labor department

BOA streamlining short sales process

Bank of America (BOA) says it’s making changes to its short-sale procedures that will shorten decision times on short sale offers to 20 days, down from 45 days or longer.  The new task flow in BOA’s short-sale management platform, Equator, will enable short-sale specialists to conduct tasks like document collection, valuations and underwriting simultaneously. When buyers walk, agents will have five days instead of 14 days to submit a backup offer.  Bank of America is requiring a new third-party authorization form for short sales initiated beginning April 14.  When the changes to Equator take effect Saturday, five documents will be required to process short sales initiated with an offer:

-  A purchase contract including buyer’s acknowledgment and disclosure.

-  HUD-1.

-  IRS Form 4506-T.

-  Bank of America short-sale addendum.

-  Bank of America third-party authorization form.

The Equator platform will be offline the night of Friday, April 13, and into early Saturday, April 14, to implement changes. Offer documents and supporting documents for all short sales submitted with an offer must be uploaded before Friday, April 13, or files may be declined.

Import prices up

Overall import prices rose 1.3% in March, the Labor Department said today. That was the biggest gain since April 2011.  Economists polled by Reuters had expected import prices to rise 0.8% last month. February’s data was revised to show a 0.1% decline instead of the previously reported 0.4% increase.  Stripping out petroleum, import prices increased 0.3% after falling 0.1% in February.  Higher costs for energy have fueled inflation in recent months but a still-weak jobs market has made it harder for businesses to raise other prices.  Data on Thursday is expected to show tame price pressures at a wholesale level, with producer prices seen rising 0.2% in March when stripping out food and energy.  But today’s report underscores the size of the price shock that is stinging Americans when they refuel their cars.  Last month, imported petroleum prices increased 4.3%, the biggest gain since April 2011.  Elsewhere, imported capital goods prices edged 0.2% higher after being flat in February. Imported motor vehicle prices climbed 0.3% after being unchanged in February.  The Labor Department report also showed export prices rose 0.8% last month, above analysts’ expectations for a 0.4% gain. Export prices increased 0.4% in February.

MBA – mortgage applications down

Mortgage applications decreased 2.4% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 6, 2012.  The Market Composite Index, a measure of mortgage loan application volume, decreased 2.4% on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index decreased 2.1% compared with the previous week.  The Refinance Index decreased 3.1% from the previous week.  The seasonally adjusted Purchase Index decreased 0.5% from one week earlier. The unadjusted Purchase Index increased 0.1% compared with the previous week and was 5.5% higher than the same week one year ago.  There was no adjustment made for Good Friday.  The four week moving average for the seasonally adjusted Market Index is down 2.08%.  The four week moving average is up 2.19% for the seasonally adjusted Purchase Index, while this average is down 3.45% for the Refinance Index.  The refinance share of mortgage activity decreased for the eighth consecutive week to 70.5% of total applications from 71.2% the previous week.  This is the lowest refinance share since July 29, 2011.  The adjustable-rate mortgage (ARM) share of activity remained unchanged at 5.5% of total applications from the previous week.

In March 2012, the share of applications for investment properties increased to 8.3% from 7.4% in February 2012.  However, the increase in investor share was driven by refinance applications for investment properties (which increased to 9.2% in March 2012 from 7.7% in February 2012), as the share of purchase applications for investment homes decreased over the month, from 6.1% in February 2012 to 5.7% in March 2012.  The investor share of purchase applications also decreased on a year over year basis, falling from 5.8% in March 2011 to its current level of 5.7% in March 2012.  While MBA tracks applications for second homes and investment properties separately, giving them the ability to distinguish between the two, the combined share of investment and second home applications for home purchase had the same directional components for the month of March 2012 – up on the whole and up for refinance applications last month, but down for home purchase activity.

Credit eases

Credit card lenders gave out 1.1 million new cards to borrowers with damaged credit in December, up 12.3% from the same month a year earlier, according to Equifax’s credit trends report released in March. These borrowers accounted for 23% of new auto loans in the fourth quarter of 2011, up from 17% in the same period of 2009, Experian, a credit scoring firm, said.  The banks are looking to make up the billions in fee income wiped out by regulations enacted after the financial crisis by focusing on two parts of their business — the high and the low ends — industry consultants say. Subprime borrowers typically pay high interest rates, up to 29%, and often rack up fees for late payments.  Some former banking regulators said they worried that this kind of lending, even in its early stages, signaled a potentially dangerous return to the same risky lending that helped fuel the credit crisis.  The lenders argue that they have learned their lesson and are distinguishing between chronic deadbeats and what some in the industry call “fallen angels,” those who had good payment histories before falling behind as the economy foundered.  Regulators with the Office of the Comptroller of the Currency, which oversees the nation’s largest banks, said that as long as lenders adhered to strict underwriting standards and monitored risk, there was nothing inherently dangerous about extending credit to a wider swath of people.

Olick – debate over principal forgiveness

“The man at the center of the controversy over writing down mortgage principal on Fannie Mae and Freddie Mac loans isn’t wavering. He may be reconsidering previous loss formulas, factoring in new government subsidies for principal write-down, but his opinion seems largely unchanged.  After beginning a speech this morning about all the so-called ‘Enterprises’ (Fannie and Freddie) have done to help millions of borrowers behind on their mortgage payments, and reminding listeners of his agency’s mandate to, ‘preserve and conserve the assets of the Enterprises,’ FHFA Acting Director Ed DeMarco took a left turn.  ‘There is another human element in this story that does not seem to receive much attention,’ DeMarco continued. ‘Clearly, many households got over-extended financially. Some accumulated debts they couldn’t afford when hours or wages were cut or jobs were lost. Others withdrew equity from their homes as house prices soared. Others bought houses at the peak of the market, often with little money down, perhaps in the belief house prices would continue to climb. Yet there are other Americans who did not do this thing.’ 

That last part really clinches what may eventually be his decision not to allow principal forgiveness, or to do it in an extremely narrow way. Yes, there are all kinds of formulas, and ‘net present value’ analyses that have been and continue to be run. There will be Enterprise gains offset by taxpayer losses, and there will be estimates of operational costs to implement a wide-ranging and necessarily transparent program. But in the end, less than one million borrowers would be helped, and for DeMarco, as for many others, it will come down to fairness and cheating.  ‘One factor that needs to be considered is the borrower incentive effects. That means, will some percentage of borrowers who are current on their loans, be encouraged to either claim a hardship or actually go delinquent to capture the benefits of principal forgiveness?’ asks DeMarco.  ‘This is a particular concern for the Enterprises because unlike other mortgage market participants that can pick and choose where principal forgiveness makes sense, the Enterprises must develop the program to be implemented by more than one thousand seller/servicers. In addition, the Enterprises will have to publicly announce this program and borrower awareness of the possibility of receiving a principal reduction modification will be heightened among Enterprise borrowers,’ he explains.

In other words, this opens the flood gates to cheating. The fact is that there are 11 million borrowers who currently owe more on their mortgages than their homes are worth and yet the vast majority of them are still making monthly payments. Those who haven’t been paying have been delinquent, in some cases, for many years. The concern is that borrowers who are current on their loans might think it’s unfair that those who are not current are being rewarded and they are not. It would take a relatively small group of them strategically defaulting to offset the gains of any principal reduction program and turn it into a massive debacle.  ‘The far larger group of underwater borrowers who today have remained faithful to paying their mortgage obligations are the much greater contingent risk to housing markets and to taxpayers. Encouraging their continued success could have a greater impact on the ultimate recovery of housing markets and cost to the taxpayers than the debate over which modification approach offered to troubled borrowers is preferable,’ concludes DeMarco.  He is expected to announce a decision on principal reduction this month, but the analysts are already out:  ‘We see this as a strong political attack against principal reduction,’ says Jaret Seiberg of Guggenheim partners.  The Obama administration is clearly pushing for it, with Treasury Secretary Timothy Geithner recently telling a Senate panel that there is a, ‘very strong economic case’ for principal write-down. He suggested DeMarco, ‘take another look at the math,’ which DeMarco is obviously doing. The trouble is, when it comes to today’s housing market and today’s borrowers, paying your mortgage, whatever it’s worth, is not always a simple equation.”

Oil to sink below $100?

Sandy Jadeja, Chief Technical Analyst at City Index, said the charts suggest US futures may drop to $98 a barrel, and if that level is broken, momentum could accelerate taking the crude to as low as $87.  Oil prices contained below $100 would help alleviate the strain on the US consumer, offering some relief to the broader economy. A gallon of gasoline cost $3.94 at the pump last week, two cents higher than the previous week and 5.9% more expensive than a year earlier, MasterCard said in its weekly Spending Pulse report on Tuesday.  The catalyst for the move lower in oil prices may come later Wednesday when the US Department of Energy’s Energy Information Administration releases weekly stockpiles data at 10:30 am ET.  The report is expected to show a 1.8 million barrels build in commercial crude oil inventories for the week ending April 6, driven by higher US imports of Saudi crude, according to analysts polled by Platts.

CoreLogic – April MarketPulse Report

CoreLogic today released its April CoreLogic MarketPulse report. The monthly economic publication provides insight into the current and future health of the US economic climate with particular focus on housing and mortgage metrics. Chief Economist Mark Fleming and Senior Economist Sam Khater authored the articles and commentary.  The April MarketPulse report:

-  Indicates “now is a good time to buy,” with housing affordability at its highest level ever (as of February 2012), and shows many of the key housing metrics are holding steady through the typically slow winter season.

-  Reports the single-family rental market is strong and vibrant with high and stable rents, low months’ supply and a healthy pace of signed rental leases. The report reveals what markets offer the best return for single-family rental investors. “The potential size of the rental market for REOs this year (and annually over the next few years) is over $100 billion dollars,” said Khater in the report.

-  Shows capitalization rates for single-family rental properties in 26 geographically diverse markets. Capitalization rates are the most common metric for determining the profitability of an investment property.

-  Provides a chart of the rent-to-mortgage ratio for Miami, Fla. The chart indicates the point in time when it became cheaper to buy than to rent, providing insight to investors buying and holding rental properties, as well as to new first-time home buyers.

For a complete copy of the April CoreLogic MarketPulse report, including a complete set of data and charts, visit http://www.corelogic.com/downloadable-docs/MarketPulse_2012-April.pdf.

Failed Colorado bill still gasping

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

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

3 major banks brace for downgrades

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

Olick – investors swarm housing

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

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

Consumer spending up

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

WSJ – investors buying vacation homes

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

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

Housing markets bottomed in 2009?

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

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

There were 65,000 completed foreclosures last month, down from 71,000 in January and slightly lower than the 66,000 finished in February of last year, CoreLogic Inc. said.  January’s figures were revised up from an initially reported 69,000.  A home has completed the foreclosure process when it has been seized by the lender or sold.  The slow pace of foreclosures is one of the biggest challenges for the struggling housing market that has yet to recover from its collapse.  In the 12 months through February, 862,000 foreclosures were finished. About 3.4 million foreclosures have been completed since the start of the financial crisis in September 2008, the report said.  About 1.4 million homes, or 3.4% of all homes with a mortgage, were in foreclosure inventory as of February, down from 1.5 million, or 3.6% of homes, last year.

Though the pace of foreclosures slowed, the overall inventory fell because sales of properties seized by lenders rose last month, Mark Fleming, chief economist at CoreLogic, said in a statement.  “With the spring buying season upon us, the inventory may decline further as the pace of distressed-asset sales rises along with the rest of the housing market,” said Fleming.  The share of homeowners that are more than 90 days behind on their mortgage payments edged up to 7.3% from 7.2% in January but was down from 7.8% a year ago.  The inventory of seized homes held by servicers grew faster in February than the pace of sales and the distressed clearing ratio rose to 0.73 from 0.66.  A higher ratio shows a faster rate of home sales compared to completed foreclosures.

Natural gas prices dropping

The collapse in natural gas prices to decade lows amid record supplies have changed the dynamic of the energy industry.  Natural gas is already displacing coal in power generation, driving coal’s share to the lowest level since the 1970s, and promises to drive it even lower. And there’s more talk now that it could replace some gasoline in transportation.  But for now, natural gas is being overproduced across the country, as companies extract shale gas in 32 states and off shore. In just a few short years, the shale gas industry has turned the US from a potential importer of natural gas to a potential major exporter.  This abundance of supply and an unusually warm winter combined to create a record amount of natural gas in storage for this time of year. The latest weekly inventory data is released today at 10:30 a.m. ET by the EIA.  “We are right now at 2.38 trillion cubic feet. It’s a record for this time of year, and it’s 55% above the five-year average,” said John Kilduff of Again Capital.  “April historically sees the start of natural gas injection, or the build in inventories, but this year it started in March,” Kilduff said. The injection period typically runs to Nov. 1, when gas starts to get drawn down for heating.

Housing close to bottom?

Yes, we’ve heard it before, but according to JPMorgan Chase CEO Jamie Dimon, the US housing market is very close to a bottom and there are already signs its improvement is giving a boost to the overall economy.  “I believe we’re very close to the inflection point. People look at prices that are still coming down but all the other signs are flashing green,” Dimon said during a job fair in New York for hiring veterans.  Housing is more affordable and “the shadow inventory everyone talks about is lower today than it was 12 months ago. It will be a lot lower 12 months from now,” he said.  Distressed inventory “is actually coming down, not going up. Homes for sale are about half what they were four years ago. You could come up with a pretty bullish case. If the economy grows, housing gets better, quicker.”  He said the US economy is “getting stronger all the time. It’s broad-based, companies are in great shape…Consumers are in great shape.”

So are the banks — JPMorgan was one of those that passed the Federal Reserve’s latest round of stress tests. The bank was so pleased by this it jumped the gun and announced it was raising its dividend and buying back shares before the official release of the test results.  Dimon believes the threat of a double-dip recession is behind us.  “No one can forecast the economy with certainty,” Dimon said, “but most of us in business [have] got growth plans that have nothing to do with the actual state of the economy. We’re going to always open new branches,” do more marketing, hire more people and work to bring in more customers.

Survey says we’re worse off than before

A CNBC survey found that just 28% of Americans say they are better off now than they were four years. Thirty-seven% said they were better off before President George H.W. Bush lost his re-election bid in 1992 to Bill Clinton.  Fewer people deemed the economy in poor shape than was the case in the previous CNBC survey published in December.  Only 36% of the 836 people in CNBC’s poll conducted between March 19 to 22 said the economy would be better in the next year. By comparison, an NBC/Wall Street Journal poll conducted from Feb. 29 through March 3 found that 40% believe the economy will improve during the next year, a three-point increase in that poll from January.  Overall, respondents in the CNBC survey held a poor view of the economy — with worries about jobs, gasoline and housing prices, as well as the budget deficit, continuing to drag on confidence.

More than half (53%) in the All-America survey described the economy as poor, and 35% said fair. In addition, 52% of respondents say they are worse off than four years ago.  “These are troublesome numbers for the president,” adds Campbell, noting that the better/worse combination is the poorest of six presidential election cycles dating to 1992.  Only one in five suburban women voters felt better off, compared with 53% who felt worse off. The results were slightly better for independents (24% better, 57% worse), and blue-collar workers (28%/59%).

Olick – have refis run out?

“The average rate on the 30-year fixed mortgage is up about a half a percentage point since the middle of February, when they hit a record low. Mortgage refinances, however, dropped 24% in the same period of time.  That’s a huge reaction to a small move from a record low.  ‘Rates have been there (3.75%) for so long that most everybody who could benefit from lower rates has applied,’ says mortgage analyst Mark Hanson. ‘Now, when rates pop up over 4%, it chokes off refi activity, which is sad. 5% rates in the US are now prohibitively high.’  Again, a little perspective here. Mortgage rates, spurred by government intervention in the market, of course, are still incredibly low. The problem is that the refinance business has changed fundamentally. This from analyst Barry Eisbruck:  ‘There used to be a product called cash out refinancing. Those quarterly refinancing numbers are amazing from 2003 vs. 2011. In 2003 you had 4.3T of total mortgage volume, 3T in cash out/refinancing and 1.3T in purchase origination. In 2011 it was around 1.3T of total mortgage volume, 75-80% of that was refinancing, so probably around 300-400B of purchase origination. These numbers are happening with record low rates and home prices at 1Q2003 levels.’

Here’s another strange point: In the fourth quarter of 2011, mortgages were cheaper than they’ve ever been, and yet refinancing was lower than the previous year, when rates were much higher. It all leads to the question: have refis run out?  ‘The decline in the Refinance Index this week was driven largely by a 12.0% drop in government refinance activity, while conventional refinance applications fell by less, decreasing 3.4% from the previous week,’ according to today’s mortgage applications report from the Mortgage Bankers Association.  That’s a problem, because government mortgages (largely FHA) are going to get even more expensive on April 1, when the FHA raises insurance premiums.  There will still be some refis going through the government’s HARP2 program, which allows borrowers who have Fannie Mae and Freddie Mac loans to refinance, even if they owe more on their mortgages than their homes are currently worth (‘underwater’). Those borrowers have been priced out of the refi market until now, but the program has just kicked into gear, so that could provide a boost.  For others, though, the return on a refi is getting ever smaller as rates go higher. Why do we care about refis? Because they put extra money in consumers’ pockets…money they generally spend, fueling the greater economy.”

GDP slow, joblessness slightly down

The US economy expanded a bit more slowly than expected in the fourth quarter while personal income grew at a much faster pace than previously thought, which should help underpin spending this quarter.  At the same time, new US claims for unemployment benefits fell to a fresh four-year low last week, according to a government report that showed ongoing healing in the labor market.  Gross domestic product increased at a 3.0% annual rate, the quickest pace since the second quarter of 2010, the Commerce Department said in its final estimate today, unrevised from last month’s estimate.  That was below most economists’ expectations of 3.2%, though some had put the number at 3.0%, right on target for the final print. The economy grew at a 1.8% rate in the third quarter.  However, personal income was $13.162 trillion at a seasonally adjusted annual rate, $3.3 billion more than previously reported. Disposable income was $10.6 billion more than previously thought, likely reflecting the strengthening labor market.  Gross domestic income, which measures output from the income side, increased at a 4.4% rate — the fastest since the first quarter of 2010 — from a 2.6% rise in the third quarter.  The department also said after-tax profits increased at a 1.1% rate, slowing from 2.7% the prior quarter. The slowdown in profits reflects the increase in wage costs as companies step up hiring.

WSJ – cutting loan balances

Fannie Mae and Freddie Mac aren’t granting reductions in homeowners’ loan balances, as has been widely noted of late. Nevertheless, some Americans who have gotten into trouble on their mortgages are actually seeing their loan balances cut, as a debate rages in Washington about whether doing so on a wider scale will be effective.  More than 35,000 homeowners received principal reductions from their lender last year, the Office of the Comptroller of the Currency (OCC) said in a report yesterday. The total was up about 20% from about 29,000 in 2010. But it was still down 23% from nearly 46,000 in 2009, when banks started to write down loans acquired at a discount from failed institutions.  Banks are mainly granting homeowners write-downs if they hold those loans on their balance sheet and tend to do so for loans that are significantly under water. They are not permitted to do so for loans that they have sold to Fannie Mae and Freddie Mac, the federally controlled mortgage investors.  Principal reductions made up about 8.5% of all loan modifications completed in the fourth quarter, compared with 7.8% in the third quarter of last year and 2.7% in the fourth quarter of 2010, the regulator said. 

The OCC’s quarterly “mortgage metrics” report covers 31.4 million loans worth $5.4 trillion, or 60% of US home loans. Of those mortgages, about 3.8 million, or 12% had missed at least one mortgage payment, and 1.3 million were in foreclosure as of the end of last year.  Whether to encourage more loan reductions for troubled homeowners has been a matter of intense public interest. The Obama administration has stepped up pressure on the independent regulator for Fannie and Freddie to grant more reductions, offering new incentives to do so.  The federal regulator, the Federal Housing Finance Agency, has been evaluating the incentives the administration has offered. But the agency’s acting director, Edward DeMarco, has resisted doing so, saying that it may not make economic sense for Fannie and Freddie and could encourage more borrowers to default.

In addition to Fannie and Freddie, other government agencies including the Federal Housing Administration and Veterans Administration do not grant principal write-downs.  Fannie and Freddie do use a similar form of loan assistance, known as principal forbearance. That kind of program does not require lenders to forgive debt. Instead, lenders set aside a portion of the loan, not requiring any payments on it until the borrower sells the home or pays off the loan.  Lenders’ use of this approach has grown significantly more than principal write-downs. They enacted nearly 103,000 principal forbearance plans enacted last year, up from about 94,000 in 2010 and 15,000 in 2009. In a letter sent to lawmakers in January, Mr. DeMarco indicated a preference for those forbearance plans, arguing that it “achieves marginally lower losses” for the taxpayer-backed company than principal forgiveness.

MBA – applications up

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

As election nears, Obama considers strategic oil

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

Olick – remodeling on a roll

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

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

Supreme Court split along ideological lines

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

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

Toll CEO optimistic

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

Gas prices up

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

WSJ – home prices fall, but at a slower pace

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

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

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