mortgage rates

Modified loans defaulting

The number of Federal Housing Administration-insured home loans entering foreclosure jumped in March after half the mortgages it modified to ease repayment terms were in default again a year or more later.  The FHA’s role in lending to first-time buyers with poor credit and limited cash expanded after the 2008 collapse of the mortgage market put it at the center of government efforts to revive housing. The FHA allows down payments as low as 3.5 percent for borrowers with a credit score of 580, below the 640 defined as subprime by the Federal Reserve.  n increase in FHA foreclosures may lead to further demands for stricter standards that could shut buyers out of the real estate market as it shows signs of stabilizing after a six-year slump. Mark Calabria, director of financial regulation studies at the Cato Institute in Washington, in a February report called for Congress to tighten the agency’s lending qualifications to protect taxpayers, who insure the loans. First-time homebuyers accounted for 33 percent of real estate sales in March, according to the National Association of Realtors.

Borrowers with mortgages for homes bought in 2010, the FHA’s peak lending year, now owe almost 7 percent more than their homes are worth if they used the minimum down payment, according to S&P/Case-Shiller home price index data. That year, the agency insured 1.1 million loans to purchase single-family homes, more than four times the total of 261,165 in 2007.  Lenders initiated foreclosures on 36,400 FHA-backed mortgages, twice the number in April 2011, according to Lender Processing Services. The increase for Fannie Mae and Freddie Mac loans was 13 percent, the Jacksonville, Florida-based mortgage- data company said.  A Treasury Department study of modified government- guaranteed mortgages in the fourth quarter found that 49 percent were delinquent again after 12 months. The Treasury report analyzed a group of loans that was 80 percent FHA, 15 percent Veterans Administration mortgages and 5 percent Department of Agriculture rural home loans. The rate for Fannie Mae and Freddie Mac was 27 percent.  The share of government-guaranteed loans being paid on time dropped to 84.2 percent in the fourth quarter from 85.2 percent in the prior three months, the Treasury’s Office of the Comptroller of the Currency said in its March 28 report. It was the third consecutive quarterly decline.  The U.S. housing market is showing signs of having hit a bottom after prices fell 35 percent since peaking in 2006. Values in 20 U.S. cities fell 3.5 percent in February, the smallest 12-month drop since February 2011, the S&P/Case-Shiller index showed last month. New homes sold at an annual pace of 328,000 in March, up 7.5 percent from a year earlier, the Commerce Department said.

Identity theft and tax fraud

After checking employment records, the Treasury Inspector General for Tax Administration (TIGTA) said it found more returns may have been sent to tax filers using stolen identities than the IRS initially estimated.  If the IRS does not do more to catch improper refunds, up to $26 billion could be refunded to identity thieves in the next five years, J. Russell George, head of TIGTA, told a congressional hearing on Tuesday. He said IRS may have issued $5.2 billion more in refunds through ID tax fraud than the agency had earlier estimated.  The IRS did not dispute the watchdog’s figures, but said estimates for ID theft tax fraud would be lower if updated to include new IRS practices, said Steven Miller, IRS deputy commissioner for services and enforcement.

MBA – mortgage applications up

Mortgage applications increased 1.7 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending May 4, 2012.  The Market Composite Index, a measure of mortgage loan application volume, increased 1.7 percent on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index increased 2.0 percent compared with the previous week.  Increases to the seasonally adjusted Market Composite and Purchase indices were driven by increases in their Conventional components.  Application activity within the Government market decreased for both of these measures from last week.  Likewise, the Refinance Index increased 1.3 percent from the previous week, driven by a 1.8 percent increase to the Conventional Refinance Index, while the Government Refinance Index decreased 2.3 percent.  The seasonally adjusted Purchase Index increased 3.4 percent from one week earlier, spurred by a 5.4 percent increase in the seasonally adjusted Conventional Purchase Index. The unadjusted Purchase Index increased 3.8 percent compared with the previous week and was 0.4 percent lower than the same week one year ago.

The four week moving average for the seasonally adjusted Market Index is up 1.13 percent.  The four week moving average is down 0.82 percent for the seasonally adjusted Purchase Index, while this average is up 1.81 percent for the Refinance Index.  The refinance share of mortgage activity decreased to 72.1 percent of total applications from 72.6 percent the previous week.  This is the lowest refinance share since April 6, 2012.  The government purchase share decreased over the week from 37.0 percent to 35.8 percent of all purchase applications.  This is the lowest government purchase share since March 27, 2009.  The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 4.01 percent from 4.05 percent, with points decreasing to 0.41 from  0.44 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.  This is the lowest 30-year fixed interest rate recorded in the history of the survey.   The effective rate decreased from last week.

Oil down

Oil fell for a sixth day in New York, the longest run of declines in almost two years, after crude stockpiles advanced in the U.S., the world’s largest consumer of the commodity.  Futures slid as much as 0.8 percent after dropping 8.6 percent in the past five days. U.S. inventories increased 7.8 million barrels last week to 378 million, the highest level since August 1990, the American Petroleum Institute said yesterday. A government report today may show supplies rose 2 million barrels, according to a Bloomberg News survey. Oil is poised to rebound as global refiners increase purchases, Societe Generale SA predicts.  “U.S. inventory levels are preventing oil having the traditional dead cat bounce after such a steep fall,” said Christopher Bellew, a senior broker at Jefferies Bache Ltd. in London, who predicts prices will rebound this month. “The lows we’ve seen this week will probably hold, and crude will likely rise as buying by funds and weakness in the dollar assist with a recovery.”  Crude for June delivery fell as much as 76 cents to $96.25 a barrel in electronic trading on the New York Mercantile Exchange and was at $96.53 at 8:58 a.m. London time. It slipped 1 percent yesterday to $97.01, the lowest close since Feb. 6. Front-month prices are down 2.2 percent this year. The six-day decline is the longest since July 2010.  Brent for June settlement was at $112.50 a barrel, down 0.2 percent, on the London-based ICE Futures Europe exchange. The European benchmark contract’s premium to West Texas Intermediate was at $15.83, little changed from $15.72 yesterday.  The Organization of Petroleum Exporting Countries said its basket of crudes was at $109.58 a barrel yesterday, the first time the grades have fallen below $110 since Jan. 3.

WSJ – Freddie drops fee

In the latest bid to help homeowners hit by the housing crash, Freddie Mac, the U.S.-supported mortgage giant, is set to drop a fee associated with refinancing deeply underwater loans.  The firm plans to eliminate a fee of 0.5 percentage point, called a “cash adjustor,” on loans refinanced under the Home Affordable Refinance Program with balances greater than 125% of the property’s value, said Paul Mullings, a senior vice president at Freddie Mac. He spoke at a Mortgage Bankers Association conference on Monday.  Dropping the fee represents the latest sign that the government-sponsored enterprises and their regulator are determined to extend the reach of the refi program. Changes last year eliminated the loan-to-value cap and relieved banks of some liabilities that could arise with homeowners willing to default.  Freddie Mac had earlier this year dropped the cash adjustor on HARP refinancings for mortgages with loan-to-value ratios ranging from 105% through 125%, and encouraged the lenders to pass the savings to consumers. (The fee was created to help offset some of the increased risk seen in such refis.)

Where manufacturing is gaining

After hemorrhaging jobs during the recession , manufacturing has been one of the few bright spots, restoring 489,000 jobs since the beginning of 2010.  But there have been some significant geographic distinctions in that recovery, as well as some toppled assumptions, one of which is that factory jobs have steadily shifted from the Midwest to the South.  A new report from the Brookings Metropolitan Policy Program shows that since the beginning of 2010, manufacturing employment has increased by 5.2 percent in the Midwest, while it has gone up by only 2.2 percent in the South.  Southern regions remain relatively strong in manufacturing, with eight metropolitan areas on that list. But the usual narrative of an inexorably declining Rust Belt seems not quite accurate – or at least for now.

“It’s possible that this bounce-back is just a bounce-back and won’t last,” said Howard Wial, an economist and fellow at the Brookings Institution who was one of the authors of the report. “But there is an opportunity for it to be more.”  The study also examined the clustering of manufacturing companies in particular regions. Very high-tech manufacturing companies are concentrated in the Northwest and West, for example, while chemical companies are found mostly in the South.  The authors indicated that most state and local governments do little to foster a thriving manufacturing industry when they offer tax breaks and other incentives to companies or pass right-to-work laws that tend to suppress wages. Instead, they say, governments should focus on research and development and work-force training aimed at specific manufacturing sectors.  Mr. Wial said that there was some evidence that manufacturing could make more of a comeback in the United States because labor costs are rising in developing countries and “many large companies are starting to reconsider the costs and benefits of offshoring.”

CoreLogic – Market Pulse

CoreLogic today released its May CoreLogic MarketPulse report. The monthly economic publication provides insight into the current and future health of the U.S. economic climate with particular focus on housing and mortgage metrics. CoreLogic Chief Economist Mark Fleming and Senior Economist Sam Khater authored the articles and commentary.  Key findings in the May MarketPulse Report include:

-  The national housing market is transitioning to more stability in sales and home prices, with reasonable inventory levels and a declining share of REO sales.

-  Short sales, modifications, and other foreclosure alternatives are playing a larger role than in years past, and the flow of new foreclosures is declining with an improving economy.

-  Mortgage performance is experiencing a slow and steady improvement as the 90+ day serious delinquency rate in March fell to 7.0 percent, the lowest rate since July 2009. “This decline in serious delinquency represents a significant reduction of approximately three quarters of a million borrowers,” said Fleming in the report.

-  Overall home sales activity continues to improve, with total sales eclipsing 410,000, up more than 20 percent from a year ago and the highest March sales rate since 2007.

-  While the national market continues to improve, it masks regional variation where some local markets are improving much more rapidly than others. The most improved markets from a year ago are Phoenix, Boise and Salt Lake City.

-  Home prices are at, or very close to, the bottom as the Memorial Day weekend approaches.

69,000 foreclosures in March

CoreLogic today released its National Foreclosure Report for March, which provides monthly data on completed foreclosures, foreclosure inventory and 90+ day delinquency rates. There were 69,000 completed foreclosures in March 2012 compared to 85,000 in March 2011 and 66,000* in February 2012. Through the first quarter of 2012, there were 198,000 completed foreclosures compared to 232,000 through the first quarter of 2011. Since the start of the financial crisis in September 2008, there have been approximately 3.5 million completed foreclosures.   Approximately 1.4 million homes, or 3.4% of all homes with a mortgage, were in the national foreclosure inventory as of March 2012 compared to 1.5 million, or 3.5%, in March 2011 and 1.4 million, or 3.4%, in February 2012. The number of loans in the foreclosure inventory decreased by nearly 100,000, or 6.0%, in March 2012 compared to March 2011.   

The share of borrowers nationally that were more than 90 days late on their mortgage payment, including homes in foreclosure and real estate owned (REO) assets, fell to 7.0% in March 2012 from 7.5% in March 2011, and remained unchanged from 7.0% in February 2012.  Also in March, the inventory of REO assets held by servicers nationwide grew more slowly than the pace of REO sales, as measured by the distressed clearing ratio.  The distressed clearing ratio is calculated by dividing the number of REO sales by the number of completed foreclosures. The higher the distressed clearing ratio, the faster the pace of REO sales relative to the pace of completed foreclosures.  The distressed clearing ratio for March 2012 was 0.81, up from 0.76 in February 2012.

 Highlights as of March 2012

-  The five states with the largest number of completed foreclosures for the 12 months ending in March 2012 were:  California (150,000), Florida (92,000), Michigan (62,000), Arizona (58,000) and Texas (57,000). These five states account for 49.1% of all completed foreclosures nationally.

-  The% of homeowners nationally who were more than 90 days late on their mortgage payments, including homes in foreclosure and REO, was 7.0% for March 2012 compared to 7.5% for March 2011, and 7.0% in February 2012.   

-  The five states with the highest foreclosure rates were:  Florida (12.1%), New Jersey (6.6%), Illinois (5.4%), Nevada (4.9%) and New York (4.9%).

-  The five states with the lowest foreclosure rates were:  Wyoming (0.7%), Alaska (0.8%), North Dakota (0.8%), Nebraska (1.1%) and South Dakota (1.4%).

-  Of the top 100 markets, measured by Core Based Statistical Areas (CBSAs) population, 35 are showing an increase in the year-over-year foreclosure rate in March 2012, two more than in February 2012 when 33 of the top CBSAs were showing an increase in the year-over-year foreclosure rate.   

*February data was revised.  Revisions are standard, and to ensure accuracy CoreLogic incorporates newly released data to provide updated results.

BOA to cut 400 jobs

Bank of America (BOA) is planning to cut up to 400 jobs in its investment banking, corporate banking, and sales and trading units, The Wall Street Journal reported, citing people familiar with the situation.  An expected sale of the bank’s non-US wealth-management operations in Asia, Latin America, and Europe would eliminate up to 2,000 jobs, the Journal reported.  Reuters reported on April 17 that Bank of America was looking to sell its wealth-management units outside the US for as much as $3 billion.  BOA declined to comment on the Journal report.  Last spring, the bank announced a cost-cutting program called Project New BAC that aims to eliminate 30,000 consumer banking and technology jobs over the next few years.  The bank has said it expects to wrap up plans for the second phase of the program, which focuses on investment banking, commercial banking, and related support jobs in May. The second phase is expected to cut fewer jobs than the first because it covers a smaller, more efficient part of the bank.  At the end of March, Bank of America had about 278,700 employees worldwide.

Olick – renter nation

“More Americans are renting homes, and fewer are owning them; it’s not as if this is news to anyone who follows the US housing market, but a new report from the Census Bureau today really put an historical exclamation point on the trend.  The share of US household renting reached a fifteen year high, and home ownership reached a 15-year low. Funny how those numbers travel together.  34.6% of households were renters in the first quarter of this year, and that number is climbing, as lack of credit or sufficient down payment keeps Americans young and old from becoming home owners. Rental vacancies are therefore falling, the lowest rate out West, where foreclosures have run the highest during this housing crash. That is also where investors are rushing in to buy foreclosed properties and put them up for rent. Single family homes for rent, in fact, surpassed multi-family units, taking 52% of the $3 trillion rental market, according to CoreLogic.

Both rental and homeowner vacancies are down, which is a general positive for the housing market, because empty houses are a blight on communities. ‘The vacancy rates will only decline if household formation is increasing or units are being destroyed,’ notes ISI Group’s Stephen East.  While banks have bulldozed some foreclosed properties here and there, the practice is by no means popular or widespread. That should mean that household formation is increasing, which is generally a product of an improving jobs picture. Younger Americans who have been living together or with their parents may finally be getting into their own homes, more likely into rentals, but at least they’re forming their own households. That is thanks to a small drop in the unemployment rate among 25-34 year olds to its lowest rate in three years. The home ownership rate now stands at 65.4%, down a full percentage point from a year ago, and down from just over 69% at the peak in 2004.  Since the recession began, growth in overall new households has been about 50% short of trend lines, according to analysts at Goldman Sachs. While household formation is rebounding for single or un-related Americans, formation among families is still waning; that may be due to the types of homes they need, i.e. larger, single-family homes. It thus stands to reason that pent-up demand will show itself first in single family rentals in the future and less in multi-family. No wonder investors are flooding the foreclosure market.”

No more easing?

Two top Federal Reserve officials — one with a dovish, employment-focused bent, and the other a self-avowed inflation hawk — yesterday both said they see no need for the US central bank to ease monetary policy any further.  But the comments, from San Francisco Fed President John Williams and Dallas Fed President Richard Fisher, do not mean they believe the central bank should quickly move to raise rates, which it has kept near zero for more than three years.  The economy grew at a 2.2% pace last quarter, down from its 3% growth rate in the final three months of the year. Recent economic data, including a gauge of business activity in the US Midwest, signal growth may slow further this quarter.  “I don’t think we are ready to exit yet,” Fisher, an inflation hawk, told Reuters at the Milken Institute Global Conference in Los Angeles.  Fisher said he would oppose the extension of Operation Twist, the Fed bond-buying program that is set to end in June, but stopped short of calling for outright monetary tightening.  “We’ll have to see how the year works out,” he said.

US home ownership sets new record – down

The US homeownership rate fell to the lowest level in 15 years in the first quarter as borrowers lost homes to foreclosure and tighter inventory and credit kept buyers off the market.  The rate dropped to 65.4% from 66% in the fourth quarter and fell a full percentage point from a year earlier, the Census Bureau said in a report today. That is the lowest level since the first quarter of 1997, and down from a record 69.2% in June 2004.  Mounting foreclosures are displacing borrowers, while a lack of inventory has kept home sales from accelerating amid record affordability, the National Association of Realtors reported April 19. Stricter mortgage standards are also limiting purchases as rental demand surges, said Paul Diggle, property economist with Capital Economics Ltd. in London.  “Although house prices and mortgage rates have fallen to a level that makes buying preferable to renting, ongoing problems accessing mortgage credit are preventing many households from taking advantage,” he wrote in a note today.  The US apartment vacancy rate fell to 4.9% in the first quarter, an 11-year low, according to New York-based Reis Inc. (REIS).  The vacancy rate for rental homes was 8.8% in the first quarter, compared with 9.7% a year earlier, the Census Bureau said in today’s report.

Of the estimated 132.6 million US homes, 18.5 million, or 13.9%, were vacant in the first quarter. A year earlier, about 19 million homes were vacant, according to the report. That includes homes for sale or rent or held off the market, and vacation properties used seasonally.  The ownership rate may drop below 64% by the end of 2015 and stay there for years, Scott Simon, the mortgage bond head of Pacific Investment Management Co. in Newport Beach, California, said in an e-mail today.  “It will be lower by 2017,” he said. “It will be lower in 2020.”  About 6 million borrowers will lose their properties in the next five years because of inability to pay, creating 4 million new rental households, Simon said in an April 24 interview on Bloomberg Television.  The homeownership rate fell 3 percentage points from a year earlier to 61.4% in the first quarter for people aged 35 to 44, the biggest drop of any age group. The Northeast had the biggest regional decline, with the ownership rate falling 1.4 percentage points to 62.5%. The West had the lowest ownership rate at 59.9%, down 1 percentage point from a year earlier. 

The US homeownership rate rose to a record in 2004 when President George W. Bush, running for re-election, called for expanding home-loan availability to create an “ownership society.” The current rate of 65.4% matches the average since 1965, when the Census Bureau began reporting the figures, according to data compiled by Bloomberg.  Home prices fell 3.5% in February from a year earlier and are 35% below their July 2006 peak, according to the S&P/Case-Shiller index of 20 US cities. The average rate for a 30-year fixed loan was 3.88% last week and reached 3.87% in February, the lowest level in at least four decades, according to Freddie Mac.  About 2.37 million homes were listed for sale in March, a and 6.3 month supply and down 22% from a year earlier, the Realtors association said on April 19. A six-month supply is considered a healthy market, according to the group.

Florida foreclosure limbo

Banks that made reckless home loans in south Florida have been tiptoeing away from foreclosures in a tactic designed to cut their losses. The result: Orphaned, dilapidated homes dot the landscape from Kendall to Lake Worth.  There are no owners willing to claim and care for them.  A months-long Sun Sentinel investigation of property code violations involving abandoned homes uncovered case after case in which banks launched foreclosure lawsuits but then stalled or avoided taking ownership. In effect, the banks legally sidestepped responsibility for the empty homes, causing great harm to neighborhoods.  The real estate industry calls such properties “bank walkaways.” They are no longer maintained by their legal owners, whether they were investors bailing out of unwise deals or families in financial ruin who decamped.  Nor are they being tended to by lenders, which have halted foreclosure proceedings because the remaining equity in the properties is deemed inadequate to cover the banks’ costs to reclaim title and maintain, refurbish and sell them.  The practice has contributed to South Florida’s foreclosure “limbo” problem in which thousands of vacant homes are stuck in unsettled court proceedings for years.

Spending down, income up

A Commerce Department report showed that personal spending increased 0.3% in the month, well down from the 0.9% jump in spending the month before. That was much weaker than the 0.5% gain in spending forecast by economists surveyed by Briefing.com.  Income increased a little faster, rising 0.4%, which was an improvement from the 0.2% rising the previous month. It was the first time since December that income growth outpaced spending increases, as consumers dipped into savings the previous two months in order to deal with rising prices, such as increases in gasoline prices.  But inflation moderated in March, and it allowed consumers to increase their savings again. The report showed that the savings rate, which compares after-tax income to the level of spending, edged up to 3.8% from 3.7% in February. That means the average family was saving $38 out of every $1,000 in take-home pay in the month.

ResCap bankruptcy could cost $1.2 billion

A bankruptcy filing on the ResCap mortgage unit could cost parent company Ally Financial between $400 million and $1.25 billion, according to a financial disclosure by the bank Friday.  “If a ResCap bankruptcy were to occur, we could incur significant charges, substantial litigation could result, and repayment of our credit exposure to ResCap could be at risk,” according to the filing.  On April 17, Ally disclosed the troubled mortgage unit missed an interest payment on its debt and would be considered in default if it wasn’t made within 30 days. More than $473 million on the debt is outstanding.  The unit actually forged a $191 million profit in the first quarter. But according to the filing Friday, Ally estimates the losses from litigation matters and repurchase obligations could reach as high as $4 billion over time.  Barclays Capital analysts predicted the unit could be placed into bankruptcy within one to two months, and outlined why selling the servicing rights would be critical for investors in ResCap issued mortgage-backed securities.  The unit has stopped lending to real estate developers and homebuilders in the US, according to the Ally filing Friday.

Student loans are a hot potato

In the political campaigns still taking shape, President Barack Obama, Republican challenger Mitt Romney and lawmakers of both parties say they want to protect college students from a sharp increase in interest rates on federally subsidized loans.  Agree, they might, and act they surely will. But first, they settled effortlessly into a rollicking good political brawl.  In less than 72 hours, what might have looked like a relatively simple matter mushroomed into a politically charged veto showdown that touched on the economy and health care, tax cuts and policies affecting women. Accusatory campaign commercials to follow, no doubt.  “This is beneath us. This is beneath the dignity of this House and the dignity of the public trust that we enjoy,” protested House Speaker John Boehner, R-Ohio as Democrats maneuvered for position on the student loan bill.

“It shouldn’t be a Republican or a Democratic issue. This is an American issue,” Obama said in North Carolina last week as he broached the topic of legislation in a move to gain support students in the fall election. He urged his listeners to tweet their lawmakers and urge them to block an increase in interest rates on federally subsidized loans issued beginning July 1.  There was partisan pop behind Obama’s message, though.  Over two days of campaign-style appearances on college campuses, he quoted one unnamed Republican lawmaker as saying she had “very little tolerance for people who tell me they graduate with debt because there’s no reason for that.” Another GOP lawmaker likened student loans to “stage three cancer of socialism,” he said. Both Republicans quickly said they had been quoted out of context. 

Within a day, Romney told reporters he agreed on the need to prevent the rate increase, while conceding nothing to Obama in the search for political advantage. “I support extending the temporary relief on interest rates for students,” he said, and cited “extraordinarily poor conditions in the job market” in a jab at the president’s handling of the economy.  Congressional Democrats announced they would write legislation to prevent a doubling of the current 3.4% interest rate, and cover the $6 billion cost by requiring more wealthy individuals to pay Social Security and Medicare payroll tax.  It was a not-so-subtle reprise of a campaign perennial, the allegation that Republicans want to cut programs benefiting those who aren’t rich to protect tax cuts for those who are.  “Let’s be honest,” said Senate Republican leader Mitch McConnell of Kentucky. “The only reason Democrats have proposed this particular solution to the problem is to get Republicans to oppose it, to make us cast a vote they think will make us look bad to the voters they need to win the next election.”  He then accused Democrats of wanting to pay for the legislation “by raiding Social Security and Medicare, and by making it even harder for small businesses to hire.”

TARP exec pleads guilty to fraud

Reginald Harper, former CEO of First Community Bank of Hammond, La., pleaded guilty to defrauding the firm out of millions of dollars in phony mortgages.  Harper faces up to five years in prison and a $250,000 fine. His sentencing is scheduled for Sept. 13. First Community applied for and was approved for $3.3 million in Troubled Asset Relief Program bailouts in 2008 but withdrew its application afterward.  Four years prior, Harper loaned $2 million to real estate developer Troy Foquet in 2004 to build out parcels of real estate, according to the charges.  Once it became difficult to find qualified homebuyers, Harper would loan potential buyers money to make it appear to the mortgage lender the borrower had more cash than they actually did. He also used “straw” buyers to obtain mortgages, which were used to pay off the original loans to Foquet.  Foquet also paid Harper with insufficient checks, which were credited as a loan payment in order to avoid reporting the delinquency.  Foquet pleaded guilty to the charges in March.  Executives had the choice of writing off losses on bad loans or covering up those losses through fraud,” said Special Inspector General for TARP Director Christy Romero. “Harper chose the latter and concealed the status of the loans from others at First Community Bank, from the bank’s regulators and in the bank’s TARP application.”

Freddie and Fannie join the short sale hurrah

In an effort to make the short sale process more transparent, Freddie Mac and Fannie Mae are updating their timelines and also requiring servicers to provide weekly updates when decisions take more than 30 days after the receipt of a complete application for a short sale under the Obama Administration’s Home Affordable Foreclosure Alternative (HAFA) initiative or Freddie Mac’s traditional requirements. All decisions must be made within 60 days.  Today’s announcement marks the newest part of the Servicing Alignment Initiative (SAI) Freddie Mac and Fannie Mae launched in 2011 at the direction of their regulator, the Federal Housing Finance Agency, to set consistent servicing and delinquency management requirements. Last year Freddie Mac completed 45,623 short sales, a 140% increase since the housing crisis began.

Facts:

-  Freddie Mac and Fannie Mae’s new short sale timelines require servicers to make a decision within 30 days of receiving either 1) an offer on a property  under Freddie Mac and Fannie Mae’s traditional short sale program or 2) a completed Borrower Response Package (BRP) requesting consideration for a short sale under HAFA or Freddie Mac and Fannie Mae’s traditional short sale program.  (BRPs are standardized assistance applications developed as part of the Servicing Alignment Initiative.)

-  If more than 30 days are needed, borrowers must receive weekly status updates and a decision no later than 60 days from the date the complete BRP is received.  This will help servicers who may need more time to obtain a broker price opinion or a private mortgage insurer’s approval on a BRP or property offer.

-  In the event a servicer makes a counteroffer, the borrower is expected to respond within five business days. The servicer must then respond within 10 business days of receiving the borrower’s response.

-  Freddie Mac and Fannie Mae will use the new timelines to evaluate servicer compliance with the SAI and its own servicing requirements.

-  Freddie Mac completed 45,623 short sales in 2011, a 140% increase since 2009.  Overall, Freddie Mac has also helped more than 615,000 distressed borrowers avoid foreclosure since the housing crisis began.

Whitney reverses call on Citigroup

Meredith Whitney, who made the prescient call in 2007 that Citigroup would cut its dividend, has now upgraded the very stock that brought her celebrity status among equity analysts during the credit crisis.  Shares of Citigroup yesterday rallied as news of the upgrade to a “hold” from “underperform” spread beyond Whitney’s direct clients. The stock is up 34% so far on the year.  “C shares continue to trade well below tangible book value (70%), despite relatively lower mortgage and European exposures than its large-cap bank brethren,” wrote Whitney, who founded Meredith Whitney Advisory Group in 2009. “On the capital question, we believe C will handily make its capital target of +8% by the end of 2012.”  Whitney had a “Sell” or “Underperform” rating on Citigroup since starting coverage on the stock at her new firm in April 2009.  At the end of October 2007, while working for Oppenheimer & Co., Whitney made waves by predicting that Citigroup might have to cut its dividend payout to raise capital.  The call drew the scorn of the company and fellow analysts, but turned out to be right after Citigroup cut its dividend in January of 2008 as more of the subprime mortgage securities that Whitney had warned about went sour on the company.

Mortgage applications up

Mortgage applications increased 6.9% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 13, 2012.   The Market Composite Index, a measure of mortgage loan application volume, increased 6.9% on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index increased 6.5% compared with the previous week.  The Refinance Index increased 13.5% from the previous week.  The seasonally adjusted Purchase Index decreased 11.2% from one week earlier. The unadjusted Purchase Index decreased 10.4% compared with the previous week and was 13.9% lower than the same week one year ago.  The four week moving average for the seasonally adjusted Market Index is up 1.60%.  The four week moving average is down 0.52% for the seasonally adjusted Purchase Index, while this average is up 2.36% for the Refinance Index.  The refinance share of mortgage activity increased to 75.2% of total applications from 70.5% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 5.3% from 5.5% of total applications from the previous week.

“Renewed concerns about sovereign debt in Europe led to a drop in rates last week, with the 30-year rate tying our survey low, reached in early February.  Refinance activity picked up in response, increasing 13.5% for the week.  Participants in our survey indicated that about 32% of this refinance volume was for HARP loans,” said Jay Brinkmann, MBA’s Chief Economist and SVP of Research and Education.  “While purchase activity declined sharply for the week, this was mostly due to a 23% drop in applications for FHA purchase loans.  This drop follows big increases in the demand for FHA loans over several weeks in anticipation of the FHA mortgage insurance premium increases that went into effect last week.  This was the largest weekly drop in the government purchase index since the expiration of the first-time homebuyer tax credit in May 2010.  The demand for conventional purchase loans was down only slightly.”  The average loan size of all loans for home purchase in the US was $233,381 in March 2012, up from $225,463 in February 2012. The average loan size for a refinance was $214,593, down from $222,048 in February.  The largest purchase loans were made in the Pacific region at $ 337,227. The largest refinance loans were also made in the Pacific region at $ 290,711.

Spain bail-out; not if – when

Economic experts watching Spain don’t know how much money will be needed or precisely when, but some are near certain that Madrid will eventually seek a multi-billion euro bailout for its banks, and perhaps even for the state itself.  Prime Minister Mariano Rajoy has repeatedly said Spain doesn’t need or want an international bailout, and the European Union, which along with the IMF has already rescued Greece, Ireland and Portugal, also dismisses such talk.  But economists believe that Spanish banks will have to turn to the euro zone’s rescue fund, the European Financial Stability Facility (EFSF), for help in covering losses caused by a property market crash which has yet to end.  Madrid is likely to hold out for some time. “The underlying picture in Spain is dramatic, but is it dramatic in the way that it needs a bailout package tomorrow? No,” Brzeski said. “But if you look ahead, let’s say the next six months, I would not be surprised if they (the banks) have to get some kind of European support.”  Market concerns about the euro zone’s fourth largest economy have deepened in the past week. Yields on the government’s 10-year bonds, which reflect the risk investors attach to owning Spanish debt, have risen above 6%, a level that has proved a trigger point for other troubled euro zone countries.  At the moment the EU is backing Madrid. Jean-Claude Juncker, who chairs the Eurogroup of euro zone finance ministers, said Spain was taking the necessary steps to get its economy back on track, despite a recession and unemployment at 24%.

“As I look at my screen and Spain 10-year yields are up at 6% – things are starting to get worrying again,” said Peter Westaway, chief economist for Europe at Vanguard, an investment management firm overseeing $1.8 trillion in assets.  “If they go up to 6.5 to 7%, that could become very problematic, and if Italy started to go back above Spain again, then that would be really serious.”  Spain has one thing on its side. It has already raised nearly half the 86 billion euros it needs to borrow from financial markets this year, sucking up some of the 1 trillion euros of cheap three-year loans that the European Central Bank has pumped into the euro zone banking sector.  This means the government could hang on for months before having to turn to the EU for help with its own funding needs.  However, that still leaves the banks. One of the critical “unknowables’ for Spain is just how bad a situation its banks are in. The Spanish housing market, once a driver of the economy, has been in turmoil for more than four years, but prices still haven’t fallen as much as economists think is needed to squeeze the air out of the bubble.  Only when prices have bottomed will assessors be able to calculate how just much bad mortgage debt is sitting on the banks’ balance sheets, and therefore how much extra capital the sector requires to return it to health.

Olick – a tale of two housing markets

The numbers are in, the analysts are out, and given the volatility of this particular economic indicator, the spin is at full speed:  “Good News on Housing Permits More Than Offsets the Bad News on Starts”— HIS Global Insight;  “Housing Starts Decline Again” – Capital Economics;  “March Multifamily Starts Down; Permits Continue Upward Trend”— KBW;  “March Construction Numbers Aren’t As Bad as They Look”— Trulia.com;  “Housing Starts Lacking Consumer Confidence” — Sageworks Inc.  Here’s the problem: We are living a tale of two housing markets, single and multi-family. Depending on what kind of builder or investor you are, you’re going to see the housing starts numbers differently. Let’s weed through it first:  Total starts fell 5.8%, driven by a nearly 20% drop in multi-family. Single family was essentially flat month-to-month. But remember, multi-family is a very volatile number and can swing 20-30% monthly due to large local projects. Yes, they are both ahead from last year, but 2011 was the worst year in the history of US home building.  “The further fall in housing starts in March means that about a third of the past year’s improvement in homebuilding has now been undone. But the continued rise in building permits is an encouraging sign which suggests that housing starts will improve again later this year,” writes Paul Diggle at Capital Economics.

Building permits are always seen as a better indicator of construction, or at least more dependable and less influenced by weather. Single family permits dropped 3.5% month to month, but multi-family surged ahead 24% to the highest level in four years.  “The pickup in multifamily construction is taking place most noticeably in the South and West—again, not a big surprise—since 46 of the 50 fastest-growing metro-area populations from 2010 to 2011 were in the South or West, according to the Census Bureau,” writes IHS Global Insight’s Patrick Newport.  Clearly we’re still seeing big demand in the multi-family sector, but single family is still faltering.  “Single family is more of a restocking issue,” said Morgan Stanley’s Oliver Chang on CNBC. “In order to meet baseline demand, they [builders] have to build.”  Chang says real growth in single family demand just isn’t there, due to a still tightening credit market. On the flip side, he claims that distressed housing has stabilized and distressed home prices have bottomed; that’s because investors largely use cash. 

So if there’s all this demand for single family rentals, and investors are rushing to get in, is there still enough demand for all this multi-family construction?  “Bottom line, with the secular decline in home ownership, multi-family construction will be where it’s at for a few years but still only make up about 30% of total starts. Single family starts still have the intense competition with foreclosures and now rent seekers,” writes Peter Boockvar of Miller Tabak.  So why, as we asked yesterday after the disappointing builder sentiment report, did single family starts, permits and sentiment rise through the fall and the winter only to slam on the breaks? Newport calls that one a “head scratcher,” and adds, “If the builders have gotten ahead of the game, single-family construction will go through a demoralizing slowdown later this year.”

Is gold headed down?

For the past decade, gold has been an incredible investment, rising from under $300 per ounce to as high as $1,900 per ounce before retreating to around $1,650 in recent trading.  For the bulls, gold’s recent drop is nothing more than a temporary setback on its inexorable march toward $2,000 and beyond. The case for gold rests primarily on factors familiar to anyone who’s even remotely familiar with the metal: easy money from central banks around the world and rising demand from emerging economies, notably China and India. But all good things must come to an end and Yoni Jacobs, chief investment strategist at Chart Prophet, believes gold’s best days are behind it. In fact, Yoni believes there’s a bubble in precious metals that’s about to collapse as detailed in his book, Gold Bubble: Profiting from Gold’s Impending Collapse.  While tipping his hat to the bullish arguments and sympathetic to reasons why people own gold, Jacobs says the metal’s inability to rally despite Europe’s ongoing crisis and renewed tensions in the Middle East are negative signs. “The froth is coming off,” he says.

Technically, the strategist cites heavy volume during gold’s sell-off last September and the negative divergence between gold and gold miners as warning signs. In the past six months, the Market Vectors Gold Miners ETF (GDX) is down 20% while the Gold ETF (GLD) is essentially flat.  Furthermore, gold is vulnerable to the global economic slowdown, he says, noting China just reported its slowest quarter in three years.   Finally, Jacobs cites “over-speculation” in gold, its “parabolic increase” in recent years, the “mass publicity” the metal has received, and the extreme emotions of its advocates as signs of it being in bubble territory.  Based on historical trends and technical patterns, Jacobs predicts gold will fall below the key $1,000 per ounce level on its way to the $700 area. He recommends shorting the GLD or GDX or buying out-of-the-money puts on gold as a way to profit from gold’s demise.

WSJ – GOP Senators say no to write-downs

Two US Senate Republicans are urging the Treasury Department to cancel its plans to subsidize debt forgiveness for troubled homeowners, saying the money would be better off reducing the federal debt.  In a letter sent Tuesday to Treasury Secretary Timothy Geithner, Sens. David Vitter (R., La.) and Jim DeMint (R., S.C.) criticized an Obama administration plan to encourage mortgage giants Fannie Mae and Freddie Mac to reduce borrowers’ loan balances. Earlier this year, the administration announced it would use money from the 2008 financial industry rescue to encourage those write-downs.  The letter adds further heat to an intense political debate over whether the two government-controlled companies should reverse their policy and allow loan write-downs.  The two companies, which buy up loans and package them into investments, and their federal regulator have been facing pressure from Democrats and the Obama administration, which want to see write-downs. Republicans, however, are concerned that doing so will encourage borrowers to intentionally default.  In their letter, Messrs. Vitter and DeMint also argue that big banks that hold second mortgages such as home equity loans will benefit from write-downs. The plan “will pay off the mega banks with taxpayer cash in exchange for reducing the principal balance on some mortgages,” the lawmakers wrote. “We write to urge you, on behalf of the taxpayers, to reconsider and, instead, return this money to the Treasury to pay down the national debt.”