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Smart Real Estate News & Commentary by Chris McLaughlin June 21, 2011

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WSJ – government will stay in the housing market for a long time

A weak start to the spring housing season, which could be underscored later this week by reports on sales of new and previously owned homes, is raising the prospect that the U.S. government will dominate the mortgage market for a long time.  The fragile housing market is complicating Washington’s stated goal of dialing back its support after it has reduced stakes in the financial-services and auto industries. The slide in home prices in turn is weighing on the economic recovery, and it threatens to hamper a bipartisan push to unwind the emergency support policymakers enacted three years ago.  Falling prices are eroding consumer confidence and hindering job mobility by leaving millions of borrowers trapped in homes worth less than what they owe. A glut of bank-owned foreclosures has slowed residential construction, damping a major source of job growth. In some markets, the share of buyers paying in cash for homes has hit its highest levels in years, a red flag that prices could fall below “fair value” due to a lack of credit.  Fannie Mae and Freddie Mac, government-sponsored entities intended to foster mortgage lending, face a hard balancing act. They are trying to restore sound lending standards without choking off access to mortgages.

Together with the Federal Housing Administration and federal agencies, Fannie and Freddie are behind nine in 10 new mortgages. The firms don’t make loans; instead, they buy them from lenders, repackage them for sale to investors as securities, and offer guarantees to make investors whole if borrowers default.  Congress has boosted the size of loans that the firms can buy, making it easier for borrowers in more expensive coastal housing markets to qualify for loans. But those steps have crowded out the private sector, leaving investors with fewer loans to buy and either hold or pool into securities that don’t have government guarantees.  The Obama administration and Republican lawmakers have embraced efforts to encourage private investors into the mortgage market by curbing the government’s role. Officials want to increase the fees that Fannie and Freddie charge lenders and reduce the maximum loan sizes eligible for government backing. The limits are set to decline modestly at the end of September to roughly $625,500 from the current $729,750 maximum in high-cost areas such as New York and Los Angeles.

But market advantages for government entities are only part of the problem. Stable housing prices, more than anything else, would make it easier for private lending to return.  Moreover, the economics of securitization don’t work right now. Interest rates are low and investors are demanding high returns, which mean that mortgage-bond deals have made little if any profit for the firms that arrange them. Tight underwriting standards for “jumbo” mortgages—ones too large for government backing—have prompted banks to keep those relatively safe and profitable loans on their books.  “There’s a misunderstanding in the market, an irrational belief that says private capital will emerge” if government-supported mortgage lending looks too expensive, says David Stevens, chief executive of the Mortgage Bankers Association who headed the FHA for two years until March.  Trying to “crowd-in” private money could be dicey if there aren’t broader structural changes to rebuild confidence, so investors don’t have to price in a hefty “uncertainty premium.”  To be sure, some academics say Fannie and Freddie should more aggressively reduce their role in supporting housing markets and test whether private investors will pick up the slack without substantially shocking housing markets.  Historically, most mortgages that weren’t held on bank balance sheets were issued as securities and backed by Fannie, Freddie, or the FHA. During the past decade, investment and mortgage banks jumped in and began issuing their own mortgage-backed securities. These private-label bonds, issued by the likes of Bear Stearns and Countrywide Financial, comprised riskier loans.

Because the banking sector isn’t large enough to hold more mortgages without expanding its deposit base, securitization markets are an integral part of any lending expansion. The private-label market seized up four years ago as investors faced big losses on investments that turned out to be far riskier than advertised. Just two new privately issued mortgage-bond deals have come to market since, one in April 2010 and another in February, and both consisted of mortgages to extremely qualified borrowers.  Investors are looking for standardized contracts that govern private-label deals, better loan disclosures and easily enforceable provisions to kick back loans that don’t meet agreed upon standards. They also want to eliminate conflicts of interest in the collection of loan payments, known as mortgage servicing.  Lawsuits between bond insurers, investors and issuers over the soundness of the underlying mortgages, and disputes over whether ownership of mortgages was properly assigned, further underscore the market breakdown. “There’s pretty much nobody that’s not being sued,” said Ryan Stark, a director at Deutsche Bank Securities, at an industry seminar last month.Regulators have addressed some of those problems with a flurry of rules, but some of them could also complicate a revival.

Policymakers are right to worry over indefinite government stewardship of the mortgage market, which makes laying the foundation for a functioning market all the more pressing. If it’s lacking, housing won’t exit a destructive cycle: one where prices fall because credit isn’t flowing, and where credit doesn’t flow because housing is weak.

Gasoline down, but not going much lower

Gasoline prices have dropped to $3.64 a gallon nationally from a peak of $3.98 in mid-May, according to AAA. Diesel prices at the pump have fallen more slowly but are beginning to catch up and are now averaging $3.97 a gallon.  “We may get down to that $3 to $3.25 neighborhood for some states that have lower taxes and cheaper supply,” said Tom Kloza, chief oil analyst at OPIS. But the coasts, specifically the Northeast, will not see as much relief because of its dependence on higher grade imported oil. The loss of Libya’s light sweet crude output continues to crimp those supplies.  “The price of the sweetest, lightest, least troublesome crude is to a great extent determining the price of gasoline on the coast. I do think you’re going to see prices drop more in the nation’s interiors. Chicago, Detroit, Minneapolis, Ohio. They saw some of the most spectacular increases. They’re going to drop more. For the coasts, and the country as a whole, we’re not really going to drop that much unless we see Brent prices come off,” Kloza said.

Andy Lipow, president of Lipow Oil Associates, said gasoline could fall as much as another $0.10 a gallon nationally by July 4, but after that, the situation is uncertain. “We could see further declines, but I think that’s heavily dependent on how the situation in Greece pans out and affects the value of the euro to the dollar,” he said.  He and Kloza said if Greece were to default, Brent would immediately drop because of the potential ripples across Europe’s economy. “If you’re hoping for $2.50 to $2.75 gas prices, you probably don’t realize it, but you’re hoping for a recession,” said Kloza.  An improving economy could also keep prices high. Kloza said his concern is that oil and gasoline could be pricier next winter and spring, if the global economy improves and supplies tighten.

Olick – investors using cash, credit shrinking

“Nothing like getting to work on a Monday morning and finding no fewer than four dismal reports on the housing market in my ‘Inbox.’  It’s not like anyone thought housing recovered over the weekend (that was pretty clear from the precious few ‘Open House’ signs in my neighborhood at least), but the outlook is deteriorating, and we’re just a day away from getting what is expected to be a weak report on existing home sales for May.  Let’s start with home prices from Fannie Mae’s Economics and Mortgage market Analysis Group, which predicts additional home price declines through the third quarter before flattening out at the end of 2011. ‘Ultimately, the labor market holds the key to a housing recovery, but job growth is needed in order to activate housing demand,’ said Fannie Mae Chief Economist Doug Duncan. ‘Hiring delays will continue to push out timing for the housing rebound.’  Okay, not exactly a shock, but never a good thing to hear analysts say, ‘growth is stalling.’

Now to a new point about investors, from the May Housing Market report from Campbell/Inside Mortgage Finance, which tracks several indices:  ‘The closely-watched survey’s traffic index for first-time homebuyers fell from 51.7 in April to 45.3 in May, while the traffic index for current homeowners fell from 56.1 to 44.8. Meanwhile, the traffic index for investors fell from 55.3 to 54.6. Any index value less than 50 indicates a decrease in traffic from the previous month.  The HousingPulse Survey’s Distressed Property Index, a key measure of the health of the U.S. housing market, fell slightly to 46.7% in April, although sales of distressed properties continued to account for nearly half of the market.  The monthly HousingPulse Survey also showed the proportion of first-time homebuyers in the housing market rose to 37.3% in May, from 35.7% in April. First-time homebuyers have difficulty getting mortgage financing and current homeowners are often locked into properties with negative home equity. That leaves investors to take up the slack,’ says research director for Campbell, Thomas Popik.

The trouble is that investors can’t get financing easily and are largely forced to use cash. In fact 74% bought with cash in May. The survey found a drop in investor activity in May from 23% to just over 21% of purchases. Most investors are using personal funds, like retirement funds, home equity lines of credit and savings accounts, which in itself is concerning; hedge funds and other larger investors make up a much smaller share of buyers, mainly in coastal regions.  All this weakness in housing continues to push more potential buyers to rent.  ‘As we have previously predicted, the U.S. apartment market has been recovering at an astounding pace,’ said Dr. Peter Muoio, senior principal of Maximus Advisors. ‘The sector will continue to benefit from the growing preference for renting over homeownership as well as rapid growth of the young adult population. We predict that vacancies will continue to decline while effective rents grow robustly during the next two years due to limited development of new multifamily properties during the recession.’

And there’s your bright side, if you happen to be an investor in the multi-family sector. I do think that the rental phenomenon will be temporary, but by temporary I mean a decade, not a year. Housing affordability is already enticing enough to bring the buyers back. We are still waiting for the mortgage market to sort itself out.”

Debt situation is like the sub-prime crisis

Monetary policy has been “the great enabler” that central banks used to keep interest rates at “absurdly low levels for years now” and this has encouraged politicians to believe that sovereign debt is “a lot cheaper than it really is,” says David Stockman, former director of the Office of Management and Budget.  “Politicians have not been willing to take the tough steps to impose the pain, the austerity and the tough trade offs that are required to control this,” Stockman said.  But things are changing as the Chinese aren’t buying as much sovereign debt because they have to take care of “their own inflation spiral,” and the Federal Reserve will have to end its second round of money printing soon, he added.  “The current situation is like the sub-prime mortgages crisis of a few years ago,” Stockman said.

Monetary stimulus, or quantitative easing, is officially due to end at the end of the month and talk of more stimulus has been rife, though to date Ben Bernanke, Federal Reserve chairman has kept silent on the issue, despite the debt ceiling deadline of August 2 nearing for Congress to agree on raising it further.

“The day of reckoning is rolling in, it may not be today or this week or this month but we’re very much towards the end of what can be sustained,” Stockman warned.  “In other words the balance sheets of the big countries have been used up. We’ve used ours, we don’t have any balance sheet room left. The ability of the central banks to monetize this debt which they have is coming to an end,” he added.

Prices up and down in midsize markets

Mid-sized cities, much like their larger counterparts, are experiencing a similar phenomenon where home prices are constantly fluctuating up and down.  It’s called a catfish recovery, Altos Research said yesterday. And in a catfish recovery, home prices bob up and down, making it hard to predict when a real recovery or downturn will officially take hold.  In Altos’ 20-city composite report on mid-sized cities, the research agency found home prices increased in 19 of 21 mid-cities surveyed last month. The mid-cities median price rose 1.11% in May, hitting $254,046, compared to $251,247 in April.  The mid-sized cities experiencing the largest increases were Orlando, Fla., Boise, Idaho, and Boulder, Colo., all of which saw price gains above 5.5%.  Altos concluded in its latest report that “headlines are still talking about a double-dip in housing and the mid-cities numbers provide further evidence of strength in prices across the board. The S&P/Case-Shiller numbers will report the same price strength in the late summer and early fall.”  The only mid-sized markets to report declines in the past three months were Honolulu, with price declines in the 2.64% range; Reno, Nev., which experienced a 0.33% decline; and Charleston, S.C. with a 0.24% drop.

See you at the top!
Chris McLaughlin

**************

Copyright Loss Mitigation Institute LLC 2010.
All Rights Reserved.

http://www.shortsalesriches.com

http://www.shortsalescoach.com

http://www.sixfigurebpo.com

http://www.reomillionaireclub.com

http://www.youtube.com/shortsalesriches

http://www.smartrealestatenews.com

(subscribe to this newsletter)

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About the author:

Chris McLaughlin is widely known as America’s top
Real Estate Attorney and Investment Consultant.

* As the top Florida foreclosure and pre-
foreclosure expert, he oversees more than

100 short sale & REO closings each month

* Long-time authority on real estate investing
and rapid reselling of distressed homes.  Owns
portfolio of nearly 150 high-value, high-profit
properties

* Owner of one of Florida’s largest Real Estate firms,
running 4 different offices, supporting over
420 agents, uniquely positioning him to help
thousands of investors make money in the
biggest market opportunity ever!

* In 2010, Chris’ 4 Central Florida real estate offices
closed 2,786 sides for a closed sales volume of
$392,912,927!

* Highly sought-after speaker, consultant, and
seminar leader for current trends and hot topics
in Real Estate Investing, Entrepreneurship, and

Wealth Building

* Follow me on Twitter: http://twitter.com/mclaughlinchris

* Join my Facebook Fan Page: http://www.mclaughlinchris.com

Smart Real Estate News & Commentary by Chris McLaughlin May 18, 2011

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Mortgage refinance up

Mortgage applications increased 7.8% from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending May 13, 2011.  The Market Composite Index, a measure of mortgage loan application volume, increased 7.8% on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index increased 7.1% compared with the previous week. The Refinance Index increased 13.2% from the previous week and is at its highest level since the week ending December 10, 2010.  The seasonally adjusted Purchase Index decreased 3.2% from one week earlier. The unadjusted Purchase Index decreased 3.3% compared with the previous week and was 1.7% lower than the same week one year ago.  “The 30-year fixed mortgage rate is now 53 basis points below its 2011 peak, and has decreased for five straight weeks,” said Michael Fratantoni, MBA’s Vice President of Research. “Over this five week span, the refinance index has increased by about 33%. Refinance application volumes remain about 50% below the most recent peak last October. ”  The four week moving average for the seasonally adjusted Market Index is up 3.6%.  The four week moving average is down 2.9% for the seasonally adjusted Purchase Index, while this average is up 7.2% for the Refinance Index.  The refinance share of mortgage activity increased to 66.7% of total applications from 63.1% the previous week.  This is the largest refinance share observed since late January. The adjustable-rate mortgage (ARM) share of activity decreased to 6.3% from 6.5% of total applications from the previous week.

Commodity prices down

Commodity prices crashed yesterday as disappointing housing data and a stronger dollar pushed already nervous investors out of the market.  Crude oil for June delivery lost 0.47%, falling 46 cents to $96.91 a barrel, while gold dropped 0.71%, or $10.60, to $1,480.00 an ounce. Silver declined 64 cents to $33.49 an ounce, a loss of 1.88%.  The stronger dollar and weak economic numbers are the primary factors driving commodity markets at the moment, according to Daniel Flynn, an energy trader at PFG Best.  The broad underlying fear is that the U.S. economy is slowing down, and traders have a slew of data to back that theory.  And Flynn specifically pointed to the end of the Federal Reserve’s second round of bond buying, eurozone debt worries and the political battle over the debt ceiling as destabilization factors.  ‘We’re in a correction mood on crude and gasoline … and it’s kind of wait and see on these other issues,’ Flynn said.

Olick – can lack of inventory save housing?

“The current supply of homes on the market is the best indicator of the future health of the housing market.  Let me say that again: Inventories matter.  Despite the fact that inventories of newly constructed homes fell to a 7.3 month supply in March from an 8.2 month supply in February, builders put 10.6% fewer holes in the ground in April.  You would think that all this new job creation, which usually goes hand in hand with housing starts, would push the starts up. Nope, both starts and permits fell in April.  Now a lot of folks are blaming this phenomenon on the weather, with tornadoes and rain throughout much of the Southeast. ‘The National Climatic Data Center reported that April ‘was an historic month for severe weather across the Southeast region,’ If we exclude the 23% m/m fall in housing starts in the South, overall starts would have risen to 599,000,’ notes Capital Economics’ senior economist Paul Dales.  I’m sorry, but I really don’t buy the weather story. Yes, I’m sure it had some effect, but permits were also down 4%, and home builder confidence is stuck in the basement, with builders reporting weak buyer traffic and a drop in sales expectations over the next six months. This does not make a builder build.

So back to my inventory issue.  A drop in inventories isn’t making the builders build, but what about the existing market inventories? The Realtors reported a small 1.5% rise in overall existing homes for sale in March, but the higher sales pace brought the months supply down to 8.4. Yes, I know, a four to six month supply is considered ‘healthy.’  We keep saying that existing home inventories are way too high, which is a roadblock to builders and to price improvement. Well guess what? The inventories are only high in some respects, given this bizarre, historic and bifurcated housing market in which we operate.  A new report from Redfin shows new listings of existing homes dropping across the nation compared to a year ago. Seattle listings down 20%, Chicago down 17%, Boston down 7% and Atlanta down 21% to name a few. When you look closer at what type of inventory they’re talking about, it’s the regular, non-distressed inventories that are falling the hardest. Bank-owned new listings are down too, but that’s largely thanks to all the robo-signing delays. It’s simple math. Sellers are afraid of still-falling prices.

‘In most of the major markets, at least on the coasts, we’re seeing inventory down 20 to 35%, so regular homeowners are not going to list their homes at these prices,’ says Redfin CEO Glenn Kelman. ‘If you had a home to sell, you’d probably wait a year if you could. You’d have to have a hole in your head to list it now because prices are down.’  Yes, there are a lot of distressed properties out there in some markets. Las Vegas is the only major market that saw an increase in inventories of homes for sale, but that’s because upwards of three quarters of that market is distressed homes. REO (bank owned) and short-sale inventory is high and will likely get higher in the coming months as banks process more foreclosures and push through short sales more efficiently. But organic, non-distressed sellers are holding off, and that is actually creating a phenomenon we haven’t seen since the housing boom.  ‘We’ve had bidding wars in Seattle, Portland, San Francisco, Atlanta, Washington DC, across the U.S. We have seen increased demand and limited supply, especially for those pretty homes that are listed by regular owners rather than the distressed inventory that’s listed by the banks,’ claims Kelman.  I have to say I believe him, because in my DC neighborhood, where there are very few foreclosures if any, there are also precious few listings. I’ve been watching my local listings for years, from boom to bust, and the current pickings are slim.

So dare I say it? Could this inventory issue be the catalyst to home price stability? I’m not talking about the big bad foreclosure markets, but the rest of the country, where demand is rising and the number of listings are falling. I hate to go back to that boring old theory of supply and demand, but might it actually prevail?”

New York mortgage probe

New York’s attorney general is investigating three Wall Street banks for their roles in the mortgage crisis that led to the downfall of the economy.  Attorney General Eric Schneiderman has requested meetings with staffers from Bank of America, Morgan Stanley and Goldman Sachs.  These and other Wall Street banks have been blamed by lawmakers and the public for exasperating the recession through their backing of risky home loans, and then bundling those loans into mortgage funds that were traded on the markets.  For example, during a congressional hearing in 2010, lawmakers lambasted Goldman CEO Lloyd Blankfein for his firm’s practice of buying parts of risky mortgages and then placing bets against those same mortgages.  Prosecutors have ramped up pressure against Wall Street finance companies to bring them to task for the roles they allegedly played in causing the economy to implode through a series of risky investments and over-leveraging.  Federal prosecutors sued Deutsche Bank on May 3, claiming that its MortgageIT unit made tens of thousands of bad loans and then fooled the Federal Housing Authority into insuring them. The government says that the scheme stuck taxpayers with having to pay hundreds of millions of dollars.  Deutsche Bank could face claims of at least $1 billion.

Delinquencies rise in April

Mortgages 30 or more days delinquent or in foreclosure totaled 6.38 million in April, a 2.3% increase from the previous month, according to Lender Processing Services (LPS).  The LPS “first look” monthly mortgage performance report showed a sudden increase in troubled loans in April after an 11% monthly drop in March. However, delinquencies are still 16.3% below levels seen one year ago. Overall, 7.97% of all loans in the LPS database are 30 or more days delinquent.  Of the 6.38 million properties in 30-day delinquency or worse, 4.2 million are not in foreclosure. There are also 1.9 million loans 90 days or more delinquent but not in foreclosure.  These mortgages are the exact ones making up the shadow inventory of foreclosures that are keeping downward pressure on home prices and stalling out a recovery.  According to another data provider, CoreLogic, the shadow inventory has declined slightly over the past year.  CoreLogic defines the shadow inventory as mortgages in at least 90-day delinquency and currently transitioning from foreclosure to REO. This supply of properties currently not on MLS systems but winding through the foreclosure process fell to 1.8 million in January 2011, down from 2 million the year before.  But this inventory will continue to see incoming loans for some time.  “In addition to the current shadow supply, there are nearly 2 million nondelinquent or current negative equity loans that are more than 50% upside down that will likely become shadow supply in the near future,” CoreLogic said.

See you at the top!

Chris McLaughlin
**************

Copyright Loss Mitigation Institute LLC 2010.

All Rights Reserved.

http://www.shortsalesriches.com
http://www.shortsalescoach.com
http://www.sixfigurebpo.com
http://www.reomillionaireclub.com
http://www.youtube.com/shortsalesriches 

http://www.smartrealestatenews.com

(subscribe to this newsletter)

*************************************************
About the author:

Chris McLaughlin is widely known as America’s top
Real Estate Attorney and Investment Consultant.

    * As the top Florida foreclosure and pre-
      foreclosure expert, he oversees more than
      100 short sale & REO closings each month

   * Long-time authority on real estate investing
      and rapid reselling of distressed homes.  Owns
      portfolio of nearly 150 high-value, high-profit
      properties

    * Owner of one of Florida’s largest Real Estate firms,
     running 4 different offices, supporting over
     420 agents, uniquely positioning him to help
     thousands of investors make money in the
     biggest market opportunity ever!

   * In 2010, Chris’ 4 Central Florida real estate offices

      closed 2,786 sides for a closed sales volume of

      $392,912,927!  

    * Highly sought-after speaker, consultant, and
      seminar leader for current trends and hot topics
      in Real Estate Investing, Entrepreneurship, and
      Wealth Building

    * Follow me on Twitter: http://twitter.com/mclaughlinchris

    * Join my Facebook Fan Page: http://www.mclaughlinchris.com

Smart Real Estate News & Commentary by Chris McLaughlin April 20, 2011

Forward this e-mail to your friends!  Then they can subscribe directly at the following link:  http://www.smartrealestatenews.com/

*** Join Chris’ Facebook Fan Page–> http://www.mclaughlinchris.com

*** Follow Chris on Twitter–> http://www.twitter.com/mclaughlinchris

************************************************************

Mortgage Applications Up

Mortgage applications increased 5.3% from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending April 15, 2011.  The Market Composite Index, a measure of mortgage loan application volume, increased 5.3% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 5.9% compared with the previous week. The Refinance Index increased 2.7% from the previous week. The seasonally adjusted Purchase Index increased 10.0% to its highest level since December 3, 2010, driven largely by a 17.6% increase in Government purchase applications. The unadjusted Purchase Index increased 10.9% compared with the previous week and was 11.4% lower than the same week one year ago. 

“Purchase application volume jumped last week largely due to another sharp increase in applications for government loans. Borrowers were likely motivated to apply for loans before the scheduled increase in FHA insurance premiums,” said Michael Fratantoni, MBA’s Vice President of Research and Economics.  “Refinance activity increased somewhat, as rates dropped to their lowest level in a month towards the end of the week.”  The four week moving average for the seasonally adjusted Market Index is down 2.9%. The four week moving average is up 2.5% for the seasonally adjusted Purchase Index, while this average is down 5.7% for the Refinance Index.  The refinance share of mortgage activity decreased to 58.5% of total applications from 60.3% the previous week. This is the lowest refinance share since May 7, 2010. The adjustable-rate mortgage (ARM) share of activity increased to 6.5% from 5.9% of total applications from the previous week.

For Fannie/Freddie lenders to approve a mortgage to finance purchase of a condo, a large majority of the units — 70% — have to be already sold or under contract to individuals. Before 2009, the threshold was 51%.  If more than 30% are still owned by the company that built the complex or sponsored its conversion from rental units, the mortgage will be denied, no matter how qualified the buyer is.  Fannie and Freddie have also increased their emphasis on income relative to debt.  If someone’s total debt payments exceed 45% of income, the mortgage will be denied. In 2009, the limit was 55%. 

Some borrowers lost homes to foreclosure but then diligently rebuilt their financial health. Despite high credit scores, ample assets and income and steady employment, lenders are not allowed to finance their Fannie/Freddie mortgages if their foreclosures happened any time within the past seven years.  Before spring last year, the wait time was five years.  Fannie and Freddie also have gotten stricter in how they factor in missed payments on credit cards, auto loans and other debts in which the balances do not have to be paid off every month.  They used to be okay with a missed payment or two. Now, one missed payment will hit your debt-to-income ratio, because banks will add 5% of your outstanding loan balance to the debt part of the calculation.

Gold tops $1500

Gold prices topped a record $1,500 for the first time ever yesterday, shattering an important psychological barrier as investors seek out investments thought to be safe during times of upheaval.  The price spike also comes against the backdrop of market uncertainty that has sent investors looking for an alternative to the weak U.S. dollar. And gold has been the marquee beneficiary.  Standard & Poor’s lowered its outlook for America’s long-term debt to “negative” from “stable,” based on uncertainty surrounding the nation’s fiscal problems.  That’s exactly the type of news that creates a flight to safe haven assets like gold. 

Gold futures for June delivery hit an intraday record of $1,500.50 an ounce near midday, before retreating to settle at $1,495.10 an ounce — also a new record.  The price of gold has tracked steadily higher in recent months, as a cavalcade of unsettling world events created uncertainty in global markets.  Since the start of the year, investors have been forced to consider the implications of a Japanese tsunami, earthquake and nuclear disaster. That’s in addition to a spike in crude prices and a slew of revolts in the Middle East and North Africa.  Inflation — which gold is often used to hedge against — has been rising sharply in emerging economies and is becoming more of an issue in Europe.

Mortgages harder to get

Banks are reluctant to make loans without the Fannie and Freddie guarantee, and loans backed by them account for just about every mortgage written these days.  In 2009, the agencies lifted the minimum credit score that borrowers must have from 580 to 620. That’s probably for the best.  But they’ve pushed through a host of other requirements as well, and that means real estate deals don’t get done, even for some relatively low-risk borrowers.  “You can have one Fannie/Freddie guideline you violate and that gets you rejected,” said Alan Rosenbaum of GuardHill Financial.  According to the Federal Reserve, a quarter of all mortgage loan applicants get denied. Many other potential homebuyers never even try to get loans, said Jerry Howard, president of the National Association of Home Builders.

Slow comeback for offshore drilling

One year after BP’s Macondo well blew out – claiming 11 lives and sparking a ban on deepwater drilling — 11 new deepwater and 49 shallow water drilling permits have been issued, according to the federal agency that oversees offshore drilling.  That’s far less than usual. But given that most of these new permits have come in the last few months, it’s a welcome sign for many in the industry who feared for their livelihoods.  The government had stopped granting permits to drill new oil and gas wells, saying it needed time to reform a regulatory agency that was rife with conflicts of interest and too lax in its oversight. 

Those reform efforts are ongoing. So far they have included splitting the agency into two parts to separate the revenue collection division from the enforcement unit, strengthening safety and environmental requirements and hiring more inspectors.  Permits for shallow water wells resumed last summer, albeit it at a slower pace than many in the industry would have liked. The first deepwater permit since the spill was issued in February.  According to the U.S. Energy Information Agency, Gulf oil production will drop by 190,000 barrels a day in 2011 and 2012 due to permitting delays and natural field declines.  In total, the country produces just under 10 million barrels of oil a day and consumers use about 19, according to EIA.  Most Americans support increased offshore drilling. 69% are in favor of expanding the practice, up from 49% right after the spill.

National delinquency rate drops

The national delinquency rate continued to fall in March, according to the “First Look” report from Lender Processing Services, down to 7.8%.  The report provides month-end mortgage performance statistics from LPS’ loan-level database of nearly 40 million mortgages. The Jacksonville, Fla.-based firm will release more detailed reporting in its upcoming “Mortgage Monitor” report, which comes out at the end of this month. 

The delinquency rate has consistently decreased throughout all of 2011.  March’s figure is down 11.6% compared to February and down 19.4% compared to March 2010. This still accounts for an estimated 4.1 million homes that are 30-plus days delinquent, LPS reported. Approximately 2 million of those are seriously delinquent, meaning 90-plus days delinquent but not in foreclosure.  There are also an estimated 2.2 million homes that make up the foreclosure pre-sale inventory, LPS said.  Florida posted the highest percentage of noncurrent loans statewide in January, followed by Nevada, Mississippi, New Jersey and Georgia. The states with the least%age were, in descending order, Montana, Wyoming, Alaska, South Dakota and North Dakota.

See you at the top!

Chris McLaughlin
**************

Copyright Loss Mitigation Institute LLC 2010.

All Rights Reserved.

http://www.shortsalesriches.com
http://www.shortsalescoach.com
http://www.sixfigurebpo.com
http://www.reomillionaireclub.com
http://www.youtube.com/shortsalesriches 

http://www.smartrealestatenews.com (subscribe to this newsletter)

*************************************************
About the author:

Chris McLaughlin is widely known as America’s top
Real Estate Attorney and Investment Consultant.

    * As the top Florida foreclosure and pre-
      foreclosure expert, he oversees more than
      100 short sale & REO closings each month
   * Long-time authority on real estate investing
      and rapid reselling of distressed homes.  Owns
      portfolio of nearly 150 high-value, high-profit
      properties
    * Owner of one of Florida’s largest Real Estate firms,
     running 4 different offices, supporting over
     420 agents, uniquely positioning him to help
     thousands of investors make money in the
     biggest market opportunity ever!

   * In 2010, Chris’ 4 Central Florida real estate offices

      closed 2,786 sides for a closed sales volume of

      $392,912,927!  
    * Highly sought-after speaker, consultant, and
      seminar leader for current trends and hot topics
      in Real Estate Investing, Entrepreneurship, and
      Wealth Building
    * Follow me on Twitter: http://twitter.com/mclaughlinchris
    * Join my Facebook Fan Page: http://www.mclaughlinchris.com
–

Smart Real Estate News & Commentary by Chris McLaughlin November 22, 2010

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Foreclosure mess scares off homebuyers

The ongoing controversy surrounding foreclosures is taking its toll as homebuyers refused to look at distressed properties in October, and foreclosure sales suffered from delays, according to the latest Campbell/Inside Mortgage Finance Monthly Survey.  Both the share of home purchases involving distressed properties and average prices for foreclosed properties fell last month, the survey found.  News reports that major servicers were pulling REOs off the market, including some already under contract, spooked would-be homebuyers. The monthly survey found that 14% of owner-occupant homebuyers and 6% of investors refused to view foreclosed properties in October. Homebuyer fear was worse for short-sale properties where 30% of owner-occupant buyers, and 20% of investors refused to view these homes. 

Servicing problems disrupted both short sales and REO sales. Survey results show that 24% of closings scheduled for October were delayed or canceled due to issues with short sales, while 12% were delayed or canceled due to REO title issues.  Although distressed properties have dominated home sales for much of 2010, recent foreclosure problems helped trigger a dip in their share of the market last month, according to the survey. In October, distressed properties accounted for 44.3% of transactions tracked in the latest survey — down from 47.5% in September.  “It’s clear that decreased homebuyer demand for distressed properties has resulted in lower prices,” said Thomas Popik, research director for Campbell Surveys.  “With the foreclosure ‘fraud’ issue still out there, buyers are skeptical to purchase a REO. Until the fraud mess gets cleared up, most of our clients are second guessing their interest in REO properties,” reported a Florida real estate agent responding in the latest survey.

October home sales down

According to the RE/MAX National Housing Report released Friday, October home sales slid 9.8% from September and 30.2% compared to the year-ago period as seasonal slowdowns and the expired homebuyer’s tax credit took their toll.  Activity in October is in line with “the usual summer-to-fall selling pattern,” falling from September, according to RE/MAX.  Out of the 54 metropolitan areas surveyed, only Burlington, Vt., experienced a year-over-year increase in home sales activity. Sales were up 59.3% compared to 2009.  “It’s understandable that sales are lower than the same time last year since the data was artificially inflated in October 2009 by homebuyers rushing to take advantage of the tax credit,” said Margaret Kelly, CEO of RE/MAX. “We’re pleased that despite all the market swings, home prices have remained stable.”  

Home prices nationwide fell 0.68% in October compared to the same period in 2009. RE/MAX said 35 of the surveyed areas actually witnessed a price increase, while 18 witnessed a price decrease.  The inventory of houses on the market in October dropped 5.7% from September and 1.1% from October 2009. There is now a 9.7-month supply of houses on the market, according to the report. RE/MAX considers a six-month supply of home equilibrium between buyer and sellers.

The bill comes due for states

States have borrowed $41 billion from a federal fund to cover unemployment checks for their jobless residents, and now the bill is coming due.  Some 31 states will have to shell out an estimated $1.4 billion in interest payments on these loans next year. They had been spared this expense because of an obscure provision of the 2009 Recovery Act that expires on Dec. 31.  The burden to cover this cost will fall mainly on businesses, who will see their unemployment taxes rise. But states will be hit too since the increased expense will likely deter companies from hiring new employees.  “To escape the recession, we need economic recovery,” said Rochelle Webb, the president of the National Association of State Workforce Agencies and head of Arizona’s unemployment insurance system. “If local employers are facing increased taxes, they are going to say they can’t afford to expand their businesses.”  States use taxes from employers to pay 26 weeks of jobless claims. But the tax revenue hasn’t kept up with the huge spike in unemployment, forcing many states to borrow from the federal unemployment trust fund.  To pay the federal fund back, states have been raising taxes on companies. Two dozen states hiked such levies in 2010 and more are looking to do so again in 2011.  But the interest payments on the federal loans cannot be paid from these standard unemployment taxes. Some states have automatic “solvency” taxes that kick in. in others, lawmakers are wrestling with how to cover the tab — at a time when budget shortfalls are already a problem.

Olick – which way are mortgage rates going?

“You can’t time mortgage rates any more than you can time the stock market, but that hasn’t stopped any number of my friends and colleagues from begging me to tell them if rates are going up or heading further down.  I have no idea.  What I do know is that borrowers are more sensitive now to mortgage rates than ever before in my memory, even as rates continue to hover near record lows.  All you have to do is look at last week’s data on mortgage applications from the Mortgage Bankers Association. Rates jumped up over a quarter point, and applications to refinance plummeted 16.5%. Applications to purchase a home, which you would think would be far less sensitive to weekly rates, also dropped, albeit just 5%, but that was after many weeks of increases. 

I thought it might be interesting to take a look at how applications run with rates. Take a look first at the last three months of rates compared to refis. You can see a definite correlation that when rates go down, applications go up. That’s an easy one because a lot of refinancing is really just gambling with time.  Now look at the same comparison to purchase applications. You would think, again, that home buyers, looking at the big picture, would not move dramatically over a small shift in rates, but they do seem to move accordingly. This just tells me that home buyers today are more nervous, sensitive and cash-strapped than ever before.  So now to the question we all want answered, as we all try to figure out the Federal Reserve’s moves in quantitative easing II, where are rates going on the 30-year fixed (by far the loan of choice today)?

Peter Boockvar, Miller Tabak:  ‘In the short term, because of the Fed’s almost daily influence in the US treasury market with their asset purchases, it has gotten very difficult to predict where the 10-year and thus mortgage rates go from here, but I think the bond market action in response so far is a sign that they are going higher. That raises of course a huge risk for the Fed. Over the past 10 years, the average spread between the 10 year US Treasury yield and the average 30-year mortgage rate according to Bankrate.com is 155 bps, and as of today we are at 167 bps with Bankrate 30-year rates at 4.55% and the 10-year at 2.88%, so pretty close to average. Over the next 2 weeks the Treasury comes to market with more auctions and that will be key short test of sentiment to the current level of interest rates in light of recent events.’”

Banks short $100-$150 billion

The top 35 US banks will be short of between $100 billion and $150 billion in equity capital after the new Basel III global bank regulations are imposed, with 90% of the shortfall concentrated in the biggest six banks, according to Barclays Capital.  The BarCap study assumes the banks will need to hold top quality capital equal to 8% of their total assets, adjusted for risk.  This 8% tier one capital ratio, a key measure of bank strength, provides a one point cushion against falling below the effective global minimum of 7% set in September by the Basel Committee on Banking Supervision.  The Basel III reforms will hit banks in two ways – by gradually tightening the definition of what counts as tier one capital; and by forcing banks to increase the risk adjustment for big swathes of their businesses.  Banks can respond by increasing their capital through retained earnings or equity issuance or they can cut their risk-weighted assets through sell-offs and by cutting back on risky business lines.  Analysts say it is hard to predict the impact of the reforms on US banks because they have to apply Basel III risk-weighted asset changes as well as an earlier Basel II set of rules that European banks have been following for years.  Analysts at CLSA, an arm of Credit Agricole, estimate the 14 biggest US global and regional banks will need a total of $41 billion to achieve the same 8% tier one ratio, if both the Basel II and III changes are included.

Now for our real estate education section…

Beat the Decade of Decay

Have your investments beat the decade of decay? It’s a question every serious investor needs to ask or otherwise, you may be one of the millions of Americans at risk for a long delayed retirement or worse…no retirement at all. Take this starting statistics as an example of why the past decade has been responsible for a decline in the standard of living:

$100,000 from the year 2002 is now only worth $87,000 in just 8 short years!

At the same time, the cost of many items you use every day has gone up…dramatically. Insurance, healthcare and tuition have experienced double digit inflation. Food, fuel and commodities are approaching triple digit increases. Meanwhile, “safe” investments like Treasury Bonds are actually negative after adjusting for inflation. It’s no wonder many people are wondering what they can do to beat the decade of decay. Fortunately there are still some solutions available to those interested in restoring their financial future.

1. Invest a portion of your portfolio into foreign currencies or assets -including real estate. Markets can be volatile so unless you are an experienced investor, FOREX is not the place to get your feet wet. On the other hand, the extra-low cost of land makes foreign real estate an especially attractive investment for many small business owners, retirees or just those that would like to hedge their bets.

2. Invest in natural resources. Gold, oil, gas, wheat, corn and even water are just a few areas that have experienced explosive growth. Of course, the stock market has experienced more than its share of ups and downs much less junior stocks, OTC and other areas often dominated by emerging natural resource companies. Of course, there is another way to invest in natural resources…direct ownership! It doesn’t take a lot to generate impressive returns; some gas and oil leases pay anywhere from a few hundred dollars per acre to $20,000 per acre in additional income each year…and you still own the land!

3. Invest in fast cash. Investing in short sale real estate is one way to use small amounts of money to generate large returns in a short period of time while remaining in control of the risk. Where else can you generate double or even triple digit returns in a matter of months (sometimes only weeks)…all in your spare time?

4. Invest in the present – not the past. Forget what worked in the past…that was yesterday and even if it worked once, there is no guarantee it will work again. Sure, stocks have gone up but they also go down when you expect it least. The same applies to precious metals, money market accounts and nearly every other investment classification. Although there is a proper time and place for each of these, one investment remains a cornerstone to every portfolio…real estate. High leverage, low risk and an above average level of control make it a mainstay for investors large and small.

See you at the top!

Chris McLaughlin
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Copyright Loss Mitigation Institute LLC 2010.

All Rights Reserved.

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http://www.reomillionaireclub.com
http://www.youtube.com/shortsalesriches 

http://www.smartrealestatenews.com (subscribe to this newsletter)

*************************************************
About the author:

Chris McLaughlin is widely known as America’s top
Real Estate Attorney and Investment Consultant.

    * As the top Florida foreclosure and pre-
      foreclosure expert, he oversees more than
      100 short sale & REO closings each month
   * Long-time authority on real estate investing
      and rapid reselling of distressed homes.  Owns
      portfolio of nearly 100 high-value, high-profit
     properties
    * Owner of one of Florida’s largest Real Estate firms,
     running 4 different offices, supporting over
     400 agents, uniquely positioning him to help
     thousands of investors make money in the
     biggest market opportunity ever!
    * Highly sought-after speaker, consultant, and
      seminar leader for current trends and hot topics
      in Real Estate Investing, Entrepreneurship, and
      Wealth Building
    * Follow me on Twitter: http://twitter.com/mclaughlinchris
    * Join my Facebook Fan Page: http://www.mclaughlinchris.com
–