national association of realtors

BOA offers $30,000 for short sales

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

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

Business inventories up

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

MBA – refinance applications up

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

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

Gold enters bear market

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

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

Olick – foreclosures down – a bad thing?

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

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

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

First shots fired in the debt-ceiling debate

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

WSJ – architectural billings index slips

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

Detroit sales down, prices up

The best inventory on the market in metro Detroit — where foreclosures and short sales account for 36% of the listings — attracts multiple bids and pushed the median sales price to $70,000 last month, up 18.6% from $59,000 in April 2011, according to Realcomp, a Farmington Hills-based multiple listing service.  Its members reported 4,351 closed sales in April, which is down by 2.2% from the 4,439 homes and condos that sold in the same month a year ago.  Sales gains were seen in Macomb County, up 8.9% to 922, and Oakland County, up 1.5% to 1,448. Pulling down the metro area results were Livingston County, with a 9.5% drop to 182 homes sold in April, followed by Wayne County, with a 9% decline to 1,789 home sales from 1,965 last April.  All four counties included in the metro Detroit stats — Livingston, Oakland, Macomb and Wayne — saw median sales price increases in April. Here’s the breakdown:

-  Livingston: $150,000, up 7.1% from $140,000.

-  Macomb: $72,500, up 13.3% from $64,000.

-  Oakland: $114,500, up 9% from $105,000.

-  Wayne: $38,000, up 27.1% from $29,900.

The Detroit area, which is defined as Detroit, Hamtramck, Harper Woods and Highland Park, saw median prices rise to $9,000, up 2.3% from a year ago, but sales dropped 22% to 539 in April.  Nearly half, or 48%, of sales last month were cash sales and homes were selling an average of three days faster with 87 days on market, Realcomp said.  Inventories dropped 18.3% in April to 26,896 homes for sale in the entire multiple listing service compared with 32,910 in April 2011. The MLS includes metro Detroit plus parts of the Thumb and Genesee County.

Retail sales up slightly

Sales at US retailers barely rose in April as the boost from an unseasonably warm winter faded, pointing to some loss of momentum in consumer spending early in the second quarter.  Retail sales edged up 0.1%, held back by a decline in receipts from building materials and clothing stores, the Commerce Department said on Tuesday. That was the smallest gain since December when sales were flat.  Other data showed manufacturing remained resilient, with a gauge of factory activity in New York state bouncing higher this month as new orders and shipments rose.  The New York Federal Reserve said its Empire State general business conditions index jumped to 17.09 in May from 6.56 in April, outpacing economists’ expectations of 8.50.  “Growth is there, but it’s not that convincing,” said David Sloan, senior economist at 4CAST in New York.  March’s sales were revised slightly down to show a 0.7% rise rather than the previously reported 0.8% increase. Economists polled by Reuters had expected retail sales to gain 0.2% last month.  In the 12 months to April, sales rose 6.4%.

Olick – Obama’s “responsible” homeowners

“As part of his ‘To Do List,’ President Barack Obama visited Val and Paul Keller on Friday. The White House described them as ‘responsible’ homeowners who owe more on their mortgage than their Nevada home is currently worth.  They owe $168,000 on their mortgage, but their Reno home is currently valued at $100,000.  The president is doing so to, ‘help demonstrate a concrete and tangible example as to why this broader push [to refinance] is so important not only for millions of Americans but for our economy,’ said Shaun Donovan, secretary of Housing and Urban Development, in a conference call with reporters before the event.  During that call, Donovan used the words ‘responsible homeowners’ more than a dozen times, in describing whom the administration’s proposed refinance programs should help.  It is not the Kellers’ fault that home prices in Reno are down 52% from the peak, right? The Kellers bought their house 14 years ago, and they have not been late on a mortgage payment, according to Donovan. They were able to take advantage of the newly expanded government refinance program through Fannie Mae and Freddie Mac for severely underwater borrowers, and they are in fact putting some of their savings on the monthly mortgage toward paying down principal.  But were they responsible? 

The Kellers bought their home before the height of the housing boom. The trouble I’m having understanding this whole scenario is that the median home price in Reno is actually 7% higher today than it was 14 years ago. If the Kellers had a ‘responsible’ loan, that would be a 30-year fixed, in which case they should have paid at least some principal on the loan over the last 14 years. And didn’t these ‘responsible’ borrowers, the Kellers, put some money down on the home?  We went looking: According to Washoe County records, the Kellers purchased their home in June 1998 for $127,000. So why do they have, according to the White House, a $168,000 mortgage?  White House officials now confirm to CNBC that the Kellers did a cash-out refinance in 2007, when their home had appreciated to $250,000. Again, it’s not illegal, but are these the ‘responsible’ borrowers that the administration is looking to help? They took out a $178,000 loan, using the $51,000 to pay down debt on the family construction business, so Paul could retire. Had they not taken that money out, and continued paying on the original mortgage, they would not be underwater today.  ‘This is a family, first and foremost, that has met their responsibility, remained on time with their mortgage and used their equity in their home in a way that so many Americans do, to send their kids to college, support a small business or save for retirement,’ said Donovan, whom we contacted after learning of the refinance. ‘They deserve the chance to benefit from these record low interest rates because they have met their responsibilities.’

Another administration official familiar with the Kellers’ case says the couple were responsible because despite the incredible runup in home prices, they did not take all the equity out of the house. ‘She did not use her home as an ATM in the sense that we saw during the crisis, because she didn’t cash out all of the equity leaving her no cushion. She had a 71% LTV (loan to value ratio), or 30% equity in her home. That is by almost any definition a very responsible position to be in,’ he added. In the past, Obama has criticized borrowers, who at the peak of the housing bubble, pulled money out, referring to it as using their house as an ATM.  LTV, Donovan and the other administration official claim, is not a minor issue. So it seems they are defining ‘responsible’ as a borrower who maintains an equity cushion in the house, even when that house price has nearly doubled in just eight years.  ‘This was truly 100 year flood, and so lots of people who had 20, 30, 40% equity in their homes now find themselves underwater,’ says the White House official, who also commends the Kellers for not walking away from their mortgage.”

Europe barely dodges formal recession

Stronger-than-expected growth in Germany was enough to help the European Union and the 17-nation eurozone avoid falling into recession for the second time since 2009 during the first three months of this year.  Initial readings on gross domestic product, the broadest measure of an economy’s health, released Tuesday showed Germany’s economy grew 0.5% in the first quarter, an improvement from the decline of 0.2% at the end of 2011.  The forecast had been for growth of only 0.1% for Germany, the continent’s largest economy, and there were some fears that it could report a drop in GDP for the second straight quarter, the common definition of an economy in recession.  The growth in Germany was enough to have GDP in the 27-nation EU and the 17-nation eurozone that uses the common currency both remain unchanged compared to the previous quarter, following a 0.3% decline on that basis at the end of last year. Economists had forecast that both would fall into recession with another quarter of falling GDP.

Decline in foreclosure activity in California hurting the market

The pace of foreclosures in California is slowing to a crawl, according to figures for the month of April compiled by foreclosure information company ForeclosureRadar Inc. of Discovery Bay.  In California, Notice of Default filings were down 69.8% from the peak in March 2009, and 15.8% from April 2011.  Foreclosure sales also declined, however, foreclosure investors purchased a record percentage of the limited inventory that was actually sold. California investors purchased 41.3% of foreclosure sales last month, the report says.  The low number of sales, combined with record% purchased on the courthouse steps left very little to become Bank Owned (REO). This further depletes the inventory of Bank Owned homes as REO sales continue to outpace the addition of new inventory, says ForeclosureRadar.

Despite investors purchasing a higher percentage of foreclosure sales, margins have rapidly declined in recent months. In California the discount between market value and winning bid have on average declined to 12.3%. This leaves investors who intend to resell their purchases with record low profits after eviction, repairs, and closing costs.  “Foreclosure declines would be wonderful news if they were being driven by a true market recovery in which hundreds of thousands were no longer unable to make payments, and millions were no longer upside down,” says Sean O’Toole, founder and CEO of Foreclosure Radar.  “That is not the reality today. Instead we are seeing unprecedented government intervention into the foreclosure process leaving underwater homeowners in limbo, while stealing opportunity from investors and first time buyers,” he says.  “California’s pending legislation, which is similar to laws we previously saw enacted in Nevada, will almost certainly bring foreclosure activity to a near halt there if passed. The reality is that these laws don’t solve anything as they fail to address the real problem – negative equity – while instead they punish real estate professionals, homebuyers, and investors far more than the banks they were aimed at.”

Fed governor Duke wants certainty

Federal Reserve Gov. Elizabeth Duke on Tuesday urged policymakers to finalize regulations and rules to provide more certainty for the housing market.   Establishing regulations and deciding on the future of government-controlled mortgage giants Fannie Mae and Freddie Mac will help reduce the uncertainty contributing to tight mortgage lending, Duke said in remarks prepared for a National Association of Realtors conference on Tuesday. She did not discuss monetary policy in her remarks.  “The most important solution that I am suggesting today is that policymakers move forward with the difficult decisions that will affect the future of the mortgage market,” Duke said. “If lenders tighten more than is warranted, it will hamper the recovery of the housing market and, in doing so, restrain economic growth.”  Duke did not make specific policy recommendations, but she stressed that questions around the future of Fannie Mae and Freddie Mac must be resolved. More than three years after the government took the two mortgage giants into conservatorship, there still is no consensus about how they should be structured and what the government’s role should be, potentially discouraging private companies, Duke said.  “Private capital might be reluctant to enter the market until the future parameters of government support are resolved,” she said.

Duke did note some encouraging signs in the housing market, including a slowdown in the pace of home prices’ decline and an edging up in housing starts and permits. And she expressed confidence that as the economy slowly improves, some elements of the housing market will strengthen, as confidence increases.  Lenders seem to be reluctant now to make loans in part because of concerns over the higher cost of servicing delinquent loans and worries over regulations still being shaped, Duke said.  “Collectively, these uncertainties about the future are likely contributing significantly to the tight lending standards in the mortgage market today,” she said. The Federal Reserve will use its “best judgment to weigh the cost and availability of credit against consumer protection, investor clarity, and financial stability as it writes rules,” she said.  Duke stressed that lenders need clarity to shape business models and plan for the future.  “I don’t want to diminish the importance of any individual policy decision, but I do believe that the most important prescription for the housing market is for these decisions to be made and the path for the future of housing finance to be set,” she said.

NAHB – builder confidence up in May

Builder confidence in the market for newly built, single-family homes gained five points in May from a downwardly revised reading in the previous month to reach a level of 29 on the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), released today. This is the index’s strongest reading since May of 2007.  Derived from a monthly survey that NAHB has been conducting for 25 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores from each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.  Each of the index’s components rebounded from declines in the previous month. The component gauging current sales conditions and the component gauging traffic of prospective buyers each rose five points in May to 30 and 23, respectively, with the traffic component hitting its highest level since April of 2007. The component gauging sales expectations in the next six months rose three points to 34.  Three out of four regions registered improving builder sentiment in May. This included a six-point gain to 32 in the Northeast, and five-point gains to 27 and 28 in the Midwest and South, respectively. The West posted a two-point decline, to 29.

Downward pressure on prices

Short sales and huge inventories of bank-owned real estate properties continue to put downward pressure on home prices, according to data released today by California-based analytics company CoreLogic. Fifty-seven of the 100 largest statistical areas based on population posted year-over-year declines in March.  Nationally, CoreLogic’s March Home Price Index report shows prices fell 33.7% in March 2012, from their peak in April 2006.  Home prices, including distressed sales, edged downward year-over-year, falling 0.6% from March 2011 to March 2012. Excluding distressed sales, home prices rose slightly, climbing 0.9% year-over-year. In spite of the yearly decline, home prices rose month-over-month. Including short sales and real estate held by banks, prices increased 0.6% month-over-month — the first monthly rise since July 2011. Proving just how much of a drag short sales and REOs are on home values, prices have appreciated monthly for three consecutive months when distressed sales are excluded from the stats.  Even with all the bad news, the relatively flat monthly and yearly changes seem to indicate prices are beginning to steady, and some states even saw significant price appreciation. Wyoming, West Virginia, Arizona, North Dakota and Florida all saw yearly gains of 4% or more. Wyoming topped the list with an increase of 5.9% year-over-year.

Jobless claims slightly down

Slightly fewer Americans filed for new unemployment benefits last week, a reassuring sign about the labor market in the closely watched economic reading.  The Labor Department reported yesterday that 367,000 filed new jobless claims in the week ended May 5, down from 368,000 the week before. The previous week reading was revised up by 3,000.  Economists surveyed by Briefing.com had forecast 365,000 would file for help.  There have been growing worries about a weakening of the recovery in the jobs market, especially after a disappointing April jobs report that showed employers adding far fewer jobs than expected.  Jobless claims, which had been falling steadily earlier this spring, also had climbed again in recent weeks before a drop two weeks ago.

Free mortgage review, few apply

It’s been more than six months since government regulators and banks first extended an offer to 4.3 million homeowners facing foreclosure: to review, at no cost, the foreclosure process to check for any possible errors or misrepresentations.  Homeowners stand to collect compensation of as much as $100,000 if errors are found. But thus far, only a tiny percentage of those eligible have signed up.  The push for a review process was set in motion by the “robo-signing” scandal. In 2010, several banks admitted mishandling some foreclosure documents. Some borrowers may have wrongfully lost their homes as a result, and the scandal exposed systemic problems in the foreclosure process.  In the wake of the scandal, federal bank regulators required 14 mortgage companies to establish the Independent Foreclosure Review process.

The review costs homeowners nothing, but at last count, only 165,000 people — fewer than 4% of those eligible — have applied.  The original April 30 deadline has since been extended to July 31.  Last month, Housing and Urban Development Secretary Shaun Donovan tried enlisting a group of housing counselors to get more homeowners to sign up for the review.  “I am concerned that not enough folks have signed up, and that we’re going to waste that opportunity,” Donovan said.  Donovan says the process presents the first real opportunity for most troubled homeowners to get an independent read on whether their case was — or is — being handled appropriately.

Chinese banks coming to a location near you

The Federal Reserve gave three state-owned Chinese banks its stamp of approval Thursday to expand their presence in the United States.  The central bank accepted an application from Industrial and Commerce Bank of China Ltd., along with China Investment Corporation and Central Huijin Investment, to become bank holding companies by purchasing up to an 80% stake in New York-based Bank of East Asia USA.  The approval marks the first time the Fed has allowed any large Chinese bank to purchase a US bank, and it could boost merger and acquisition activity “as Chinese banks may look to acquire regional banks in order to establish a US footprint,” said Guggenheim senior policy analyst Jaret Seiberg, in a research note.  Meanwhile, the Fed also granted the Bank of China permission to open its fourth US branch in Chicago. The Beijing-based bank already has two branches in New York and one in Los Angeles.

NAR – sales up, inventory down

Median existing single-family home prices are firming in many metropolitan areas, while improving sales and declining inventory are creating more balanced conditions, according to the latest quarterly report by the National Association of Realtors (NAR).  The median existing single-family home price rose in 74 out of 146 metropolitan statistical areas (MSAs) based on closings in the first quarter from the same quarter in 2011, while 72 areas had price declines.  In the fourth quarter of 2011 only 29 areas were showing gains from a year earlier.  A new breakout of income requirements on a metro basis shows most buyers have the necessary income to buy a home in their area, assuming a favorable credit rating.

At the end of the first quarter there were 2.37 million existing homes available for sale, which is 21.8% below the close of the first quarter of 2011 when there were 3.03 million homes on the market.  There has been a sustained downtrend since inventories set a record of 4.04 million in the summer of 2007.  The national median existing single-family home price was $158,100 in the first quarter, which is 0.4% below $158,700 in the first quarter of 2011.  The median is where half sold for more and half sold for less.  Distressed homes - foreclosures and short sales which sold at deep discounts – accounted for 32% of first quarter sales; they were 38% a year ago.  Total existing-home sales, including single-family and condo, increased 4.7% to a seasonally adjusted annual rate of 4.57 million in the first quarter from a downwardly revised 4.37 million in the fourth quarter, and were 5.3% above the 4.34 million level during the first quarter of 2011 when sales spiked. 

The national median family income was $61,000 in the first quarter.  However, to purchase a home at the national median price, a buyer making a 5% down payment would only need a $34,700 income.  With a 10% down payment the required income would be $32,900, while with 20% down, the income drops to $29,300.  First-time buyers purchased 33% of homes in the first quarter, unchanged from the fourth quarter; they were 32% in the first quarter of 2011.  The share of all-cash home purchases in the first quarter was 32%, up from 29% in the fourth quarter; they were 33% in the first quarter of 2011.  Investors, drawn by bargain prices and who make up the bulk of cash purchasers, accounted for 22% of all transactions in the first quarter, up from 19% in the fourth quarter; they were 21% a year ago.  In the condo sector, metro area condominium and cooperative prices – covering changes in 52 metro areas – showed the national median existing-condo price was $157,200 in the first quarter, which is up 3.4% from the first quarter of 2011.  Eighteen metros showed increases in their median condo price from a year ago and 34 areas had declines.

Regionally, existing-home sales in the Northeast jumped 8.6% in the first quarter and are 6.6% above the first quarter of 2011.  The median existing single-family home price in the Northeast declined 3.2% to $226,300 in the first quarter from a year ago.  In the Midwest, existing-home sales rose 5.5% in the first quarter and are 11.7% higher than a year ago.  The median existing single-family home price in the Midwest increased 0.8% to $125,300 in the first quarter from the same quarter in 2011.  Existing-home sales in the South increased 2.1% in the first quarter and are 4.1% above the first quarter in 2011.  The median existing single-family home price in the South rose 1.2% to $143,600 in the first quarter from a year earlier.  Existing-home sales in the West rose 5.9% in the first quarter and are 1.4% higher than a year ago.  The median existing single-family home price in the West slipped 0.9% to $196,200 in the first quarter from the first quarter of 2011.

CoreLogic – less than 1% decrease in housing prices

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

Highlights as of March 2012

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

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

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

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

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

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

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

Business confidence lackluster

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

Regulations stifle mortgage market

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

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

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

Krugman’s ideas “reckless” and “silly”

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

Olick – $150,000 off?

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

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

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

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

Consumer credit on the rise

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

NAHB – 100 markets on the improving list

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

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