mortgage

BOA offers $30,000 for short sales

Bank of America (BOA) is offering some struggling homeowners payments of up to $30,000 if they sell their homes in a short sale and avoid ending up in foreclosure.  Under the plan, Bank of America will offer homeowners so-called relocation payments of between $2,500 and $30,000 if they sell their home in a short sale. In short sale deals, the sale price of the home is less than what the seller owes the bank.  The bank first tested the payments in a pilot program in Florida last fall. Under that initiative, Bank of America paid up to $20,000 to borrowers who sold their homes in short sales.  Chase started a similar initiative in late 2010 that pays as much as $35,000 to short sellers. Wells Fargo has also paid five-figure incentives to short sellers or to owners who turned over their deeds to the bank.  BOA said it has completed 200,000 short sales over the past two years. These sales are generally more cost effective for banks than foreclosures. By avoiding foreclosure, the lenders get distressed properties back from delinquent borrowers more quickly, which helps them to avoid property tax payments, maintenance expenses and legal fees that can build up for months, even years, as foreclosures work through the system.

In addition, the incentives help guarantee the homes will return to the lenders in better condition. Foreclosed properties are often poorly maintained, even sometimes sabotaged, by angry former owners, making them worth far less to the banks.  During the last three months of 2011, foreclosures sold for an average of about $150,000, according to RealtyTrac. Meanwhile, short sales sold for an average of about $185,000.  To qualify for Bank of America’s relocation payments, borrowers must obtain pre-approval on sale prices for their homes. The sale must begin by the end of 2012 and close by September 26, 2013.  The exact compensation is determined case-by-case based on a calculation that involves the home’s value, mortgage balance and other factors.  Borrowers can call 877-459-2852 to find out if they may be eligible for the program.

Business inventories up

The Commerce Department said inventories increased 0.3% to a record $1.58 trillion, after rising 0.6% in February.  Economists polled by Reuters had forecast inventories rising 0.4%.  Inventories are a key component of gross domestic product and March’s report was the latest to suggest the government could lower its 2.2% growth estimate for the first quarter.  Data on wholesale and manufacturing inventories released last week indicated a slower pace of restocking in March than the government had assumed in its initial first-quarter GDP estimate published last month.  Inventories in March were held back by declining stocks for furniture and building materials. Automobile inventories rose 1.2% in March after rising 1.4% the previous month.  Inventories excluding autos, which is used to calculate GDP, ticked up 0.1% after rising 0.2% in February.  Business sales increased 0.6% to a record $1.24 trillion in March, after rising 0.7% the prior month. At March’s sales pace it will take 1.27 months for businesses to clear shelves, down from 1.28 months in February.

MBA – refinance applications up

Mortgage applications increased 9.2% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending May 11, 2012.   The Market Composite Index, a measure of mortgage loan application volume, increased 9.2% on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index increased 8.7% compared with the previous week.  The Refinance Index increased 13.0% from the previous week.  The seasonally adjusted Purchase Index decreased 2.4% from one week earlier. The unadjusted Purchase Index decreased 2.4% compared with the previous week and was 1.0% lower than the same week one year ago. The four week moving average for the seasonally adjusted Market Index is up 1.77%.  The four week moving average is up 1.57% for the seasonally adjusted Purchase Index, while this average is up 1.88% for the Refinance Index.

The refinance share of mortgage activity increased to 74.9% of total applications from 72.1% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 5.4% from 5.7% of total applications from the previous week.  “A flare up of the sovereign debt troubles in Europe once again led investors to flee to the safety of US Treasury securities last week.  As a result, mortgage rates have reached new lows in our survey, and refinancing application volumes picked up substantially as a result,” said Michael Fratantoni, MBA’s Vice President of Research and Economics.    “Survey participants indicated that this was not due primarily to HARP volume – the HARP share of refinances fell to 28% of refinance applications, down relative to last week and last month, when the share was just above 30% in April.  The increase in refinance activity last week was concentrated in the conventional sector, which was up around 14% for the week, while government refinance applications were up only 4%.”  During the month of April, the investor share of applications for home purchase was at 5.7%, unchanged from March.  The Pacific region has the largest investor share of applications for home purchase at 9.5%. In addition, the share of purchase mortgages for second homes decreased to 5.7% in April from 5.8% in March.

Gold enters bear market

Gold entered a so-called bear market, dropping for a fourth day, after Greek leaders failed to form a government, increasing speculation that the country may quit the euro and driving the Dollar Index (DXY) to a record advance.  Immediate-delivery gold lost as much as 0.7% to $1,533 an ounce, more than 20% below its all-time high last September and fulfilling the common definition of the market slump. That’s the cheapest since Dec. 29. The precious metal traded at $1,535.75 at 2:01 p.m. in Singapore.  A second Greek vote will be held, possibly next month, as gridlock followed a May 6 ballot in which voters rejected the austerity program that underpins the country’s bailout accords. German Finance Minister Wolfgang Schaeuble called the new election a referendum on whether Greece stays in the euro.  “It’s a risk-off environment,” Peter Hickson, head of commodities research at UBS AG, said in a Bloomberg Television interview. “People are concerned about liquidity and they’re going to take security in the US dollar.”

Since peaking at $1,921.15 an ounce last year, spot bullion has exceeded the 20% decline twice before, in both September and December, and is 1.8% lower in 2012 after gaining for the past 11 years.  June-delivery bullion lost as much as 1.6% to $1,532.70 an ounce in New York, declining more than 20% from its record. Futures have also dropped into a bear market twice since reaching the record last year.  The Dollar Index, a six-currency gauge, climbed for a 14th day, the longest winning run since its inception in 1973. The euro dropped to $1.2699, the weakest since Jan. 17.  Holdings in gold-backed exchange-traded products fell 0.1% to 2,379.367 metric tons yesterday, according to data tracked by Bloomberg. Investor George Soros increased his holdings in the SPDR Gold Trust in the first quarter, while John Paulson maintained his stake, filings showed yesterday.  Spot gold’s so-called 14-day relative strength index dropped to 21.07, below the level of 30 that some analysts regard as signaling a rebound. One ounce of gold bought as much as 56.0702 ounces of silver today, the most since Jan. 9, according to Bloomberg data.

Olick – foreclosures down – a bad thing?

“A new report came out [yesterday] with a curious headline: ‘Foreclosure Activity Declines, Hurting Investors.’ I read it twice. You would think declines in foreclosure activity would be a good thing, that is, would help, not hurt. Not in this bizarre housing market. The report is from Foreclosure Radar, a foreclosure sales and analytics website.  Foreclosure starts, the first stage in the foreclosure process, fell in April in the hardest hit states of California, Arizona and Nevada, according to Foreclosure Radar. California saw the steepest slide, with Notice of Default filings down nearly 16% from a year ago and nearly 70% from the peak in March of 2009.  Foreclosure sales (sales of these properties at the courthouse steps, not sales of already bank-owned, or REO, properties) also declined, as the investor share of these purchases soared to a record high. ‘Nevada investors purchased more than 50% of foreclosure sales for the first time at 50.7%,’ according to the Foreclosure Radar report. ‘The low number of sales, combined with a record% purchased on the courthouse steps, left very little to become Bank Owned (REO). This further depletes the inventory of Bank Owned homes, as REO sales continue to outpace the addition of new inventory.’

Why all the declines? Unfortunately it’s not an overall improvement in the housing market, nor an increasing ability of borrowers to stay current on their mortgage payments.  ‘Instead we are seeing unprecedented government intervention into the foreclosure process, leaving underwater homeowners in limbo, while stealing opportunity from investors and first-time buyers,’ says Foreclosure Radar CEO Sean O’Toole, who cites new legislation in Nevada which brought foreclosure activity to a near halt, and similar pending legislation in California. ‘The reality is that these laws don’t solve anything, as they fail to address the real problem—negative equity – while instead they punish real estate professionals, homebuyers, and investors far more than the banks they were aimed at,’ argues O’Toole.  The recent $25 billion mortgage servicing settlement between the nation’s five largest lenders, state attorneys general and the US Department of Justice, has sent servicers back to the drawing board on many thousands of delinquent loans and loans that were already in the foreclosure process. Bank of America alone has suspended 200,000 foreclosure actions, as it offers principal reduction modifications to comply with its $11 billion share of the settlement.

Government and private sector programs are both trying to mitigate the foreclosure crisis, but as the rental market shows no sign of cooling off, investors are increasingly arguing that these troubled mortgages should be allowed to run their course through to foreclosure. That of course benefits investors but ignores the human toll inflicted on so many desperate American families. But again, as O’Toole argues, we’re doing none of these homeowners any good by keeping them in homes in which they will likely never see any equity; underwater borrowers are effectively renting already anyway, not to mention that they are stuck in place because they can’t sell.  Government intervention in the mortgage market, be it foreclosure mitigation, subsidized refinancing, or artificially low interest rates will not abate in an election year because politics always trump fundamental economics. What’s so interesting this year is that while politicians have consistently vilified investors throughout the housing crash, they need them now more than ever to help clear the distressed homes from the market and provide much needed rental housing.  At some point even the politicians will have to look past who did or did not act ‘responsibly’ during the run-up to the housing crash and focus on who has the best chance of setting things right again.”

First shots fired in the debt-ceiling debate

Republican speaker John Boehner vowed yesterday that the House will not wait until after November elections to find a way to avoid a year-end “fiscal cliff” – and that House Republicans will, again, refuse to raise the national debt limit, unless Congress offsets the hike with spending cuts.  “Previous Congresses have encountered lesser precipices with lower stakes and made a beeline for the closest lame-duck escape hatch,” Mr. Boehner said, at a speech at a fiscal summit sponsored by the Peterson Foundation in Washington.  “Let me put your mind at ease. This Congress will not follow that path, not if I have anything to do with it.”  With Congress putting off its challenges until the lame-duck session between the November elections and the new year, it could be said that all of Capitol Hill is staring down a massive financial collision. Whether to extend the Bush tax cuts and the budget-slashing “sequester,” raise the debt ceiling, extend unemployment benefits and the payroll tax holiday, and fix payments to physicians from Medicare may all have to be resolved in only six short weeks if the Democrats get their way.  By contrast, Boehner aims to get to work before November elections, offering by far the most concrete plans to get to work ahead of the lame-duck session of any congressional leader. The House will hold votes on the expiring Bush tax cuts before the elections, he said. It will also put together a process for an “expedited” path to tax reform in the new year.  “If we do this right, we will never again have to deal with the uncertainty of expiring tax rates,” Boehner said.

WSJ – architectural billings index slips

After five months of positive readings, the Architecture Billings Index slipped back into negative territory during April, an indication that demand for design services declined.  The score for April was 48.4, compared with 50.4 in March. A score above 50 means billings increased. The index, compiled by the American Institute of Architects (AIA), is considered an early indicator of future construction, given that developers need designs before they build. AIA economist Kermit Baker said the volatility in the index isn’t surprising considering “the continued volatility in the overall economy.”  He also noted that weather patterns may have played a role in the latest reading. “Favorable conditions during the winter months may have accelerated design billings, producing a pause in projects that have moved ahead faster than expected,” he said.

CoreLogic – less than 1% decrease in housing prices

CoreLogic today released its March Home Price Index (HPI) report which shows that nationally home prices, including distressed sales, declined on a year-over-year basis by 0.6% in March 2012 compared to March 2011. On a month-over-month basis, home prices, including distressed sales, increased by 0.6% in March 2012 compared to February 2012, the first month-over-month increase since July 2011.  Excluding distressed sales, month-over-month prices increased for the third month in a row. The CoreLogic HPI also shows that year-over-year prices, excluding distressed sales, rose by 0.9% in March 2012 compared to March 2011. Distressed sales include short sales and real estate owned (REO) transactions.  “This spring the housing market is responding to an improving balance between real estate supply and demand which is causing stabilization in house prices,” said Mark Fleming, chief economist for CoreLogic. “Although this has been the case in each of the last two years, the difference this year is that stabilization is occurring without the support of tax credits and in spite of a declining share of REO sales.”  “While housing prices remain flat nationally, in many markets tighter inventories are beginning to lift home prices,” said Anand Nallathambi, president and chief executive officer of CoreLogic. “This is true in Phoenix, New York and Washington, for example, which all reflect higher home price values than a year ago. A continuation of this trend will be good for our industry across US markets.”

Highlights as of March 2012

-  Including distressed sales, the five states with the highest appreciation were:  Wyoming (+5.9%), West Virginia (+5.3%), Arizona (+5.1%), North Dakota (+4.7%) and Florida (+4.5%).

-  Including distressed sales, the five states with the greatest depreciation were: Delaware (-10.6%), Illinois (-8.3%), Alabama (-8.0%), Georgia (-7.3%) and Nevada (-5.8%).

-  Excluding distressed sales, the five states with the highest appreciation were: Idaho (+5.4%), North Dakota (+5.1%), South Carolina (+4.7%), Montana (+3.5%) and Kansas (+3.4%).

-  Excluding distressed sales, the five states with the greatest depreciation were: Delaware (-7.6%), Alabama (-4.1%), Nevada (-3.9%), Vermont (-3.9%) and Rhode Island (-2.9%).

-  Including distressed transactions, the peak-to-current change in the national HPI (from April 2006 to March 2012) was -33.7%. Excluding distressed transactions, the peak-to-current change in the HPI for the same period was -24.5%.

-  The five states with the largest peak-to-current declines including distressed transactions are Nevada (-59.9%), Arizona (-48.6%), Florida (-48.1%), Michigan (-45.1%) and California (-42.7%).

-  Of the top 100 Core Based Statistical Areas (CBSAs) measured by population, 57 are showing year-over-year declines in March, eight fewer than in February.

Business confidence lackluster

While the National Federation of Independent Business’ Small Business Optimism Index rose two points in April to 94.5, the index is back to the same level it had been in February 2011.  “It’s positive from last month,” said NFIB chief economist William Dunkelberg. “But we’re in the same place as a year ago, so a whole year has gone by and we don’t go anywhere.”  In areas like capital outlays, indications are that while things are slowly improving, it’s “nothing to write home about,” said Dunkelberg. The Index now stands at 54%, far above the 44% in August 2010, but below the average rate of 60%.  “In the smallest businesses, we’re seeing improvement,” said Dunkelberg, “but it’s going on under the government’s radar. It will take a while before it registers” in the national picture, he said, pointing to the job creation number in particular. “Hopefully this time they will not deteriorate again.” and that’s pretty much the hope for all 10 categories in the index, many of which have, over the course of the past few years, seen ups and downs.  “We keep getting these head fakes, like last year, and we’re wondering if [the index] will do it again,” said Dunkelberg, referring to March 2011, when the survey took a dip, and then continued a downward trend throughout the spring and summer, only starting to rise again last October. “Last year, it kept getting worse; this time March took a dive, then came back.”

Regulations stifle mortgage market

Rulemakings will dominate the mortgage industry this year as the sector continues its “slow, bumpy road to recovery,” keynote speakers said as the Mortgage Bankers Association’s (MBA) secondary conference got into full swing Monday in New York City.  The rulemaking surrounding the Qualified Mortgage — or QM, repurchase requests, national servicing settlements and government-sponsored enterprise reform will dominate the year, said David Stevens, president and CEO of the MBA. But despite the attention to those four key areas, the MBA is tracking some 100 rulemakings in the Dodd-Frank Act.  Monday’s opening session was part feel-good, part dire warning as speakers struck a balance between the good and the bad in the current marketplace.  An opening video, for example, provided the feel-good atmosphere. It showed an MBA member’s recollections of his immigrant father buying a tract home in the New York burrough of Queens after World World II.

Mitch Kider, with Washington, D.C.-based law firm Weiner Brodsky Sidman Kider PC, recounted the reverence his father felt for the bank that provided the Federal Housing Administration loan that made it all possible.  “The people that work in this industry are working there because their heads and their hearts are in the right place,” he said. “As mortgage bankers, you are doing wonderful things for society.”  Stevens brought things back to earth by voicing borrower trepidation to buy homes, lender concern over burdensome regulations and investor mistrust of the process.  Borrowers, especially those on the margins, could be negatively impacted if the qualified mortgage rule — what he called “the holy grail of who gets access to a mortgage” — is too narrowly defined.  The need for more clarity in the system, for borrowers, lenders, mortgage servicers and investors, was a recurring theme from opening speakers.  On GSE reform, Stevens urged the industry do what it can without Congress, where he predicted a continued logjam.  “We need to take control of our own destiny,” he said.

Lewis Ranieri, chairman and founding partner of Ranieri Parnters, widely considered a pioneer of modern mortgage finance, said the industry must be aware of those would not be content to fix the capital market but who believe the capital markets “are not simply broken … but are profoundly the wrong thing to do.”  If it doesn’t stay aware, the industry may end of with a fundamental rewrite of the way it does business, where everything resides on the balance sheet, he said.  Two mortgage businesses came to him recently about a possible sale due to the tough regulatory environment, Ranieri said.  “I truly believe the future of our industry is decided in the next eight months,” he said. “There is a regulatory movement that isn’t just trying to fix, it’s trying to change.”  Richard Dorfman, managing director of the Securities Industry and Financial Market Association, or SIFMA, said it falls on the industry to define the issues in ways that resonate with consumers.  Instead of complaining that Dodd-Frank is a burden to the banks, regulations should be defined in ways that show how they limit mortgage access to potential homebuyers, for example, he said.  “Consumers must be served, and they can and will be served by this industry,” he said. “There is no doubt in my mind.”

Krugman’s ideas “reckless” and “silly”

The president of the Federal Reserve Bank of Dallas, Richard Fisher, rejected the idea that higher inflation would spur the economy on Monday.  Saying the last thing businesses needed in this economy was uncertainty, Fisher sided with Federal Reserve Chairman Ben Bernanke in his public feud with Paul Krugman, the leftwing economist and New York Times columnist.  Called “The Battle of the Beards” by The Washington Post, the back-and-forth between the two economists began when Krugman called on the Fed to raise inflation targets, a move Bernanke called “reckless.”  “I would say that Ben Bernanke’s guilty of understatement. It would be more than reckless. It’s a silly thing to recommend,” Fisher said.  “I understand the argumentation from Krugman’s standpoint, from his perspective. He’s just trying to broaden the window to try to make things normal if we were to go below the 2% rate. That’s our long-term target. I believe we’re going to stick with it. I personally feel that this is something that is ultra-critical for our credibility.”

Olick – $150,000 off?

“A select group of struggling mortgage borrowers are about to get an offer that sounds too good to be true. Executives at Bank of America say they will begin mailing 200,000 letters offering certain customers mortgage principal reduction.  ‘If people get these things and toss them, they won’t be eligible,’ says Ron Sturzenegger, the Bank of America executive charged with providing solutions to borrowers in need of mortgage assistance.  But the offer is real, and eligible borrowers could get as much as $150,000 knocked off the balance of their mortgages. It is all part of the $25 billion settlement reached this year between federal and state agencies and the nation’s five largest mortgage servicers over fraudulent foreclosure document processing (so-called ‘robo-signing’).  Bank of America, in a deal with state attorneys general and the US Department of Justice, committed $11 billion to mortgage principal reduction, but executives say they will go beyond that if enough borrowers respond to their offer. Five thousand borrowers have already received a collective $700 million in principal reduction through a pilot program for those already in a modification negotiation. The 200,000 borrowers being targeted now may have already exhausted modification options or may have yet to contact the lender.

Executives say borrowers receiving the letters are eligible, but they still have to prove they qualify. In order to be eligible, a borrower must be 60 days late on the mortgage payment as of Jan. 31, 2012. The borrower has to owe more on the mortgage than the home is currently worth, commonly known as being ‘underwater’ on the mortgage, and the borrower’s loan must either be owned by Bank of America or serviced by Bank of America for an investor who is allowing the modifications.  In order to qualify for the modification, the borrower must answer the letter with full documentation of income, showing that under the terms of the modification they can still make the monthly payment. A borrower with no income would therefore not qualify. A borrower’s current monthly payment must be  more than 25% of gross income, and the borrower must show they are unable to afford that.  ‘If you can afford to make your monthly payment and are choosing not to, you will not get this principal modification,’ says Sturzenegger.  If the borrower qualifies, Bank of America will bring the monthly mortgage payment down to 25% of the borrower’s gross income. That could mean principal forgiveness well over $100,000, as there is no limit to the amount of the mortgage. If enough borrowers respond, it could cost Bank of America far more than it committed to in the settlement.  ‘Yes, we have the capability to go well beyond the $11 billion,’ adds Sturzenegger.

If the borrower qualifies, Bank of America will bring the monthly mortgage payment down to 25% of the borrower’s gross income. That could mean principal forgiveness well over $100,000, as there is no limit to the amount of the mortgage. If enough borrowers respond, it could cost Bank of America far more than it committed to in the settlement.  ‘Yes, we have the capability to go well beyond the $11 billion,’ adds Sturzenegger.  Bank executives say that before choosing which borrowers will get the offer, they performed a net present value test on each loan, making sure that the principal reduction modification would net Bank of America or the investor who owns the loan more than foreclosing on the home. ‘It has to be fair to the investor as well,’ says Sturzenegger.  Not all of the 200,000 borrowers who receive the letters are expected to respond. Executives say there is a level of fatigue among delinquent borrowers who have already received several notices or who may have gone through a failed modification process already. Some borrowers simply don’t want to stay in their homes, while others may think the offer is a scam.  ‘They have been contacted by a lot of other people, and this offer may appear too good to be true,’ says Sturzenegger.

That’s why Bank of America is sending the letters by certified mail and trying to make the language as simple as possible. A sample letter obtained by CNBC shows a bring red box in the top corner labeled, ‘IMPORTANT’ and simple language stating, ‘Qualifying customers may reduce their monthly payment by an average of 35%.’  Some 6,500 letters should be arriving in mailboxes across the country this week, with a wave of new letters going out every week until the end of the summer, when all 200,000 should have been mailed. Bank of America is staggering the mailings in order to handle the expected response. The bank has staffed up to handle the task, with 50,000 employees manning servicing desks, but the process will clearly take a lot of time. That’s why Bank of America has suspended any foreclosure actions against these 200,000 borrowers until the process is complete. There are currently 5.59 million US loans that are either delinquent or in the foreclosure process, according to Lender Processing Services. Bank of America services one million of those loans, but many of them are owned by Fannie Mae and Freddie Mac. Their regulator, Edward DeMarco of the Federal Housing Finance Agency, has yet to agree to principal reduction in loan modifications, despite harsh criticism from some lawmakers on Capitol Hill and increasing pressure from the White House.”

Consumer credit on the rise

US consumer credit shot up during March at the fastest rate since late 2001 as credit-card use, and student and car loans ballooned, data from the Federal Reserve showed yesterday.  Total consumer credit grew by $21.36 billion — more than twice the $9.8 billion rise that Wall Street economists surveyed by Reuters had forecast. That followed a revised $9.27 billion increase in outstanding credit February.  It was the largest surge in consumer credit for any month since November 2001, when it climbed by $28 billion, according to the Fed’s statistics.  The increase in March was concentrated in nonrevolving credit, which includes student and car loans. It climbed by $16.17 billion following a revised $11.62-billion gain in February.  Concern about student-loan levels has increased in an environment where newly graduating students face difficulty finding a job and keeping up on payments.  Congress is currently considering how to prevent a low interest rate for student loans from doubling on July 1 and is expected to find a way to do so, if only to avoid irritating young voters ahead of November’s presidential elections.  But so-called revolving, or credit-card debt, also gained strongly in March. It rose $5.18 billion in a sharp reversal from February when this category of credit use contracted by $2.35 billion.

NAHB – 100 markets on the improving list

The list of housing markets showing measurable and sustained improvement held virtually unchanged in May at 100, down from 101 in April, according to the National Association of Home Builders (NAHB)/First American Improving Markets Index (IMI), released yesterday. The number of states represented on the list also held firm from the previous month, at 35 (including the District of Columbia).  The index identifies metropolitan areas that have shown improvement from their respective troughs in housing permits, employment and house prices for at least six consecutive months. While 83 metros held onto their previous places on the IMI and 17 new ones were added to the list in May, 18 metros dropped from the list, for a net loss of one. Metros newly added to the list in May include such geographically diverse places as Phoenix, Ariz.; Bowling Green, Ky.; Bend, Ore.; and Lubbock, Texas.  “The fact that there are 100 markets in 34 states and the District of Columbia represented on the improving list illustrates that all housing markets are local, and that the national headlines often don’t apply to what’s happening in a specific metropolitan area,” said NAHB Chairman Barry Rutenberg, a home builder from Gainesville, Fla. “In places where employment is firming up along with demand for new homes, the main factors weighing down the housing market continue to be access to credit (for both builders and buyers) and the difficulty of obtaining accurate appraisals on new construction.”

“The overall number of markets on the IMI continued to plateau this month, with more than a quarter of all US metros still showing signs of improvement,” said NAHB Chief Economist David Crowe. “Many of these are relatively small markets in terms of their population and building volume, which is why their improvement is barely registering on the national scale as of yet. Moreover, we are seeing some shifting of markets on and off the list primarily due to small seasonal house price changes in areas that have had flat, stable prices rather than a boom-and-bust cycle.”  “The fact that the number of improving metros continued to hold its own with 100 entries in May shows that there are many places across the country where confidence and consumers are returning to the housing market,” observed Kurt Pfotenhauer, vice chairman of First American Title Insurance Company.  The IMI is designed to track housing markets throughout the country that are showing signs of improving economic health. The index measures three sets of independent monthly data to get a mark on the top improving Metropolitan Statistical Areas. The three indicators that are analyzed are employment growth from the Bureau of Labor Statistics, house price appreciation from Freddie Mac, and single-family housing permit growth from the US Census Bureau. NAHB uses the latest available data from these sources to generate a list of improving markets. A metropolitan area must see improvement in all three areas for at least six months following their respective troughs before being included on the improving markets list.

Buying a home may never be cheaper

Buying a home may never get any cheaper than this. Several housing experts are predicting that this year will be the last chance for bargain hunters to cash in on the best deals of the weak housing market.  With home prices down 34% nationally since 2006 and mortgage rates at historic lows, homes have never been more affordable — but it won’t stay this way for much longer.  Stuart Hoffman, chief economist for PNC Financial Services, said he expects home prices to flatten out by the third quarter and start climbing by next year.  A number of factors will help bolster the housing market, he said, including a decline in the number of foreclosures and continued job growth. In addition, homebuyers will have better access to mortgages as they get their finances in order and improve their credit scores. 

Some economists, like Trulia’s Jed Kolko, expect home prices to pick up even more quickly. Trulia’s data shows that the national average for asking prices already increased 1.4% in the first quarter of 2012, compared with the last three months of 2011.  “This is a strong indicator that we will start seeing home price indexes, like the S&P/Case-Shiller, start to report home price increases this summer,” he said.  Prospective homebuyers who’ve been sitting on the fence shouldn’t worry if they aren’t quite ready to make the leap. Analysts are predicting that the initial price gains will be modest, at least, in most markets.  Hoffman, for example, is forecasting a 2% increase in 2013 compared with 2012. Meanwhile David Stiff, chief economist for Fiserv, predicts that prices will turn in the last quarter of 2012 and will rise 4.2% for the 12 months through September 2013.

Job cuts up

Planned job cuts increased by 7.1% to 40,559 in April from March, the latest job cut report released by outplacement firm Challenger, Gray&Christmas showed today.  From the same month a year ago, job cuts were up 11.2% and so far this year the number of job cuts has increased by 9.8% to 183,653.  But despite the year-on-year increase, the monthly average in the first four months of this year is below the 12-month average of last year, the report pointed out.  April’s job cuts were led by the education sector, with a total of 9,027 planned cuts, up 142% from March as school districts continue to be under pressure to cut costs amid massive state and local budget deficits. But the pace of downsizing in the sector fell 32% from a year ago, the report added.  Consumer products companies have been the main job cutters for the year, having announced 20,134 planned job cuts through April, 257% more than the cuts announced by this point last year. 

“Even at its best, job creation is falling well short of what is needed to make a substantial dent in unemployment,” John Challenger, chief executive officer of Challenger, Gray & Christmas, said in a statement.  “While some would like to attribute the lack of hiring to uncertainty and regulatory roadblocks, the fact is that demand for goods and services simply has not reached a level that warrants accelerated hiring,” Challenger added.  He added that state and local governments, as well as the federal government, were still “in cost-cutting mode,” consumer spending remained soft and although business spending was improving, it was not nearly enough to make up for the shortfall in consumer and government spending.

LPS – foreclosures down

The March Mortgage Monitor report released by Lender Processing Services, Inc. shows that while March foreclosure starts increased a modest 8.1% since last month, overall, they were still down more than 31% year-over-year. Also in March, first-time foreclosure starts hit a five-month high. However, despite the increase, the number of first-time foreclosure starts in March was still far below those seen throughout much of 2011 and all of the previous three years.  As reported in LPS’ First Look, the national foreclosure inventory stayed relatively stable in March, remaining at the historically high levels maintained since the end of 2010. This national performance masks underlying differences between judicial states, where foreclosure inventory levels stand at 6.5%, and non-judicial states, where foreclosure inventory levels are more than 2.5 times lower at 2.45%.

The March data also showed that mortgage delinquencies have continued to decline, reaching their lowest level since August 2008, with seriously delinquent inventory (loans more than 90 days delinquent) declining in both judicial and non-judicial foreclosure states. Likewise, the rate of new problem loans (seriously delinquent loans that were current six months ago) continues to improve nationally, in both judicial and non-judicial states. At the same time, the LPS March mortgage performance data did show that foreclosure sales continued to behave somewhat erratically, dropping to their lowest level since December 2010, and most sharply in non-judicial states.  On the origination front, the data showed that February mortgage originations rebounded somewhat from their January lows, and that, despite slightly higher interest rates, prepayments increased in March. Mortgage prepayment activity – a key indicator of mortgage refinances – increased broadly, across all investor categories.

As reported in LPS’ First Look release, other key results from LPS’ latest Mortgage Monitor report include: 

Total US loan delinquency rate:​  7.09 % ​

Month-over-month change in delinquency rate:​  -6.3 %​

Total US foreclosure pre-sale inventory rate:​  4.14 %​

Month-over-month change in foreclosure pre-sale inventory rate:​  -0.1 %​

States with highest percentage of non-current* loans:​  FL, MS, NJ, NV, IL​

States with the lowest percentage of non-current* loans:​  MT, AK, SD, WY, ND​

*Non-current totals combine foreclosures and delinquencies as a% of active loans in that state.

Jobless claims down slightly

Initial claims for state unemployment benefits dropped 27,000 to a seasonally adjusted 365,000, the Labor Department said. That was the biggest weekly drop since early May last year.  The prior week’s figure was revised up to 392,000 from the previously reported 388,000. The four-week moving average for new claims, considered a better measure of labor market trends, edged up 750 to 383,500 – the highest level since December.  Economists polled by Reuters had forecast claims falling to 380,000 last week.  The data has no bearing on the government’s closely watched employment report for April, to be released on Friday. Employers are expected to have added 170,000 new jobs to their payrolls last month, a step up from March’s 120,000 tally, according to a Reuters survey.  However, there is a downside risk to this forecast as initial claims were elevated for much of April. An independent survey on Wednesday showed private employers added only 119,000 jobs last month, the fewest in seven months, and well below economists’ expectations for a gain of 177,000 positions.  Nonfarm payrolls had averaged 246,000 jobs per month between December and February. Most economists have viewed the pull-back in job growth as payback after the weather-induced gains in the previous months.

The number of people still receiving benefits under regular state programs after an initial week of aid dropped 53,000 to 3.28 million in the week ended April 21.  The number of Americans on emergency unemployment benefits slipped 4,772 to 2.72 million in the week ended April 14, the latest week for which data is available. The number of people on extended benefits declined 57,528 to 354,883.  Nine states lost eligibility for extended benefits beginning that week and five others reduced the duration of emergency compensation.  A total of 6.60 million people were claiming unemployment benefits during that period under all programs, down 85,523 from the prior week.

WSJ – Beazer homes surges in home sales

Beazer Homes USA Inc. reported a narrower fiscal-second-quarter loss Wednesday as the builder recorded a surge in home closings and sounded a hopeful note for the months ahead.  The Atlanta-based company, one of the largest home builders in the US, said its closings climbed 50% in the latest period to 844 homes. New orders, meanwhile, climbed 29% to 1,512 homes.  The results come as the US housing market has begun to show signs of emerging from the worst downturn in generations, albeit in fits and starts, as buyers get back into the game. With several home builders reporting increased sales and orders in recent weeks, many industry-watchers now think the hard-hit sector is set for a rebound.  “We remain hopeful, but cautious, about the prospects for a sustained market recovery, as a number of factors continue to pose challenges for prospective home buyers,” Chief Executive Allan Merrill said Wednesday in a statement accompanying the results.

For the quarter ended March 31, Beazer posted a loss of $39.9 million, or 51 cents a share, compared with a year-earlier loss of $53.8 million, or 73 cents a share.  The latest period included charges of $1.2 million for inventory impairments and $2.7 million tied to the refinancing of debt. The year-earlier period included charges of $17.8 million for inventory impairments.  Revenue surged 52% to $191.6 million. Analysts expected a loss of 43 cents a share on $192 million in revenue.  The average sales price rose to $224,700 from $216,300, while home-building gross margin narrowed to 10.9% from 12.4% in the prior year. Several of Beazer’s peers are seeing improved margins.  The builder’s cancellation rate rose to 22.5% from 20%, indicating more deals are unraveling before completion. “Given that most peers had declining cancellation rates, we were surprised” by the increase, wrote David Goldberg, a builder analyst with Credit Suisse, in a client note.

Retail slows

Retailers are reporting sales gains for April that show a slowdown in spending from the previous month as cooler weather, an early Easter and renewed worries about the economy dampened shoppers’ enthusiasm to buy.  As merchants report their sales figures Thursday, Costco Wholesale Corp. and Target Corp. posted gains that were smaller than Wall Street expected. Teen retailer Wet Seal Inc. posted a bigger-than-expected sales drop.  The figures are based on revenue at stores open at least a year. That metric is considered a key indicator of a retail health because it measures growth at established locations while excluding results from stores recently opened or closed.

Freddie earns $577 million

Freddie Mac reported net income of $577 million in the first quarter before it made a $1.8 billion dividend repayment to the Treasury Department.  The government-sponsored enterprise and one of the largest mortgage financiers in the country drew $19 million from the Treasury as part of its ongoing conservatorship bailout.  Net income for the quarter dropped from a $676 million gain one year ago because of higher derivative losses and lower net interest income.  Higher valuations of the mortgage bonds Freddie holds available for sale pushed total comprehensive income to $1.78 billion in the first quarter. The $1.8 billion repayment to the Treasury offset this total, forcing the remaining to be drawn from the government.  Freddie financed over $114 billion in mortgages during the first quarter, up from $105 billion one year ago.  Roughly 87% of its business was refinancing. More than 416,000 borrowers refinanced their Freddie-guaranteed home loan in the first three months of 2012, but the company said it is still too early to estimate how many will ultimately qualify for the expanded Home Affordable Refinance Program.

Building edged up in March

The Commerce Department said yesterday that construction spending ticked up 0.1 per cent.  The small March gain left construction spending at a seasonally adjusted annual rate of $808.1 billion. That’s 6 per cent above a 12-year low of $762.6 billion hit last March. Still, the level of spending is roughly half of what economists consider to be healthy.  “The weakness in construction spending in March was entirely in public spending,” said John Ryding, an analyst at RDQ Economics, in a note to clients.  Still, even with the increase in private construction spending, the trend over the last three months is weak, Ryding noted.  “We look for some gradual improvement in private construction spending in 2012, but structures investment is not a material factor in our growth forecast for this year,” he said. 

Government construction activity fell 1.1 per cent to the slowest pace since February 2007, the report said. Spending by state and local governments dropped to the weakest level since November 2006, while spending by the federal government rose 3.8 per cent to a rate of $28.9 billion.  Spending on private nonresidential projects rose 0.7 per cent. Work on office buildings, hotels and transportation projects rose. Spending in the category that includes shopping centres fell.  Private residential activity rose 0.7 per cent. The increase was driven by more construction of single-family homes.  Even with the gains, home construction continues to slump five years after the housing bubble burst. Sales of new homes fell 7.1 per cent in March, the largest decline in more than a year.  Though new-home sales represent less than 10 per cent of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to the National Association of Home Builders.  Business spending on construction projects, such as office buildings and shopping centres, is also sluggish. The government reported last week that it fell in the January-March quarter, the second consecutive quarterly decline.  The economy grew at an annual rate of 2.2 per cent in first quarter. Stronger consumer spending offset slower business investment and less growth in government spending.  Economists expect construction spending to remain sluggish this year. Tighter credit could keep businesses from receiving loans for building projects. And lawmakers are likely to keep pressure on government spending, which could hamper public works projects.

Private sector employment sluggish

Private-sector employment increased by just 119,000 in April, according a report from ADP that puts a dent into the notion that the jobs market is on the path to a solid recovery.  The report was well below forecasts of 170,000 and comes after a string of stronger numbers.  ADP said service-sector jobs rose by 123,000, but construction fell by 5,000, falling for the first time since September 2011. Manufacturing also lost 5,000, while goods-producing dropped 4,000. Financial services added 13,000 jobs.  Employment additions again were strongest in small businesses, which added 58,000 positions, and weakest in big business, which saw a net of just 4,000 new jobs.  The March number was revised downward from 209,000 to 201,000, according to the report, which is done in conjunction with Macroeconomic Advisors.

MBA – mortgage applications up

Mortgage applications increased 0.1% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 27, 2012.  The Market Composite Index, a measure of mortgage loan application volume, increased 0.1% on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index increased 0.4% compared with the previous week.  The Refinance Index decreased 0.7% from the previous week.  The seasonally adjusted Purchase Index increased 2.9% from one week earlier. The unadjusted Purchase Index increased 3.7% compared with the previous week and was 3.0% higher than the same week one year ago.  The four week moving average for the seasonally adjusted Market Index is up 0.09%.  The four week moving average is down 1.77% for the seasonally adjusted Purchase Index, while this average is up 0.75% for the Refinance Index.  The refinance share of mortgage activity decreased to 72.6% of total applications from 73.4% the previous week. The government share of purchase applications remained steady at 37.0%, a slight increase from a couple of weeks ago when the share was 36.4%. The government share of purchase applications over the last three weeks has been at the lowest level since 2009.  During the month of March, the investor share of applications for home purchase was at 5.7%, a slight decrease from 6.1% in February.  This change was led by a decline in the West South Central region.  In addition, the share of purchase mortgages for second homes remained constant at 5.8%.

US has to deleverage

The US government will have to follow its citizens and corporates in deleveraging its balance sheet, Bob Baur, chief global economist, Principal Global Investors, said today.  “It’s no question that we’re going to see more deleveraging. Households are in much better shape and companies have improved their balance sheets dramatically. It’s the government that needs to deleverage,” he said.  He added that some deleveraging had begun at the state level, but had yet to reach central government.  The US government, which pumped trillions of dollars into bailouts of the banking and automobile sector and buying mortgage-backed securities to help lenders Fannie Mae and Freddie Mac, has more than $15 trillion in debt – the ceiling for borrowing is set at $16.4 trillion.  It is also facing demographic problems such as an aging population and subsequent rising Medicare bill, which might handicap the speed at which it can reduce its debt.

Olick – where are the foreclosures?

“The number of homes entering the foreclosure process rose in March, up 8.1%, according to a new report from lender Processing Services, but the volume is down more than 30% from a year ago.  Analysts had expected this number to skyrocket immediately following the $25 billion settlement between banks and state governments over fraudulent mortgage servicing.  Foreclosures sales, which are the final stage of the foreclosure process, not sales of bank-owned homes, dropped precipitously in March to their lowest point in over two years. They dropped most sharply — 14% month-to-month — in states where a judge is not required in the foreclosure process (so-called non-judicial states).  Again, that is contrary to expectations, but could be yet another stall in the system, as banks try to modify more loans to meet some of the terms of the servicing settlement. The foreclosure sales decline also appears to be exclusively in private and portfolio loans, which again points to the settlement.  That low pace of foreclosure sales is keeping foreclosure inventory, or loans in the foreclosure process, at near historic highs, according to LPS. That number may be heading lower, however, as banks ramp up the short sale process.

Short sales, when the bank allows the home to be sold for less than the value of the mortgage, are in fact now outpacing sales of bank-owned homes in many markets, according to a new report from RealtyTrac.  Short sales rose by 15% in the fourth quarter of 2011 from the previous year, while sales of REO’s (bank-owned homes) dropped 12%. Short sales outpaced REO sales in several markets, including Los Angeles, Miami, and Phoenix, according to RealtyTrac. Georgia, where foreclosure inventories are surging, saw a 113% jump in short sales. The process, once avoided widely due to its lengthy lag time, is already speeding up, and Fannie Mae and Freddie Mac both recently announced new guidelines to reduce short sale timelines.  ‘Lenders are increasingly recognizing that short sales may be a better alternative for them than foreclosure,’ notes RealtyTrac’s Daren Blomquist. ‘This trend began in markets with stronger demand and where the distressed inventory tends to be newer homes (Phoenix, Los Angeles, Las Vegas), but the trend appears to be spreading to other markets like Atlanta and Detroit.’  Look for a special report on the Atlanta housing market on CNBC and CNBC.com Thursday.”

People renouncing US citizenship to escape taxes

About 1,780 expatriates gave up their nationality at US embassies last year, up from 235 in 2008, according to Andy Sundberg, secretary of Geneva’s Overseas American Academy, citing figures from the government’s Federal Register. The embassy in Bern, the Swiss capital, redeployed staff to clear a backlog as Americans queued to relinquish their passports.  The US, the only nation in the Organization for Economic Cooperation and Development that taxes citizens wherever they reside, is searching for tax cheats in offshore centers, including Switzerland, as the government tries to curb the budget deficit. Shunned by Swiss and German banks and facing tougher asset-disclosure rules under the Foreign Account Tax Compliance Act, more of the estimated 6 million Americans living overseas are weighing the cost of holding a US passport.  Renunciations are higher in Switzerland because American expatriates expect extra scrutiny of their affairs after the UBS case and as the US probes 11 other Swiss financial firms for aiding offshore tax evasion, said Martin Naville, head of the Swiss-American Chamber of Commerce in Zurich.

“Every dollar you save, you lose to the US tax man,” said tax lawyer Ledvina. “That’s one reason why people give up citizenship.”  The 2010 Fatca law requires banks to withhold 30% from “certain US-connected payments” to some accounts of American clients who don’t disclose enough information to the IRS.  “There is incredible frustration at the audacity and imperial overreach of this law,” said David Kuenzi, a tax adviser at Thun Financial Advisors in Madison, Wisconsin, referring to Fatca.  Failure to file the 8938 form can result in a fine of as much as $50,000. Clients can also be penalized half the amount in an undeclared foreign bank account under the Banks Secrecy Act of 1970.  “It’s a big brother concept,” said Brent Lipschultz, a partner at New York-based accounting firm EisnerAmper.  The implementation of Fatca from next year comes after UBS, Switzerland’s largest bank, paid a $780 million penalty in 2009 and handed over data on about 4,700 accounts to settle a tax- evasion dispute with the US Whistle-blower Birkenfeld was sentenced to 40 months in a US prison in 2009 after informing the government and Senate about his American clients at the Geneva branch of Zurich-based UBS.

Pushback against ideology in principal reduction debate

Federal Housing Finance Agency (FHFA) Acting Director Edward DeMarco pushed back against Democratic lawmakers yesterday, claiming the agency decision on principal reduction will be based on analytics not ideology.  Reps. Elijah Cummings, D-Md., and John Tierney, D-Mass., sent a letter earlier in the morning to DeMarco. They pointed to internal documents at Fannie Mae showing the government-sponsored enterprise and its regulator approved but then quickly closed a pilot principal forgiveness program in 2010 that could have saved the firm $410 million.  DeMarco expressed disappointment in the letter and said since 2009, the FHFA approved multiple pilot programs for principal forgiveness, but the approvals did not indicate a “pre-determined view.”

“The fact that FHFA continues to consider principal-forgiveness alternatives, including recent HAMP program changes initiated by the Treasury Department, belies any ideological tilt on our part, but rather a strict analytical-based approach to gathering and evaluating data to determine what options best fit within the legal constraints that fall upon this agency as conservator for the enterprises,” DeMarco said in the letter.  DeMarco said while many pilot programs were developed, “there was not full agreement to proceed at the enterprises or their counterparties,” which in this instance was Citigroup.  The pilot program in question involves 1,200 mortgages originated by Citi for shared appreciation and 1,000 Fannie-guaranteed loans for principal forgiveness, according to the internal documents reviewed by HousingWire. The program would have been partly rolled out in the second quarter of 2011, according to several of the internal emails. 

In an early April speech, DeMarco showed preliminary FHFA analysis on new principal-reduction incentives. The expanded HAMP effort could save Fannie and Freddie Mac $1.7 billion but would cost taxpayers a net $2.8 billion. He also outlined how principal forbearance was a substitute for a shared-appreciation program.  The FHFA delayed its decision on approving the GSEs to do principal reductions, but DeMarco said in the letter that this is a decision meant for Congress.  “Such a policy question, especially as it has to do with public funds being taken from one group of citizens to provide a benefit to another group of citizens, should be determined by Congress,” DeMarco wrote. “In the absence of clear legislative direction, however, FHFA will continue to make determinations in how best to accomplish both of these goals after careful analysis of the facts and other information available to us and the multiple legal responsibilities placed upon us.”