mortgage rates

ResCap filed for bankruptcy

Residential Capital (ResCap), the besieged mortgage unit of Ally Financial, filed for bankruptcy.  “The action by ResCap will enable Ally to achieve a permanent solution to its legacy mortgage risks and put these issues behind us,” said Ally CEO Michael Carpenter. “This action, along with pursuing alternatives for the international businesses, will allow Ally to focus 100% of its energies on further strengthening its already leading US auto finance and direct banking franchises.”  Ally expects to take a $1.3 billion charge in the second quarter for the filing.  The parent bank said ResCap will continue servicing and originating home loans during the process.  In a separate announcement Monday, Nationstar Mortgage Holdings, a servicer based in Texas, paid $700 million to acquire $374 billion in mortgage servicing rights from ResCap. Included in the deal are $201 billion in primary servicing rights and $173 billion in subservicing contracts.  Ally executives said the prearranged plan will settle all existing and potential claims between Ally and ResCap along with actions from third parties.  Ally will make a $750 million cash injection into ResCap as part of the plan.

Nationstar, which is mostly owned by Fortress Investment Group, will also make a stalking-horse bid on the entire mortgage unit of $1.6 billion or 45% of the unpaid principal on loans owned by ResCap. This bid will serve as a benchmark for companies looking to buy ResCap or its assets.  A $150 million financial facility will be created for the bankruptcy as well.  Investors holding at least a 25% stake in 290 mortgage-backed securities issued by ResCap gave support to the action as part of a settlement. These bonds, out of the 392 total from ResCap, have an original principal balance of $164 billon.  The company will also set up a $130 million mortgage repurchase reserve to buy back defaulted loans from investors. It will replace the reserve originally held at Ally.  The Treasury Department held a 74% stake in Ally before the filing. The bank said it paid back an additional $5.5 billion Monday, to reduce the taxpayer interest in the company by one-third. After completing the bankruptcy, Ally said it would pay back another third.  Timothy Massad, assistant secretary for financial stability at the Treasury, supported the action today.  “We believe that by addressing the legacy mortgage liabilities at ResCap, the action taken today will put taxpayers in a stronger position to maximize the value of their remaining investment in Ally,” Massad said in a statement.

Stocks take a tumble

Stocks tumbled Monday, with the S&P 500 falling below its key 1350 milestone, as Greece’s failure to form a coalition government increased fears that the nation would leave the euro zone.  In Europe, Greece’s socialist leader Evangelos Venizelos said efforts to form a coalition government failed over the weekend. And with new elections in June becoming increasingly likely, investors worry that the debt-ridden nation may eventually be forced out of the euro zone.  Concerns over Greece’s exit pushed the 10-year Spanish bonds yields to the highest since last December.  European shares fell to 4-month lows, with the FTSEurofirst 300 index hitting its lowest point since early January, at 1,002.90 points.

Conservative mortgages have risks too

Could troubled mortgage-financing giants Fannie Mae and Freddie Mac become victims of their rediscovered conservative financial practices ?  Fannie Mae controls 51% of mortgages reported net income of $2.7 billion in 2012′s first quarter. This comes on the heels of Freddie Mac, its smaller sibling, reporting a $577 million profit.  Both companies improving financial conditions give some clues about the nation’s brighter housing market conditions. But with a big caveat.  Less significant declines in home prices and the expectation of stabilizing home prices. A recent Fiserv Case-Shiller report says that in the fourth quarter of 2011 home prices in 70 markets, representing 18% of the 384 metro areas were unchanged or had increased compared to the fourth quarter of 2010. In 32% of the markets (122 metro areas), the price declines were under 2%.  A decline in the Fannie’s inventory of foreclosed homes, as sales of lender-owned property (REO) exceeds new foreclosures. Some people think foreclosures might pick up again after the mortgage servicer settlement tied to the robo-signing scandal. But for-sale inventory conditions are tight, suggesting that the market can handle more foreclosure supply.  Furthermore, higher foreclosures may not be as big as feared since single-family serious delinquency rates in the Fannie Mae portfolio dropped from a peak rate of 5.47% in March 2010 to 3.67% in March 2012. While this improvement is due to loan modifications, short sales, and refinancing initiatives, a bigger factor is probably a shift by Fannie Mae to borrowers with better credit scores.

This introduces the caveat and points to a more holistic risk. Aggregate foreclosure inventories for Fannie Mae, Freddy Mac, another government agency FHA and private label mortgage firms have been declining since 2010 Q3. That’s the good news. However, some would say that the risk in new mortgage origination has been “dumped” to FHA.  While Fannie Mae and Freddie Mac are basically getting good results by “creaming” the mortgage market for higher average FICO-scores clients (763 for Fannie Mae), FHA is taking on all the credit risk. FHA is a government agency that finances first-time home buyers with poor credit and less down-payment cash. Its delinquencies and credit losses are rising. If home prices do not pick up, this could force FHA to go back to Congress for more support.  If FHA doesn’t get that help, the budding housing recovery upon which Fannie Mae and Freddie Mac depend so much could be jeopardized. First-time buyers, who are the FHA’s main clients, represent about one third of all buyers these days. It would be better if Fannie Mae and Freddie Mac loosen up their credit spigot a bit now that they are better off financially, and take some of the credit risk away from FHA to provide it with some relieve. Maybe that requires too much common sense, however.

JPMorgan – loss not life threatening

Although JPMorgan Chase suffered a trading loss of at least $2 billion due to a failed hedging strategy, it will not be life threatening to the bank, CEO Jamie Dimon said in an interview aired yesterday.  “This is a stupid thing that we should never have done but we’re still going to earn a lot of money this quarter so it isn’t like the company is jeopardized,” he said in an interview with NBC’s “Meet with Press.” “We hurt ourselves and our credibility, yes — and that you’ve got to fully expect and pay the price for that.”  In response to JPMorgan’s trading loss, the Securities and Exchange Commission has begun an investigation into the bank’s trades. Dimon said the company is also doing its own internal investigation.  “So we’ve had audit, legal, risk, compliance, all of our best people looking at all of that,” Dimon responded. “We know we were sloppy. We know we were stupid. We know there was bad judgment. We don’t know if any of that is true yet. But of course regulators should look at something like this. That’s their job.”  “We intend to fix it and learn from it and be a better company when it’s done,” he added.

Major foreclosure case set to start

The Florida Supreme Court is set to hear oral arguments Thursday in a lawsuit that could undo hundreds of thousands of foreclosures and open up banks to severe financial liabilities in the state where they face the bulk of their foreclosure-fraud litigation.  The court is deciding whether banks who used fraudulent documents to file foreclosure lawsuits can dismiss the cases and refile them later with different paperwork.  The decision, which may take up to eight months to render, could affect hundreds of thousands of homeowners in Florida, and could also influence judges in the other 26 states that require lawsuits in foreclosures.  Of all the foreclosure filings in those states, sixty-three per cent, a total of 138,288, are concentrated in five states, according to RealtyTrac, an online foreclosure marketplace. Of those, nearly half are in Florida. In Congressional testimony last year, Bank of America, the US’s largest mortgage servicer, said that 70% of its foreclosure-related lawsuits were in Florida.  The case at issue, known as Roman Pino v. Bank of New York Mellon, stems from the so-called robo-signing scandal that emerged in 2010 when it was revealed that banks and their law firms had hired low-wage workers to sign legal documents without checking their accuracy as is required by law.

If the Supreme Court rules against the banks, “a broad universe of mortgages could be rendered unenforceable,” Coffey says. “The cost to the financial industry is difficult to estimate, but it could be substantial.”  For comparison, some legal experts point to the Massachusetts Supreme Court’s decision in January 2011 that ruled a foreclosure invalid because at the time of the foreclosure the bank couldn’t prove it had a valid assignment of mortgage — a similar issue to the one in the Pino case.  In the wake of the decision, hundreds of house titles in Massachusetts became void, says foreclosure attorney Tom Cox, who brought what was one of the first foreclosure fraud suits in the country.  “If the Florida court takes a strong stand, it sends a strong signal to the mortgage servicing industry in the rest of the country,” says Cox. Judges in other states could start penalizing banks with sanctions and overturning foreclosure suits, he says.

Gold down, dollar up

Gold futures, which saw modest losses during Asian trading hours, accelerated declines during European electronic trading Monday, as a push to the safety of the US dollar weighed on demand for metals.  Gold for June delivery (GCM2) dropped $12.90, or 0.8%, to $1,570.90 an ounce on the Comex division of the New York Mercantile Exchange.  The soft start to the trading week came after the metal settled at its lowest level this year on Friday, as political turmoil in Europe prompted investors to flock to the US dollar over other asset classes.  Talks between potential coalition partners collapsed in Greece on Sunday, raising the likelihood of fresh elections and stirring fears about the future of the euro zone. Greece’s political turmoil.  Against the backdrop of European uncertainty, the dollar continued its climb higher on Monday, with the ICE dollar index, which measures the US unit against a basket of six other currencies, at 80.463, from 80.250 in late North American trading Friday.  A stronger greenback adds further pressure to dollar-priced commodities such as gold, as it drives up to cost of the metal for holders of other currencies.  The market brushed aside weekend news that the People’s Bank of China will lower the ratio of reserves banks must set aside as deposits at the central bank by a half percentage point. The move was came recent data showing a slowdown for the nation, which is a big user of natural resources.

WSJ – to buy or not to buy?

It’s been a scary few years for the housing market. But at some point, the nightmare has to end (please?). Is now the time? Should first-time home buyers consider jumping into the market?  After all, home prices have fallen 34% from their 2006 peak and mortgage rates are hovering at or near record lows.  On one side are those who argue that homes are more affordable than they have been in decades, based on how much monthly income a mortgage consumes and whether owning is less costly than renting.  An uptick in home buying by investors already is under way, they say—an indication that those who wait may miss out on a good buying opportunity.  On the other side, pessimists insist that the housing slump is far from over, and that prices will continue falling—perhaps as much as 20% or more.  Excess inventories, they say, are the problem, and some estimate it could be four years before the market absorbs all of that extra supply.  Eric Lascelles, the chief economist at money-management firm RBC Global Asset Management Inc., says this is a remarkable time to be a first-time home buyer. A. Gary Shilling, president of A. Gary Shilling & Co., an economic consulting firm in Springfield, N.J., says buying now is a terrible idea.

Eric Lascelles – Yes: It’s a Rare Opportunity

This could be the best time in a generation to be a first-time home buyer.  Investors get this. While households dither, investors ramped up their home buying by 64% across 2011. They understand that this is the mother of all buyer’s markets, and won’t last forever. The prospect of making a profit by flipping these properties is still rather distant, so they lay in wait for an eventual rebound and in the meantime make money by renting out their properties for more than the monthly mortgage payment.  Investors get this. While households dither, investors ramped up their home buying by 64% across 2011. They understand that this is the mother of all buyer’s markets, and won’t last forever. The prospect of making a profit by flipping these properties is still rather distant, so they lay in wait for an eventual rebound and in the meantime make money by renting out their properties for more than the monthly mortgage payment.  Could home prices fall further? Yes they could. The home-inventory overhang is still quite large and credit availability remains poor. Home prices are unlikely to bloom in earnest for quite some time. But inventories are finally shrinking and mortgage availability has at least stabilized, and if you wind up buying a house on sale for one-third off its fair value instead of discounted by 40%, you still got one heck of a deal.

A. Gary Shilling – No: The Fall Isn’t Over

Don’t buy your first house now unless you’re willing to lose 20% of its market value in the next several years. Maybe more.  It will take a 22% drop to return median single-family house prices to the trend identified by Robert Shiller of Yale University that stretches back to the 1890s and prevailed until the housing bubble began. (It adjusts for inflation and the tendency of houses to get bigger over time.) And corrections usually overshoot on the downside just as bubbles do on the upside.  The problem is excess inventories. They are the mortal enemy of prices, and we’ve calculated an excess of two million housing units, over and above normal working levels of inventories of new and existing homes. That is huge, considering that before the housing market collapsed, about 1.5 million new homes were being built annually, a figure that shrank to 568,000 in February. At current rates of housing starts and household formation, it will take four years to work off the excess inventory, plenty of time for those surplus houses to drag down prices. 

Our estimate of two million excess homes takes into account those on the market as well as hidden inventories, such as foreclosed homes not yet listed for sale and those withdrawn from the market because owners couldn’t stomach the bids they received. A US Census Bureau category that measures such hidden inventories has leapt by one million units since 2006.  Additionally, our inventory estimate doesn’t even include future foreclosures, some five million of which are waiting in the wings. The 49% drop in new foreclosures since the second quarter of 2009 is a mirage, and was partly due to the Obama administration pressuring mortgage lenders to try to modify troubled mortgages to keep people in their homes. (They were largely unsuccessful.)  Sure, the always optimistic National Association of Realtors tells you that based on mortgage rates, incomes and house prices, single-family houses have never been more affordable. But according to their index, that was also true in December 2008, and prices have fallen 9.2% since then. Ugh! Home prices may have dropped 34% since the peak in early 2006, but that doesn’t make them cheap if prices continue to decline.

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.”