Olick

Smart Real Estate News & Commentary by Chris McLaughlin February 3, 2012

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Home prices declined almost 5% in 2011

Home prices decreased 4.7% in 2011 compared to the year before, marking the fifth consecutive year-end decrease in the CoreLogic home price index. Excluding distressed sales, home prices decreased 0.9% last year, which CoreLogic said gives an indication “of the impact of distressed sales on home prices in 2011.” Home sales last year also show month-over-month declines. December showed the fifth consecutive monthly decline with a drop of 1.4%, but rose 0.2% when distressed sales were removed from the equation.

The December decline followed a much larger drop of 4.3% in November, compared to November 2010. “While overall prices declined by almost 5% in 2011, nondistressed prices showed only a small decrease. Until distressed sales in the market recede, we will see continued downward pressure on prices,” said Mark Fleming, chief economist for CoreLogic. While national statistics may be bleak, a few states posted increases in the price of homes last year. Montana came in first with 4.4% appreciation with distressed sales included, followed by Vermont (+4%), South Dakota (+3.1%), Nebraska (+2.5%) and New York (+1.7%). Illinois had the biggest 2011 decline in prices, 11.3%, followed by Nevada at 10.6%. Nevada’s peak-to-current decrease stands at 60% (including distressed homes), compared with a national decrease of 33.7%.

Employment up

The pace of job creation surged in January, with the US economy generating 243,000 new positions while the unemployment rate dropped to 8.3%, according to government data released today. Both numbers were far better than consensus, which expected a growth of 150,000 jobs and a steady unemployment rate of 8.5%. The overall work week remained unchanged at 34.5 hours while wages rose an average of four cents an hour to $23.29. The closely watched labor-force participation number, which can skew the unemployment rate, fell to 63.7%, the lowest since May 1983. The number of those working part-time for economic reasons rose 1.2%. Job gains have been concentrated primarily in the service sector, particularly in retail and the food and beverage industries. Warehousing, manufacturing, mining and health care also have participated. True to form, services were responsible for 162,000 of the January swell, with manufacturing payrolls growing 50,000. Government cuts subtracted 14,000 from the total. The total number of unemployed fell below 13 million for the first time since February 2009, while the total amount of employed Americans rose to 141.6 million, an increase of 847,000 from December. The unemployment rate was last this low in February 2009. The so-called real unemployment rate, which measures discouraged workers as well and is referred to as the U-6, nudged lower to 15.1%.

Long-term unemployment, though, remains a problem, with the duration dropping from a near-record 40.8 weeks to 40.1 weeks. Also, the level of discouraged workers surged, rising 7% to its highest level since December 2010. Job growth remains one of the two missing pieces of the recovery puzzle, even though the rate has been on a steady trek lower. In December, the economy created 203,000 jobs and the unemployment rate slipped to 8.5%, well off its 10.1% cycle peak. The monthly jobs report generally draws considerable trader reaction, which as of late has been all negative.

Olick – rent vs own riles government policy

“Fannie Mae and Freddie Mac, the mortgage giants under government conservatorship, together owned 182,212 foreclosed properties as of the end of September. While they aggressively market and sell these homes to investors and owner-occupants alike, the numbers are still too high; these number could go far higher, as foreclosures previously stalled by paperwork issues come back into process. That’s why the federal regulator overseeing the two is launching a bulk sale program, offering investors the chance to buy foreclosed properties at a discount, as long as those investors turn the properties into viable rentals for a specified number of years. ‘This rental period could provide relief for local housing markets that continue to be depressed by the volume of foreclosed properties, and provide additional rental options to certain markets,’ according to a release from the regulator, the Federal Housing Finance Agency (FHFA).

The FHFA launched the initial phase of pre-qualification. Investors must prove they have ‘(a) the financial wherewithal to acquire the assets; (b) sufficient experience and knowledge in financial and business matters to analyze and bear the risks of the investment opportunity; and (c) agreement to keep certain information about the REO [Real Estate Owned, i.e. bank owned] and related matters confidential.’ That last part is to keep the prices competitive as the market starts to improve. Giving investors the opportunity to help clear the massive amount of distress in the housing market is crucial. The inventory of foreclosed properties is large, getting larger, and making it impossible for the overall market to achieve price stability. Witness a report today from CoreLogic which shows that home prices in December fell 4.7% year-over-year including sales of distressed properties. Excluding those properties, home prices fell less than one%.

Some, however, think the program is a negative: ‘People are brainwashed to think foreclosures are a bad thing for the housing market. Perhaps four years ago when a million loans all went into default and Foreclosure at the same time but not today. Today, 1st timers and investors — with an insatiable appetite for foreclosures, REO resales, and short sales — are the bedrock of this housing market.’ – Mark Hanson, Mortgage Analyst

‘Foreclosed homes are already meeting strong demand from investors when they come to market. We think these buyers are willing to pay a relatively full price, as they know the specific locations, and a large number of buyers have the ability to bid on the individual homes (doesn’t require significant capital)… Additionally, it will be difficult/expensive for investors to scale up operations given the broad geographic dispersion of properties vs. more traditional rental units, potentially limiting participation.’ – Dan Oppenheim, Credit-Suisse

Oppenheim also asks a valid question as to why the government would offer discounts to large investors buying in bulk, but not to individual investors buying perhaps a single property. There are plenty of Americans out there salivating over incredibly low-priced homes; rental income could be as much of a boon to them as perhaps a tax cut or a refinance. It was interesting yesterday, during his speech touting a proposed new government mortgage refinance program, President Obama, caught up in the moment, exclaimed, ‘No more renting!’ Putting aside the public relations blunder that was, given the fact that the FHFA had announced its REO to rent program not two hours before, it just drove home the conflict our government has between what it thinks Americans want to hear and what our economic reality dictates.

A few simple facts: There is not enough buyer demand to meet the number of homes for sale. A huge number of the homes for sale are empty, foreclosed properties. Too many Americans either cannot afford to buy a home or do not have the credit necessary to finance a home. Too many Americans cannot afford to sell their current homes in order to move or step up to a larger home. Rental demand is therefore strong and getting stronger. While homeownership may be a tenet of the ‘American Dream,’ renting is today’s actuality for a growing number of Americans. Whether it is large investor bulk programs or single investor incentives, adding to rental supply, thereby lowering rents, while at the same time clearing the market of foreclosed properties is a win. It may not be as politically palatable as offering ‘responsible’ borrowers a veiled tax credit in the form of a mortgage refinance, but it is good medicine for what ails housing.”

Pension threat for market investors

It’s no secret that the financial crisis and resulting malaise has taken its toll on bank stocks, commodities and Treasury yields. But it may be have triggered another ripple – one that has gone somewhat unnoticed. Pension funds have become seriously underfunded. According to a recent report from Credit Suisse some of the nation’s largest companies owe their pensions more than 25% of their market cap (after taxes). Although the problem is complex, at its core is simple math. Many firms forecast returns of 8% annually, and that just hasn’t happened. This developing situation is potentially market moving because it could require companies to make larger contributions – much larger. And if contributions ‘do’ go up, the money will have to come from someplace on the balance sheet.

“A pension accounting change at UPS will result in $527 million after tax charge in 2011,” says Joe Terranova. “And Sunoco said they have to contribute $80 million into their pension funds.” In other words, the need to fund pensions could drag down profits and, in turn, share price. In fact, the pension liability at AK Steel was cited by BofA as a reason behind their recent decision to downgrade the stock to ‘Underperform’ from ‘Neutral.” “I think in 2012 it will be a recurring issue,” Terranova says. John Ehrhardt of Milliman confirms the thesis. He tells us that investors should expect record numbers of earnings charges in 2012. “Record low interest rates result in historically high liabilities and the only remaining lever may be employer contributions.” And according to Ehrhardt this may be just the tip of the iceberg. “These companies are going to need 20-30% returns to fill the kinds of gaps we’re talking about.”

WSJ – Ally financial swings to loss

Ally Financial Inc., the US government-owned auto lender, swung to a $250 million net loss in the fourth quarter after taking a charge for regulatory penalties stemming from foreclosure matters. The Detroit-based lender, which provides financing for General Motors Co. and Chrysler Group LLC dealers and customers, continued to make money from its auto-lending operations, but the results were weighed down again by its mortgage unit, which is saddled with lawsuits over foreclosures and soured mortgage investments. The loss compares to a year-ago profit of $79 million. It had a core pretax loss, which reflects results from continuing operations before taxes and other expenses, of $24 million, down from $526 million. Excluding a $270 million foreclosure-related charge, core pretax income would have been $246 million.

“One of our key priorities remains aggressively addressing the risks related to the mortgage business and taking steps to protect the key franchises at Ally,” Michael Carpenter, the company’s chief executive, said in a statement. “This will be critical to advance plans to repay the US taxpayer.” Ally, which was formerly owned by GM, is one of at least five major mortgage servicers in discussions with state and federal regulators over a potential settlement of “robo-signing” and other alleged foreclosure offenses. Regulators are close to finalizing a deal worth as much as $25 billion that could also include Bank of America Corp., Citigroup Inc., J.P. Morgan Chase & Co. and Wells Fargo & Co. On Tuesday, Ally said it would record the $270 million charge in the fourth quarter for penalties from regulators and other government agencies related to foreclosure issues.

The charge was mainly related to its mortgage subsidiary, Residential Capital, which has been the subject of bankruptcy speculation for several months. The charge caused a temporary decline in ResCap’s tangible net worth below $250 million, breaching debt covenants of some of its lenders, Ally said. Ally has been trying to scale back its mortgage operations as it focuses on building up its auto business and online retail bank. In November, the company said it would significantly curtail its correspondent lending operations, which comprise the bulk of its mortgage originations.

See you at the top!
Chris McLaughlin

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

Copyright Loss Mitigation Institute LLC 2011.
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 January 31, 2012

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Washington state considers short sale protection

Banks could soon be barred from pursuing deficiency judgments against Washington state borrowers after a short sale. A Senate committee in the Washington State Legislature will hold a hearing over H.B. 2718, which states that if a bank “writes off debt from the short sale, they can’t then subsequently collect this debt from the seller. The bill was modeled after similar action passed in Oregon last summer. The bill if passed does not require the lender to accept a short sale offer. It would go into effect with 90 days of being passed. According to a Washington Realtors alert put out late last week, a borrower would report the write off to the Internal Revenue Service and take a tax deduction for the loss. This same amount is also counted as taxable income for the seller. “Providing certainty and consumer protections for short sale sellers is critical in the current real estate market,” the trade group said. “Successful short sales often prevent foreclosures that would harm consumers, tax revenue and economic recovery.” After the Oregon bill took effect in June, REO numbers became choppy and then began to fall at the end of the year. In September, repossessed homes totaled 1,420, according to RealtyTrac. That number increased to 2,057 the following month then slid to 936 in November and 874 in December. Some of that could be due to seasonal trends. Most lenders put repossessions on hold during the holiday season, but the December total was down 29% from the same month one year earlier.

S&P warns of rate cuts over health costs
Ratings agency Standard & Poor’s warned it may downgrade “a number of highly rated” Group of 20 countries from 2015 if their governments fail to enact reforms to curb rising healthcare spending and other costs related to aging populations. Developed nations in Europe, as well as Japan and the United States, are likely to suffer the largest deterioration in their public finances in the next four decades as more elderly strain social safety nets, S&P said in a report. “Steadily rising healthcare spending will pull heavily on public purse strings in the coming decades,” S&P analyst Marko Mrsnik wrote in the report. “If governments do not change their social protection systems, they will likely become unsustainable.” If no reforms are adopted, healthcare-related credit downgrades would likely start within three years, eventually leading to an increase in the number of junk-rated countries as of 2020, the study showed.

Olick – US Treasury forcing principal forgiveness

“Late Friday the US Treasury Department announced a major expansion of its Home Affordable Modification Program (HAMP). The three-year-old program has been largely deemed unsuccessful, as it has provided just about 750,000 borrowers with permanent loan modifications. The initial expectation from government officials was that it would help three to four million borrowers. ‘Clearly the initial program erred on the side of making sure taxpayers were protected, but it didn’t do enough to help the overall economy,’ said Michael Barr, former Asst. Treasury Secretary for Financial Institutions and one of HAMP’s original architects. Now taxpayers will pony up the cash, as Treasury is tripling the financial incentives to lenders and opening the program up to Fannie Mae, Freddie Mac and investors in rental properties. The money would come out of TARP funds, i.e. from the taxpayers. We still don’t know if Fannie and Freddie will participate, since their conservator, the FHFA’s Ed DeMarco, has been actively fighting principal write down for years. A week ago he sent a letter to members of congress explaining the math behind his argument.

But the Treasury may be forcing DeMarco’s hand. He claimed that writing down mortgage principal would cost $4 billion more than the modifications that Fannie and Freddie are doing now. Those involve interest rate reduction and principal forbearance. The newly expanded HAMP, however, with its triple- sized cash incentives, would shore up that $4 billion hole. Funny how he mentioned that hole on Monday, and the Treasury announced the new plan Friday. ‘If he [DeMarco] doesn’t get to yes, then he has no political leg to stand on,’ says FBR’s Ed Mills, who estimates the enhanced program could add one million borrowers to its ranks. Mills says a ‘no’ from DeMarco would enable the Obama Administration to replace him, which it tried to do once before, only to be blocked by members of Congress. ‘It would be an appropriate response for him to do it,’ says Barr of DeMarco. ‘I do think they should participate.’ I asked Barr why the Treasury waited three years to use the TARP funds for principal reduction. The obvious answer is that this is presidential election year, and the housing market is still floundering, but Barr claims the Treasury was just being careful. ‘It’s a use of taxpayer funds, and you want to make sure you’re not providing more of an incentive than is required,’ he said. ‘One person’s successful program is another person’s bailout.’”

Treasury department stirs the pot

The Treasury Department is investigating a report that Freddie Mac, the mortgage giant, bet against homeowners’ ability to refinance their loans even as it was making it more difficult for them to do so, Jay Carney, the White House spokesman, said yesterday. ProPublica and National Public Radio reported that Freddie Mac, which maintained slightly tighter restrictions than Fannie on homeowners’ eligibility to refinance, had a multibillion-dollar investment whose value hinged on borrowers continuing to pay higher interest rates. Beginning in 2010, Freddie bought several billion dollars’ worth of “inverse floater” securities — essentially the interest-paying portion of a bundle of mortgages — for its investment portfolio while selling the far less risky principal portion. Fannie and Freddie are supposed to be decreasing the size of their investment portfolios. There is no evidence that Freddie tailored its refinancing standards to its investing strategy, but “inverse floaters” make less money if the loans they cover refinance to a lower interest rate. Freddie issued a statement yesterday defending its commitment to helping homeowners. “Freddie Mac is actively supporting efforts for borrowers to realize the benefits of refinancing their mortgages to lower rates,” it said. The company said refinancing accounted for 78% of its loan purchases in 2011.

HAMP 2.0
The expansion of the Home Affordable Modification Program (HAMP) by the Treasury Department is expected to benefit special mortgage servicers, mortgage insurers and nonagency mortgage-backed securities holders, while having no material effect on agency MBS, Keefe, Bruyette & Woods said yesterday. Previously, if a borrower’s first-lien monthly mortgage payment was lower than 31% of income, the borrower was ineligible for HAMP. Factoring other debts to the evaluation will expand the pool of borrowers who can now qualify for HAMP. Investors also were given new incentives for accepting principal write-downs, with the financial benefits for such an action increasing from a range of 6 to 21 cents on the dollar to 18 to 63 cents. The Obama administration also extended the HAMP program deadline through December 2013. “We believe that the more flexible debt-to-income ratio and the inclusion of some investor properties will have a positive impact on modification activity,” KBW analysts said in its research note. “The impact of the increased principal reduction incentives remains unclear.

While it should help the nonagency sector, the impact would be far greater if there was GSE participation. The response from FHFA on Friday afternoon suggests that the GSEs might not participate,” according to KBW analysts. The research firm expects the changes to have “no material impact on agency MBS prepayment speeds.” However, special servicers in the mortgage industry are expected to benefit from the modifications. Ocwen Financial Corp. earned $28.3 million in HAMP incentive fees in the first nine months of 2011, and KBW believes other firms also will benefit from an expanded HAMP program. Barclays Capital analysts also see the changes as having no significant impact on agency MBS. “The reason is that the vast majority of debt forgiveness will be on delinquent loans, which are typically already bought out of the agency MBS trust,” Barclays wrote. “The only effect might be from the moral hazard side: if underwater borrowers in agency MBS pools start going delinquent on purpose to qualify for debt forgiveness, speeds will obviously rise. But we think this is unlikely to have a significant effect on agency speeds.”

See you at the top!
Chris McLaughlin

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

Copyright Loss Mitigation Institute LLC 2011.
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 January 30, 2012

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

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

OC Register – investors are the answer

“According to a foreclosure sales report by RealtyTrac, foreclosure-related homes are still being gobbled up — they represent 20% of total transactions in 2011 Q3.  Foreclosures are usually viewed as a supply and price issue. High foreclosures keep home prices down, creating negative equity — and declining home prices keep foreclosures coming. This is a seemingly vicious cycle that feeds into the “shadow supply” problem and looks potentially like a never ending story.  But all vicious cycles eventually come to an end in a capitalist market system. Ironically, it is the enthusiastic response of investors and regular buyers to low-priced foreclosed homes, which could eventually break the foreclosure cycle.  Foreclosure-related home sales were one-fifth of total US home sales in the third quarter vs. 22% in the quarter before and 30% during the third quarter of 2010.

The decline in the market share of foreclosure-related home sales is partially explained by various hurdles to the efficient conclusion of the foreclosures process, but “even with the hurdles to selling foreclosures, foreclosure sales continue to represent a historical high percentage of all sales,” says RealtyTrac. Foreclosures’ shrinking share could also be caused by declining mortgage delinquencies, which have been dropping relatively quickly in California, according to the Mortgage Bankers Association.  In California, the share of foreclosure related sales was 44% in the third quarter. California has one of the most efficient foreclosure recycling processes in the nation, so temporary supply constraints are not that big of an issue as, for example, they may be in Florida.  Strong demand may be stabilizing the average sales price of home in foreclosure, too, which was up 1% from the previous quarter and down just 3% for the third quarter in 2010. The reported average discount for foreclosed properties relative to regular homes was 34% — but I wouldn’t read too much into these numbers because they are not quality adjusted.  Still, declining mortgage delinquencies and strong demand for foreclosure product could mean that the end may soon be here for the foreclosure business — and what’s lurking in the shadows.”

Income up, spending down

The Commerce Department said today that spending was the weakest since June and followed a 0.1% gain in November.  Economists polled by Reuters had expected spending, which accounts for more than two-thirds of US economic activity, to nudge up 0.1% last month. For all of 2011, spending rose 4.7%, the largest increase since 2007.  When adjusted for inflation, spending dipped 0.1%, breaking three straight months of gains. It increased 0.1% in November.  The government reported on Friday that consumer spending grew at a 2.0% annual pace in the fourth quarter, helping to lift gross domestic product 2.8% — acceleration from the third-quarter’s 1.8% rate.  Part of the spending, which has been concentrated in motor vehicles, has been funded from savings and credit cards as high unemployment constrains wage growth.

Wages rose last month, helping to prop-up incomes. Income advanced 0.5%, the largest gain since a matching increase in March, and followed a 0.1% rise in November. Economists had expected income to rise 0.4%.  Consumer spending is closely watched because it accounts for 70% of economic activity.  Unemployment stands at 8.5% — its lowest level in nearly three years after a sixth straight month of solid hiring.  For the final three months of 2011, Americans spent more on vehicles, and companies restocked their supplies at a robust pace.  Still, overall growth last quarter — and for all of last year — was slowed by the sharpest cuts in annual government spending in four decades. And many people are reluctant to spend more or buy homes, and many employers remain hesitant to hire, even though job growth has strengthened.

LPS – 2010-2011 originations good quality

The December Mortgage Monitor report released by Lender Processing Services shows mortgage originations continued their decline from 2011’s September peak, down 10.1% from the month before. At the same time, those loans originated over the last two years have proven to be some of the best quality originations on record. Likely a result of tighter lending requirements, 2010-11 vintage originations showed 90-day default rates below those of all other years, going back to 2005. December origination data also shows that recent prepayment activity – a key indicator of mortgage refinances – has remained strong, with 2008-09 originations, high credit score borrowers and government-backed loans having benefited the most from recent, historically low interest rates.

Looking at judicial vs. non-judicial foreclosure states, LPS found that half of all loans in foreclosure in judicial states have not made a payment in more than two years. Foreclosure sale rates in non-judicial states stood at approximately four times that of judicial foreclosure states in December. Still, on average, pipeline ratios (the time it would take to clear through the inventory of loans either seriously delinquent or in foreclosure at the current rate of foreclosure sales) have declined significantly from earlier this year.

The December mortgage performance data also showed that foreclosure starts continued to decline, remaining at multi-year lows as of the end of 2011; down 3.7% for the month, and nearly 40% for the year.  As reported in LPS’ First Look release, other key results from LPS’ latest Mortgage Monitor report include:

Total US loan delinquency rate:  8.15%

​Month-over-month change in delinquency rate:  0.0%

​Total U.S foreclosure pre-sale inventory rate:  ​4.11%

​Month-over-month change in foreclosure pre-sale inventory:  -1.3%

​States with highest percentage of non-current loans:  FL, MS, NV, NJ, IL

​States with the lowest percentage of non-current loans:  MT, WY, SD, AK, ND

Big banks hedge against EU

Five large American banks, including JPMorgan Chase and Goldman Sachs, have more than $80 billion of exposure to Italy, Spain, Portugal, Ireland and Greece, the most economically stressed nations in the euro currency zone, according to a New York Times analysis of the banks’ financial disclosures.  But these banks have made extensive use of a type of financial insurance, called credit default swaps, to help them offset any losses that might occur if defaults swamped the five troubled nations. Using these swaps, along with other measures, the five banks have cut their theoretical exposure to the troubled countries by $30 billion, to $50 billion. The analysis also shows that Citigroup has the greatest percentage of its exposure potentially protected at 47%, while Bank of America has bought the least protection at 12%.  Big banks have reduced their sovereign debt exposure, but they still have tens of billions of dollars of it.  Credit-default swaps have functioned well for big bankruptcies, but they were also a big source of systemic weakness in 2008, when the American International Group nearly collapsed because it could not make payments on its side of its swaps contracts. Some market participants now doubt they would work properly during periods of great financial instability.  “The likelihood of actually getting paid out from owning a credit default swap would be troubling to me if this were my hedge against a systemic shock — especially in a political environment unfriendly to more Wall Street bailouts,” Mark Spitznagel, chief investment officer at Universal Investments, a hedge fund, said through a spokesman.

Olick – foreclosure pipeline swells

“The number of new foreclosures in 2011 dropped nearly 40%, according to year-end numbers just released by Lender Processing Services (LPS); there is, however, little cause for celebration.  The fall is largely due to moratoria and process reviews stemming from the so-called ‘robo-signing’ foreclosure paperwork scandal.  Mortgage delinquency rates were largely unchanged from last year, which means all that distress will be pushed forward to 2012 and beyond.  To give you an idea of just how much the ‘robo’ scandal is toying with the numbers, LPS compared states that require foreclosures to go through the courts versus states that don’t (judicial versus non-judicial) and found the following:

- 50% of loans in foreclosure in judicial states have not made a payment in two years, as opposed to 28% in non-judicial states.

- Foreclosure sale rates in non-judicial states are about four times those in judicial states.

‘Nationally, foreclosure pipelines remain at historic highs, but they are clearing at very different rates depending upon state procedures,’ says Herb Blecher of LPS Applied Analytics.  With the nation essentially split between judicial and non-judicial foreclosure states, it’s safe to say the foreclosure crisis will linger longer than anyone expected, especially with negotiations for a settlement between big banks and state attorneys general hitting yet another roadblock.  California Attorney General Kamala Harris rejected the latest proposal this week, calling it inadequate.  ‘Our state has been clear about what any multistate settlement must contain: transparency, relief going to the most distressed homeowners, and meaningful enforcement that ensures accountability. At this point, this deal does not suffice for California,’ she wrote in a statement.  Bank sources say that without California the value of the settlement would drop by billions and banks would still have major liability for foreclosure fraud. About one fifth of the nation’s foreclosures are in California.”

Replacements to help drive economy

Four years after the downturn began, the replacement cycle shows signs of kicking into a higher gear in the United States even among small businesses, and it could give an unexpected boost to growth and employment this year.  In the United States, large corporations have already dug into huge cash piles to upgrade plant and equipment, adding incrementally to an economy that grew by 2.8% in the fourth quarter.  Now small businesses, which drive about half of US economic growth and a big chunk of job creation, are increasing their spending on equipment, too, an important precursor to stronger hiring.  For the early signs of this small business revival, Ian Shepherdson, chief US economist at High Frequency Economics, points to two factors: access to credit has improved markedly as shown by a surge in banks’ commercial and industrial lending, and an index of capital expenditure intentions, as measured by the National Federation of Independent Business (NFIB), is climbing. NFIB policy analyst Holly Wade said anecdotally she hears of more businesspeople talking of increasing their budgets.  “They have stretched out their machinery and equipment and would have normally invested in replacement, but they were waiting as long as possible. Now they are starting to see better sales and earnings, and they are more comfortable investing some of those dollars in capex,” she said.  “In the next three to six months, it wouldn’t be surprising to see the same rate of growth in capital outlays we have seen recently.”

FHA – originations down, delinquencies up

The serious delinquency rate for Federal Housing Administration (FHA) mortgages reached 9.6% in December, the highest level in more than two years, the Department of Housing and Urban Development (HUD) said.  More than 711,000 FHA-insured loans were seriously delinquent, up 18.9% from one year earlier, according to the HUD report. It’s also a 3.2% increase from the month before. The delinquency rate has been steadily increasing since passing 8.2% last summer.  Meanwhile, originations are down. In December, the FHA insured 93,700 mortgages, a nearly 30% decline from the 133,000 insured in December 2010.  In its fiscal year 2011, the FHA Mutual Mortgage Insurance Fund slipped to a 0.24% capital ratio from 0.5% the year prior. By law, the fund must remain above 2%.  FHA officials attempted to temper fears that the fund would need a bailout. An independent study done showed home prices would have to deteriorate significantly before an injection of tax dollars would be needed.

“It would take very significant declines in home prices in 2012 to create a situation where FHA would need additional support,” said FHA Acting Commissioner Carole Galante when the projections came out.  American Enterprise Institute Fellow Edward Pinto isn’t convinced. His study claimed that FHA is actually undercapitalized by as much as $53 billion using more traditional accounting rules.  The FHA put new guidelines in place this week that would tighten restrictions on lenders seeking approval to write FHA mortgages. Also, the changes would force more firms to buyback defaulted home loans and reduce seller concessions, which Pinto said would have the most impact, according to Pinto.  “We need to get back to where the mortgages themselves stand on their own regardless of what happens with house price inflation or deflation,” Pinto said.

Bakersfield.com – no kudos for the POTUS

President Obama’s announcement in last week’s State of the Union address that he has created a new unit to probe mortgage abuse earns no cheers from us. Instead, we are reminded how shamefully little has been done to address the housing crisis that continues to plague so many Americans.  The Making Home Affordable mortgage relief program has been an utter flop. An attempt by the Department of Justice to broker a multistate settlement with major banks over foreclosure abuses that would fund relief for struggling homeowners has gone nowhere. There have been no meaningful prosecutions, no significant relief for homeowners and few new fraud protections.  Now, what little break has been granted to troubled homeowners — in the form of tax relief on canceled mortgage debt — is due to expire at year’s end and too few seem aware of the looming deadline.

Normally, debt that is forgiven or canceled by a lender in a foreclosure or short sale must be included as income on tax returns and is taxable. However, the Mortgage Forgiveness Debt Relief Act of 2007 excluded the reporting of up to $1 million in canceled debt on a primary residence for tax purposes. But not for long.  Local real estate agents report no frenzy of calls or uptick in clients wanting to carry out short sales. Scott Tobias, president of the Bakersfield Association of Realtors, told The Californian last week that “I think, basically, homeowners don’t know about” the tax relief expiring on Dec. 31, 2012.  With nearly half of all Bakersfield mortgages underwater, it’s essential for people to know of the upcoming tax break expiration, especially considering that it can take months to close a short sale.  The housing market is nowhere near recovery; Congress ought to extend the tax relief. But no one should rely on Congress to act. It’s imperative for underwater homeowners to understand their options and be informed about the looming tax deadline.

See you at the top!
Chris McLaughlin

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

Copyright Loss Mitigation Institute LLC 2011.
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 January 25, 2012

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Foreclosures fell 12% in California, but…

The number of California homes entering foreclosure in the fourth quarter fell 11.9% from the same period in 2010 to the second-lowest level over the last four years, said DataQuick, a real estate information firm in San Diego. A total of 61,517 notices of default, which are filed to initiate foreclosures, were recorded on California properties during the fourth quarter. That was a 13.7% drop from the third quarter of 2011.  Some economists say California and other states will probably see an increase in foreclosure actions as banks deal more aggressively with seriously delinquent mortgages. That increase probably will push home prices lower.  Default notice filings fell sharply in December, particularly those involving loans from Bank of America and Bank of New York Mellon, and helped drag down the overall quarterly numbers. Average daily filings on behalf of Bank of New York Mellon dropped 75% from November to December; filings on behalf of Bank of America dropped 50%, Wells Fargo 20% and JPMorgan Chase 13%, DataQuick said Tuesday.  The number of homes taken back through the foreclosure process also fell, by 11.8% from a year earlier to 31,260.

The majority of the loans entering the foreclosure process in the fourth quarter were made in 2005 to 2007, when poor lending practices by major institutions were rampant.  Californian homeowners were a median nine months behind on their payments when they received a notice of default from their lender. Among the state’s largest counties, mortgages in San Francisco, Marin and San Mateo counties were the least likely to go into foreclosure. Homes were most likely to enter the foreclosure process in Sacramento, San Joaquin and Stanislaus counties, according to DataQuick.  In Southern California, the number of default notices filed on properties fell 10.2% from a year earlier, and the number of homes taken back by banks fell 11%.  Many foreclosures were delayed in 2011 as banks worked through issues surrounding mortgage servicing and foreclosure. Settlement negotiations among attorneys general, federal agencies and the mortgage industry over foreclosure and mortgage servicing abuses dragged on through most of last year.

Analysts attributed the delays to the uncertainty over the outcome of those talks. If a deal is struck among the parties and new foreclosure processes by banks are put in place, some analysts say the foreclosure machinery could ramp up again.  Those negotiations continue to inch forward but could still fall apart. State attorneys general have received drafts of the deal with the banks, a $25-billion settlement that would overhaul foreclosure and mortgage servicing practices, according to two people familiar with the negotiations who aren’t authorized to speak publicly.  A key component to any strong deal would be California’s participation. State Atty. Gen. Kamala D. Harris, who must make that decision for the Golden State, has not said whether she will sign on. Harris walked away from talks with the banks last year, saying they were asking for too much release from liability, but since then certain provisions have been added to the deal with the aim of getting her back to the table.  Yesterday the Center for Responsible Lending gave the proposed $25-billion deal a tentative thumbs up, calling it “an important step forward in addressing foreclosure abuses.” The nonpartisan advocacy group noted that the deal would “provide an important template for ways banks can use principal reduction to reduce unnecessary foreclosures and put the country back on a path to economic recovery.”

GOP says Obama economic plan is a failure

President Barack Obama has resorted to “extremism” with stifling, anti-growth policies and has tried dividing Americans, not uniting them, Indiana Gov. Mitch Daniels said Tuesday in the formal Republican response to the president’s State of the Union address.  He took particular aim at Obama’s efforts in recent months to raise taxes on the rich and castigate them. “No feature of the Obama presidency has been sadder than its constant effort to divide us, to curry favor with some Americans by castigating others,” Daniels said, according to excerpts of his remarks released before he and Obama spoke. “As in previous moments of national danger, we Americans are all in the same boat.”  “The extremism that stifles the development of homegrown energy, or cancels a perfectly sane pipeline that would employ tens of thousands, or jacks up consumer utility bills for no improvement in either human health or world temperature, is a pro-poverty policy,” Daniels said.

Obama has halted work on the proposed Keystone XL oil pipeline from western Canada to Texas’ Gulf Coast. Republicans say the project would create thousands of jobs, a claim opponents say is overstated. The administration has also pursued policies aimed at reducing pollution and global warming.  Daniels said Republicans prefer “a passionate pro-growth approach that breaks all ties and calls all close ones in favor of private sector jobs that restore opportunity for all and generate the public revenues to pay our bills.”  Even before Obama spoke, Republicans in the Capitol and on the campaign trail accused him of three years of higher spending, bigger government and tax increases that have left the economy stuck in a ditch.  “This election is going to be a referendum on the president’s economic policies,” which have worsened the economy, said House Speaker John Boehner, R-Ohio. “The politics of envy, the politics of dividing our country is not what America is all about.”

Olick – more plans from the president

“After several largely ineffective programs to help troubled borrowers and after fruitless attempts at budging the hard-line conservator of Fannie Mae and Freddie Mac, President Obama is proposing a brand new refinance program for borrowers who are current on their mortgages, regardless of who owns their loan; the catch is that this one has to go through Congress.  ‘I’m sending this Congress a plan that gives every responsible homeowner the chance to save about $3,000 a year on their mortgage, by refinancing at historically low interest rates. No more red tape. No more runaround from the banks,’ the President announced in his State of the Union address.  Unlike previous efforts in the refinance space, including a recently revamped and expanded government program for borrowers who owe more on their mortgages than their homes are currently worth, this plan would not be limited to those with loans backed by Fannie Mae and Freddie Mac, according to senior administration officials. The two mortgage giants own or guarantee about half of the nation’s mortgages. It would be open to all borrowers current on their loans.

The Obama administration is offering precious few details, promising more in the coming weeks, but several sources say the plan is to ask Congress to allow the government mortgage insurer, the Federal Housing Administration (FHA), to back refinances of underwater mortgages. No estimates were given as to how many borrowers such a plan could potentially help, only that this would be a voluntary, borrower-initiated plan, and not a blanket refinance of all borrowers.  The costs, according to administration officials, would be modest, and the President would request that a portion of his financial crisis responsibility fee offset any of those costs, so there would be no addition to the federal debt.  ‘A small fee on the largest financial institutions will ensure that it won’t add to the deficit, and will give banks that were rescued by taxpayers a chance to repay a deficit of trust,’ Mr. Obama added.  Loan servicers could be faced with a flood of applications and could have to add resources to handle it all, but officials say the opportunity to generate revenues from the refinances would be incentive enough. Still many servicers have balked at the idea of mass refinancing, as the new loans could present more risk and less reward.

The idea is to remove the barriers and ‘frictions’ that have kept many borrowers out of refinancing to historically low rates. Some of those include high levels of negative equity, loan level price adjustments, loan origination dates, put-backs on loans that default, and borrower qualifications.  Then there is the very basic problem of politics. Whatever the details of the plan are, Republicans, despite the fact that they have been calling for more refinances, are unlikely to hand President Obama a popular victory on the eve of a presidential election. They may also oppose anything that makes Fannie Mae and Freddie Mac bigger, when the two are allegedly winding down.”

Americans lead in debt reduction

Americans are cutting their debt faster than other countries and could already be halfway through the deleveraging process, setting the stage for the nation’s economic recovery, says a new report from McKinsey Global Institute.  However, even when U.S. consumers finish deleveraging, they probably won’t be as powerful an engine of global growth as they were before the crisis, warns the report.  According to McKinsey analysts, deleveraging happens in two stages: First, the private sector reduces debt, while economic growth is negative or minimal and government debt rises; then, growth rebounds and supports gradual government deleveraging.  “Somewhat surprisingly, given the amount of concern over the U.S. economy, we find that the United States is furthest along in private-sector debt reduction and closest to beginning the second phase of deleveraging,” says the report.  “The remaining obstacles for its return to growth are its unsettled housing market and its failure to lay out a credible medium-term plan for public debt reduction,” concludes the report.

Since the financial crisis, U.S. household debt has fallen by $584 billion, or 15 percentage points relative to disposable income, which is more than in any other country.  At this pace, Americans could reach sustainable debt levels by the middle of 2013.  The report also found that since the 2008-2009 financial crisis the world’s ten largest developed economies have seen their total debt increase, primarily due to growing government debt.  The U.S., South Korea and Australia are the only countries that have seen a decline in the ratio of total debt to GDP during that time period.  Moreover, the United Kingdom and Spain are deleveraging at a much slower pace, and it could take another decade until their private-sector debt returns to the pre-bubble levels.  In the United States, most of the private-sector deleveraging has happened in the financial sector, where debt relative to GDP had declined to $6.1 trillion from $8 trillion, levels not seen since 2000.

MBA – mortgages down 5%

Mortgage applications decreased 5.0 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 20, 2012.  The results include an adjustment to account for the Martin Luther King holiday.  The Market Composite Index, a measure of mortgage loan application volume, decreased 5.0 percent on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index decreased 13.8 percent compared with the previous week.  The Refinance Index decreased 5.2 percent from the previous week.  The seasonally adjusted Purchase Index decreased 5.4 percent from one week earlier. The unadjusted Purchase Index decreased 9.7 percent compared with the previous week and was 6.5 percent lower than the same week one year ago.

The four week moving average for the seasonally adjusted Market Index is up 4.12 percent.  The four week moving average is up 0.47 percent for the seasonally adjusted Purchase Index, while this average is up 4.85 percent for the Refinance Index.  The refinance share of mortgage activity decreased to 81.3 percent of total applications from 82.2 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 5.3 percent from 5.6 percent of total applications from the previous week.  In December 2011, among refinance borrowers, 56.6 percent of applications were for fixed-rate 30-year loans, 24.3 percent for 15-year fixed loans, and 5.3 percent for ARMs.  The share of refinance applications for “other” fixed-rate mortgages with amortization schedules other than 15 and 30-year terms was 13.8 percent of all refinance applications. The share for 30-year fixed increased from the previous month while the 15-year fixed, ARM and the “other” fixed category shares decreased from last month.

Markets down on possible Obama re-election

So far, the presidential election has not impacted stocks, but that could change if Mitt Romney appears unlikely to make it as the GOP nominee.  For the past two days, Romney’s vulnerability to former House Speaker Newt Gingrich has been the talk of trading rooms.  Gingrich beat Romney handily in the South Carolina primary Saturday, the second of three early contests that Romney lost. But the volatile Gingrich is not viewed as a strong candidate to beat President Obama.  “Obama’s gone from 50 percent probability to 55 percent on Intrade,” said Dan Clifton, Strategas head of policy research. “This week he just kind of exploded once Gingrich won in South Carolina. The Intrade market is saying there’s a much greater chance of President Obama being re-elected.”  Romney, the former governor of Massachusetts, is by far the preferred candidate on Wall Street, where many disagree with Obama’s policies and have been stung by what they call “class warfare.”  “I don’t think it’s fully reflected in the market yet. The market is drifting. There’s a mild degree of anxiety, and that’s really because it’s overbought. Is there a gentle longing for a smoke-filled room? Yeah. There’s some yearning for that,” said Art Cashin, UBS director of floor operations.  The S&P 500 broke its five-day winning streak Tuesday, finishing 1 point lower at 1314, but it is up 4.5 percent since the start of the year.  Analysts believe if Romney loses the Florida primary next Tuesday, he will have a hard time stopping Gingrich’s momentum.

Huffington post – Romney on mortgages

Finally, a presidential candidate came out and honestly addressed the biggest problem in our economy, the enormous debt overhang in our mortgage market. A few days ago, Mitt Romney was at a forum in Florida talking about foreclosures, and his comments were actually refreshingly honest about our housing and banking situation and the need for a debt write-down.  We’re just so overleveraged, so much debt in our society, and some of the institutions that hold it aren’t willing to write it off and say they made a mistake, they loaned too much, we’re overextended, write those down and start over. They keep on trying to harangue and pretend what they have on their books is still what it’s worth.  Mitt Romney was pointing out that the banks are carrying debt on their books at inflated values. When was the last serious politician to make that point, openly? There’s more.  In some cases, if the debt is not in something you can service, it’s like you have to move on and start over away from those debts. It’s helpful if you get an institution that’s willing to work with you, but if you don’t you have no other option.

Romney is now saying that if you can’t pay your debts and your lending institution won’t work with you, walk away. Perhaps this isn’t so surprising, though, as Romney is an expert in debt restructuring. This is actually just common business sense.  And finally, he offered a real solution to the mortgage debt crisis.  “The banks are scared to death, of course, because they think they’re going to go out of business… They’re afraid that if they write all these loans off, they’re going to go broke. And so they’re feeling the same thing you’re feeling. They just want to pretend all of this is going to get paid someday so they don’t have to write it off and potentially go out of business themselves.  This is cascading throughout our system and in some respects government is trying to just hold things in place, hoping things get better… My own view is you recognize the distress, you take the loss and let people reset. Let people start over again, let the banks start over again. Those that are prudent will be able to restart, those that aren’t will go out of business. This effort to try and exact the burden of their mistakes on homeowners and commercial property owners, I think, is a mistake.”

See you at the top!
Chris McLaughlin

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

Copyright Loss Mitigation Institute LLC 2011.
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