The rise of short sales in Metro Detroit is helping keep the number of foreclosures down, according to an analyst for a foreclosure tracking company.  Half of the states in the nation saw foreclosure activity rise in April, but Michigan continued to rack up double-digit losses — experiencing a 28% decline from a year ago, according to Irvine, Calif.-based RealtyTrac. In April, Metro Detroit saw a 32% plunge in default notices, sheriff’s auctions and lender repossessions from a year ago, though activity increased 4% from the previous month.  The total number of April foreclosure filings for Macomb, Oakland and Wayne counties amounted to 4,791, compared with 7,081 in April 2011. It was the 18th consecutive month that foreclosure activity dropped in the region. 

RealtyTrac earlier this year predicted an increase of at least 20% in foreclosure filings for the first half of this year because of a nationwide settlement of faulty practices in mortgage signings. Analysts expected that to unleash a backlog of foreclosed properties.  Instead, short sales have nearly doubled. In Metro Detroit, short sales in January jumped 69% over the same time the year before, said RealtyTrac analyst Daren Blomquist.  In April, short sales made up 12% of all residential real estate sales in Metro Detroit, according to the monthly report by residential listing service Realcomp II Ltd., a Farmington Hills multiple listing service.  Another reason foreclosure filings may not have risen as expected is because lenders worry about flooding the market with distressed property and driving down prices, according to Clear Capital, a California-based housing consulting firm.

Jobs static

Initial claims for state unemployment benefits held steady at a seasonally adjusted 370,000, the Labor Department said.  The prior week’s figure was revised up to 370,000 from the previously reported 367,000.  Economists polled by Reuters had forecast claims falling to 365,000 last week. The four-week moving average for new claims, considered a better measure of labor market trends, fell 4,750 to 375,000.  “We are really not showing much momentum in the labor market at this time,” said Sean Incremona, an economist at 4Cast in New York.  The data comes on the heels of three straight months of slowing employment gains. Companies added 115,000 new jobs to their payrolls in April, the fewest in six months.  Thursday’s report on claims covered the week for May’s payrolls survey. The four-week average of new applications fell marginally between the April and May survey periods, suggesting not much change in labor market conditions.

Olick – foreclosures move east

Foreclosure activity in April fell nationally to the lowest level since the summer of 2007, but government intervention and the recent $25 billion mortgage servicing settlement are now changing the face of the crisis.  Foreclosure filings, which include default notices, scheduled auctions and bank repossessions, fell 5% in April from March, according to a new report from RealtyTrac, and are down 14% from April of 2011. One in every 698 US housing units had a foreclosure filing during the month.  “Rising foreclosure activity in many state and local markets in April was masked at the national level by sizable decreases in hard-hit foreclosure states like California, Arizona and Nevada,” said Brandon Moore, CEO of RealtyTrac in a release. “Those three states, and several other non-judicial foreclosure states like them, more efficiently processed foreclosures last year, resulting in fewer catch-up foreclosures this year.”

Major banks are also suspending foreclosure actions, as they comply with the mortgage servicing settlement that was the result of so-called “robo-signing” in foreclosure document processing. Bank of America recently announced that it was beginning a summer-long campaign to contact 200,000 borrowers, and offer them principal reduction, as part of the settlement; foreclosure actions, bank representatives said, would be suspended until the bank had reached them all and determined if they were eligible for new loan modifications.  Lenders are also responding more efficiently to requests for short sales, which is when the home is sold for less than the value of the mortgage. New financial incentives from the government and new streamlined programs at Fannie Mae and Freddie Mac are behind much of that.  “Our preliminary first quarter sales data show that pre-foreclosure sales, typically short sales, are on pace to outnumber sales of bank-owned properties during the quarter in California, Arizona and 10 other states,” adds Moore.

As also reported today by the Mortgage Bankers Association, there is a big discrepancy between foreclosure activity in states that require a judge in the process (judicial) and states that do not (non-judicial). The MBA reported a rising number of loans in the foreclosure process in judicial states, but a falling number in non-judicial states during the first three months of the year. For April, RealtyTrac reports foreclosure activity down 7% from March and down 29% from a year ago. In judicial states, activity was down just 3% month to month but still up 15% from a year ago.  The judicial/non-judicial split is pushing the foreclosure crisis east, as some of the worst-hit states like California, Arizona and Nevada are able to clear through the backlog more quickly. The 11 cities with annual increases in foreclosure activity were all in the Midwest, South or on the East Coast, while six of the nine cities with annual decreases were out West in California, Arizona and Washington, according to RealtyTrac. California and Nevada, however, still post the top foreclosure rates, along with judicial Florida.

The supply of bank-owned properties in non-judicial states is also falling, as a growing cadre of investors sweeps in to buy distressed properties at the courthouse steps. One California Realtor speaking at the National Association of Realtors’ midyear conference this week told the conservator of Fannie Mae and Freddie Mac, “We don’t need a bulk REO sale program, we have no inventory!”  Bank repossessions (REO) are down for the third straight month, according to RealtyTrac. Lenders took back 51,415 properties in April.

Ryan on debt woes

Asked what he would be willing to give up to address the US debt crisis, Rep. Paul Ryan stood his ground Tuesday and insisted it was Democrats who needed to cede ground.  “I’m not interested in negotiating with myself on television. It’s futile, in my opinion,” he said on CNBC’s “The Kudlow Report.”  Ryan said,  “The Senate has chosen not to pass a budget in three years.  The president has chosen to disavow the fiscal commission, to not put a budget that attempts to deal with any of these issues. We have passed solutions.”  Ryan, R-Wis., who chairs the House Budget Committee, backed the idea of tax reform that would lower rates and eliminate or reduce deductions to “broaden the base,” which would lead to increased revenues.  “We think that is a good offer,” he said.  “We have yet to see any movement on the other side on fundamental entitlement reform,” he said.  “If you simply chase higher spending with higher revenues, you’ll end up shutting down the economy and not solving the debt crisis. The debt crisis is a spending-driven crisis, and there’s never been a moment where the other side has been willing to do fundamental entitlement reform that is necessary to preventing a debt crisis in the first place.”

MBA – delinquencies down

The delinquency rate for mortgage loans on one-to-four-unit residential properties decreased to a seasonally adjusted rate of 7.40% of all loans outstanding as of the end of the first quarter of 2012, a decrease of 18 basis points from the fourth quarter of 2011, and a decrease of 92 basis points from one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey. The non-seasonally adjusted delinquency rate decreased 121 basis points to 6.94% this quarter from 8.15% last quarter.  The percentage of loans on which foreclosure actions were started during the fourth quarter was 0.96%, down three basis points from last quarter and down 12 basis points from one year ago. The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure. The percentage of loans in the foreclosure process at the end of the first quarter was 4.39%, up one basis point from the first quarter and 13 basis points lower than one year ago. The serious delinquency rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 7.44%, a decrease of 29 basis points from last quarter, and a decrease of 66 basis points from the first quarter of last year.  The combined percentage of loans in foreclosure or at least one payment past due was 11.33% on a non-seasonally adjusted basis, a 120 basis point decrease from last quarter and was 98 basis points lower than a year ago. This was the lowest that this measure has been since 2008.

On a seasonally adjusted basis, the overall delinquency rate decreased for all loan types except VA loans for the fourth quarter of 2011. The seasonally adjusted delinquency rate decreased five basis points to 4.07% for prime fixed loans and decreased 17 basis points to 9.05% for prime ARM loans. The delinquency rate decreased 34 basis points to 19.33% for subprime fixed loans and decreased 24 basis points to 22.16% for subprime ARM loans. FHA loans also saw a decline, with the delinquency rate decreasing 36 basis points to 12.00, while the delinquency rate for VA loans increased two basis points to 6.57.  The% of loans in foreclosure, also known as the foreclosure inventory rate, increased overall from last quarter to 4.39%. Broken down, the foreclosure inventory rate for prime fixed loans increased seven basis points to 2.59% and the rate for prime ARM loans increased four basis points from last quarter to 8.76%. The rate for subprime ARM loans decreased 62 basis points to 21.55% and the rate for subprime fixed loans decreased 17 basis points to 10.48.  The foreclosure inventory rate for FHA loans increased 29 basis points to 3.83 while the rate for VA loans increased nine basis points to 2.46.  The non-seasonally adjusted foreclosure starts rate remained unchanged for prime fixed loans at 0.62%, decreased eight basis points for prime ARM loans to 1.75%, decreased 20 basis points for subprime fixed to 2.13% and 57 basis points for subprime ARMs to 3.22%. The foreclosure starts rate increased eight basis points for FHA loans to 0.96% and five basis points for VA loans to 0.65%.

Compared with the first quarter of 2011, the foreclosure inventory rate: decreased 77 basis points for prime ARM loans, remained unchanged prime fixed loans, decreased five basis points for subprime fixed, decreased 71 basis points for subprime ARM loans, increased 48 basis points for FHA loans and increased seven basis points for VA loans.  Over the past year, the non-seasonally adjusted foreclosure starts rate: decreased six basis points for prime fixed loans, decreased 21 basis points for prime ARM loans, decreased 43 basis points for subprime fixed, decreased 45 basis points for subprime ARM loans, increased three basis points for FHA loans and decreased eight basis points for VA loans.

Banks have to raise $566 billion

The world’s largest banks must raise a combined $566 billion to satisfy new capital requirements, Fitch Ratings said on Thursday, as the authorities demand that banks hold more cash in reserve to protect against future financial shocks.  The figure represents a 23% increase on what the banks currently hold in reserve and will most likely reduce return on equity, a critical figure used to gauge a firm’s profitability, Fitch said.  The banks affected are the 29 “systemically important financial institutions” as designated by the global Financial Stability Board. They include the likes of Goldman Sachs, JPMorgan Chase, HSBC of Britain and the Mizuho Financial Group of Japan. In total, the firms hold roughly $47 trillion in combined assets.  Under new regulatory rules, known as Basel III, the firms must have a Tier 1 common equity ratio, a measure of a bank’s ability to weather financial shocks, of roughly 9.5% by 2019, though officials are eager for banks to meet the targets as soon as possible.  To meet the deadline, Fitch says the 29 banks will probably hold onto future earnings and cut shareholder dividends, wind down exposure to risky investments like underperforming real estate portfolios, and tap investors for new cash.

NAHB – housing starts up

Nationwide housing production gained 2.6% from an upwardly revised pace in March to hit a seasonally adjusted annual rate of 717,000 units in April, according to newly released figures from the US Census Bureau and HUD. This modest gain was seen in both the single- and multifamily sectors, which registered growth of 2.3% and 3.2%, respectively.  “April’s increase in housing production comes on top of strong upward revisions to the previous month’s data, and is an encouraging sign that we are returning to a gradual, upward trend that should continue in the year ahead as builders respond to improving demand for new homes in certain markets,” said Barry Rutenberg, chairman of the National Association of Home Builders (NAHB) and a home builder from Gainesville, Fla. “Unfortunately, overly restrictive lending conditions for builders and buyers are slowing the pace of this trend considerably.”  “While still less than half the pace of what we would expect in a fully healthy market, the rate of housing production in April was very solid for this point of the recovery and in keeping with the findings of our latest builder surveys that have registered modest improvements in buyer traffic and near-term sales expectations for single-family homes,” said NAHB Chief Economist David Crowe.

The 2.6% gain in housing production this April was due to a 2.3% increase on the single-family side to a seasonally adjusted, annual rate of 492,000 units and a 3.2% increase on the multifamily side to a 225,000-unit rate.  Regionally, starts were mixed in April, with the Midwest and South posting gains of 6.7% and 11.6%, respectively, and the Northeast and West posting respective declines of 20.7% and 8.1%.  Permit issuance – which can be an indicator of future building activity – fell 7.0% to a seasonally adjusted annual rate of 715,000 units in April following an unsustainably large gain in the previous month. The decline was entirely on the more volatile multifamily side, where permits fell 20.8% to a 240,000-unit rate that is essentially back to trend. Single-family permits gained 1.9% to 475,000 units.  Regionally in April, permit activity held unchanged in the Northeast while declining 12.3% in the Midwest, 3.2% in the South and 13.9% in the West, respectively.

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.

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.

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.

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.”

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.”

CoreLogic released its February Home Price Index (HPI) report, the most current and comprehensive source of home prices available today. Excluding distressed sales, month-over-month prices increased 0.7% in February from January.  The CoreLogic HPI also showed that year-over-year prices declined by 0.8% in February 2012 compared to February 2011. Distressed sales include short sales and real estate owned (REO) transactions.  The report also shows national home prices, including distressed sales, declined on a year-over-year basis by 2.0% in February 2012 and by 0.8% compared to January 2012, the seventh consecutive monthly decline. 

Highlights as of February 2012:

-  Including distressed sales, the five states with the highest appreciation were:  West Virginia (+8.6%), Michigan (+5.8%), Florida (+4.7%), Arizona (+4.5%) and South Dakota (+4.1%).

-  Including distressed sales, the five states with the greatest depreciation were: Delaware (-11.2%), Connecticut (-7.9%), Rhode Island (-7.8%), Illinois (-7.1%) and Georgia (-6.6%).

-  Excluding distressed sales, the five states with the highest appreciation were: South Dakota (+5.9%), West Virginia (+5.6%), Maine (+4.5%), Utah (+3.7%) and Montana (+3.6%).

-  Excluding distressed sales, the five states with the greatest depreciation were: Delaware (-8.7%), Connecticut (-4.9%), Nevada (-4.6%), Vermont (-4.0%) and Minnesota (-3.3%).

-  Including distressed transactions, the peak-to-current change in the national HPI (from April 2006 to February 2012) was -34.4%.  Excluding distressed transactions, the peak-to-current change in the HPI for the same period was -24.6%.

-  The five states with the largest peak-to-current declines including distressed transactions are Nevada (-60.2%), Arizona (-49.8%), Florida (-48.6%), Michigan (-44.0%) and California (-43.7%).

-  Of the top 100 Core Based Statistical Areas (CBSAs) measured by population, 67 are showing year-over-year declines in February, nine fewer than in January.

Private sector adds 209,000 jobs

The private sector created 209,000 jobs in March, continuing the slow but steady rise in employment that has characterized the employment market for months.  Services again led the job creation, according to a report from ADP and Macroeconomic Advisors.  The service sector increased 164,000 in March, though the rate of job creation slowed a big from the upwardly revised 183,000 in February.  Job creation in goods-producing businesses rose 45,000 for the month, while manufacturing rose 23,000 and construction grew 13,000.  The financial sector added 8,000 positions for the month.  Small businesses —defined has having fewer than 50 employees — led the way in job creation, adding 100,000 positions. Medium-sized firms added 87,000, while large businesses with 500 or more employees lagged with 22,000 new positions added.  Financial markets reacted modestly to the report, with stock market futures edging up a bit from their lows of the morning, while Treasurys cut a bit of their price gains. The ADP release traditionally sets the stage for the government’s nonfarm payrolls report to be released Friday. Economists expect the payrolls number to grow by about 207,000 and the unemployment rate to hold steady at 8.3%.  ADP’s numbers were a shade below consensus though unlikely to generate any substantial revisions to the nonfarm number.  The March numbers could be tricky in that unseasonably warm weather this winter may have played havoc with the usual seasonal adjustments government economists use to gauge employment trends.

MBA – mortgage applications up

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, rose 4.8% in the week ended March 30.  The MBA’s seasonally adjusted index of refinancing applications climbed 4%, while the gauge of loan requests for home purchases jumped 7.2%.  “Applications to buy a home picked up last week, and are running more than two% above the level reported at this time last year,” Michael Fratantoni, MBA’s vice president of research and economics, said in a statement. “Home purchase applications for conventional loans are now about 10% above last year’s level.”  The refinance share of total mortgage activity slipped to 71.2% of applications from 71.9% the week before.

Paul Ryan strikes back – “we need a new president”

Following a hyperbolic criticism of his federal budget proposal by President Obama, Republican Congressman Paul Ryan lashed back yesterday.  “Disguised as deficit-reduction plans, it is really an attempt to impose a radical vision on our country. It is thinly veiled social Darwinism,” Obama said earlier in the day, calling the Ryan budget “a Trojan horse” that would increase inequality.  “You would think that after the results of this experiment in trickle-down economics, after the results were made painfully clear, that the proponents of this theory might show some humility, might moderate their views a bit,” Obama said. “Instead of moderating their views – even slightly – the Republicans running Congress right now have doubled down and have proposed a budget so far to the right, it makes the Contract With America look like the New Deal.”

On “The Kudlow Report,” Ryan defended against the president’s claims.  “Virtually none of the claims he makes about our budget are actually true,” the Wisconsin Republican said. “He’s distorting the truth, he’s dividing the country, and he’s becoming more bitter and partisan by the day. Frankly, it’s kind of sad to see.”  Ryan took Obama to task for what he characterized as wavering on the Simpson-Bowles plan.  “Our tax reform plan goes in the same exact direction that Simpson-Bowles goes, which is: Broaden the base, lower the rates. Get rid of loopholes and tax shelters so we can lower everybody’s tax rates,” Ryan said.  The congressman also criticized what he saw as a lack of action in the face of an economic cliff that the United States is facing.  “We need somebody in the White House who’ll actually see this problem for what it is and get this debt under our control before it gets out of our control,” he said. “And that’s why I’m just saying we need a new president.”

WSJ – only 3% of eligible home owners apply for foreclosure review

Last April, federal banking regulators cracked down on alleged foreclosure abuses by announcing enforcement actions against 14 major financial companies and promising widespread reforms.  A year later, borrowers haven’t received any compensation from banks, officials haven’t agreed on penalties for errors ranging from incorrect credit-bureau reporting to wrongful foreclosure, and millions of invitations to start foreclosure reviews have received no response.  The Federal Reserve and another federal banking regulator, the Office of the Comptroller of the Currency, also haven’t agreed on whether some of those receiving aid in exchange should relinquish their right to sue the banks, people familiar with the discussions said.  Regulators say they are working to ensure that the review process is rigorous and effective, while banks have said they don’t expect the process to uncover significant evidence of financial harm to borrowers. But the hiccups point to the pitfalls facing government efforts to address alleged foreclosure abuses. In February, five major lenders agreed to a $25 billion foreclosure-abuse settlement with state attorneys general and federal officials.

So far, just 3% of borrowers have applied for the foreclosure reviews specified in last April’s consent orders. The post office has returned the banks’ own foreclosure-related mailings as undeliverable at almost twice that rate. At least one bank is struggling to get systems in place for handling and testing borrower responses.  Some people familiar with the process said the amount being spent on foreclosure reviews could far outweigh the amount provided to consumers in compensation. Three major banks are spending close to $50 million a month each on auditors, attorneys and other costs related to the review process, said one person familiar with the banks’ efforts.  One major consultant, Promontory Financial Group, has assigned more than 1,000 people to reviews for three major US banks, according to documents filed with the OCC. The fees Promontory would collect for this work are blacked out in the documents, and the company declined to say how much it is being paid.  An OCC spokesman acknowledged that the process will be costly but said it is “a necessary expense to determine whether or not there were financial injuries as a result of errors in the foreclosure process.” A Fed spokeswoman declined to comment.

Workers’ confidence up

As the unemployment rate continues to drop, however slowly, employees are feeling more confident about their prospects. That creates a new dynamic for workers and their employers, says Rusty Rueff, a career and workplace expert at Glassdoor, an online job community.  Rueff says that, based on results of Glassdoor’s most recent Employment Confidence survey, there are a number of signals business owners are giving to employees to make them feel that job security is increasing.  Glassdoor has been conducting quarterly surveys since the last quarter of 2008, as the recession was hitting its peak.  “We’ve found that employee confidence is a strong economic indicator,” said Reuff. “Employee confidence is precursor to consumer confidence.” 

The Glassdoor survey, conducted in mid-March and spanning activity in the first quarter of 2012, found that just 13% of employees worked for companies that had initiated furloughs, unpaid leave or mandatory vacations. That is down from 18% in the previous quarter.  More telling numbers: The percentage of employees who said their employers communicated bonus reductions or eliminations was down to 10%, from 17 the previous quarter. And 40% said that health or dental benefits, and pay or perks that previously were cut had been restored. That was up from 38% in the fourth quarter of 2011.  And 43% of employees said they expect a pay raise in the next 12 months, up from 38% at the end of 2011. That’s the highest number since the survey was begun in 2008.  While confidence is up, employees are not entirely convinced the recovery is in full gear. One indication: 26% of employees said that employers had reduced health or dental benefits. That number is up dramatically from 17% last quarter.  Nevertheless, Rueff says that the uncertainty caused by Obama’s Health Act is holding employers back.

CMBS delinquencies spike

Delinquencies on loans backing commercial mortgage bonds jumped 31 basis points to 9.68% in March from the previous month, according to Trepp.  It was the largest monthly increase since a 51 bps spike in July. The rate climbed above the 9.37% level in February and the 9.42% rate one year ago. Roughly $5 billion in these loans turned delinquent in March. Meanwhile, there was $1 billion in CMBS loan resolutions, dropping below levels seen in recent months. The first data for five-year loans originated in 2007 came in during the first quarter of 2012. Only 48% of the $9 billion originated paid off at or before they came due. Some of those were resolved with a loss. Of those that fell out of the CMBS pools, roughly 20% suffered some sort of loss, Trepp said, though in many cases the loss was less than 2%.  The half of that specific vintage are either categorized as nonperforming or placed in foreclosure with a special servicer.  The highest delinquency rate jump occurred in multifamily properties, which increased 74 bps to 15.39% in March.  Delinquencies on offices (9.41%) climbed 37 bps, and retail delinquencies (8.24%) increased by 24 bps from the previous month.

Undaunted that legislators killed a bill requiring that lenders prove their right to foreclose on a home backers of the failed proposal have filed it as a ballot initiative with a harder approach: Foreclosures can’t happen unless all loan papers are properly recorded with the county first.  That means anytime a lender sells or transfers a note, as has been the practice for several years in the mortgage-backed securities business, the holder must file it with the county recorder of deeds.  Colorado has not required assignments — the legal word for when a mortgage or note exchanges hands — to be recorded for years, a critical part of the problem in determining who actually owns a note during a foreclosure, proponents of the initiative say.  “The intent is to ensure there are no gaps in the line of title,” attorney Stephen Brunette said. “Title records now are being totally messed with. Colorado’s foreclosure process today is fundamentally unsound.”  The ballot initiative — called the Foreclosure Due Process and Fraud Prevention Initiative — squarely takes on Colorado law that uniquely allows for “no-doc” foreclosures, where lenders can take a home without ever having to prove they have that right.

Opponents of House Bill 1156 who helped kill it in a Republican-controlled committee March 13 said the initiative could push lenders from the market.  “Our one concern is that nothing hurt lending in Colorado,” said Don Childears, president of the Colorado Bankers Association. “We’re not jumping to a conclusion that it’s automatically bad and have organizations against it tomorrow. But we’re aggressively thinking through its impact.”  HB 1156 sought to have lenders provide proof — theoretically a certified copy of a mortgage or loan note — that they had the right to foreclose on a property. It also would have required a judge to review the paperwork and certify a lender’s standing before ordering the public auction of a foreclosed home.  The proposed initiative is scheduled for a hearing at the Legislative Council on April 6, the first step to reaching November’s ballot. The proposal would need more than 87,100 validated signatures to get on the ballot, according to the Colorado secretary of state’s office.

3 major banks brace for downgrades

Moody’s Investors Service, one of the two big ratings agencies, has said it will decide in mid-May whether to lower its ratings for 17 global financial companies. Morgan Stanley, which was hit hard in the financial crisis, appears to be the most vulnerable. Moody’s is threatening to cut the bank’s ratings by three notches, to a level that would be well below the rating of a rival like JPMorgan Chase.  Bank of America and Citigroup may also fall to the same level as Morgan Stanley, but those two are helped by having higher-rated subsidiaries.  Credit ratings are particularly important for financial companies, which greatly depend on the confidence of their creditors and the companies they trade with. A high credit rating enables banks to put up less money, which they can borrow cheaply, while a lower credit rating can mean they have to put up more money and perhaps pay more for their loans.  The three banks that stand to be the most affected by a ratings downgrade have already said that they would have to put up billions of dollars more in collateral to back trading contracts.

Olick – investors swarm housing

“The number of homes sold to investors more than doubled last year, as rising rents and low-priced distressed properties fueled demand. Investors, half of them using no mortgage, bought 1.23 million homes in 2011, a 65% jump from 2010, according to the National Association of Realtors. Half of the homes purchased were distressed properties, that is, foreclosures or short sales (when the bank allows the home to be sold for less than the value of the mortgage).  ‘Rising rental income easily beat cash sitting in banks as an added inducement,’ says NAR’s chief economist Lawrence Yun. ‘In addition, 41% of investment buyers purchased more than one property.’  Half of investment buyers said they purchased primarily to generate rental income, according to the Realtors’ report. 34% wanted to diversify their investments, as 2011 saw a volatile stock market due to the debt crisis at home and overseas.

While nearly half of investment buyers said they were likely to purchase another property within two years, housing and mortgage analyst Mark Hanson calls them a ‘thin cohort’ and worries that they add ever more volatility to the current housing recovery.  ‘They are fickle and volatile. They will go away on the slightest of conditions changes. They also won’t chase prices higher or buy new homes from builders. Lastly, without the heavy flow of distressed supply, there is no US housing market recovery. Distressed sales ARE the market,’ says Hanson.  Foreclosure supply is still running high, with 65,000 completed foreclosures in February of this year, according to a just-released report from CoreLogic. 862,000 foreclosures were completed in the twelve months ending in February. While there are still 1.4 million homes in the foreclosures process, all of these numbers are coming down, albeit very slowly, and sales of bank-owned properties (REO) are speeding up.  Even the Realtors are concerned, like Hanson, that new programs by the government and banks to sell foreclosed properties in bulk discounts to large-scale investors, will cut off a robust individual sales market for smaller investors.  ‘Small-time investors are helping the market heal, since REO inventory is not lingering for an extended period,’ says Yun, clearly looking out for his Realtor constituents. ‘Any government program to sell REO inventory in bulk to large institutional companies should be limited to small geographic areas.’”

Consumer spending up

The Commerce Department said on Friday consumer spending rose 0.8%, as households probably stepped up purchases of motor vehicles, despite a spike in gasoline prices.  January’s spending was revised up to 0.4% from a previously reported 0.2% gain. Economists polled by Reuters had expected spending, which accounts for two-thirds of US economic activity, to rise 0.6% last month.  When adjusted for inflation, spending rose 0.5%, the largest gain since September, after gaining 0.2% in January. That could cause analysts to raise their forecasts for 2% first-quarter growth.  The economy expanded at an annual rate of 3% in the final three months of 2011 as it got a boost from restocking by businesses, a stimulus that is expected to be lost this quarter.  Consumer spending rose at a 2.1% rate in the fourth quarter and last month’s increase suggested consumers were taking surging gasoline prices in stride, and saving less to supplement their low income.  Spending on goods meant to last more than three years rose 1.6% in February after advancing 1.4% the prior month. Spending on services rose 0.4%. Unseasonably warm weather had curbed demand for utilities in the prior months.

WSJ – investors buying vacation homes

In its annual survey of investment- and vacation-home sales, the National Association of Realtors found that the number of homes purchased by investors rose 65% during 2011 to 1.2 million, accounting for 27% of all home sales. In 2010, investment properties accounted for 17% of all sales.  The number of homes purchased as second or vacation homes jumped 7% last year to 502,000—accounting for 11% of all transactions, up from 10% of all sales in 2010.  While the majority of homes sold last year went to traditional buyers who plan to use the home as a primary residence, their presence in the market declined to 61% from 73% in 2010.  During the housing boom, speculators were blamed for helping to inflate the bubble by snapping up homes, especially new homes, and then quickly reselling them as prices rose higher. That led to overbuilding. Some economists now believe that investors are helping to stabilize the market by buying up excess inventory.

In some of the hardest-hit housing markets, investors are the largest category of buyers. But unlike during the boom years, when many investors were buying properties to “flip” quickly for a profit, many of today’s investors buy the homes with plans to rent them out and sell them when the market improves.  “Obviously, it’s a great rental market, and it’s going to be a great rental market for a while,” said Geoffrey Jacobs, principal at Empire Group, a developer that has amassed a portfolio of nearly 1,000 single-family homes in Phoenix since 2009. Because the typical home that he buys is only about 10 years old, “it’ll compete well with a new home down the road when we go to sell the houses,” Mr. Jacobs said.   Amid increased demand from investors, real-estate agents say there aren’t enough foreclosed homes in good condition available in some markets, including parts of California and Florida. Thirty% of vacation-home buyers said they plan to use the property as a primary residence in the future, indicating that buyers who can afford to take advantage of low prices and low interest rates to buy their future retirement homes are doing so.

Housing markets bottomed in 2009?

The housing industry fell apart quickly and then began a protracted recovery.  Many housing markets hit bottom three years ago in early 2009 when prognosticators claimed that home prices had much further to fall, according to data released by Pro Teck Valuation Services.  The Waltham, Mass.-based real estate valuation firm explored the turnover rate (number of non-distressed sales divided by the total housing stock in a region) as an indication of future home prices. The analysis, the firm says, demonstrates that home prices in many areas are already rebounding from the bottom of the market.   “The Miami and Los Angeles markets are highly representative of what we foresee for most of the important coastal US real estate markets,” Pro Teck Chief Executive Tom O’Grady said. “In particular, we see stabilizing and then gradually increasing prices over the next few years.”  According to Pro Teck, the significant decline in prices in 2009 made home values so compelling that both new owner-occupant homebuyers and astute US and foreign investors came into these markets. The new demand prevented further declines, they say, creating the longer-term “bouncing around the bottom” prices seen today. 

In addition to sales activity, the firm released a listing of the 10 best and 10 worst performing metros as ranked by its market condition-ranking model. The rankings are run for the single-family home markets in the top 200 statistical areas and based on the number of active listings, average listing price, number of sales, average active market time, average sold price, number of foreclosure sales and number of new listings.  “In March, the top ranked metros show a strong connection to states such as Texas and Oklahoma, which directly benefit from the resurgence in the US oil exploration industries,” Michael Sklarz, principal at Collateral Analytics, said. “In addition, most of these markets did not experience price bubbles during the mid-2000s boom period and, thus, never became overpriced in the first place.”

Though the pace of foreclosures slowed, the overall inventory fell because sales of properties seized by lenders rose last month, Mark Fleming, chief economist at CoreLogic, said in a statement.  “With the spring buying season upon us, the inventory may decline further as the pace of distressed-asset sales rises along with the rest of the housing market,” said Fleming.  The share of homeowners that are more than 90 days behind on their mortgage payments edged up to 7.3% from 7.2% in January but was down from 7.8% a year ago.  The inventory of seized homes held by servicers grew faster in February than the pace of sales and the distressed clearing ratio rose to 0.73 from 0.66.  A higher ratio shows a faster rate of home sales compared to completed foreclosures.

Natural gas prices dropping

The collapse in natural gas prices to decade lows amid record supplies have changed the dynamic of the energy industry.  Natural gas is already displacing coal in power generation, driving coal’s share to the lowest level since the 1970s, and promises to drive it even lower. And there’s more talk now that it could replace some gasoline in transportation.  But for now, natural gas is being overproduced across the country, as companies extract shale gas in 32 states and off shore. In just a few short years, the shale gas industry has turned the US from a potential importer of natural gas to a potential major exporter.  This abundance of supply and an unusually warm winter combined to create a record amount of natural gas in storage for this time of year. The latest weekly inventory data is released today at 10:30 a.m. ET by the EIA.  “We are right now at 2.38 trillion cubic feet. It’s a record for this time of year, and it’s 55% above the five-year average,” said John Kilduff of Again Capital.  “April historically sees the start of natural gas injection, or the build in inventories, but this year it started in March,” Kilduff said. The injection period typically runs to Nov. 1, when gas starts to get drawn down for heating.

Housing close to bottom?

Yes, we’ve heard it before, but according to JPMorgan Chase CEO Jamie Dimon, the US housing market is very close to a bottom and there are already signs its improvement is giving a boost to the overall economy.  “I believe we’re very close to the inflection point. People look at prices that are still coming down but all the other signs are flashing green,” Dimon said during a job fair in New York for hiring veterans.  Housing is more affordable and “the shadow inventory everyone talks about is lower today than it was 12 months ago. It will be a lot lower 12 months from now,” he said.  Distressed inventory “is actually coming down, not going up. Homes for sale are about half what they were four years ago. You could come up with a pretty bullish case. If the economy grows, housing gets better, quicker.”  He said the US economy is “getting stronger all the time. It’s broad-based, companies are in great shape…Consumers are in great shape.”

So are the banks — JPMorgan was one of those that passed the Federal Reserve’s latest round of stress tests. The bank was so pleased by this it jumped the gun and announced it was raising its dividend and buying back shares before the official release of the test results.  Dimon believes the threat of a double-dip recession is behind us.  “No one can forecast the economy with certainty,” Dimon said, “but most of us in business [have] got growth plans that have nothing to do with the actual state of the economy. We’re going to always open new branches,” do more marketing, hire more people and work to bring in more customers.

Survey says we’re worse off than before

A CNBC survey found that just 28% of Americans say they are better off now than they were four years. Thirty-seven% said they were better off before President George H.W. Bush lost his re-election bid in 1992 to Bill Clinton.  Fewer people deemed the economy in poor shape than was the case in the previous CNBC survey published in December.  Only 36% of the 836 people in CNBC’s poll conducted between March 19 to 22 said the economy would be better in the next year. By comparison, an NBC/Wall Street Journal poll conducted from Feb. 29 through March 3 found that 40% believe the economy will improve during the next year, a three-point increase in that poll from January.  Overall, respondents in the CNBC survey held a poor view of the economy — with worries about jobs, gasoline and housing prices, as well as the budget deficit, continuing to drag on confidence.

More than half (53%) in the All-America survey described the economy as poor, and 35% said fair. In addition, 52% of respondents say they are worse off than four years ago.  “These are troublesome numbers for the president,” adds Campbell, noting that the better/worse combination is the poorest of six presidential election cycles dating to 1992.  Only one in five suburban women voters felt better off, compared with 53% who felt worse off. The results were slightly better for independents (24% better, 57% worse), and blue-collar workers (28%/59%).

Olick – have refis run out?

“The average rate on the 30-year fixed mortgage is up about a half a percentage point since the middle of February, when they hit a record low. Mortgage refinances, however, dropped 24% in the same period of time.  That’s a huge reaction to a small move from a record low.  ‘Rates have been there (3.75%) for so long that most everybody who could benefit from lower rates has applied,’ says mortgage analyst Mark Hanson. ‘Now, when rates pop up over 4%, it chokes off refi activity, which is sad. 5% rates in the US are now prohibitively high.’  Again, a little perspective here. Mortgage rates, spurred by government intervention in the market, of course, are still incredibly low. The problem is that the refinance business has changed fundamentally. This from analyst Barry Eisbruck:  ‘There used to be a product called cash out refinancing. Those quarterly refinancing numbers are amazing from 2003 vs. 2011. In 2003 you had 4.3T of total mortgage volume, 3T in cash out/refinancing and 1.3T in purchase origination. In 2011 it was around 1.3T of total mortgage volume, 75-80% of that was refinancing, so probably around 300-400B of purchase origination. These numbers are happening with record low rates and home prices at 1Q2003 levels.’

Here’s another strange point: In the fourth quarter of 2011, mortgages were cheaper than they’ve ever been, and yet refinancing was lower than the previous year, when rates were much higher. It all leads to the question: have refis run out?  ‘The decline in the Refinance Index this week was driven largely by a 12.0% drop in government refinance activity, while conventional refinance applications fell by less, decreasing 3.4% from the previous week,’ according to today’s mortgage applications report from the Mortgage Bankers Association.  That’s a problem, because government mortgages (largely FHA) are going to get even more expensive on April 1, when the FHA raises insurance premiums.  There will still be some refis going through the government’s HARP2 program, which allows borrowers who have Fannie Mae and Freddie Mac loans to refinance, even if they owe more on their mortgages than their homes are currently worth (‘underwater’). Those borrowers have been priced out of the refi market until now, but the program has just kicked into gear, so that could provide a boost.  For others, though, the return on a refi is getting ever smaller as rates go higher. Why do we care about refis? Because they put extra money in consumers’ pockets…money they generally spend, fueling the greater economy.”

GDP slow, joblessness slightly down

The US economy expanded a bit more slowly than expected in the fourth quarter while personal income grew at a much faster pace than previously thought, which should help underpin spending this quarter.  At the same time, new US claims for unemployment benefits fell to a fresh four-year low last week, according to a government report that showed ongoing healing in the labor market.  Gross domestic product increased at a 3.0% annual rate, the quickest pace since the second quarter of 2010, the Commerce Department said in its final estimate today, unrevised from last month’s estimate.  That was below most economists’ expectations of 3.2%, though some had put the number at 3.0%, right on target for the final print. The economy grew at a 1.8% rate in the third quarter.  However, personal income was $13.162 trillion at a seasonally adjusted annual rate, $3.3 billion more than previously reported. Disposable income was $10.6 billion more than previously thought, likely reflecting the strengthening labor market.  Gross domestic income, which measures output from the income side, increased at a 4.4% rate — the fastest since the first quarter of 2010 — from a 2.6% rise in the third quarter.  The department also said after-tax profits increased at a 1.1% rate, slowing from 2.7% the prior quarter. The slowdown in profits reflects the increase in wage costs as companies step up hiring.

WSJ – cutting loan balances

Fannie Mae and Freddie Mac aren’t granting reductions in homeowners’ loan balances, as has been widely noted of late. Nevertheless, some Americans who have gotten into trouble on their mortgages are actually seeing their loan balances cut, as a debate rages in Washington about whether doing so on a wider scale will be effective.  More than 35,000 homeowners received principal reductions from their lender last year, the Office of the Comptroller of the Currency (OCC) said in a report yesterday. The total was up about 20% from about 29,000 in 2010. But it was still down 23% from nearly 46,000 in 2009, when banks started to write down loans acquired at a discount from failed institutions.  Banks are mainly granting homeowners write-downs if they hold those loans on their balance sheet and tend to do so for loans that are significantly under water. They are not permitted to do so for loans that they have sold to Fannie Mae and Freddie Mac, the federally controlled mortgage investors.  Principal reductions made up about 8.5% of all loan modifications completed in the fourth quarter, compared with 7.8% in the third quarter of last year and 2.7% in the fourth quarter of 2010, the regulator said. 

The OCC’s quarterly “mortgage metrics” report covers 31.4 million loans worth $5.4 trillion, or 60% of US home loans. Of those mortgages, about 3.8 million, or 12% had missed at least one mortgage payment, and 1.3 million were in foreclosure as of the end of last year.  Whether to encourage more loan reductions for troubled homeowners has been a matter of intense public interest. The Obama administration has stepped up pressure on the independent regulator for Fannie and Freddie to grant more reductions, offering new incentives to do so.  The federal regulator, the Federal Housing Finance Agency, has been evaluating the incentives the administration has offered. But the agency’s acting director, Edward DeMarco, has resisted doing so, saying that it may not make economic sense for Fannie and Freddie and could encourage more borrowers to default.

In addition to Fannie and Freddie, other government agencies including the Federal Housing Administration and Veterans Administration do not grant principal write-downs.  Fannie and Freddie do use a similar form of loan assistance, known as principal forbearance. That kind of program does not require lenders to forgive debt. Instead, lenders set aside a portion of the loan, not requiring any payments on it until the borrower sells the home or pays off the loan.  Lenders’ use of this approach has grown significantly more than principal write-downs. They enacted nearly 103,000 principal forbearance plans enacted last year, up from about 94,000 in 2010 and 15,000 in 2009. In a letter sent to lawmakers in January, Mr. DeMarco indicated a preference for those forbearance plans, arguing that it “achieves marginally lower losses” for the taxpayer-backed company than principal forgiveness.

U.S. Sen. Sherrod Brown (D-OH) unveiled a new plan yesterday to improve the housing market by addressing “short sale” home sales.  Brown’s legislation, the Prompt Notification of Short Sale Act, addresses the lengthy closing process that often comes with a short sale—which can last months—by requiring banks to respond in a timely manner when prospective buyers are attempting to purchase such homes.  “For most buyers, short sales are anything but. The seemingly endless waiting game associated with short sales represents a dangerous drag on our housing market,” Brown said. “If we’re going to recover from the housing crisis, we need to make it easier for qualified candidates to purchase homes. This commonsense legislation helps prospective home buyers and distressed homeowners alike, while helping to rebuild our neighborhoods and to foster long-term economic growth.”

“Too often during the short sale process, there is a lengthy break in communication between the loan servicer and the buyer of the short sale property. This breakdown deprives buyers notice of whether or not their offer has been accepted, rejected or countered—and that means that homes aren’t being sold, even when there is a demand,” Brown continued. “This lapse in communication makes it harder for families to move to Cleveland and help us build our community, and potential buyers are left waiting or even walking away in frustration. This bill is aimed at improving communication between banks and homebuyers—and keeping homes in our neighborhoods occupied. Our economic recovery depends on our housing recovery.”  The goal of The Prompt Notification of Short Sale Act is to improve the process for buyers considering a “short-sale” home. Presently, it can take many months to get any kind of response from banks or other loan servicers to short sale offers. Brown’s legislation requires a written response of an acceptance, rejection, counter offer, or the need for an extension of time within 75 days of a request from a homeowner—thereby providing both buyers and sellers of short sale properties with predictability during a real estate transaction.

Banks set to cut $1 trillion

Investment banks are to shrink their balance sheets by another $1 trillion or up to 7 percent globally within the next two years, says a report that foresees a shake-up of market share in the industry.  Higher funding costs and increased regulatory pressure to bolster capital will force wholesale banks also to cut 15 percent, or up to $0.9 trillion, of assets that are weighted by risk, a joint report by Morgan Stanley and consultants Oliver Wyman predicts.  In addition, banks are expected take out $10 billion to $12 billion in costs by reducing pay, firing employees and paring back investments in areas that are no longer considered core.  “It is really decision time for investment banks,” said Huw van Steenis, analyst at Morgan Stanley. “The market underestimates the degree to which banks will rationalize their portfolios of activities.”  The report says investment banks have taken out about 7 percent of capacity last year and will cut up to another 10th in the next two years.  Reacting to regulatory pressure and the euro zone sovereign debt crisis, a number of banks have embarked on heavy cost-cutting in the past six months, shedding staff and assets and closing down or selling whole units.

Negative equity gap nears $4 trillion

The U.S. housing market contains a nearly $4 trillion-dollar negative equity hole, according to Williams Emmons, an economist with the Federal Reserve Bank of St. Louis.  Emmons made that statement while speaking at Housing Wire’s 2012 REthink Symposium.  The Fed Bank economist said it would take $3.7 trillion, much more than the $25 billion mortgage servicing settlement and other federal housing initiatives, to get homeowners with mortgage debt back to preferred loan-to-value ratio levels.

Emmons’ data estimates the average LTV for those with mortgage debt is currently 94.3%.  That compares to preferred LTV levels among mortgage debt holders of 58.4%, which was the average struck among mortgaged homeowners in the period stretching from 1970 to 2005. Emmons told the crowd there is no easy way to fill that gap, and the deep hole is hardly discussed among the media and policymakers.  “We are sort of stuck in this,” he told the crowd. “It’s a sweat box we’re in, and we can’t get out. We are not talking about this very much … it’s just too ugly.”  He added, “It is like the debt that is outstanding is crushing the equity that is there.”

Emmons said the only viable option to narrow the gap is letting home prices fall until they eventually reach levels that entice buyers, bringing private capital back in. A home-price boom or a government bailout would help, of course, but both those scenarios are unlikely.  At this point, home price appreciation would need to rise 62% to narrow the gap to the ideal LTV level, Emmons said. Significant government intervention also is unlikely given the fact it would take a $3.7 trillion bailout, or 24% of GDP, to narrow the gap, according to Emmons’ data.  He says that amount makes other federal initiatives launched to band-aid the housing market so far look like “peanuts” in comparison.  With that in mind, the only alternative is that we have “millions of weak homeowners exit, replaced by new private owners with equity to recapitalize the housing sector.”  Emmons said that option will still be painful since he believes another reduction in home prices is needed to attract new buyers.  “The asset class is not priced attractively yet,” Emmons said. “You need to get the value down to where it looks like a screaming buy.”  Emmons in his report said with the assumption that another 20% decline in national home prices is required to bring in new buyers, the amount of mortgage debt that must be eliminated then is $4.97 trillion, or 50% of current face value.

Recovery?  Really?

Despite signs of an improvement for the U.S. economy, Steve Forbes, Chairman of Forbes Media says the recovery isn’t as vigorous as it should be and claims there’s a lot of disbelief about the turnaround.  A weak dollar, higher taxes and regulations from Obamacare and Dodd-Frank are holding back growth, Forbes, a former Republican candidate in the U.S. presidential primaries in 1996 and 2000, told CNBC Monday.  “We had a very vigorous recovery from the severe recession in the 1980s,” Forbes said. “The recovery – this time – I don’t think it’s going to benefit the President very much, is the fact that it’s not a vigorous one.”  The rate of growth of 3 to 4 percent, coming off a severe recession should be 6-8 percent, he added. The end of Bush-era tax cuts on capital gains and dividends will also rein in the economy’s expansion.   ”If nothing is done, dividends go from 15 percent to 45 percent, capital gains from 15 percent to 24 percent,” Forbes said. “Now, Congress will be in a mood to do something, but the President is not going to let those tax cuts of 10 years ago remain for upper income earners.”

Last week a former Federal Reserve Governor, Randall Kroszner said that Fed Chairman Ben Bernanke was right to be worried about a false dawn. Bernanke had told CNBC in the same week that there is some improvement in the economy, but there is still “a long way to go.”  New York Fed President William Dudley also said while recent data on the U.S. economy have been a bit more positive, suggesting that the recovery may finally be somewhat ‘firmer’, economic activity is not yet strong or sustained enough to put a dent in unemployment numbers.  Forbes agrees, adding that the Fed’s low interest rates and Administration’s policies had sought to weaken the dollar, leading to a negative impact on the domestic economy.  “That’s an illusion, what you gain, whatever you do to try and manipulate exports, you lose on what you do in your domestic economy: hurting investment and the like and it also distorts investment, which is just beginning to recover,” Forbes said.

GSE principal reduction soon?

Freddie Mac CEO Charles “Ed” Haldeman gave a strong signal Friday that new incentives from the Treasury Department may be enough to start principal reduction on mortgages backed by the government-sponsored enterprises.  In January, the Treasury said it would triple incentive payments to mortgage investors who allow principal reduction in Home Affordable Modification Program workouts. The payouts ranged between six and 21 cents to the investors for each dollar forgiven under HAMP, but that will grow to between 18 and 63 cents.  “I have to say recently the Treasury sweetened the program and tremendously increased the incentive payments in their offer to us,” Haldeman said at HousingWire’s REThink Symposium. “We will reevaluate that to see what may be in our economic best interest. If there are very large incentive payments — which could be 50% of what you could write down — it may be in our economic self-interest to participate in that.”

There are currently 11.1 million borrowers who owe more on their mortgage than the house is worth, according to CoreLogic. Of that, estimates show roughly 3.3 million of those mortgages belong to Fannie and Freddie.  The GSEs and their regulator, the Federal Housing Finance Agency, long shunned principal reduction. Their biggest fear is moral hazard — that borrowers who are still current on their underwater loan would strategically default in order to get principal written down.  “We thought principal reduction could have unintended, secondary consequences on other borrowers seeking the same kind of reduction,” Haldeman said.  One previous analysis showed the GSEs would take significant credit losses if a wide-scale program was put in place. A new analysis from the FHFA, which would cover the new HAMP incentives, is expected to be released in the coming weeks.  NPR and ProPublica reported Friday the analysis will show a reversal, that principal reduction will work for the GSEs under the new version of HAMP.

“As we complete the review, the public should understand that Fannie Mae and Freddie Mac continue to offer a broad array of assistance to troubled borrowers and have continued to implement HARP 2.0 to enhance refinancing opportunities for underwater borrowers,” FHFA said in a statement.  Treasury Secretary Timothy Geithner told a House panel this week he and FHFA Acting Director Edward DeMarco were working out their differences.  Haldeman, who announced in October he would leave his post at Freddie, said the principal reduction verdict will ultimately reside with DeMarco, but he isn’t operating on his own.  “At the end of the day, we are in conservatorship, and he is the conservator. But the way it works on a day-to-day basis is that it’s a very close collaboration. It is extremely rare that I had a different point of view than Ed DeMarco,” Haldeman said.