolio of nearly 150 high-value, high-profit
properties

* Owner of one of Florida’s largest Real Estate firms,
running 4 different offices, supporting over
420 agents, uniquely positioning him to help
thousands of investors make money in the
biggest market opportunity ever!

* In 2011, Chris’ 4 Central Florida real estate offices
closed 3,336 sides for a closed sales volume of
$430,902,643!

* Highly sought-after speaker, consultant, and
seminar leader for current trends and hot topics
in Real Estate Investing, Entrepreneurship, and
Wealth Building

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

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