inflation

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

Smart Real Estate News & Commentary by Chris McLaughlin March 9, 2012

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BofA in side deal with US govt on mortgage foreclosures

Bank of America will make deeper and broader cuts than other banks, which will allow it to avoid as much as $850 million in penalties and give more than 200,000 financially strapped households the opportunity to sharply reduce their mortgage balances. The side deal is unique to Bank of America, said the Wall Street Journal, citing a senior administration official. It added that many of the write-downs will be made on loans originated by Countrywide Financial Corp, which Bank of America bought in 2008, and then packaged into securities. Investors in those securities could then be affected by the side deal. Bank of America said on Feb. 9 that under the government settlement, write-downs will be made on loans originated by Countrywide Financial Corp prior to and for a period following the bank’s acquisition of that lender. The other banks accused of abusive mortgage practices that settled with the government were Wells Fargo & Co, JPMorgan Chase & Co, Citigroup Inc and Ally Financial Inc.

Restructuring bails out Greece

Greece’s private sector creditors agreed to a historic restructuring of the government’s debt early Friday, setting the stage for the nation to secure more bailout money and skirt a messy default. Investors agreed to restructure €172 billion worth of Greek bonds, which represents 85.5% of the total €206 billion held by the private sector, said the Greek finance ministry. Another 69% of investors that own Greek bonds not issued under Greek law agreed to restructure roughly €20 billion. Greek Finance Minister Evangelos Venizelos welcomed the agreement, saying the restructuring will help Greece get out of debt and revive its ailing economy. Greece is widely expected to activate so-called collective action clauses, which the government retroactively added to its bond contracts a few weeks ago, to make the restructuring binding for all holders of Greek bonds issued under domestic law. The use of the clauses should bring the total participation rate in the restructuring to more than 90%, the threshold Greece needs to cross in order to meet all the conditions of its second €130 billion bailout from the European Union and International Monetary Fund. Euro area finance ministers are expected to discuss the restructuring during a conference call later Friday, when they could approve the final portion of the bailout.

Banks foreclosing on churches in record numbers

Banks are foreclosing on America’s churches in record numbers as lenders increasingly lose patience with religious facilities that have defaulted on their mortgages, according to new data. The surge in church foreclosures represents a new wave of distressed property seizures triggered by the 2008 financial crash, analysts say, with many banks no longer willing to grant struggling religious organizations forbearance. Since 2010, 270 churches have been sold after defaulting on their loans, with 90 percent of those sales coming after a lender-triggered foreclosure, according to the real estate information company CoStar Group. In 2011, 138 churches were sold by banks, an annual record, with no sign that these religious foreclosures are abating, according to CoStar. That compares to just 24 sales in 2008 and only a handful in the decade before. The church foreclosures have hit all denominations across America, black and white, but with small to medium size houses of worship the worst. Most of these institutions have ended up being purchased by other churches. The highest percentage have occurred in some of the states hardest hit by the home foreclosure crisis: California, Georgia, Florida and Michigan. “Churches are among the final institutions to get foreclosed upon because banks have not wanted to look like they are being heavy handed with the churches,” said Scott Rolfs, managing director of Religious and Education finance at the investment bank Ziegler. Church defaults differ from residential foreclosures. Most of the loans in question are not 30-year mortgages but rather commercial loans that typically mature after just five years when the full balance becomes due immediately.

Unemployment holds in February

Hiring remained strong in February, but the overall job market is not out of the woods yet. Employers added 227,000 jobs in February, the Labor Department reported Friday, a pinch slower than in January, when the economy added 284,000 jobs. Meanwhile, the unemployment rate remained at 8.3%, in line with expectations. Private businesses were the main driver of job growth, and have been adding jobs consistently since March 2010. In February, they added 233,000 jobs. But government job losses have been offsetting some the private sector gains, with most of the bleeding at the state and local level. Last month, 6,000 were lost. The American economy lost 8.8 million jobs in the financial crisis.

Freddie asks for $146M in aid

Government-controlled mortgage giant Freddie Mac has requested just $146 million in additional aid after posting a smaller loss in the fourth quarter. That’s far less than in the third quarter, when Freddie received $6 billion from the government. It received $7.6 billion for all of 2011. Freddie Mac says it lost $1 billion, or 32 cents per share, in the October-December quarter. That compares with a loss of $1.72 billion, or 53 cents a share, in the same quarter of 2010.
Freddie’s losses are decreasing because of a drop in the number of homeowners paying less interest as they refinance at lower mortgage rates. The government rescued McLean, Va.-based Freddie Mac and sibling company Fannie Mae in September 2008 after massive losses on risky mortgages threatened to topple them.

Economy faces years of reforms – Timothy Geithner

At home and abroad, Treasury Secretary Timothy Geithner said the economy is on the mend but faces years of painstaking reforms. He pushed a new highway bill making its way through the Senate that would invest in infrastructure and streamline the approval process. Geithner called the bill “employment intensive.” One of the major headwinds, Europe, seems to be gaining progressive and positive momentum. A Greek debt-swap program made major progress Thursday, which would grant the sovereign access to a second bailout package. He praised foreign officials and the European Central Bank for setting aside politics in favor of “preventing the equivalent of lighting the continent on fire.” Averting disaster will cost years of reform. Geithner said there is a need to streamline regulatory changes in the U.S.

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 February 29, 2012

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

http://www.smartrealestatenews.com/

*** Join Chris’ Facebook Fan Page–>

http://www.mclaughlinchris.com

*** Follow Chris on Twitter–>

http://www.twitter.com/mclaughlinchris

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

MBA – mortgage application down

Mortgage applications decreased 0.3% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 24, 2012. This week’s results are adjusted for the Presidents Day holiday. The Market Composite Index, a measure of mortgage loan application volume, decreased 0.3% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 9.4% compared with the previous week. The Refinance Index decreased 2.2% from the previous week. The seasonally adjusted Purchase Index increased 8.2% from one week earlier. The unadjusted Purchase Index increased 0.9% compared with the previous week and was 4.3% lower than the same week one year ago. The four week moving average for the seasonally adjusted Market Index is up 0.33%. The four week moving average is down 0.96% for the seasonally adjusted Purchase Index, while this average is up 0.64% for the Refinance Index.

The refinance share of mortgage activity decreased to 77.9% of total applications from 80.1% the previous week. This is the lowest refinance share since December 2, 2011, and the first time the measure has fallen below 80% since December 9, 2011. The adjustable-rate mortgage (ARM) share of activity decreased to 5.0% from 5.3% of total applications from the previous week. “Mortgage rates remained near survey lows last week, but refinance volume fell slightly,” said Michael Fratantoni, Vice President of Research and Economics at the Mortgage Bankers Association. Fratantoni continued, “According to survey participants, more than 20% of refinance applications were for HARP loans. The HARP share of total refinance applications has increased over the past month. Purchase application volume increased over the week, but remains within the narrow and anemic range of activity we have seen since the expiration of the homebuyer tax credit in May 2010.” In January 2012, among home purchase applications, 86.4% were for fixed-rate 30-year loans, 6.5% for 15-year fixed loans and 5.4% for ARMs. The share of purchase applications for “other” fixed-rate mortgages with amortization schedules other than 15 and 30-year terms was 1.7% of all purchase applications. The share of 15-year fixed and ARM decreased from the previous month while the 30-year fixed and “other” fixed category shares increased from last month.

Growth up 3%, inflation up

Gross domestic product expanded at a 3% annual rate, the quickest pace since the second quarter of 2010, the Commerce Department said in its second estimate. That was a step up from the 2.8% pace it reported in January. Price indexes also swelled, with the core personal consumption expenditures (PCE) index jumping 1.3%, against an advanced reading of 1.1%. Economists polled by Reuters had expected fourth-quarter GDP would be unrevised at a 2.8% pace. The economy grew at a 1.8% pace in the third quarter. While the rebuilding of inventories added a hefty 1.88 percentage points to GDP in the last quarter, the pace of accumulation was not as fast as previously reported. Business inventories increased $54.3 billion, instead of $56.0 billion. Excluding inventories, the economy grew at a 1.1% rate, rather than 0.8%. That was still a sharp step-down from the prior period’s 3.2% pace. Although business overall business spending was revised up, investment in equipment and software was lowered to a 4.8% growth rate from 5.2%. Export growth estimates were also lowered, but weaker imports led to a smaller trade gap.

In addition, consumer spending — which accounts for about 70% of US economic activity — was a touch firmer than initially thought. Consumer spending rose at a 2.1% rate instead of 2%. Even spending on home building was firmer than previously estimated and investment on nonresidential structures was modestly weak. So far data ranging from employment to manufacturing have shown underlying strength in the economy, reducing the need for the Federal Reserve to ease monetary policy further by launching a third round of asset purchases or quantitative easing. But surging gasoline prices, which have risen 12.6% or 42 cents since the start of the year and averaged $3.78 a gallon in the week through Monday, are clouding the outlook. High gasoline prices helped to almost snuff out growth early last year. However, economists believe the impact on households this time could be mitigated somewhat by weak costs for natural gas and a strengthening labor market.

WSJ – Senators for short sales

The best that can be said about the latest Congressional attempt to heal the housing market is that politicians have at least diagnosed a real problem: a glut of homes for sale. Like other proposed top-down fixes, however, the latest Beltway brainstorm would likely hurt more than help. Republicans Lisa Murkowski and Scott Brown and Democrat Sherrod Brown want to speed up short sales, which occur when a lender agrees to let a homeowner pay off a mortgage by selling a home at a price below the outstanding loan balance. Their bill—introduced earlier this month—would force lenders to approve or deny short-sale offers within 75 days or face a $1,000 fine, plus attorneys’ fees. The lender could ask for an extension only once, for 21 days. Accelerating short sales isn’t a bad idea, in and of itself. Delinquent borrowers can offload their mortgage and find another home they can afford, or move to an area that’s cheaper. Lenders don’t have to endure a lengthy foreclosure process and risk having the property sit unoccupied for months, if not years. Borrowers who can afford the home can snap them up at bargain prices.

But why do the Senators want to interfere in a market that is working? CoreLogic recorded 293,574 short sales last year, up from 273,100 in 2010 and 64,813 in 2007. That makes sense: Lenders want to minimize their losses as best they can and are working through their portfolio as quickly as possible. Setting an arbitrary timeline for short sales makes for a good political talking point, but it might have unintended consequences. Lenders often have to coordinate with investors and second-lien holders to approve the deal, which takes time. They also don’t want to rush, make a mistake and expose themselves to litigation for sloppy paperwork, especially after the recent furor over alleged “robo-signing” abuses. Fraud is another concern, though it’s hard to get firm estimates on the extent of the problem. Risk consultancy Interthinx estimates about $1 billion was lost annually in deals between 2007 and 2010 when buyers resold property for more than 20% of the original sale value within six weeks—a red flag for fraud in a market with falling or flat home prices. Sometimes a broker’s low-ball assessment done on a house is fraudulent; sometimes a broker conceals from the lender the fact that a willing buyer exists for the house at a higher price. Big banks like Wells Fargo or Bank of America can devote resources to fighting this kind of fraud but smaller lenders may not have the same capabilities. Try as Congress might, there’s no quick fix to the oversupply of homes that’s weighing down the housing market. Increasing the regulatory burden on lenders will only prolong the pain.

WSJ – home prices hit new lows

Home prices fell to fresh lows in December, but economists say that a drop in the number of homes listed for sale could help stabilize prices in parts of the country this year. Home prices fell by 4% last year, according to the Standard & Poor’s/Case-Shiller index that tracks 20 metro areas. Prices dropped by 1.1% for the three-month period ending in December compared with the same period ending in November. That was slightly better than November’s reading, when prices were down 1.3% from October. Tuesday’s report is the latest evidence that the housing market still faces a cloudy outlook after a six-year downturn. The inventory of homes for sale has contracted, reducing competition among sellers, according to The Wall Street Journal’s quarterly survey of housing-market conditions in 28 metro areas.

But a large potential backlog of foreclosed properties hangs over many housing markets. Other headwinds including tight mortgage-lending standards that show few signs of easing. “These are times of continued, great uncertainty about home prices,” said Robert Shiller, the Yale University economist who co-founded the index that bears his name. “We might be on the verge of a home recovery, but then, maybe not.” Others are becoming somewhat optimistic. Thomas Lawler, an independent housing economist in Leesburg, Va., said the S&P/Case-Shiller index should hit a bottom this spring. He said many analysts have overlooked positive developments, including a dearth of new construction and the falling share of homes selling out of foreclosure. “You don’t hear very many people talk about the actual housing stock, and how slow it’s growing,” he said, while conceding that it is “absolutely true that organic demand has yet to show any material rebound.”

Even when prices stop falling, they aren’t likely to rise for years, leaving millions of homeowners stuck in properties worth less than what they owe. “We’re looking at an L-shaped recovery,” said Stan Humphries, chief economist at real-estate website Zillow, who predicts another 3.7% decline in home prices for the coming year. In most of the country, home prices aren’t falling at anywhere near their jaw-dropping pace of 2008. But only two markets showed an increase in home prices during the fourth quarter. In Phoenix, home prices were up by 0.8%, while Miami reported a smaller gain of 0.2%. Detroit was the only city to post a year-over-year gain, rising by 0.5%. Home prices in Atlanta, meanwhile, fell by 12.8% last year, while Chicago posted a 6.5% decline. One surprising development in many housing markets is that the supply of homes for sale has fallen to a five-year low. While that normally would be a sign of health, real-estate agents say a paucity of homes is holding back sales.

At the current sales rate, it would take about four months to sell the supply of homes on the market in Denver, Washington, D.C., and Orange County, Calif. That level is lower, at less than three months, in Phoenix and San Francisco, and has dropped to just 1.9 months in Sacramento, Calif. But several markets still face supply-demand imbalances that could keep pressure on prices. New York’s Long Island had a 13-month supply of homes at the end of the fourth quarter. Nashville and Charlotte, N.C., had a 12-month supply, and northern New Jersey had a nearly 11-month supply. Those numbers will rise if banks sell more foreclosed properties as they correct deficient mortgage-handling practices.

Unemployment for 5 years

The US economic recovery is “frustratingly slow” and it could take four to five years to ratchet the unemployment rate down to about 6%, from more than 8% now, a top Federal Reserve official said yesterday. The recovery is held back by the housing market and Europe’s debt crisis among other headwinds, but monetary policy is now appropriately positioned to eventually achieve this “maximum employment” level, said Cleveland Fed President Sandra Pianalto. “We do not have a good deal of concrete history for monetary policy to fit our current circumstances, but I am confident the Federal Reserve is making the most of its tools to move the economy in the right direction,” the Fed official said at an economic development meeting in Westfield Center, Ohio. Pianalto, a voter this year on the Fed’s policy-setting panel, is a moderate dove in line with Chairman Ben Bernanke’s core of policymakers who have taken aggressive action to bring down unemployment, which stands at 8.3% after rising above 9% last year. The US central bank in late 2008 slashed interest rates to near zero and has since bought $2.3 trillion in long-term securities in an unprecedented drive to spur growth and revive the economy after the worst recession in decades.

Olick – time to buy?

“Nobody wants to catch a falling knife. It is as simple as that. If potential buyers see continued home price erosion, they will stay parked on the sidelines. But as with everything else in this unique and historic housing market, perhaps the usual logic doesn’t apply. ‘Housing is one of the great investments right now. I tell people all the time when they come up to me, they say, ‘What should I do, Mr. Trump?’ I say go buy a house,’ said Donald Trump earlier today on CNBC. ‘It wouldn’t be an obvious mistake to buy a house now,’ hedged Robert Shiller, barely a few hours later. Perhaps they were just jumping off Warren Buffett’s declaration yesterday that if he had a way to manage them, he would buy a couple of hundred thousand single family homes and rent them out. Housing appears to be rated a ‘buy’ these days, especially among investors, who see a ripe and rising rental market and big potential for income. But is it the right time yet for what I call ‘organic’ buyers to get in? By this I mean people buying a home to actually live in it, raise a family in it, let the dog run around in the back yard. If prices are still falling, couldn’t an even better deal be waiting down the road a bit?

No. House prices will continue to fall on a national basis at least through 2012, but you have to look past national headlines to your local market, which is likely already recovering nicely. The trouble with the national numbers is that they are heavily weighted toward the lower end of the market and to the distressed end of the market. Around 73% of homes that sold in January were priced below $250,000, according to the National Association of Realtors. Forty-seven% of homes sold that same month were considered ‘distressed,’ which is either a foreclosure or a short sale (where the lender allows the borrower to sell for less than the value of the mortgage). With all the activity in these areas, no surprise that prices skew lower. The $250,000 to $500,000 price range may now be the sweet spot for the market. Sales in January were up in this price range, and if you have good credit, you are within GSE and FHA loan limits in most markets. While FHA just raised its insurance premiums, which may hurt much-needed first-time homebuyer demand, it is still one of the best loan products out there today, especially for those with lower down payments. You cannot time housing any more than you can time the stock market. True, housing moves far more slowly, but that works to its benefit, as prices don’t rise and fall on daily news or even on major events. Sales have clearly bottomed in housing, and prices always lag sales. They will lag longer this time around, no question, but they will come back. Supply and demand will eventually win out, even after an historic crash. If you can’t get a good mortgage now, then perhaps it’s not your time, but if you can, waiting may not buy you much.”

US conducts criminal libor probe

The US Justice Department is conducting a criminal probe into whether the world’s biggest banks manipulated a global benchmark rate that is at the heart of a wide range of loans and derivatives, from trillions of dollars of mortgages and bonds to interest rate swaps , a person familiar with the matter said. While the Justice Department’s inquiry into the setting of the London interbank offered rate, or Libor, was known, the criminal aspect of the probe was not. A criminal inquiry underscores the serious nature of a worldwide investigation that includes regulators and law-enforcement agencies in the United States, Japan, Canada and the UK. Several major global banks, including Citigroup, HSBC, Royal Bank of Scotland and UBS, have disclosed that they have been approached by authorities investigating how Libor is set. No bank or trader has been criminally charged in the Libor probes. It wasn’t clear which banks or traders the Justice Department is targeting in its criminal probe.

Fannie loses $2.4 billion, asks for $4.6 billion

Fannie Mae lost $2.4 billion in the fourth quarter and asked the federal government for another $4.6 billion in bailouts. Fannie earned a $73 million profit the same period the year before. The government-sponsored enterprise reported a $16.8 billion loss for the entire year, widening 20% from the $14 billion in losses in 2010. Fannie paid $2.6 billion in dividends to the Treasury Department in the fourth quarter. Since entering conservatorship in 2008, Fannie received $116 billion in bailouts through the end of 2011 and paid back roughly $19.8 billion. A $6.1 billion increase in lost net fair value of its assets pushed a poorer performance in 2011. Significant declines in interest rates over the year pushed more losses on its risk management derivatives. Combined with Freddie Mac and Ginnie Mae, the federal government guaranteed more than 99% of mortgage-backed securities issued between 2009 and 2011, accounting for more than 85% of all single-family loans.

Fourth quarter revenues declined 8% to $4.5 billion from the year before. Revenues for the year actually increased 17% to $20.4 billion. Fannie charged off $4.7 billion in credit losses, increasing 40% from the same quarter in the prior year. The higher losses came from a slight increase in foreclosures. The mortgage giant repossessed more than 47,000 homes in the last three months of 2011, up from nearly 46,000 one year prior. The problem loans continue to rise from the books of business originated between 2005 and 2008. These loans cost Fannie $140 billion since 2009. Its becoming a smaller portion of the entire portfolio, though, shrinking to 31% at the end of 2011 from 39% the year before. “Our new single-family book now accounts for more than half of our overall single-family guaranty book of business,” said Fannie Mae CFO Susan McFarland.

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 February 20, 2012

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New bill to speed up short sales

Senators Lisa Murkowski, Scott Brown, and Sherrod Brown are proposing a bill requiring mortgage lenders to make a prompt decision on whether to allow a short sale at the request of a home buyer. The bill, “Prompt Notification of Short Sales Act,” will require a written response from the lender no later than 75 days after the receipt of the written request from the buyer. This bill will require that the lender’s written response to the buyer must specify whether the request was approved, if more time is required, and, if they do need more time, the servicer must estimate a date a decision will be reached. The loan servicer is limited to one extension no longer than 21 days. This will give the distressed homeowner a more definite timeline for when the short sale will be completed so they can plan their move better.

Back in April 2011, Representatives Thomas Rooney of Florida and Robert Andrews of New Jersey introduced a similar version of the bill but it never came up for debate before a House committee before the legislative session ended. The previous version said that that if a borrower submitted a written request for a short sale of a home and if they didn’t receive a written response within 45 days, the request would be considered approved. This new version extends the response time for lenders but includes a penalty if they fail to comply. If the loan servicer doesn’t respond to a buyer’s request within the 75 day period, the buyer may be awarded $1000, plus reasonable attorney fees, per violation of the Act (this Act does not apply to mortgages where the borrower and the servicer have entered into a written agreement before the date of the enactment of this Act). The new bill would hold banks accountable to specific standards that they must follow, streamlining the process for everyone involved in the short sale transaction. It would make short sales more attractive to buyers and eliminate the uncertainty related to buying a short sale, resulting in more sales of distressed properties. This reduction of housing inventory will assist the stabilization of home prices and the real estate market.

Greece – again

Euro zone finance ministers are expected to approve a second bailout for Greece today to try to draw a line under months of uncertainty that has shaken the currency bloc, although work remains to be done to make the numbers add up. Diplomats and economists say they do not expect the package to resolve Greece’s economic problems. That could take a decade or more, a bleak prospect that brought thousands of Greeks onto the streets to protest against austerity measures on Sunday. French Finance Minister Francois Baroin said all the elements were in place to reach an agreement and Greek Finance Minister Evangelos Venizelos said he expected a deal. The finance ministers are scheduled to meet at around 1500 GMT. Euro zone ministers need to agree new measures to make the financing work, given the ever-worsening state of the Greek economy. But they say an agreement on Monday will help restructure Athens’ vast debts, put it on a more stable financial footing and keep it inside the 17-country euro zone. Senior Greek finance ministry and European Central Bank officials held a conference call on Sunday to go over the final details of the 130-billion-euro ($171-billion) program, including a report assessing the likelihood of Greece lowering its debt which is critical to the International Monetary Fund. While there is skepticism in Germany and other countries that Greece will be able to meet its commitments, including implementing 3.3 billion euros of spending cuts and tax increases, officials said momentum was building for a deal.

Olick – fewer foreclosures mean lower prices?

“For years now we have been harping on how distressed home sales put downward pressure on home prices all around them. Close to twelve million borrowers are now in a negative equity position on their homes because so many other borrowers were unable to afford their mortgages. The logical assumption would then be that as foreclosures ease, organic home prices will rebound. But what if the current, unique state of the housing market turns that assumption on its head? Foreclosure sales now make up a full one third of the market nationally and far higher percentages in states like California, Florida, Nevada, and Georgia. The supply of these properties has actually been dropping, pushing prices higher, even in the distressed category. There is huge investor and first-time home buyer demand for distressed properties at the low end of the market, and that has helped stabilize prices. ‘We believe the distressed part of the housing market has already bottomed,’ said Morgan Stanley analyst Oliver Chang on CNBC’s Squawkbox. ‘The bid that we see from the investor is the reason for this bottom.’ He sees further declines in organic home prices. Why?

Banks have been very slow to release their repossessed (REO) inventory onto the market, not to mention that foreclosure processing delays have literally millions of properties still sitting in foreclosure limbo. There is a dwindling supply of foreclosures and rising investor demand. Analysts keep pointing to overall falling inventories, but the current existing home sales pace doesn’t account for that drop. The fact is that with so much of the supply distressed, and so few organic sellers putting their homes up for sale, the inventory drop is artificially skewed to the recent lack of movement in foreclosures and a crisis of confidence among potential organic home sellers. Okay, so what about the fact that banks are ramping up the process now, which could put more properties on the market? That could boost supply, were it not for a new government program to sell foreclosures in bulk to large investors. Chang says over $1 billion in investor capital has been raised over just the past six weeks to take advantage of this new program, and he claims this could add up to 1.8 million jobs. Property managers, renovators, rental agents, he says would benefit from these bulk rental investments.

Mortgage analyst Mark Hanson, however, disagrees. He claims that individual investors will likely spend more on upgrades/renovations than bulk investors and will then sell to owner-occupants at a higher price, thereby not only stabilizing but increasing overall home values, while also juicing jobs. ‘Due to epidemic effective negative equity (not having enough equity to pay a Realtor and put a down payment on a new house) the repeat buyer cohort has been cut in half since 2007. They now make up the minority of national resales,’ says Hanson. ‘Investors and first-time buyers ARE the real estate market,’ he adds. ‘Investors and first timers want REO and short sales. Anything done to prevent the flow of distressed property will hurt the volume of existing home sales and all of the economic benefit that comes along with them. An REO-to-rent program will bring about record lows in monthly existing home sales volume. And volume precedes price.’ Hanson believes that when the distressed supply is choked off, by selling REO in bulk to rent, not re-sell, then the only thing you have left is meager organic sales. ‘The housing market will implode,’ he adds.

Yes, lower supply, in a normal market, would generally mean a return to home price appreciation, but that’s not the way today’s market is working because organic demand is still so weak and is hampered by tight credit. There is even less demand for mid- to higher-priced homes. ‘$200K to $300K is the new normal for home builders,’ says Rick Palacios of John Burns Real Estate Consulting. ‘Since new home prices peaked in 2007, new single-family sales of over $500K have been more than cut in half, dropping from 13% to just 6% of all new home transactions. The existing home market is much the same, with the bulk of sales and demand in the very low price tiers. It just goes to show that in the historic recovery from an historic housing crash, the usual rules just don’t apply.”

Iran drives oil higher

Oil prices jumped to a nine-month high above $105 a barrel on Monday after Iran said it halted crude exports to Britain and France in an escalation of a dispute over the Middle Eastern country’s nuclear program. By early afternoon in Europe, benchmark March crude was up $1.91 to $105.15 per barrel in electronic trading on the New York Mercantile Exchange. Earlier in the day, it rose to $105.21, the highest since May. The contract rose 93 cents to settle at $103.24 per barrel in New York on Friday. Markets in the United States are closed Monday for the Presidents Day holiday. Iran’s oil ministry said Sunday it stopped crude shipments to British and French companies in an apparent pre-emptive blow against the European Union after the bloc imposed sanctions on Iran’s crucial fuel exports. They include a freeze of the country’s central bank assets and an oil embargo set to begin in July. Iran’s Oil Minister Rostam Qassemi had warned earlier this month that Tehran could cut off oil exports to “hostile” European nations. The 27-nation EU accounts for about 18 percent of Iran’s oil exports.

The EU sanctions, along with other punitive measures imposed by the U.S., are part of Western efforts to derail Iran’s disputed nuclear program, which the West fears is aimed at developing atomic weapons. Iran denies the charges, and says its program is for peaceful purposes. Analysts said Iran’s announcement would likely have minimal impact on supplies, because only about 3 percent of France’s oil consumption is from Iranian sources, while Britain had not imported oil from the Islamic republic in six months. “The price rise is more a reflection of concerns about the further escalation in tensions between Iran and the West,” said commodity analyst Caroline Bain of the Economist Intelligence Unit. “Banning the tiny quantities of exports to the U.K. and France involves very little risk for Iran — indeed quite the opposite, it catches the headlines and leads to a higher global oil price, which is something Iran is very keen to encourage.”

Mortgage-backed bonds making a comeback

Some Wall Street investors made money as the mortgage market boomed; others profited when it fell apart. Having reaped big gains during both of those turns, Greg Lippmann, a former star trader at Deutsche Bank, is now catching the next upswing: buying the same securities built from mortgages that he bet against before the financial crisis erupted. Mr. Lippmann is joined by other big-money investors — mutual funds like Fidelity as well as hedge funds — in riding a wave of interest in the same complex loan pools that nearly washed away the financial system. The attraction is the price. Some mortgage bonds are so cheap that even in the worst forecasts, with home prices falling as much as 10 percent and foreclosures rising, investors say they can still make money. “Given its significant underperformance in 2011, we believe the product is as cheap to broader markets as it has been in a long time,” Mr. Lippmann, whose portfolio is heavy with subprime mortgage securities, wrote in a recent letter to investors.

Yet the tide could turn again and wipe out investors. Chief among the risks is Europe: the Continent’s banks still hold a significant amount of United States mortgage securities, and if they are forced to sell assets, it could wreak havoc on the market. Washington is a question mark, too. If banks have to pay for loans they issued under dubious circumstances, it would be a home run for investors, who could receive full payment for a mortgage in a security they bought at a discount. But if borrowers whose houses are worth less than their mortgages are able to reduce their principals on a large scale, bond investors could suffer because the securities would be worth even less than they paid. “As a money manager, you can’t close your eyes to that potential outcome,” said Jeffrey Gundlach, a founder of DoubleLine Capital, who has been buying mortgage securities since 2008. “To believe that this time we are really out of the woods and the prices will not drop again is dangerous. People made that argument a year ago.”

See you at the top!
Chris McLaughlin

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

Copyright Loss Mitigation Institute LLC 2011.
All Rights Reserved.

http://www.shortsalesriches.com

http://www.shortsalescoach.com

http://www.sixfigurebpo.com

http://www.reomillionaireclub.com

http://www.youtube.com/shortsalesriches

http://www.smartrealestatenews.com

(subscribe to this newsletter)

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

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

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

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

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

* In 2010, Chris’ 4 Central Florida real estate offices
closed 2,786 sides for a closed sales volume of
$392,912,927!

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

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

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