Smart Real Estate News & Commentary by Chris McLaughlin July 21, 2010
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HAMP still a failure
An increase in foreclosures, combined with the recent drop in housing sales, could send home prices plummeting again. Some 91,118 people in trial modifications were canceled in June, bringing the total to 520,814 since the program began in the spring of 2009. More than 60% of those who dropped out last month had been in trials for at least half a year. Homeowners usually are kicked out of the mortgage modification program because they don’t make the required payments, meet the qualifications, or submit the needed paperwork. Once their trials are canceled, about 45% of homeowners receive alternate modifications, often one from their loan servicer.
Some 8.9% had foreclosure proceedings started against them and 1.3% lost their home in foreclosure. Only 364,077 troubled borrowers remain in the trial phase, some 38,728 of whom entered the program in June. Nearly 166,000 have been in trials for at least six months. 51,205 troubled homeowners received long-term mortgage modifications in June, bringing the total to 389,198. 8,823 homeowners had their permanent modifications canceled, 195 of whom paid off their loans. “I feel like a broken record, but HAMP continues to perform very poorly,” said John Taylor, head of the National Community Reinvestment Coalition, an advocacy group. “The permanent modification numbers are simply too low, while foreclosure filings continue above 300,000 for the 16th month in a row.”
Unemployment bill passes
A bill that pushes back the deadline to file for extended unemployment benefits until the end of November passed a key procedural hurdle in the Senate yesterday. The vote was 60-40, the minimum margin needed to end debate on the measure. Sens. Olympia Snowe and Susan Collins, Republicans of Maine, switched sides to support the bill. Carte Goodwin, the newly appointed Democratic senator from West Virginia who replaced the late Robert Byrd, gave his party the 60th vote. Democrats had stripped the unemployment insurance measure down to the bare essentials for Tuesday’s vote, a do-over of a tally taken late last month. The Senate could put its final stamp of approval on the bill on Wednesday, after which it would go back to the House. It is expected to pass both chambers and be sent to President Obama for his signature. Final passage in the Senate requires just 51 votes.
Democrats tout the economy-boosting effect of unemployment checks since most beneficiaries spend them immediately. But the numbers amount to less than one-quarter of 1% of the size of the $14.6 trillion economy, and are far smaller than last year’s $862 billion stimulus legislation, which appears to have done little good for the economy. Republicans say they do favor the benefits but insist they be paid for with spending cuts elsewhere in the government’s $3.7 trillion budget. As Senate Minority Leader Mitch McConnell puts it, “What we do not support—and we make no apologies for—is borrowing tens of billions of dollars to pass this bill at a time when the national debt is spinning completely out of control.”
Loan demand up
The Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending July 16, 2010, increased 7.6% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 19.5% compared with the previous week, which included the Independence Day holiday. The Refinance Index increased 8.6% from the previous week and was the highest Refinance Index observed in the survey since the week ending May 15, 2009. The increase in total refinance applications was driven by a 10.7% increase in conventional refinance applications, while government refinance applications decreased by 4.2%.
The seasonally adjusted Purchase Index increased 3.4% from one week earlier, driven by an 8.0% increase in government purchase applications. Conventional purchase applications were essentially flat, increasing just 0.3% from last week. The unadjusted Purchase Index increased 15.3% compared with the previous week and was 35.7% lower than the same week one year ago. “As rates on 30- and 15-year fixed-rate mortgages declined to the lowest levels recorded in the survey, refinance activity increased last week. The refinance index is up almost 30% over the past 4 weeks, but is still well below the peak seen last spring,” said Michael Fratantoni, MBA’s Vice President of Research and Economics. “Refinance borrowers, aiming for the lowest possible rate, are getting conventional loans. The strength in purchase applications comes from government loans, likely indicating that prospective buyers are drawn by the lower downpayment requirements.”
Michael Boskin – Obama’s economic fish stories
“President Obama says “every economist who’s looked at it says that the Recovery Act has done its job”—i.e., the stimulus bill has turned the economy around. That’s nonsense. Opinions differ widely and many leading economists believe that its impact has been small. Why? The expectation of future spending and future tax hikes to pay for the stimulus and Mr. Obama’s vast expansion of government are offsetting the direct short-run expansionary effect. That is standard in all macroeconomic theories. So, as I and others warned in 2008, the permanent government expansion and higher tax rate agenda is a classic example of what not to do during bad economic times. Worse yet, all the subsidies, bailouts, regulations and mandates are forcing noncommercial decisions on the economy, which now awaits literally thousands of new diktats as a result of things like ObamaCare and the financial reform bill. The uncertainty is impeding investment and hiring.
The president does not say that economists agree that the high future taxes to finance the stimulus will hurt the economy. (The University of Chicago’s Harald Uhlig estimates $3.40 of lost output for every dollar of government spending.) Either the president is not being told of serious alternative viewpoints, or serious viewpoints are defined as only those that support his position. In either case, he is being ill-served by his staff. Mr. Obama’s economic statements are increasingly divorced not only from competing viewpoints but from those of his own economic advisers. It is surprising how many numerically challenged pronouncements come from this most scripted and political of White Houses. One slip is eventually forgiven, but when a pattern emerges, no one believes it is an accident. For example, on the anniversary of the stimulus bill, Mr. Obama declared, “It is largely thanks to the Recovery Act that a second Depression is no longer a possibility.” Yet his Council of Economic Advisers just estimated the stimulus bill’s effect on GDP at its trough was 1%-2%. On his recent “Recovery Tour,” Mr. Obama boasted, “The stimulus bill prevented the unemployment rate from “getting up to . . . 15%.” But the president’s own chief economic adviser, Christina Romer, has estimated that the stimulus bill reduced peak unemployment by one percentage point—i.e., since the unemployment rate peaked at 10.1%, it prevented the unemployment rate from rising to just over 11%. So Mr. Obama claims that the stimulus bill was several times more potent than his chief economic adviser estimates. The president badly needs to make more realistic pronouncements. No one expects him to say his policies have failed (although most have delivered far less than claimed at large cost). A little candor about the results of experimentation in uncharted waters would go a long way. But at the very least, his staff needs to avoid putting these exaggerations on the teleprompter. It undermines confidence and raises concerns about competence. It’s doing nobody any good—not the economy and certainly not Mr. Obama.”
Wall Street Journal – reasons for a flat housing market
Even falling interest rates aren’t enough to whet consumer appetites for housing. Last week, the average rate on a 30-year fixed-rate mortgage was quoted at 4.57%, according to Freddie Mac, the lowest since its survey began in 1971. But demand for home-purchase mortgages sits near 14-year lows, according to the Mortgage Bankers Association, down 44% over the past two months. Economists aren’t singling out one reason for the stalling housing market. A variety of factors have led to flagging confidence, they say, including sluggish labor markets, global economic turmoil and falling stock prices. While the housing downturn dragged the economy into a recession nearly three years ago, now it is the economy that is pulling down housing, says economist Patrick Newport at IHS Global Insight.
Without sustained job growth, the housing market likely won’t improve. That in turn will ricochet across manufacturing, retail and other trades heavily dependent on home building and consumer spending. The government last fall extended tax credits worth up to $8,000 to home buyers who signed contracts by April 30, causing sales to surge early this year. Those buyers had until June 30 to close their sales until Congress, concerned that the backlog of sales wouldn’t close in time, extended the deadline through September. Analysts long expected the withdrawal of a federal tax credit, which had juiced sales, to lead to a slower-than-usual summer. “It’s the magnitude that’s been the issue,” says Douglas Duncan, chief economist at Fannie Mae. “The drop-off in activity has surpassed expectations.” Affordability gains have been offset for many buyers by tighter lending standards, particularly for “jumbo” loans that are too large for government backing. Banks are requiring down payments of 20% and more and strong credit scores because they must hold jumbo loans in their portfolios.
More broadly, the housing market faces two big problems: too many homes and falling demand. More than seven million borrowers are 30 days or more past due on their mortgage payments or in some stage of foreclosure. Rising foreclosures will keep pressure on prices as banks put more homes on the market. Last month, nearly 39,000 borrowers received government-backed loan modifications, but more than 90,000 borrowers fell out of the program, the Obama administration said on Tuesday. Moreover, the pool of potential buyers remains constrained by the unprecedented number of homeowners who are underwater, or who owe more than their homes are worth. To add to it all, mortgage-finance giants Fannie Mae and Freddie Mac are starting to push more repossessed homes onto the market. The companies owned 164,000 homes at the end of March, up 80% from a year ago. Finally, unrealistic sellers have flooded the market” after reports of bidding wars and home-price increases earlier in the year.
Tenant Act extended to 2014
The financial reform bill passed by Congress will extend the Protecting Tenants at Foreclosure Act (PTFA) through the end of 2014. PTFA, originally enacted in May 2009, allows renters whose landlords have lost their properties to foreclosure the right to stay in the home for 90 days after the foreclosure or through the term of their lease. Without the new extension in the financial reform bill, the law would have expired at the end of 2012. The new law also clarifies the date of a notice of foreclosure as the date of a completed title transfer: “The date of a notice of foreclosure shall be deemed to be the date on which complete title to a property is transferred to a successor entity or person as a result of an order of a court or pursuant to provisions in a mortgage, deed of trust, or security deed.’’
When the PTFA was enacted last year, it completely changed the way REO evictions are conducted, said Robert Jackson, president and managing attorney at the Irvine, Calif.-based Jackson and Associates law firm, while speaking last month at REO Expo 2010. Under the Dodd-Frank bill, any lease or tenancy created prior to the change of title as a result of foreclosure is protected by PTFA, according to The National Low Income Housing Coalition (NLIHC), a tenant-advocacy group that supports the changes. Whether the PTFA has caused tenants to sign long-term leases immediately before a foreclosure — tying up disposition of a property — is a subject of concern for the default servicing industry.
Now for our real estate education section…
Mortgage Overhaul & What is Means for You
By the time you are reading this, the new 2300 page financial reform bill is likely to be making the headlines. The Senate has already approved the new bill and President Obama is expected to sign it into law this week ..despite the fact that many of the provision related to specific regulations have yet to even be written. If that sounds faintly disturbing, don’t worry…your concern is noted and shared by many experts through the nation. However, there are sweeping changes that are already apparent despite the lack of specific details.
Although broad in scope, home buyers and sellers are likely to be among the first impacted by the new provisions. They represent one of the most comprehensive – top to bottom changes to the finance, valuation, types of mortgage products offered and how lenders are compensated to take place in decades. In fact, there are even new rules for investors that provide capital for the purchase of mortgages.
A few of the most important points likely to make immense impact to buyers, sellers and investors is the language dealing with any type of mortgage outside of the “traditional” or “plain vanilla” category. Unfortunately, regulators have yet to fully define what will constitute a “traditional” mortgage under the new plan but it is clear that the line will be drawn to reduce the number of sub-prime borrowers as well as offerings of owner finance and other alternative forms of finance. Experts predict an immediate severe impact on many minority and low income borrowers; many who have already been impacted by far less severe measures. For example, according to FHA, rejection rates for African American and Latino borrowers have substantially increased among non-FHA loans.
The new FDIC and other regulatory oversight standards contained in the bill are expected to provide safer mortgage(s) instruments but at a higher cost and more stringent requirements for both banks and individuals. It is estimated that only five banks currently control more than 65% of the current mortgage market; the new bill is expected to further consolidate this trend by favoring big banks over small. In part, this is due to the belief that big banks are easier to regulate. However, at the same time, new controls and rules regulating private investors are also expected to take another two to three years to fully define…leading many to believe the bulk of mortgages will still be backed by the United States government for the foreseeable future.
See you at the top!
Chris McLaughlin
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About the author:
Chris McLaughlin is widely known as America’s top
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* As the top Florida foreclosure and pre-
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