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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 13, 2012

Forward this e-mail to your friends!

Then they can subscribe directly at the following link:

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http://www.mclaughlinchris.com

*** Follow Chris on Twitter–>

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Bloomberg – foreclosure deal falls short but worth the wait

In any out-of-court settlement for alleged wrongdoing, the test of whether prosecutors got a good deal rests on the answers to three questions: Does it hold the miscreants accountable? Does it make victims whole? And does it prevent similar misconduct in the future?  Thursday’s $25 billion agreement by five banks to end a 16- month investigation of abusive foreclosure practices fails on the first two counts. And we won’t know for some time whether it is successful on the third. Nonetheless, the deal is in the country’s interest because it clarifies the liabilities of banks that filed bogus court documents to speed up repossessions. That could clear the clogged foreclosure process and, more importantly, help bring a moribund real-estate market back to life.

The banks — Bank of America Corp., Wells Fargo & Co., JPMorgan Chase & Co., Citigroup Inc. and Ally Financial Inc. (the five largest home-loan servicers) — have committed to spend the bulk of the $25 billion on reducing the principal owed by at-risk homeowners. Smaller amounts will go to people who already lost their homes or are in the foreclosure process. The settlement could help as many as 2 million borrowers, including many whose mortgages are underwater. Cash payments of up to $2,000 will go to those whose homes were repossessed from September 2008 to December 2011.  Since 2007, about 4 million families have lost their homes or are about to, and an additional 11 million owe about $750 billion more on their mortgages than their homes are worth. Even taking into consideration that some borrowers acted irresponsibly and don’t deserve compensation, the settlement amount is a pittance.

The deal does have teeth. It calls for an outside monitor and for heavy penalties if banks don’t make good on their commitments. More important, banks will be given credit only for what they actually accomplish for homeowners — and not for any refinancing offers that borrowers refuse. This rightly gives the victims some leverage.  If a bank falls short of its agreed benchmarks, it must pay the difference plus a penalty. And it must meet all its obligations in three years.  The settlement also reverses the banks’ incentives to foreclose on families rather than keep them in their homes with loan forgiveness. Until now, banks had been loath to reduce principal amounts because it meant recognizing losses on their balance sheets. This deal awards more credit for principal reduction and less for lowering interest rates or extending payment terms.  Banks have calculated that the settlement is in their interest, even though it means they may have to continue paying huge mortgage-related litigation costs.

The deal enables them to predict their legal exposure.  Even better, it could help the housing market recover. Banks own outright almost half a million homes and have 2 million more in various stages of foreclosure. Such so-called shadow inventory has been a drag on the market, which after six years remains depressed, holding back the overall recovery.  With this settlement, banks can clear out their backlog of stalled foreclosures. In the short run, that may drive prices down even more, but it will also help the housing market find its natural bottom faster. Only then can home prices, which have fallen by more than a third since 2007, begin to rise again. Borrowers can finally start to rebuild equity.  Once banks reduce their real-estate inventory, and their balance sheets recover, they’ll be able to loosen up home- lending standards to create new mortgages. If this is the result of a less-than-satisfactory legal settlement, it will have been worth the wait.

Obama’s budget to raise taxes, keep spending

Obama’s fiscal 2013 budget proposal to Congress will defer significant cuts in the deficit until the economy is securely back on track, a priority as he seeks re-election in November, while outlining measures to shrink that funding gap over time.  “I think there is pretty broad agreement that the time for austerity is not today,” new White House chief of staff Jack Lew, the president’s budget director until a few weeks ago, told NBC’s “Meet the Press” on Sunday.  Obama will repeat a demand for millionaires to pay a minimum tax rate of 30%, named after billionaire investor Warren Buffett, and identify $4 trillion in deficit reduction over 10 years that broadly mirrors a plan he laid out in September.   The budget projects a deficit of $901 billion in 2013, representing 5.5% of gross domestic product (GDP), down from $1.33 trillion, or 8.5% of GDP this year, White House officials say.  Obama pledged back in 2009 to have cut the deficit in half by next year, but his budget does not anticipate getting it back under 3% of GDP until 2018.  Overall, the budget proposes raising $1.5 trillion over a decade through higher taxes, with around half coming from allowing tax breaks for families earning more than $250,000 a year to expire at the end of 2012 — a longstanding Obama administration goal.

Republicans say Obama uses gimmicks to massage the deficit numbers, pointing to savings from winding down wars in Iraq and Afghanistan, which they complain amounts to counting funds that were never going to be spent.  His budget is likely to be declared a non-starter by Republicans too, in control of the US House of Representatives, who point out that the president is a tax-and-spend liberal.  They warn that tax hikes will kill jobs while doing nothing to halt the climb in the crushing level of national debt.  “We’re taking responsibility for dealing with the drivers of our debt,” said Republican Paul Ryan, chairman of the House Budget Committee.  “Unfortunately, the president and his party’s leaders — they’re not a part of this conversation,” he told ABC News’ “This Week” on Sunday.

Olick – private homebuilders, dead men walking

“One of the biggest impediments to housing’s recovery is credit, tight credit. The Chairman of the Federal Reserve, Ben Bernanke, said in a speech to the National Association of Home Builders today:  ‘Current lending practices appear to reflect, in part, obstacles that are limiting or preventing lending even to creditworthy households.’  While the Fed chairman talked a lot about the credit barriers for homebuyers, he did not discuss the credit crunch for homebuilders.  Last year was the worst on record for the nation’s builders, in sales and starts, but demand is slowly returning, and the concern is that when demand really surges in the coming years, there will be too little supply to meet it.  ‘There will be a shortage that will create inflation,’ says Wade McGuinn, of South Carolina’s McGuinn Homes.  With acquisition and development (A and D) loans from the big banks gone, the only way for builders to finance new development now is through private equity, smaller community/regional banks or self-financing. That last one gives the big public builders a huge advantage, as they have been stockpiling billions of dollars in cash during the housing downturn.

Not so for the smaller private builders, who have downsized dramatically and built individual homes to order.  Now that demand is coming back, McGuinn says the big builders are inhaling lots, some developed, some not, and outbidding the smaller builders at every turn. He likens it to when Main Street retailers were taken out by the likes of Wal-Mart Stores and Target.  ‘A lot of private guys here today who think they’ve survived the worst of it, they don’t know it yet, but they’re dead men walking,’ he said.  McGuinn says federal regulation of the banking industry has gone too far, and it’s locking out the little guys. Big builders with big cash continue to gain market share and will be way out ahead when home buying demand does finally come back toward the middle of the decade.  Homebuilding used to be the No. 1 family-owned business sector in America, with restaurants a close second; that may already be part of history.”

Construction jobs are a quarter of Q4 mass layoffs

The Department of Labor reported 528 mass layoffs in the construction segment, impacting 66,110 workers this week. Construction cuts alone represented 32% of mass layoffs over the final three months of 2011. Most of those job losses were attributable to the end of seasonal construction activity in an already anemic building market.  Overall, employers in the fourth quarter began 1,638 layoffs, leading to the dismissal of 266,971 employees, the Bureau of Labor Statistics said.    When comparing the most recent fourth quarter to a year earlier, the Labor Department noted a decline in layoffs, with the government reporting 1,999 layoff events, impacting 338,643 workers, in the 2010 fourth quarter.  Mass layoffs grew to 1,638 cuts in 4Q from 1,393 in the third quarter. Still, 3Q cuts displaced more workers, with 289,330 losing their jobs during that period.  The Bureau of Labor Statistics concluded, “The construction and the accommodation and food services sectors experienced the largest declines in the numbers of worker separations over the year. Fourteen of the 21 manufacturing subsectors experienced over-the-year decreases in the number of layoff events.”

Gas up to $3.51 per gallon

The average price for a gallon of gasoline in the United States rose nearly 12 cents in the past three weeks to about $3.51, due in part to higher prices for North Sea crude oil, according to the nationwide Lundberg Survey.  The national average for a gallon of regular gasoline rose 11.57 cents to $3.5101 as of February 10, the survey of about 2,500 gasoline stations in the continental United States found.  That was a greater change than the 3.5-cent rise in the previous survey, which covered the two weeks that ended January 20.  Survey editor Trilby Lundberg told Reuters that the higher prices came as the price for North Sea Brent crude rose more than $7 per barrel. Brent prices are more volatile and sensitive to changes in the Middle East than is US crude.  One barrel holds 42 gallons.  Lundberg said US pump prices will likely rise a few more cents in the short-term because retailers have yet to pass along all of the recent wholesale price increases.  Among cities covered by the survey, the lowest average price was in Denver at $3.01 per gallon. The price was highest in Long Island suburbs of New York, at $3.82. The price difference is largely because of taxes, Lundberg said.

Investors plead guilty to bid rigging

Three Northern California real estate investors agreed to plead guilty to forming a conspiracy to rig bids at foreclosure auctions, the Department of Justice Financial Fraud Enforcement Division said last week.  Charges were filed in the US District Court for the Northern District of California against Barry Heisner of Brentwood, Calif.; Dominic Leung of Alameda, Calif.; and Hilton Wong of San Ramon, Calif.  The investigation into auction bid-rigging in North California has resulted in 20 plea agreements thus far.

The Department of Justice says the three defendants conspired with others to obtain favorable auction selling prices by agreeing not to bid against each other in certain circumstances and by selecting a winning bidder for each auction item in advance. Authorities say the defendants carried out these activities at various real estate auctions, spanning from August 2008 to January 2011.  Authorities claim Heisner, Leung and Wong also committed mail fraud by fraudulently acquiring title to properties sold at public auctions and then by holding second, private auctions open only to members of the conspiracy. The properties selected were then given to the conspirators who submitted the highest bids.  Some of the violations related to the uncompetitive practices are breaches of the Sherman Act, which carry a maximum penalty of 10 years in prison and a $1 million fine. Each count of conspiracy to commit mail fraud carries a maximum sentence of 30 years in prison and a $1 million fine.  The FBI and the antitrust division have been working on California auction rigging cases for the past year. In October, two real estate investors pleaded guilty to bid rigging in the counties of Contra Costa and Alameda.

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

Smart Real Estate News & Commentary by Chris McLaughlin February 9, 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

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

WSJ – Banks and government close deal

Government officials have finalized an agreement worth as much as $26 billion with five major banks, capping a yearlong push to settle federal and state probes of alleged foreclosure abuses by lenders.  The deal represents the largest government-industry settlement since a multistate deal with the tobacco industry in 1998.  The agreement covers five banks: Ally Financial Inc., Bank of America Corp.,Citigroup Inc., J.P. Morgan Chase & Co., and Wells Fargo & Co. Together, the five handle payments on 55% of all outstanding home loans, or about 27 million mortgages, according to Inside Mortgage Finance.  Federal and state officials planned to announce the settlement this morning in Washington after putting the finishing touches on the deal following a marathon negotiating session that ended after midnight Thursday morning.  The agreement will include at least 49 states, and officials were finalizing a separate accord with one remaining holdout, Oklahoma.

The planned pact would involve around $5 billion in cash penalties, payable to borrowers, states and the federal government. That includes $1.5 billion in cash payments to borrowers who went through foreclosure between September 2008 and December 2011. Borrowers could receive $1,500 to $2,000 each, with the actual amount paid depending on the number of borrowers filing a claim.  The agreement is expected to call on the banks to provide $20 billion in other aid—by cutting loan balances for tens of thousands of homeowners and by refinancing thousands of borrowers who are current on their loans but owe more than their homes are worth.  Officials say the deal will help provide immediate benefits to around one million homeowners, while raising accountability for banks that work with borrowers facing foreclosure. The foreclosure process has been snarled since late 2010, after allegations that banks had serially submitted bogus mortgage documents when attempting to repossess homes from delinquent borrowers.

On its own, the deal won’t be a cure-all for the housing market or to the majority of borrowers at risk of foreclosure. Home prices have fallen by nearly one-third over more than five years, slashing real-estate values by $7 trillion and leaving 11 million homeowners with mortgages that are exceed their property values by $750 billion. High unemployment has frustrated round after round of federal efforts to stem foreclosures.  “It is frankly a headline victory for both banks and attorneys general with a modest impact on the housing market,” said Joshua Rosner, managing director of investment firm Graham Fisher & Co.

Unemployment down slightly

Unemployment benefit applications dropped to 358,000, the second-lowest level in nearly four years, according to the Labor Department.  The move represented a drop of 15,000 from the previous week’s total.  Claims have been a fairly steady trend lower, reflected last week in the Labor Department’s announcement that the national unemployment rate dropped to 8.3% in January on the strength of 243,000 new jobs created.  The four-week average, a less volatile measure, fell to 366,250, the lowest since late April 2008.  When applications fall consistently below 375,000, it usually  signals that hiring is strong enough to lower the unemployment rate.  From November through January, the economy has added an average of 201,000 net jobs per month.  The increased hiring in part reflects faster economic growth.  The economy expanded at an annual rate of 2.8% in the final three months of last year — a full percentage point higher than the previous quarter.  Still, the job market has a long way to go before it fully recovers from the damage of the Great Recession. Nearly 13 million people remain unemployed, and 8.3% unemployment is painfully high.  One reason the unemployment rate has fallen for five straight months is that many people have stopped looking for work. The government only counts people as unemployed if they are actively searching for a job.

Olick – refis surge, banks struggle

“Barely two weeks into a new government program that allows severely underwater borrowers with loans backed by Fannie Mae and Freddie Mac to refinance their loans to lower rates, the numbers are surging.  Applications to refinance jumped 9.4% last week, seasonally adjusted, according to the Mortgage Bankers Association. Record low interest rates on the thirty-year fixed, averaging 4.05%, are only adding fuel to the fire.  ‘There was a lot of pent up demand,’ said Bank of America spokesman Terry Francisco of the recently revamped Home Affordable Refinance Program (HARP 2). The newest incarnation removes the cap on negative equity, so borrowers who owe more than 125% of their home’s current value can now qualify. These so-called severely underwater borrowers, however, must be current on their payments. The new surge backed up the phone lines at Bank of America, with some borrowers reporting they heard a message suggesting they call back in six to nine months. Francisco confirms the lender has temporarily stopped taking applications for cash-out refinances because of the additional underwriting those loans require. Cash-out accounts for 10-15% of their mortgage business.  ‘We’re taking a lot of applications for HARP 2 and straight refi’s as well, so we needed to curb our demand in some way,’ Francisco said.

Wells Fargo also reports an increase in refinancing right after the holidays, as well as an overall increase in 2011. ‘From January of last year through January of this year, Wells Fargo has seen its refinancing volume more than double,’ says a spokesman, who adds that it’s too early to tell about the impact of HARP 2, as record low interest rates are a key factor in demand. Wells Fargo, however, has not suspended any of its lending.  The refinance share of mortgage activity is now 80.5% of total applications.  Applications for mortgages to purchase a home were flat last week and have been basically flat now for a month, which is not a promising sign for home sales. President Obama last week announced yet another government refinance program to help underwater borrowers who do not have Fannie or Freddie-backed loans. The plan could cost $5-10 billion and requires Congressional approval; some have called it dead on arrival.  Strong refinance activity means more money in consumers’ pockets and potentially more debt reduction, as some borrowers opt for fixed-rate amortizing loans as opposed to interest-only adjustable rate mortgages. Unfortunately, the flip side, which is lower applications to purchase a home, does not bode well for housing’s fledgling recover. ‘The latest weakness of mortgage applications for home purchase may suggest that the recent improvement in home sales is not built on solid foundations,’ says Paul Diggle of Capital Economics.”

Jobs gap between young and old widens

An analysis by the Pew Research Center, released Thursday, details the impact of the recent recession on the attitudes of a generation of mostly 20- and 30-somethings.  With government data showing record gaps in employment between young and old, a Pew survey found that 41% of Americans believe that younger adults have been hit harder than any other group, compared with 29% who say middle-aged Americans and 24% who point to seniors 65 and older.  A wide majority of the public — at least 69% — also said it’s more difficult for today’s young adults than their parents’ generation to pay for college, find a job, buy a home, or save for the future.  Among young adults ages 18 to 34, only a third rated their financial situation as “excellent” or “good,” compared with 54% for seniors age 65 and over. In 2004, before the recession began, about half of both young and older adults rated their own financial situation highly.

“Young workers are on the bottom of the ladder, and during a recession like we’ve had, it’s often hard for them to hold on,” said Kim Parker, associate director of Pew’s Social & Demographic Trends project.  Still, Parker noted that despite the challenges, young adults were upbeat about the future: Only 9% said they didn’t think they would ever have enough money to live the life they want, a share unchanged from before the recession. In contrast, 28% of adults 35 and older didn’t anticipate making enough in the future.  The latest numbers offered a mixed picture for young adults, many of them minorities, whose strong turnout and 2-1 support for Democrat Barack Obama in 2008 buoyed him to election. As voters this year point to the economy as their top concern, a slew of recent Census data have underscored the difficulties of young adults: In record numbers, they are shunning long-distance moves in the economic downturn to live with mom and dad, delaying marriage and raising kids out of wedlock, if they’re becoming parents at all.  At risk of becoming a “lost generation,” many young adults are going back to school or scraping by on waitressing, bartending, and odd jobs as they wait for the economy to slowly recover.

Bad loans and foreclosures cost banks $72 billion

Costs from faulty mortgages and shoddy foreclosures have topped $72 billion at the biggest US banks.  Wells Fargo, Bank of America, Citigroup, JPMorgan Chase and Ally Financial, the five largest home lenders during the real estate boom, tallied at least $6.78 billion in new costs tied to mortgages during the second half of 2011, according to data compiled by Bloomberg News. Bank of America, ranked second among US banks by assets, contributes $41.8 billion of the overall total.  The mounting costs pushed lenders and regulators to resolve investigations and lawsuits over faulty home lending, like the 50-state review of foreclosures.  The wrangling over the status of old loans has made some banks more reluctant to make new ones, even as Federal Reserve Chairman Ben Bernanke appeals for action to increase lending and fix the US housing market because it’s a drag on the economic recovery.

The bulk of the expense was triggered by investors who bought mortgages and then demanded refunds after finding flaws in the underwriting, including false data about borrower incomes and home values.  Outstanding claims against Bank of America jumped 22% in three months to $14.3 billion as of Dec. 31.  Bloomberg’s tally also includes expenses tied to court cases and investigations.  Bank of America’s increase of at least $2.65 billion in mortgage costs during the second half of 2011 included $1.76 billion tied to litigation, filings show.  Ally, the lender controlled by US taxpayers following a bailout, added $114 million to its repurchase reserve during the period, filings show.  The Detroit-based company also said last month it will record a fourth-quarter charge of about $270 million for penalties associated with foreclosure practices by its mortgage unit Residential Capital, bringing total costs to about $3.67 billion since 2007.

ECB holds rate

The European Central Bank (ECB) left its key interest rate unchanged at 1% today but President Mario Draghi promised relaxed rules for banks taking part in a long-term refinancing operation at the end of the month, boosting hopes that additional liquidity will be injected in the system.  At the same time, he played his cards close to his chest on the issue of how the central bank will treat Greek debt, repeating several times that the European Union Treaty prohibits the financing of a member state’s debt by the ECB.  The central bank will launch a second long-term refinancing operation (LTRO) on Feb. 29, with analysts saying banks will boost their participation in the offer of three-year, 1% rate loans.  National eligibility criteria for the LTRO have been improved and the central bank will accept additional credit claims for the collateral, Draghi said.  Draghi also said during his news conference that inflation is likely to remain high but it will decrease over the medium term, while uncertainty was high for the economy.  “Inflation is likely to stay above 2% for several months to come before declining to below 2%,” Draghi said.  “The economic outlook remains subject to high uncertainty and downside risk.”  He also said the criteria for national eligibility for the central bank’s long-term refinancing operation (LTRO) have improved and new additional credit claims will be accepted as collateral.

Foreclosures down 24% in 2011

Foreclosure activity dipped nationwide in 2011 as completed foreclosures fell 24% to 830,000 from 1.1 million a year earlier, according to a report from CoreLogic.  December foreclosures also declined year-over-year to 55,000 from 67,000.  The foreclosure decline comes in the context of litigation and regulation regarding robo-signing, including an expected settlement between states and the nation’s five largest banks over mortgage-servicing practices.  The number of mortgages 90-days-or-more delinquent, however, fell to 7.3% from 7.8% a year earlier, but rose from 7.2% in November.

Foreclosure inventory saw a similar decline by 8.4% from December 2010. Houses in the foreclosure process totaled 1.4 million in December 2011, making up 3.4% of all homes with outstanding loans.  Real estate owned sales also outpaced completed foreclosures in December as the “distressed-clearing ratio” increased to 1.03 from 0.94 in November.  “While foreclosure filings are being curtailed by a variety of judicial and regulatory constraints, mortgage servicers are completing REO sales faster than they are completing foreclosures,” CoreLogic chief economist Mark Fleming said. “This is the first time in a year that REO sales have outpaced completed foreclosures, and part of the reason for the decrease in the foreclosure inventory.”

Florida led states by far in foreclosure inventory as a percentage of all mortgages at 11.9% in December, though that’s down 0.1% from a year earlier. New Jersey trailed with 6.4%, followed by Illinois at 5.4%, Nevada at 5.3% and New York at 4.6%.  The Sunshine State also topped others with its 17.4% 90-day-plus delinquency rate, driven by 18.3% and 17% rates in Orlando and Tampa, Fla., respectively. Nevada and New Jersey followed at 13.4% and 10.6%.  About 3.2 million foreclosures have closed since the onset of the financial crisis in September 2008, according to CoreLogic. The data firm covers about 85% of all US foreclosure data.

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)

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About the author:

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

* 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

Smart Real Estate News & Commentary by Chris McLaughlin February 6, 2012

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Mortgage deal closer

With a deadline looming today for state officials to sign onto a landmark multibillion-dollar settlement to address foreclosure abuses, the Obama administration is close to winning support from crucial states that would significantly expand the breadth of the deal.  The biggest remaining holdout, California, has returned to the negotiating table after a four-month absence, a change of heart that could increase the pot for mortgage relief nationwide to $25 billion from $19 billion.  Another important potential backer, Attorney General Eric T. Schneiderman of New York, has also signaled that he sees progress on provisions that prevented him from supporting it in the past.  The potential support from California and New York comes in exchange for tightening provisions of the settlement to preserve the right to investigate past misdeeds by the banks, and stepping up oversight to ensure that the financial institutions live up to the deal and distribute the money to the hardest-hit homeowners.

The settlement would require banks to provide billions of dollars in aid to homeowners who have lost their homes to foreclosure or who are still at risk, after years of failed attempts by the White House and other government officials to alter the behavior of the biggest banks.  The banks — led by the five biggest mortgage servicers, Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial — want to settle an investigation into abuses set off in 2010 by evidence that they foreclosed on borrowers with only a cursory examination of the relevant documents, a practice known as robo-signing. Four million families have lost their homes to foreclosure since the beginning of 2007.  If banks fall short of the multibillion-dollar benchmarks set out for principal reduction and other benefits for homeowners, they will have to pay the difference plus a penalty of up to 40% directly to the federal government, according to Mr. Madigan.  The settlement, if all states participate, will also include $3 billion to lower the rates of mortgage holders who are current. Banks will get more credit for reducing principal owed and helping families keep their homes, and less for short sales or taking losses on loans that were likely to go bad, like those that were severely delinquent.

102% tax?

James Ross, 58, is a founder and managing member of Rossrock, a Manhattan-based private investment firm that focuses on commercial real estate and distressed commercial mortgages.  “I realize I am very fortunate, and in fact I am a member of the 1%,” Mr. Ross wrote in an email. His résumé is studded with elite institutions: Yale, Columbia Law School and stints at the law firms Cravath, Swaine & Moore in New York, and Holland & Hart in Denver. Since his company fits the category of private equity, he has even carried interest.  Yet Mr. Ross told me that he paid 102% of his taxable income in federal, state, and local taxes for 2010.  “My entire taxable income, plus some, went to the payment of taxes,” Mr. Ross said. “This does not include real estate taxes, sales taxes, and other taxes I paid for 2010.” When he told friends and family, they were “astounded,” he said.

That doesn’t mean Mr. Ross pays more in taxes than he earns. His total tax as a percentage of his adjusted gross income was 20%, which is much lower than mine.  That’s because Mr. Ross has so many itemized deductions. Since taxable income is what’s left after itemized deductions like mortgage interest, charitable contributions, and state and local taxes are subtracted, it will nearly always be smaller than adjusted gross income and demonstrates how someone can pay more than 100% of taxable income in tax. Mr. Ross must hope that his interest expense will pay off down the road and generate some capital gains.  Still, all of Mr. Ross’s itemized deductions are money out of his pocket, which is why he’s had to draw on his savings to pay his taxes. Robert Willens, a tax expert and New York attorney, made the argument that taxable income, therefore, may be a better basis for measuring the tax burden.  Mr. Ross’s plight illustrates something that came through in nearly every response and cuts across nearly all income levels: The disparities of the tax code don’t just pit rich against poor or middle class. It taxes people within the same income brackets at grossly unequal rates.  “I cannot help but reflect on the unfairness of the current tax regime,” Mr. Ross wrote. “Why should I pay 102% of my taxable income in taxes when others, with far greater wealth than mine, pay a fraction of that?”

Bulk sales begin soon

The government is starting to shed foreclosed, single-family homes it owns — by selling them in bulk to investors, who would turn them into rental properties.  Officials, however, are saying only that test sales will occur “in the near-term” with a focus on the areas hardest hit by foreclosures. They declined to comment beyond a news release they issued.  The test comes after the government in summer 2011 asked for proposals on what to do with more than 90,000 foreclosed properties it then held. The government typically sells foreclosed properties one at a time, but officials specifically asked for ways to move homes in bulk because of the size of the backlog.  About 4,000 groups or individuals submitted ideas on how the government could unload the properties. After The Enquirer filed a Freedom of Information Act request, the government released a list of 423 companies, groups and individuals that submitted responsive proposals, but no details on their proposals.

The test sale of the foreclosures and conversion of them into rental housing is being supervised by the Federal Housing Finance Agency (FHFA). The agency has acted since 2008 as the federal conservator for Fannie and Freddie, which are public companies although they were created by Congress.  In a news release Wednesday, the finance agency said “Fannie Mae will offer for sale pools of various types of assets including rental properties, vacant properties and non-performing loans” under the test. It also asked investors to pre-qualify to participate in the test.  The investors will be required “to rent the purchased properties for a specified number of years.” FHFA officials hope the rental period will “provide relief for local housing markets that continue to be depressed by the volume of foreclosed properties, and provide additional rental options to certain markets.”

To qualify, investors will have to show the financial wherewithal to buy the assets, sufficient experience and knowledge to bear the risks and manage of the investment and agree to “keep certain information about the REO (real estate) and related matters confidential.”  Nationwide, the 83,000 homes currently up for sale and potential conversion into rental units are among more than 200,000 foreclosures of all kinds that the government holds, apparently making it the nation’s largest owner of foreclosed properties. The 200,000 is almost a third of foreclosed properties across the nation.  Moving the backlog would get them off the books of the Federal Housing Administration. It also would clear the books of Fannie Mae and Freddie Mac, which buy mortgages, bundle them and then sell mortgage-backed securities to investors.  The FHA, Fannie and Freddie became owners of the properties as hundreds of thousands of owners defaulted on their mortgages during the real estate meltdown.  Clearing the backlog would limit the loss to taxpayers, who already have bailed out Fannie and Freddie at a cost of $169 billion and counting. The losses are expected to total $220 billion to $311 billion by the end of 2014, according to latest projections in December by the Federal Housing Finance Agency.

Greece misses another deadline

Greece let yet another deadline slip on Monday for responding to painful terms for a new EU/IMF bailout, as German Chancellor Angela Merkel made clear Europe’s patience is wearing thin over drawn-out negotiations among its feuding political leaders.  Failure to strike a deal to secure the 130 billion euro ($170 billion) rescue risks pushing Athens into a chaotic debt default which could threaten its future in the euro zone.  Merkel turned up the heat, saying Athens had to come to terms with the “troika” of lenders – the European Commission, European Central Bank and IMF – to get the funds it needs to meet big debt repayments in March.  Greek political leaders, positioning themselves for a likely general election in April, have baulked at accepting another package of deeply unpopular wage and pension reductions, job cuts and tougher tax enforcement measures.

US Treasury prices pared gains notched in today’s European session that were a response to the lack of a political agreement in Greece to make reforms necessary to avoid default. Limiting gains, traders are preparing for the government’s quarterly refunding auctions, which will include sales of 10-year notes and 30-year bonds . Yields on 10-year notes, which move inversely to prices, fell 1 basis point to 1.92%. “Treasurys are modestly higher as discord among Greek coalition members over the terms of the second bailout raises the threat of default and has sent the euro and European stocks lower,” said bond strategists at RBS Securities. “We have a very quiet week of economic data up ahead and the market’s focus will be on the Treasury refunding auctions which begin tomorrow.”

New FHA standards increase Ginnie Mae risk

The Federal Housing Administration’s (FHA) recently announced plans to tighten its standards for approving lenders will increase prepayment risks for investors who own Ginnie Mae-back securities, say analysts at Barclays Capital.  The agency’s plans to eliminate the consideration of a lender’s compare ratio when deciding whether to streamline-refinance its loans will accelerate refinancing activity, they say, causing higher prepayment speeds, and, in turn, reduce investor profits.  The compare ratio is the serious delinquency rate of all loans originated by a lender during a two-year period relative to the average of all lenders operating in the same region. Higher coupon and seasoned loans have a weaker credit and greater default risks, therefore, streamline-refinancing them could lift ratio passed 150%. And if it does, the lender could lose the ability to originate FHA-backed loans.  The change is part of a larger attempt by the FHA to protect its Mutual Mortgage Insurance Fund, which many say is in danger of requiring a multibillion dollar government bailout.

Disregarding a lender’s compare ratio calculation creates an incentive for streamline-refinancing higher-risk borrowers, analysts say. This will speed up Ginnie Mae prepayments, particularly on higher coupons and pre-2009 originations since these have the worst credit quality.  “That said, we expect the effect on speeds to be modest,” they say. “We believe that this plan will be implemented and has the potential to raise GNMA speeds by a few CPR.”  The effect should be even less for pre-2010 vintages because their much better credit quality suggests they have not been constrained by the compare ratios.

Data from the Department of Housing and Urban Development (HUD) suggest that the compare ratios of most national lenders are now significantly below the 150% threshold.  In December, HUD Secretary Shaun Donovan, said as a result of an October analysis by an independent actuary of FHA’s insurance fund, HUD plans to announce how it will address premium prices in its fiscal year 2013 budget proposal.  Since then, Congress has enacted a 10 basis-point increase to the FHA annual mortgage-insurance-premium, and President Barack Obama has called on the FHA to shoulder a larger role in helping responsible home owners and the housing market.  “Given the circumstances, we think more changes to the FHA program could be in the works, and since the budgetary proposal should be released over the next few weeks, the timing is peculiar,” they said. “Therefore, Ginnie Mae faces heightened risks in the near term.”

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