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

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

Business inventories up

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

MBA – refinance applications up

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

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

Gold enters bear market

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

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

Olick – foreclosures down – a bad thing?

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

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

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

First shots fired in the debt-ceiling debate

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

WSJ – architectural billings index slips

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

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

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

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

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

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

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

Retail sales up slightly

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

Olick – Obama’s “responsible” homeowners

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

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

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

Europe barely dodges formal recession

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

Decline in foreclosure activity in California hurting the market

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

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

Fed governor Duke wants certainty

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

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

NAHB – builder confidence up in May

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

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

Jobless claims slightly down

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

Free mortgage review, few apply

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

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

Chinese banks coming to a location near you

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

NAR – sales up, inventory down

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

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

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

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

The number of Federal Housing Administration-insured home loans entering foreclosure jumped in March after half the mortgages it modified to ease repayment terms were in default again a year or more later.  The FHA’s role in lending to first-time buyers with poor credit and limited cash expanded after the 2008 collapse of the mortgage market put it at the center of government efforts to revive housing. The FHA allows down payments as low as 3.5 percent for borrowers with a credit score of 580, below the 640 defined as subprime by the Federal Reserve.  n increase in FHA foreclosures may lead to further demands for stricter standards that could shut buyers out of the real estate market as it shows signs of stabilizing after a six-year slump. Mark Calabria, director of financial regulation studies at the Cato Institute in Washington, in a February report called for Congress to tighten the agency’s lending qualifications to protect taxpayers, who insure the loans. First-time homebuyers accounted for 33 percent of real estate sales in March, according to the National Association of Realtors.

Borrowers with mortgages for homes bought in 2010, the FHA’s peak lending year, now owe almost 7 percent more than their homes are worth if they used the minimum down payment, according to S&P/Case-Shiller home price index data. That year, the agency insured 1.1 million loans to purchase single-family homes, more than four times the total of 261,165 in 2007.  Lenders initiated foreclosures on 36,400 FHA-backed mortgages, twice the number in April 2011, according to Lender Processing Services. The increase for Fannie Mae and Freddie Mac loans was 13 percent, the Jacksonville, Florida-based mortgage- data company said.  A Treasury Department study of modified government- guaranteed mortgages in the fourth quarter found that 49 percent were delinquent again after 12 months. The Treasury report analyzed a group of loans that was 80 percent FHA, 15 percent Veterans Administration mortgages and 5 percent Department of Agriculture rural home loans. The rate for Fannie Mae and Freddie Mac was 27 percent.  The share of government-guaranteed loans being paid on time dropped to 84.2 percent in the fourth quarter from 85.2 percent in the prior three months, the Treasury’s Office of the Comptroller of the Currency said in its March 28 report. It was the third consecutive quarterly decline.  The U.S. housing market is showing signs of having hit a bottom after prices fell 35 percent since peaking in 2006. Values in 20 U.S. cities fell 3.5 percent in February, the smallest 12-month drop since February 2011, the S&P/Case-Shiller index showed last month. New homes sold at an annual pace of 328,000 in March, up 7.5 percent from a year earlier, the Commerce Department said.

Identity theft and tax fraud

After checking employment records, the Treasury Inspector General for Tax Administration (TIGTA) said it found more returns may have been sent to tax filers using stolen identities than the IRS initially estimated.  If the IRS does not do more to catch improper refunds, up to $26 billion could be refunded to identity thieves in the next five years, J. Russell George, head of TIGTA, told a congressional hearing on Tuesday. He said IRS may have issued $5.2 billion more in refunds through ID tax fraud than the agency had earlier estimated.  The IRS did not dispute the watchdog’s figures, but said estimates for ID theft tax fraud would be lower if updated to include new IRS practices, said Steven Miller, IRS deputy commissioner for services and enforcement.

MBA – mortgage applications up

Mortgage applications increased 1.7 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending May 4, 2012.  The Market Composite Index, a measure of mortgage loan application volume, increased 1.7 percent on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index increased 2.0 percent compared with the previous week.  Increases to the seasonally adjusted Market Composite and Purchase indices were driven by increases in their Conventional components.  Application activity within the Government market decreased for both of these measures from last week.  Likewise, the Refinance Index increased 1.3 percent from the previous week, driven by a 1.8 percent increase to the Conventional Refinance Index, while the Government Refinance Index decreased 2.3 percent.  The seasonally adjusted Purchase Index increased 3.4 percent from one week earlier, spurred by a 5.4 percent increase in the seasonally adjusted Conventional Purchase Index. The unadjusted Purchase Index increased 3.8 percent compared with the previous week and was 0.4 percent lower than the same week one year ago.

The four week moving average for the seasonally adjusted Market Index is up 1.13 percent.  The four week moving average is down 0.82 percent for the seasonally adjusted Purchase Index, while this average is up 1.81 percent for the Refinance Index.  The refinance share of mortgage activity decreased to 72.1 percent of total applications from 72.6 percent the previous week.  This is the lowest refinance share since April 6, 2012.  The government purchase share decreased over the week from 37.0 percent to 35.8 percent of all purchase applications.  This is the lowest government purchase share since March 27, 2009.  The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 4.01 percent from 4.05 percent, with points decreasing to 0.41 from  0.44 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.  This is the lowest 30-year fixed interest rate recorded in the history of the survey.   The effective rate decreased from last week.

Oil down

Oil fell for a sixth day in New York, the longest run of declines in almost two years, after crude stockpiles advanced in the U.S., the world’s largest consumer of the commodity.  Futures slid as much as 0.8 percent after dropping 8.6 percent in the past five days. U.S. inventories increased 7.8 million barrels last week to 378 million, the highest level since August 1990, the American Petroleum Institute said yesterday. A government report today may show supplies rose 2 million barrels, according to a Bloomberg News survey. Oil is poised to rebound as global refiners increase purchases, Societe Generale SA predicts.  “U.S. inventory levels are preventing oil having the traditional dead cat bounce after such a steep fall,” said Christopher Bellew, a senior broker at Jefferies Bache Ltd. in London, who predicts prices will rebound this month. “The lows we’ve seen this week will probably hold, and crude will likely rise as buying by funds and weakness in the dollar assist with a recovery.”  Crude for June delivery fell as much as 76 cents to $96.25 a barrel in electronic trading on the New York Mercantile Exchange and was at $96.53 at 8:58 a.m. London time. It slipped 1 percent yesterday to $97.01, the lowest close since Feb. 6. Front-month prices are down 2.2 percent this year. The six-day decline is the longest since July 2010.  Brent for June settlement was at $112.50 a barrel, down 0.2 percent, on the London-based ICE Futures Europe exchange. The European benchmark contract’s premium to West Texas Intermediate was at $15.83, little changed from $15.72 yesterday.  The Organization of Petroleum Exporting Countries said its basket of crudes was at $109.58 a barrel yesterday, the first time the grades have fallen below $110 since Jan. 3.

WSJ – Freddie drops fee

In the latest bid to help homeowners hit by the housing crash, Freddie Mac, the U.S.-supported mortgage giant, is set to drop a fee associated with refinancing deeply underwater loans.  The firm plans to eliminate a fee of 0.5 percentage point, called a “cash adjustor,” on loans refinanced under the Home Affordable Refinance Program with balances greater than 125% of the property’s value, said Paul Mullings, a senior vice president at Freddie Mac. He spoke at a Mortgage Bankers Association conference on Monday.  Dropping the fee represents the latest sign that the government-sponsored enterprises and their regulator are determined to extend the reach of the refi program. Changes last year eliminated the loan-to-value cap and relieved banks of some liabilities that could arise with homeowners willing to default.  Freddie Mac had earlier this year dropped the cash adjustor on HARP refinancings for mortgages with loan-to-value ratios ranging from 105% through 125%, and encouraged the lenders to pass the savings to consumers. (The fee was created to help offset some of the increased risk seen in such refis.)

Where manufacturing is gaining

After hemorrhaging jobs during the recession , manufacturing has been one of the few bright spots, restoring 489,000 jobs since the beginning of 2010.  But there have been some significant geographic distinctions in that recovery, as well as some toppled assumptions, one of which is that factory jobs have steadily shifted from the Midwest to the South.  A new report from the Brookings Metropolitan Policy Program shows that since the beginning of 2010, manufacturing employment has increased by 5.2 percent in the Midwest, while it has gone up by only 2.2 percent in the South.  Southern regions remain relatively strong in manufacturing, with eight metropolitan areas on that list. But the usual narrative of an inexorably declining Rust Belt seems not quite accurate – or at least for now.

“It’s possible that this bounce-back is just a bounce-back and won’t last,” said Howard Wial, an economist and fellow at the Brookings Institution who was one of the authors of the report. “But there is an opportunity for it to be more.”  The study also examined the clustering of manufacturing companies in particular regions. Very high-tech manufacturing companies are concentrated in the Northwest and West, for example, while chemical companies are found mostly in the South.  The authors indicated that most state and local governments do little to foster a thriving manufacturing industry when they offer tax breaks and other incentives to companies or pass right-to-work laws that tend to suppress wages. Instead, they say, governments should focus on research and development and work-force training aimed at specific manufacturing sectors.  Mr. Wial said that there was some evidence that manufacturing could make more of a comeback in the United States because labor costs are rising in developing countries and “many large companies are starting to reconsider the costs and benefits of offshoring.”

CoreLogic – Market Pulse

CoreLogic today released its May CoreLogic MarketPulse report. The monthly economic publication provides insight into the current and future health of the U.S. economic climate with particular focus on housing and mortgage metrics. CoreLogic Chief Economist Mark Fleming and Senior Economist Sam Khater authored the articles and commentary.  Key findings in the May MarketPulse Report include:

-  The national housing market is transitioning to more stability in sales and home prices, with reasonable inventory levels and a declining share of REO sales.

-  Short sales, modifications, and other foreclosure alternatives are playing a larger role than in years past, and the flow of new foreclosures is declining with an improving economy.

-  Mortgage performance is experiencing a slow and steady improvement as the 90+ day serious delinquency rate in March fell to 7.0 percent, the lowest rate since July 2009. “This decline in serious delinquency represents a significant reduction of approximately three quarters of a million borrowers,” said Fleming in the report.

-  Overall home sales activity continues to improve, with total sales eclipsing 410,000, up more than 20 percent from a year ago and the highest March sales rate since 2007.

-  While the national market continues to improve, it masks regional variation where some local markets are improving much more rapidly than others. The most improved markets from a year ago are Phoenix, Boise and Salt Lake City.

-  Home prices are at, or very close to, the bottom as the Memorial Day weekend approaches.

Second-quarter pre-foreclosure sales jumped 19% from the previous quarter, suggesting more banks and distressed borrowers are searching for efficient ways to offload properties that are near foreclosure, RealtyTrac said. Third parties acquired 102,407 pre-foreclosures in the second quarter, while 162,680 bank-owned homes were sold in the same period. Pre-foreclosure sales are generally short sales and properties sold within the foreclosure process. As for who is nabbing up distressed and bank-owned properties, RealtyTrac said third parties acquired 265,087 homes classified as in foreclosure or bank-owned in the second quarter. That is up 6% from the revised first quarter figure and down 11% from the second quarter of last year. The average sales price for foreclosures or bank-owned properties hit $164,217 in 2Q, down less than one percent from 1Q and 5% from the second quarter of 2010.  The sales price for distressed real estate was 32% below the average sales price of homes not in foreclosure. States with the largest quarterly increase in pre-foreclosure home sales included Nevada, which experienced a 43% increase; Washington (39%), California (38%); and Texas (34%). The states with the highest number of foreclosure sales included Nevada, Arizona and California.

Budget Deficit Estimate Cut to $1.28 Trillion: CBO

The federal budget deficit will hit $1.28 trillion this year, down slightly from the previous two years, with even bigger savings to come over the next decade, according to congressional projections released Wednesday.  The nonpartisan Congressional Budget Office says budget deficits will be reduced by a total $3.3 trillion over the next decade, largely because of the deficit reduction package passed by Congress earlier this month. Nevertheless, the federal budget will continue to be awash in red ink for years to come. Even with the savings, budget deficits will total nearly $3.5 trillion over the next decade—more if Bush-era tax cuts scheduled to expire at the end of 2012 are extended.  There is more bad news in the report: CBO projects only modest economic growth over the next few years, with the unemployment rate falling only slightly by the end of 2012. The agency projects an unemployment rate of 8.5 percent for the last four months of 2012. The presidential election is in November of that year. 

“The United States is facing profound budgetary and economic challenges,” the new CBO report says. “With modest economic growth anticipated for the next few years, CBO expects employment to expand slowly.” Failure to pass a package would trigger $1.2 trillion in automatic spending cuts, affecting the Pentagon as well as domestic programs.  The new CBO report projects that the legislation will reduce deficits by a total of $2.1 trillion over the next decade. The agency also projects savings of $600 billion over the next decade from lower interest rates.

Diana Olick: Higher-End Housing Hits a Wall

Most of America won’t shed a tear for those who own higher-priced homes, especially given that the median home price in the nation has now fallen to just $174,000, but investors and homeowners alike should take note: Higher priced homes are taking a hit and the outlook for them is worse than the overall market.  That will have ramifications for recovery.  Despite the fact that just eight percent of US loans are currently jumbo, according to Inside Mortgage Finance, and that share will rise to just 10-12 percent when the conforming loan limit is lowered October 1st, high-end housing is already being hit harder than the overall market, which isn’t exactly doing so well itself. For one, weekly mortgage applications to purchase a home have been falling steadily, down 5.7 percent last week. But jumbo loan purchase applications fell 15 percent.

While sales of homes below $250,000 rose nearly 25 percent in July year over year according to the National Association of Realtors (June 2010 was the end of the home buyer tax credit, so July 2010 was artificially low, still….) sales of homes over $500,000 were basically flat.  Demand on the low end of the housing market is boosted by investors largely buying distressed properties; they either fix up and flip the homes or rent them out, waiting for the market to recover. Higher end homes have far fewer investors and may be more sensitive to a volatile stock market, as potential buyers are more likely to be invested there. Suffice it to say, we need all segments of the housing market pushing forward in order to get the full market back to health.

Markets not impacted by rise in jobless claims

Initial jobless claims rose last week, increasing by 5,000 filings for a total of 417,000 claims on a seasonally adjusted basis. That is up from the previous week’s revised figure of 403,500 claims. The Labor Department noted the numbers for the week ending Aug. 20 were impacted by 8,500 claims stemming from a labor dispute between the Communications Workers of America and Verizon Communications. Meanwhile, the advance seasonally adjusted insured unemployment rate hit 2.9% for the week ending Aug. 13, a slight decrease from the previous week’s revised rate of 3% Despite recent volatility in the stock market, analysts with Econoday said Thursday the markets “are showing little reaction to the report, which outside of the Verizon strike, points to mildly improving conditions in the labor market.”

Pre-Foreclosure Short Sales Jump 19% in Second Quarter

Short sales shot up 19 percent between the first and second quarters, with 102,407 transactions completed during the April-to-June period, according to RealtyTrac. Over the same timeframe, a total of 162,680 bank-owned REO homes sold to third parties, virtually unchanged from the first quarter. RealtyTrac’s study also found that the time to complete a short sale is down, while the time it takes to sell an REO has increased. Pre-foreclosure short sales took an average of 245 days to sell after receiving the initial foreclosure notice during the second quarter, RealtyTrac says. That’s down from an average of 256 days in the first quarter and follows three straight quarters in which the sales cycle has increased.  Nationally, REOs had an average sales price of $145,211, a discount of nearly 40 percent below the average sales price of non-distressed homes. The REO discount was 36 percent in the previous quarter and 34 percent in the second quarter of 2010.  Together, REOs and short sales accounted for 31 percent of all U.S. residential sales in the second quarter, RealtyTrac reports. That’s down from nearly 36 percent of all sales in the first quarter but up from 24 percent of all sales in the second quarter of 2010.

The Commerce Department said yesterday that construction spending ticked up 0.1 per cent.  The small March gain left construction spending at a seasonally adjusted annual rate of $808.1 billion. That’s 6 per cent above a 12-year low of $762.6 billion hit last March. Still, the level of spending is roughly half of what economists consider to be healthy.  “The weakness in construction spending in March was entirely in public spending,” said John Ryding, an analyst at RDQ Economics, in a note to clients.  Still, even with the increase in private construction spending, the trend over the last three months is weak, Ryding noted.  “We look for some gradual improvement in private construction spending in 2012, but structures investment is not a material factor in our growth forecast for this year,” he said. 

Government construction activity fell 1.1 per cent to the slowest pace since February 2007, the report said. Spending by state and local governments dropped to the weakest level since November 2006, while spending by the federal government rose 3.8 per cent to a rate of $28.9 billion.  Spending on private nonresidential projects rose 0.7 per cent. Work on office buildings, hotels and transportation projects rose. Spending in the category that includes shopping centres fell.  Private residential activity rose 0.7 per cent. The increase was driven by more construction of single-family homes.  Even with the gains, home construction continues to slump five years after the housing bubble burst. Sales of new homes fell 7.1 per cent in March, the largest decline in more than a year.  Though new-home sales represent less than 10 per cent of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to the National Association of Home Builders.  Business spending on construction projects, such as office buildings and shopping centres, is also sluggish. The government reported last week that it fell in the January-March quarter, the second consecutive quarterly decline.  The economy grew at an annual rate of 2.2 per cent in first quarter. Stronger consumer spending offset slower business investment and less growth in government spending.  Economists expect construction spending to remain sluggish this year. Tighter credit could keep businesses from receiving loans for building projects. And lawmakers are likely to keep pressure on government spending, which could hamper public works projects.

Private sector employment sluggish

Private-sector employment increased by just 119,000 in April, according a report from ADP that puts a dent into the notion that the jobs market is on the path to a solid recovery.  The report was well below forecasts of 170,000 and comes after a string of stronger numbers.  ADP said service-sector jobs rose by 123,000, but construction fell by 5,000, falling for the first time since September 2011. Manufacturing also lost 5,000, while goods-producing dropped 4,000. Financial services added 13,000 jobs.  Employment additions again were strongest in small businesses, which added 58,000 positions, and weakest in big business, which saw a net of just 4,000 new jobs.  The March number was revised downward from 209,000 to 201,000, according to the report, which is done in conjunction with Macroeconomic Advisors.

MBA – mortgage applications up

Mortgage applications increased 0.1% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 27, 2012.  The Market Composite Index, a measure of mortgage loan application volume, increased 0.1% on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index increased 0.4% compared with the previous week.  The Refinance Index decreased 0.7% from the previous week.  The seasonally adjusted Purchase Index increased 2.9% from one week earlier. The unadjusted Purchase Index increased 3.7% compared with the previous week and was 3.0% higher than the same week one year ago.  The four week moving average for the seasonally adjusted Market Index is up 0.09%.  The four week moving average is down 1.77% for the seasonally adjusted Purchase Index, while this average is up 0.75% for the Refinance Index.  The refinance share of mortgage activity decreased to 72.6% of total applications from 73.4% the previous week. The government share of purchase applications remained steady at 37.0%, a slight increase from a couple of weeks ago when the share was 36.4%. The government share of purchase applications over the last three weeks has been at the lowest level since 2009.  During the month of March, the investor share of applications for home purchase was at 5.7%, a slight decrease from 6.1% in February.  This change was led by a decline in the West South Central region.  In addition, the share of purchase mortgages for second homes remained constant at 5.8%.

US has to deleverage

The US government will have to follow its citizens and corporates in deleveraging its balance sheet, Bob Baur, chief global economist, Principal Global Investors, said today.  “It’s no question that we’re going to see more deleveraging. Households are in much better shape and companies have improved their balance sheets dramatically. It’s the government that needs to deleverage,” he said.  He added that some deleveraging had begun at the state level, but had yet to reach central government.  The US government, which pumped trillions of dollars into bailouts of the banking and automobile sector and buying mortgage-backed securities to help lenders Fannie Mae and Freddie Mac, has more than $15 trillion in debt – the ceiling for borrowing is set at $16.4 trillion.  It is also facing demographic problems such as an aging population and subsequent rising Medicare bill, which might handicap the speed at which it can reduce its debt.

Olick – where are the foreclosures?

“The number of homes entering the foreclosure process rose in March, up 8.1%, according to a new report from lender Processing Services, but the volume is down more than 30% from a year ago.  Analysts had expected this number to skyrocket immediately following the $25 billion settlement between banks and state governments over fraudulent mortgage servicing.  Foreclosures sales, which are the final stage of the foreclosure process, not sales of bank-owned homes, dropped precipitously in March to their lowest point in over two years. They dropped most sharply — 14% month-to-month — in states where a judge is not required in the foreclosure process (so-called non-judicial states).  Again, that is contrary to expectations, but could be yet another stall in the system, as banks try to modify more loans to meet some of the terms of the servicing settlement. The foreclosure sales decline also appears to be exclusively in private and portfolio loans, which again points to the settlement.  That low pace of foreclosure sales is keeping foreclosure inventory, or loans in the foreclosure process, at near historic highs, according to LPS. That number may be heading lower, however, as banks ramp up the short sale process.

Short sales, when the bank allows the home to be sold for less than the value of the mortgage, are in fact now outpacing sales of bank-owned homes in many markets, according to a new report from RealtyTrac.  Short sales rose by 15% in the fourth quarter of 2011 from the previous year, while sales of REO’s (bank-owned homes) dropped 12%. Short sales outpaced REO sales in several markets, including Los Angeles, Miami, and Phoenix, according to RealtyTrac. Georgia, where foreclosure inventories are surging, saw a 113% jump in short sales. The process, once avoided widely due to its lengthy lag time, is already speeding up, and Fannie Mae and Freddie Mac both recently announced new guidelines to reduce short sale timelines.  ‘Lenders are increasingly recognizing that short sales may be a better alternative for them than foreclosure,’ notes RealtyTrac’s Daren Blomquist. ‘This trend began in markets with stronger demand and where the distressed inventory tends to be newer homes (Phoenix, Los Angeles, Las Vegas), but the trend appears to be spreading to other markets like Atlanta and Detroit.’  Look for a special report on the Atlanta housing market on CNBC and CNBC.com Thursday.”

People renouncing US citizenship to escape taxes

About 1,780 expatriates gave up their nationality at US embassies last year, up from 235 in 2008, according to Andy Sundberg, secretary of Geneva’s Overseas American Academy, citing figures from the government’s Federal Register. The embassy in Bern, the Swiss capital, redeployed staff to clear a backlog as Americans queued to relinquish their passports.  The US, the only nation in the Organization for Economic Cooperation and Development that taxes citizens wherever they reside, is searching for tax cheats in offshore centers, including Switzerland, as the government tries to curb the budget deficit. Shunned by Swiss and German banks and facing tougher asset-disclosure rules under the Foreign Account Tax Compliance Act, more of the estimated 6 million Americans living overseas are weighing the cost of holding a US passport.  Renunciations are higher in Switzerland because American expatriates expect extra scrutiny of their affairs after the UBS case and as the US probes 11 other Swiss financial firms for aiding offshore tax evasion, said Martin Naville, head of the Swiss-American Chamber of Commerce in Zurich.

“Every dollar you save, you lose to the US tax man,” said tax lawyer Ledvina. “That’s one reason why people give up citizenship.”  The 2010 Fatca law requires banks to withhold 30% from “certain US-connected payments” to some accounts of American clients who don’t disclose enough information to the IRS.  “There is incredible frustration at the audacity and imperial overreach of this law,” said David Kuenzi, a tax adviser at Thun Financial Advisors in Madison, Wisconsin, referring to Fatca.  Failure to file the 8938 form can result in a fine of as much as $50,000. Clients can also be penalized half the amount in an undeclared foreign bank account under the Banks Secrecy Act of 1970.  “It’s a big brother concept,” said Brent Lipschultz, a partner at New York-based accounting firm EisnerAmper.  The implementation of Fatca from next year comes after UBS, Switzerland’s largest bank, paid a $780 million penalty in 2009 and handed over data on about 4,700 accounts to settle a tax- evasion dispute with the US Whistle-blower Birkenfeld was sentenced to 40 months in a US prison in 2009 after informing the government and Senate about his American clients at the Geneva branch of Zurich-based UBS.

Pushback against ideology in principal reduction debate

Federal Housing Finance Agency (FHFA) Acting Director Edward DeMarco pushed back against Democratic lawmakers yesterday, claiming the agency decision on principal reduction will be based on analytics not ideology.  Reps. Elijah Cummings, D-Md., and John Tierney, D-Mass., sent a letter earlier in the morning to DeMarco. They pointed to internal documents at Fannie Mae showing the government-sponsored enterprise and its regulator approved but then quickly closed a pilot principal forgiveness program in 2010 that could have saved the firm $410 million.  DeMarco expressed disappointment in the letter and said since 2009, the FHFA approved multiple pilot programs for principal forgiveness, but the approvals did not indicate a “pre-determined view.”

“The fact that FHFA continues to consider principal-forgiveness alternatives, including recent HAMP program changes initiated by the Treasury Department, belies any ideological tilt on our part, but rather a strict analytical-based approach to gathering and evaluating data to determine what options best fit within the legal constraints that fall upon this agency as conservator for the enterprises,” DeMarco said in the letter.  DeMarco said while many pilot programs were developed, “there was not full agreement to proceed at the enterprises or their counterparties,” which in this instance was Citigroup.  The pilot program in question involves 1,200 mortgages originated by Citi for shared appreciation and 1,000 Fannie-guaranteed loans for principal forgiveness, according to the internal documents reviewed by HousingWire. The program would have been partly rolled out in the second quarter of 2011, according to several of the internal emails. 

In an early April speech, DeMarco showed preliminary FHFA analysis on new principal-reduction incentives. The expanded HAMP effort could save Fannie and Freddie Mac $1.7 billion but would cost taxpayers a net $2.8 billion. He also outlined how principal forbearance was a substitute for a shared-appreciation program.  The FHFA delayed its decision on approving the GSEs to do principal reductions, but DeMarco said in the letter that this is a decision meant for Congress.  “Such a policy question, especially as it has to do with public funds being taken from one group of citizens to provide a benefit to another group of citizens, should be determined by Congress,” DeMarco wrote. “In the absence of clear legislative direction, however, FHFA will continue to make determinations in how best to accomplish both of these goals after careful analysis of the facts and other information available to us and the multiple legal responsibilities placed upon us.”

First-quarter foreclosures declined 16% from a year earlier, falling to their lowest quarterly total since 2007, according to the latest report from market researcher RealtyTrac.  The number of foreclosure filings in the first quarter fell 2% sequentially. Default notices, scheduled auctions and bank repossessions were reported on 572,928 US properties in the latest quarter, the lowest level since the fourth quarter of 2007, when 527,740 properties with foreclosure filings were reported. One in every 230 US housing units had a foreclosure filing during the quarter.  In March, there were 198,853 US properties in varying stages of foreclosure, down 17% from a year earlier and 4% from the prior month.  RealtyTrac reported the decline in foreclosure activity is primarily due to decreasing activity in states that use the nonjudicial foreclosure process. Foreclosure filings in these 24 states and the District of Columbia, which represented more than half of the nation’s total during the quarter, fell 28% on the year. States that primarily use the judicial foreclosure process saw a 10% year-over-year increase in foreclosure activity in the first quarter.

RealtyTrac Chief Executive Brandon Moore warned that the low foreclosure numbers in the latest period do not indicate that the massive amount of distressed properties built up over the past few years has evaporated.  “There are hairline cracks in the dam, evident in the sizable foreclosure activity increases in judicial foreclosure states over the past several months, along with an increase in foreclosure starts in many judicial and non-judicial states in March,” Moore said in a statement. “The dam may not burst in the next 30 to 45 days, but it will eventually burst, and everyone downstream should be prepared for that to happen–both in terms of new foreclosure activity and new short sale activity.”  Completing the foreclosure process took an average of 370 days in the first quarter, up from 348 days in the prior quarter. However, RealtyTrac noted the average foreclosure timeline fell in bellwether states like California, Colorado, Utah, Massachusetts and Nevada.

Nevada’s foreclosure activity fell 62% on the year and 26% from the prior quarter, but the state again posted the nation’s highest foreclosure rate. In the latest period, one in every 95 Nevada housing units received a foreclosure filing.  California had the second highest rate, though the state’s default activity also decreased on a quarterly and annual basis. One in every 103 California housing units had a foreclosure filing in the first quarter. The state also had the highest number of properties with foreclosure filings.  Arizona had the third highest foreclosure rate, with one in every 106 housing units receiving a foreclosure filing.

Jobless claims up

Initial claims for state unemployment benefits increased 13,000 to a seasonally adjusted 380,000, the Labor Department said on Thursday, defying economists’ expectations for a drop to 355,000.  The four-week moving average for new claims, considered a better measure of labor market trends, rose 4,250 to 368,500.  Some economists blamed the Easter holidays for the spike in claims and expected applications to trend lower in coming weeks.  “It’s very difficult to know the extent to which that’s driven by seasonal effects from Easter or not,” said Eric Green, chief economist at TD Securities in New York.  The claims data comes in the wake of Friday’s disappointing employment report for March, which showed the economy created 120,000 new jobs, the smallest amount since October.  Despite the rise in claims last week, both first-time applications for unemployment aid and the four-week average held below the 400,000 mark, implying steady job gains.

Olick – higher prices coming?

“A response to a recent RealtyCheck blog on home prices included the following:  ‘Someone needs to explain to Ms. Olick what these ‘price declines’ really represent because they most assuredly do not measure how much home values have changed. They simply measure the statistical midpoint for all home sales. So in an economy where people are buying smaller homes that number moves down. That doesn’t mean that every house lost that % value.’  Thanks, but no explanation necessary, as I believe I covered that a while back. But I would like to elaborate a bit on this theme, as we’re starting to see some changes mortgage applications; specifically the average loan amount is rising, which might suggest a turnaround in pricing, due to a change in the type of homes being bought.  The average size of a mortgage purchase application increased 9% from December to the end of March, from $214,500 to $233,300 in March, according to the Mortgage Bankers Association. ‘That points to underlying improvement in borrowers’ appetite for mortgage credit,’ notes Paul Diggle of Capital Economics. 

Just yesterday analysts at Goldman Sachs said both Toll Brothers and Pulte Homes should benefit from more positive sentiment among high end buyers. Their survey showed 63% of respondents expect home prices to be either stable or rise, but 83% of respondents with an annual income above $120,000 expect home prices to be either stable or rise. That’s up from 75% six months ago.  If in fact the higher end buyers start getting back into the market, or at least the move-up buyers, that will shift the volume to a higher price range and consequently the median price, which gets all that national attention. 72% of home sales in February were of homes priced less than $250,000, according to the National Association of Realtors.  Of course, as I always say, all real estate is local, as are all home prices, and let us not forget that.”

Producer prices flat

US producer prices were unchanged last month after advancing 0.4% in February.  Economists polled by Reuters had expected prices at farms, factories and refineries to rise 0.3%.  Wholesale prices excluding volatile food and energy costs rose 0.3% after February’s 0.2% gain.  That was a touch above economists’ expectations for a 0.2% advance and marked the fifth successive month of increases in core PPI.  Over one-third of the rise in core PPI was attributed to prices for light motor trucks. Higher costs for passenger cars, soaps and detergents also contributed to the advance in core PPI.  However, manufacturers have limited scope to pass on these increased costs to consumers given the still considerable slack in the economy.  Overall producer prices were held back by a 2.0% fall in gasoline, the largest decline since October, after a 4.3% jump in February. That offset a 0.2% rise in food prices, which halted three straight months of declines.  However, gasoline prices rose 7.5%, when seasonal factors are excluded.  In the 12 months to March, wholesale prices increased 2.8%, the smallest increase since June 2010, after advancing 3.3% in February.  Outside food and energy, producer prices were pushed up by light motor trucks prices, which rebounded 0.7% after falling 0.4% in February. Passenger car prices rose 0.8% after edging up 0.1% the prior month.  The increases likely reflected strong demand for automobiles.  In the 12 months to March, core producer prices increased 2.9% after rising 3.0% the previous month.

Loan demand improves

Loan demand in the banking industry, as well as residential and commercial real estate activity, improved in most Federal Reserve districts across the US, according to the latest Beige Book from the Fed.  The survey, which develops a consensus on economic activity by interviewing industry contacts in every Federal Reserve district, reported that the US economy continued to grow at a modest pace from mid-February to late March.  Residential real estate activity also improved in most districts, with Cleveland and San Francisco remaining outliers with lackluster real estate activity.  Nationwide construction of multifamily housing units grew in most Fed districts, with most of the construction centered around apartments and senior housing.  Meanwhile, home prices continued to fall in key areas like Boston, New York and Minneapolis. Prices remained flat in San Francisco.  Mild winter weather during the first part of the year delivered a slight boost in real estate activity in the areas of Boston, Philadelphia and Kansas City. 

Conditions in the financial services and banking industry remained “stable” as demand for lending increased modestly. While lending remained unchanged in St. Louis, it expanded in New York, Philadelphia, Cleveland, Richmond, Chicago, Kansas City, Dallas and San Francisco.  “In general, the demand for commercial and industrial loans remained steady, while several districts reported an increase in commercial real estate lending activity,” the Beige Book said.  “The Philadelphia and Cleveland districts reported increased lending for multifamily housing and health care, and contacts in Richmond cited increased lending to small business to finance inventory and capital expenditures.”  Overall, residential real estate showed signs of modest improvement and multifamily housing construction continued to grow. On the banking side, credit quality increased and financial firms noted improvement in loan demand.

Bank of America (BOA) says it’s making changes to its short-sale procedures that will shorten decision times on short sale offers to 20 days, down from 45 days or longer.  The new task flow in BOA’s short-sale management platform, Equator, will enable short-sale specialists to conduct tasks like document collection, valuations and underwriting simultaneously. When buyers walk, agents will have five days instead of 14 days to submit a backup offer.  Bank of America is requiring a new third-party authorization form for short sales initiated beginning April 14.  When the changes to Equator take effect Saturday, five documents will be required to process short sales initiated with an offer:

-  A purchase contract including buyer’s acknowledgment and disclosure.

-  HUD-1.

-  IRS Form 4506-T.

-  Bank of America short-sale addendum.

-  Bank of America third-party authorization form.

The Equator platform will be offline the night of Friday, April 13, and into early Saturday, April 14, to implement changes. Offer documents and supporting documents for all short sales submitted with an offer must be uploaded before Friday, April 13, or files may be declined.

Import prices up

Overall import prices rose 1.3% in March, the Labor Department said today. That was the biggest gain since April 2011.  Economists polled by Reuters had expected import prices to rise 0.8% last month. February’s data was revised to show a 0.1% decline instead of the previously reported 0.4% increase.  Stripping out petroleum, import prices increased 0.3% after falling 0.1% in February.  Higher costs for energy have fueled inflation in recent months but a still-weak jobs market has made it harder for businesses to raise other prices.  Data on Thursday is expected to show tame price pressures at a wholesale level, with producer prices seen rising 0.2% in March when stripping out food and energy.  But today’s report underscores the size of the price shock that is stinging Americans when they refuel their cars.  Last month, imported petroleum prices increased 4.3%, the biggest gain since April 2011.  Elsewhere, imported capital goods prices edged 0.2% higher after being flat in February. Imported motor vehicle prices climbed 0.3% after being unchanged in February.  The Labor Department report also showed export prices rose 0.8% last month, above analysts’ expectations for a 0.4% gain. Export prices increased 0.4% in February.

MBA – mortgage applications down

Mortgage applications decreased 2.4% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 6, 2012.  The Market Composite Index, a measure of mortgage loan application volume, decreased 2.4% on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index decreased 2.1% compared with the previous week.  The Refinance Index decreased 3.1% from the previous week.  The seasonally adjusted Purchase Index decreased 0.5% from one week earlier. The unadjusted Purchase Index increased 0.1% compared with the previous week and was 5.5% higher than the same week one year ago.  There was no adjustment made for Good Friday.  The four week moving average for the seasonally adjusted Market Index is down 2.08%.  The four week moving average is up 2.19% for the seasonally adjusted Purchase Index, while this average is down 3.45% for the Refinance Index.  The refinance share of mortgage activity decreased for the eighth consecutive week to 70.5% of total applications from 71.2% the previous week.  This is the lowest refinance share since July 29, 2011.  The adjustable-rate mortgage (ARM) share of activity remained unchanged at 5.5% of total applications from the previous week.

In March 2012, the share of applications for investment properties increased to 8.3% from 7.4% in February 2012.  However, the increase in investor share was driven by refinance applications for investment properties (which increased to 9.2% in March 2012 from 7.7% in February 2012), as the share of purchase applications for investment homes decreased over the month, from 6.1% in February 2012 to 5.7% in March 2012.  The investor share of purchase applications also decreased on a year over year basis, falling from 5.8% in March 2011 to its current level of 5.7% in March 2012.  While MBA tracks applications for second homes and investment properties separately, giving them the ability to distinguish between the two, the combined share of investment and second home applications for home purchase had the same directional components for the month of March 2012 – up on the whole and up for refinance applications last month, but down for home purchase activity.

Credit eases

Credit card lenders gave out 1.1 million new cards to borrowers with damaged credit in December, up 12.3% from the same month a year earlier, according to Equifax’s credit trends report released in March. These borrowers accounted for 23% of new auto loans in the fourth quarter of 2011, up from 17% in the same period of 2009, Experian, a credit scoring firm, said.  The banks are looking to make up the billions in fee income wiped out by regulations enacted after the financial crisis by focusing on two parts of their business — the high and the low ends — industry consultants say. Subprime borrowers typically pay high interest rates, up to 29%, and often rack up fees for late payments.  Some former banking regulators said they worried that this kind of lending, even in its early stages, signaled a potentially dangerous return to the same risky lending that helped fuel the credit crisis.  The lenders argue that they have learned their lesson and are distinguishing between chronic deadbeats and what some in the industry call “fallen angels,” those who had good payment histories before falling behind as the economy foundered.  Regulators with the Office of the Comptroller of the Currency, which oversees the nation’s largest banks, said that as long as lenders adhered to strict underwriting standards and monitored risk, there was nothing inherently dangerous about extending credit to a wider swath of people.

Olick – debate over principal forgiveness

“The man at the center of the controversy over writing down mortgage principal on Fannie Mae and Freddie Mac loans isn’t wavering. He may be reconsidering previous loss formulas, factoring in new government subsidies for principal write-down, but his opinion seems largely unchanged.  After beginning a speech this morning about all the so-called ‘Enterprises’ (Fannie and Freddie) have done to help millions of borrowers behind on their mortgage payments, and reminding listeners of his agency’s mandate to, ‘preserve and conserve the assets of the Enterprises,’ FHFA Acting Director Ed DeMarco took a left turn.  ‘There is another human element in this story that does not seem to receive much attention,’ DeMarco continued. ‘Clearly, many households got over-extended financially. Some accumulated debts they couldn’t afford when hours or wages were cut or jobs were lost. Others withdrew equity from their homes as house prices soared. Others bought houses at the peak of the market, often with little money down, perhaps in the belief house prices would continue to climb. Yet there are other Americans who did not do this thing.’ 

That last part really clinches what may eventually be his decision not to allow principal forgiveness, or to do it in an extremely narrow way. Yes, there are all kinds of formulas, and ‘net present value’ analyses that have been and continue to be run. There will be Enterprise gains offset by taxpayer losses, and there will be estimates of operational costs to implement a wide-ranging and necessarily transparent program. But in the end, less than one million borrowers would be helped, and for DeMarco, as for many others, it will come down to fairness and cheating.  ‘One factor that needs to be considered is the borrower incentive effects. That means, will some percentage of borrowers who are current on their loans, be encouraged to either claim a hardship or actually go delinquent to capture the benefits of principal forgiveness?’ asks DeMarco.  ‘This is a particular concern for the Enterprises because unlike other mortgage market participants that can pick and choose where principal forgiveness makes sense, the Enterprises must develop the program to be implemented by more than one thousand seller/servicers. In addition, the Enterprises will have to publicly announce this program and borrower awareness of the possibility of receiving a principal reduction modification will be heightened among Enterprise borrowers,’ he explains.

In other words, this opens the flood gates to cheating. The fact is that there are 11 million borrowers who currently owe more on their mortgages than their homes are worth and yet the vast majority of them are still making monthly payments. Those who haven’t been paying have been delinquent, in some cases, for many years. The concern is that borrowers who are current on their loans might think it’s unfair that those who are not current are being rewarded and they are not. It would take a relatively small group of them strategically defaulting to offset the gains of any principal reduction program and turn it into a massive debacle.  ‘The far larger group of underwater borrowers who today have remained faithful to paying their mortgage obligations are the much greater contingent risk to housing markets and to taxpayers. Encouraging their continued success could have a greater impact on the ultimate recovery of housing markets and cost to the taxpayers than the debate over which modification approach offered to troubled borrowers is preferable,’ concludes DeMarco.  He is expected to announce a decision on principal reduction this month, but the analysts are already out:  ‘We see this as a strong political attack against principal reduction,’ says Jaret Seiberg of Guggenheim partners.  The Obama administration is clearly pushing for it, with Treasury Secretary Timothy Geithner recently telling a Senate panel that there is a, ‘very strong economic case’ for principal write-down. He suggested DeMarco, ‘take another look at the math,’ which DeMarco is obviously doing. The trouble is, when it comes to today’s housing market and today’s borrowers, paying your mortgage, whatever it’s worth, is not always a simple equation.”

Oil to sink below $100?

Sandy Jadeja, Chief Technical Analyst at City Index, said the charts suggest US futures may drop to $98 a barrel, and if that level is broken, momentum could accelerate taking the crude to as low as $87.  Oil prices contained below $100 would help alleviate the strain on the US consumer, offering some relief to the broader economy. A gallon of gasoline cost $3.94 at the pump last week, two cents higher than the previous week and 5.9% more expensive than a year earlier, MasterCard said in its weekly Spending Pulse report on Tuesday.  The catalyst for the move lower in oil prices may come later Wednesday when the US Department of Energy’s Energy Information Administration releases weekly stockpiles data at 10:30 am ET.  The report is expected to show a 1.8 million barrels build in commercial crude oil inventories for the week ending April 6, driven by higher US imports of Saudi crude, according to analysts polled by Platts.

CoreLogic – April MarketPulse Report

CoreLogic today released its April CoreLogic MarketPulse report. The monthly economic publication provides insight into the current and future health of the US economic climate with particular focus on housing and mortgage metrics. Chief Economist Mark Fleming and Senior Economist Sam Khater authored the articles and commentary.  The April MarketPulse report:

-  Indicates “now is a good time to buy,” with housing affordability at its highest level ever (as of February 2012), and shows many of the key housing metrics are holding steady through the typically slow winter season.

-  Reports the single-family rental market is strong and vibrant with high and stable rents, low months’ supply and a healthy pace of signed rental leases. The report reveals what markets offer the best return for single-family rental investors. “The potential size of the rental market for REOs this year (and annually over the next few years) is over $100 billion dollars,” said Khater in the report.

-  Shows capitalization rates for single-family rental properties in 26 geographically diverse markets. Capitalization rates are the most common metric for determining the profitability of an investment property.

-  Provides a chart of the rent-to-mortgage ratio for Miami, Fla. The chart indicates the point in time when it became cheaper to buy than to rent, providing insight to investors buying and holding rental properties, as well as to new first-time home buyers.

For a complete copy of the April CoreLogic MarketPulse report, including a complete set of data and charts, visit http://www.corelogic.com/downloadable-docs/MarketPulse_2012-April.pdf.

A consumer-advocate group said in a report Wednesday that a study of foreclosed properties found that banks have higher standards for properties they own in wealthy, predominantly white, neighborhoods than low-income ones, raising a new civil-rights challenge against the mortgage industry.  The report by the National Fair Housing Alliance examined more than 1,000 foreclosed properties in nine cities: Atlanta; Baltimore; Dallas; Dayton, Ohio; Miami; Oakland, Calif., Philadelphia; Phoenix and Washington, D.C.  “This report offers evidence that banks responsible for peddling unsustainable loans to communities of color and triggering our current foreclosure crisis are continuing to damage those communities by failing to properly maintain and market the properties they own,” Shanna L. Smith, the housing alliance’s chief executive, said in a statement. The group said it is planning legal action against two banks, which it didn’t name.  The group and four of its members scrutinized foreclosed properties for problems like broken windows, trash, water damage and unkempt lawns.  The report found that properties in minority neighborhoods were 42% more likely to have shoddy maintenance than those in majority-white neighborhoods. Trash and other debris were 34% more likely to be found in foreclosures in minority neighborhoods than in white ones.

Jobless claims down this week

Initial claims for state unemployment benefits fell 6,000 to a seasonally adjusted 357,000, the lowest level since April 2008, the Labor Department said today.  The prior week’s figure was revised up to 363,000 from the previously reported 359,000. Economists polled by Reuters had forecast a claims reading of 355,000 for last week.  The four-week moving average for new claims, a measure of labor market trends, declined 4,250 to 361,750.  The number of people still receiving benefits under regular state programs after an initial week of aid fell 16,000 to 3.338 million in the week ended March 24, the lowest since August 2008.  A total of 7.05 million people were claiming unemployment benefits during the week ended March 17 under all programs, down 107,760 from the prior week.

WSJ – ownership gains appeal

Climbing rents for apartments are combining with a continued decline in home prices to push once-reluctant home buyers into finally taking the plunge, say economists and real-estate agents, helping what appears to be a good start to the housing industry’s all-important spring selling season.  Average apartment rents rose by 2.7% last year while the national vacancy rate dropped below 5% for the first time since 2001, according to a quarterly survey to be released Wednesday by Reis Inc., a real-estate research firm.  The broad and sustained growth of the apartment market contrasts sharply with an uneven and tentative housing recovery. During the first quarter, average apartment rents rose and vacancy rates fell in all 82 metropolitan areas tracked by Reis, when compared with a year ago.  The largest rent increases came in San Francisco and San Jose, Calif., which saw increases of 5.9% and 4.9%, respectively. Even boom-to-bust Las Vegas, which has struggled with falling rents in previous quarters, saw average rent rise 1.8% from a year earlier.  Such increases are one reason why analysts at Zelman & Associates believe 2012 will be the first year since 2005 when the share of apartment renters that moves out to buy a house increases from the previous year. “The equation of renting versus owning is becoming much more favorable for owning,” said Ivy Zelman, the firm’s chief executive. Unless the economy worsens, there is little sign that rent growth will slow until hundreds of thousands of new apartment units currently under construction hit the market over the next few years.

Easier to pay down debt

Timely repayments improved on all 11 of the consumer loan categories tracked by the American Bankers Association (ABA) in the final quarter of last year, the first time that has happened since 2004, according to the organization’s chief economist.  The ABA said delinquency rates still remain high as the economy slowly recovers but the fourth quarter showed a marked improvement from the prior quarter in consumers’ ability to make payments on auto loans, credit cards and other debts.  It does not, however, track delinquency rates for traditional mortgage payments.  The broad delinquency category that tracks eight types of loans fell to 2.49% from 2.59%.  Delinquencies on payments for credit cards provided by a bank fell to 3.17% from 3.25%.  The delinquency rate for home equity loans fell to 4.08% from 4.12%.

FHFA to decide on write downs in April

Federal Housing Finance Agency (FHFA) head Edward DeMarco said the agency will likely make a decision regarding mortgage principal forgiveness sometime in April.  DeMarco, in a speech Wednesday before the Boston Security Analysts Society, said the FHFA continues to evaluate added incentives from the Treasury Department to write down loan principal under the Home Affordable Modification Program.  The Treasury announced in January that it would triple those incentive payments for mortgage investors, and Freddie Mac CEO Charles “Ed” Haldeman signaled the change could push the government-sponsored enterprises to cut mortgage principal.  But DeMarco continued his wary stance toward write-downs Wednesday, and said principal forbearance “produces the same, lower monthly payment.” That’s the main reason to modify a loan, he said.  More than three in four “deeply underwater” borrowers on the GSEs’ books are current on their loans, DeMarco said.  “Indeed, we have found that payment reduction, not loan-to-value, is the key indicator of success in loan modification,” DeMarco said in prepared remarks. “If the borrower remains successful in this modified loan, this approach preserves for taxpayers an ultimate recovery on the debt.”

Others, including many House and Senate Democrats, want DeMarco to go forward with write-downs, while the less patient have called for his ouster.  Thirty senators, in a letter Wednesday, asked DeMarco to revise how the FHFA conducts its principal reduction analysis. The FHFA’s previous report, which said write-downs would cost the GSEs $100 billion, had “several critical flaws,” they said.  “We seek an accurate analysis, but not a particular result,” the senators said in the letter. “Conducting an accurate analysis of this issue is not only part of your responsibility as conservator to conserve taxpayer assets, but also part of your statutory responsibility to maximize assistance for homeowners to minimize foreclosures.”  Sen. Richard Shelby, R-Ala., who is the ranking member of the Senate Banking Committee, came out in defense of DeMarco, questioning Democrats’ own efforts.  “Democrats should stop blaming FHFA for their failure to craft bipartisan legislation to address the housing crisis,” Shelby said in an emailed statement. “FHFA has refinanced over 10 million mortgages since 2009. What have the Senate Democrats accomplished during that same time frame?”

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

Natural gas prices dropping

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

Housing close to bottom?

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

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

Survey says we’re worse off than before

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

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

Olick – have refis run out?

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

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

GDP slow, joblessness slightly down

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

WSJ – cutting loan balances

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

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

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