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Smart Real Estate News & Commentary by Chris McLaughlin July 8, 2011

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WSJ – rents up, vacancies down

Apartment landlords are enjoying rising rents and falling vacancies.  The average effective rent, the amount paid after discounting, was $997 in the second quarter of the year, up from $974 a year earlier, according to a report scheduled for release Thursday by Reis Inc., which tracks leasing data for 82 markets. Second-quarter rents rose in all but two markets.  Rent levels rose fastest in San Jose, Calif., to $1,501 in the second quarter. The average effective rent in San Francisco was $1,806; Wichita, Kan., $495, and New York, $2,826.  Vacancies, meanwhile, fell in 72 of the 82 markets during the second-quarter vacancy rate to 6%, the lowest since 2008 and compared with 7.8% a year earlier, according to Reis. Vacancies declined fastest in Charleston, W.Va., Greensboro/Winston-Salem, N.C., and Richmond, Va.

“Rising rents and falling vacancies are the perfect situation for landlords,” said Rich Anderson, an analyst for BMO Capital Markets. “It’s like drinking without the hangover.”  But there were some cautious signs in the data. Landlords filled a net 33,000 units in the second quarter, a slowdown from the 45,000 units they filled in the first quarter. That was somewhat surprising because typically, the net “absorption” rate falls faster during the summer as college graduates leave campus and descend on cities in search of jobs. Some analysts said the slower absorption rate could be linked to slower job growth, although it is too soon to know for sure. The peak apartment renting season runs from May to September.  “When you’re going from big numbers and getting gradually smaller it’s tough to determine if things are in fact cooling,” says Haendel St. Juste, an analyst at Keefe, Bruyette & Woods.

Meanwhile, supply remains constrained. Roughly 8,700 new apartment units opened during the second quarter, the second-lowest quarterly tally for new completions since Reis began collecting data in 1999.  But there is new construction in the pipeline. The CoStar Group, a Washington, D.C.-based real-estate research firm, expects about 22,500 units to be added this year, followed by 94,600 in 2012 and more than 109,000 in 2013.  But as long as employers keep adding jobs to the economy, analysts say, they expect vacancy rates to keep falling and rents to keep rising. “Barring some unexpected shock from the global economy, we expect the recovery to continue through 2011,” Reis wrote in the report. “Vacancies should continue to decline while rents rise at an even faster pace than we observed in the first half of the year.”

Hiring down

The economy gained just 18,000 jobs in the month, the government reported Friday, sharply missing most expectations and coming in even weaker than the paltry 25,000 jobs added in May.  It marked the weakest month since September, when the economy was still losing jobs.  Economists were eagerly awaiting this month’s report, following a dismal report from May.  Since then, predictions for June’s report have varied widely. A consensus of economists surveyed by CNN had predicted a gain of 125,000 jobs for June, but the breadth of forecasts ranged from a meager gain of 21,000 jobs to a solid 237,000.  Bringing further disappointing news, the government also revised the numbers for April and May both downward.  The unemployment rate rose to 9.2% from 9.1% in May. Economists had predicted the rate would improve to 9%.  Overall, the job market is still far from a full recovery.  The economy needs to add about 150,000 jobs a month just to keep pace with population growth.  So far, the nation has only gained back about a fifth of the 8.8 million jobs lost during the recession.

Olick – Fannie Mae offers new financing option

“Remember how we all blamed investor/flippers using faulty financing for the housing crash?  You know, these are all the bad guys who ran up home prices to their own profit, with no concern for the inevitable fallout; they colluded with overzealous, borderline blind, lenders who gave anybody and everybody a loan with no attention paid to their ability to repay said loan.  That’s all over now. You can’t get a loan without pledging your first born in collateral, and if you’re an investor, you rank somewhere just below Angelo Mozilo.  Or do you? Last month Fannie Mae made a little change in the rules for all-cash buyers to apply for mortgages. I don’t recall a press release, and I’m quite sure I’m on their mailing list. But there it is, ‘Announcement SEL-2011-5,’ a ‘Selling Guide Update:’

Currently, Fannie Mae requires a minimum of six months to elapse between the time a borrower purchases a home and subsequently applies for a cash-out refinance.  The Selling Guide has been updated to allow a cash-out refinance within six months of a purchase transaction when no financing was obtained for the purchase transaction.  There are of course all kinds of parameters, including maximum LTV (loan-to-value ratio), documentation, arms-length transaction and ‘all other cash-out refinance eligibility requirements and cash out pricing applied.’ The mortgage cannot be larger than the value of the home of course.  Hands down, this is a boon to investors, who can now get equity out of their investments faster. It’s also a boon to home buyers who couldn’t compete in the long term with all-cash investors, but who might be able to put down the cash for a few weeks before obtaining a mortgage.

So is this a ‘loosening’ of standards that could fuel all those nefarious investors of the housing boom? Wait, maybe today’s investors aren’t so dangerous after all (as I’ve been saying over and over).  ‘We continually examine our policies and standards to determine what changes to make to better serve the market, and this is one of those changes,’ said Fannie Mae spokesman Andrew Wilson.  ‘There is a role for everyone in stabilizing the market, including those who invest in properties to repair and improve them, owner occupant buyers, and those that build and maintain quality, affordable rental units,’ Wilson said. ‘We believe our requirements are carefully crafted to ensure that we are financing legitimate buyers who opt to purchase with cash.’  All-cash buyers are now one-third of the market and far higher in the more distressed markets. Most all-cash buyers are investors, but owner-occupants are also trying to take advantage of reduced pricing on distressed properties; trouble is they can’t always compete in the all-cash arena.

A lot of deals, especially short sales (where the bank lets you sell for less than the value of the mortgage), have fallen apart because of buyer financing issues. All-cash buyers also usually get a price break in competitions with financed buyers, as sellers would rather just see the money. This could give some owner occupants at least an even playing field with investors. Obviously they still need the cash up front, but only temporarily.  Will this now create a new breed of quick flippers? Today’s investors tend to hold long-term and rent out in order to make their gains, but now, with a quick financing option, they may take the money out to do upgrades and then put the property right back on the market.  Tough to say, but it certainly changes the lending landscape and signals something of an olive branch to all those real estate investors, who are helping to clear the vast quantity of distressed properties that continue to plague the nation’s housing market.”

US Treasury wilts

Now that the Federal Reserve’s $600 billion Treasury buying spree is over, the bond market is growing nervous.  Barring possible hiccups in August as Congress wrestles with the task of raising the legal borrowing limit, the U.S. government will go on issuing around $166 billion in Treasury bonds and notes a month, and primary dealers aren’t quite sure where demand will come from, and at what price.  One possibility lies in investors such as foreign central banks, insurance companies and fund managers, but pulling them in may be tricky; some Treasury yields are near all-time lows. And for the first time since 2005, JPMorgan is reporting there are no long positions in Treasuries.  And Congress is still struggling to raise the debt ceiling, with the latest talks leaving a wide gulf in place between President Barack Obama and Republican lawmakers, as the Treasury’s Aug 2 deadline for a potential default draws near.

For now, primary dealers, the banks and securities firms authorized to bid on behalf of clients in Treasury auctions, will have to wager on a price without the certainty they had of being able to sell the securities quickly in the secondary market, or to the Federal Reserve.  “People are going to be less willing to take on duration without the certainty of three or four buybacks per week to support the market,” said Rick Klingman, managing director of Treasury trading at BNP Paribas in New York.  Duration is a measure of interest-rate risk.  That has already led to sloppier auctions, with higher borrowing costs for the U.S. government as auction high yields fix at a higher mark than available in the open market, a phenomenon known as a “tail.”  This happened two weeks ago when three separate auctions “tailed” in the worst week for U.S. government debt sales since March 2010.  Auctions tail when bidders insist on cheaper prices for a given security, or when confusion about the demand for that security causes bidders to behave cautiously.  The next test will be next Tuesday when the government sells $32 billion in three-year notes.

Foreclosure settlement deadline extended

A settlement over foreclosure practices between the nation’s five largest mortgage servicers, federal agencies and the states’ attorneys general will not be reached by next Tuesday.  July 13 is the deadline for the banks to submit plans for improving their servicing standards on loan modifications and foreclosures to the Office of the Comptroller of the Currency (OCC). The deadline was extended by 30 days last month at the request of the Department of Justice, which is coordinating the actions of the states attorneys general and the OCC.  There was a possibility the attorneys general and the OCC would coordinate the settlement and the submission of the action plans as both require banks to adopt more stringent standards for carrying out loan modifications and foreclosures. Whether this happens now depends on whether the DOJ asks for another extension.

Fewer bankruptcies

The number of bankruptcy filings in June was 120,623, or an average of 5,483 a day, a drop of 6.2% from May, when filings totaled 122,775, or 5,846 a day, according to a report from Epiq Systems, which tracks bankruptcy filings. There was one additional day to file in June compared with May. Average daily filings are down nearly 10% from June of last year.  Though economic factors like foreclosures and unemployment play a role in bankruptcy, over the long run, the filing rate tends to be more closely tethered to the amount of outstanding consumer debt.  Access to credit, however, can influence the bankruptcy rate over the shorter term: as lenders tighten their standards, filings tend to rise because struggling consumers can no longer rely on credit cards or other loans to get them through a rough period. But when more new loans are being made, filings tend to fall — at least for a while.

So far this year, the vast majority of the bankruptcy cases — nearly 70% — were Chapter 7 filings, which provide individuals with the proverbial “fresh start” because their debts are forgiven. (To qualify, filers need to pass a means test to determine whether they are unable to repay their debts.)   In contrast, a Chapter 13 filing requires individuals to use their disposable income to pay back a portion of their debts through a three- or five-year repayment plan. Some people choose Chapter 13 because it allows them to save their primary homes from foreclosure, though they are required to catch up on their mortgage payments. Slightly more than 27% were Chapter 13 filings. (The remainder were mostly commercial filings.) The overall split between Chapter 7 and Chapter 13 filings is consistent with last year’s ratio.  While the overall number of bankruptcy filings was down last month, there were variations from state to state. For instance, filings in Georgia rose 13% and were up 33% in Delaware, compared with May. But filings in Wyoming fell 30%, in South Dakota 21%, in West Virginia 18% and in Wisconsin 17%.  In both New York and New Jersey, the number of bankruptcy cases dropped by 5%.

WSJ – mortgage rates up

Mortgage rates in the U.S. rose broadly over the past week after showing little movement over the past month, according to Freddie Mac’s weekly survey.  The 30-year fixed-rate mortgage was 4.60% for the week ended Thursday, compared with 4.51% the previous week and last year’s rate of 4.57%. Rates on 15-year fixed-rate mortgages were 3.75%, up from 3.69% last week and down from 4.07% a year earlier.  Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 3.30%, up from 3.22% last week and down from 3.75% a year ago. One-year Treasury-indexed ARM rates were 3.01%, up from 2.97% in the prior week and down from 3.75% in the prior year.  “Mortgage rates followed Treasury yields higher over the holiday week but remain quite affordable by historical standards,” said Freddie Mac Chief Economist Frank Nothaft.  To obtain the rates, fixed-rate mortgages required an average payment of 0.7 point, while adjustable rate mortgages required an average 0.6-point payment. A point is 1% of the mortgage amount, charged as prepaid interest.

See you at the top!
Chris McLaughlin

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

Copyright Loss Mitigation Institute LLC 2010.
All Rights Reserved.

http://www.shortsalesriches.com

http://www.shortsalescoach.com

http://www.sixfigurebpo.com

http://www.reomillionaireclub.com

http://www.youtube.com/shortsalesriches

http://www.smartrealestatenews.com

(subscribe to this newsletter)

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

About the author:

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

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

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

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

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

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

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

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

Smart Real Estate News & Commentary by Chris McLaughlin June 28, 2011

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Home prices up

According to the S&P/Case Shiller 20-city index, prices rose 0.7% in April compared with March, although they fell 0.1% when adjusted for the strong spring selling season. Prices were down 4% year-over-year. “In a welcome shift from recent months, this month is better than last — April’s numbers beat March,” said David Blitzer, S&P’s spokesman, in a statement. “However, the seasonally adjusted numbers show that much of the improvement reflects the beginning of the spring-summer home buying season. It is much too early to tell if this is a turning point or simply due to some warmer weather,” Blitzer added. Any hint of good news in the troubled housing market will likely bring cheer to the industry, and there are some signs that market conditions are not quite as dire as some of the statistics may indicate.

Much of the price drop over the past year can be blamed on severe price slashing for homes in foreclosure, as Federal Reserve chairman Ben Bernanke pointed out in a press conference last Wednesday. Prices for homes sold by regular sellers have held up much better. Metropolitan Washington continued to be the strongest of the 20 cities covered by the report. Prices rose 3% in April there and have been on the plus side year-over-year, up 4%. The worst performing market for the month was Detroit, where prices fell 2.9%. The biggest year-over-year drop was recorded by Minneapolis, where prices have plunged 11.1% since last April.

Debt deadline looms

U.S. Treasury Secretary Timothy Geithner is not expected to significantly shift the Aug. 2 date when the government will have exhausted all of its emergency measures to stave off default, a source familiar with the administration’s efforts said today. That means the Obama administration and Congress still have about a month to reach a deal to raise the $14.3 trillion debt limit on how much the government can borrow. The Treasury Department is due to provide congressional leaders with an updated forecast as early as Friday.

A significant shift in the Aug. 2 drop-dead date would fuel suspicions among a growing group of Republicans that the deadline can be ignored and that the administration is fear-mongering. “Delaying it will reinforce the argument that this crisis is a creation of Treasury, the White House and the political establishment,” said Stuart Rothenberg, a non-partisan political analyst. He said it also will fuel arguments that the administration is picking “dates out of a hat to try to put pressure on Republicans to raise taxes.” The White House is locked in a battle with lawmakers over how to raise the debt limit and curtail government spending. The Treasury borrows on average about $125 billion per month to meet obligations such as paying elderly and disabled Americans social security benefits.

Olick – low end, higher losses

“As I sit here, less than 24 hours from the next release of the much-followed monthly S&P/Case Shiller Home Price Index, I’m confronted with all kinds of varying data and hypotheses on the future track of home prices. Particularly interesting to me is a new breakdown, by Capital Economics (which watches our market from Toronto, Canada), on how prices are falling faster at the low end than the high end. At face value I thought this was a no-brainer. Of course the low end is falling faster because that’s where the bulk of the foreclosures are, thanks to the subprime mortgage debacle, which of course targeted first-time and low-income buyers on the low end. I had no idea how large the discrepancy is: ‘Since their 2007 peak, prices in the low tier have so far fallen by 45% compared with declines of 35% and 25% in the middle and high tiers respectively,’ notes the report.

Even though most of the subprime distress has worked itself through the market, the pressure on the low-end continues because it is the low-end borrowers now who have the toughest entry to the oh-so-tight mortgage market. As the report reminds, proposed risk retention rules will likely mean a 20% down payment, which will price many borrowers out of the low end of the market. And this is not just in the markets we always talk about. The New York Fed put out some alarming numbers today showing that 10% of mortgages in New York City are in the ‘seriously delinquent’ pool, as in more than 90 days past due (for Manhattan it’s one in 50 loans, but for the Bronx and Brooklyn it’s one in eight). Since New York is a judicial foreclosure state (requires foreclosure cases go before a judge), the backlog of foreclosure cases hit 80,000 after the so-called ‘robo-signing’ paperwork scandal. Properties repossessed by banks in March spent an average 900 days in the foreclosure process! The shadow inventory in New York is therefore huge, and that gets me back to where I started. Most of those borrowers in New York who lost their homes were on the low end of the market (note the discrepancy in pricey Manhattan versus the other boroughs). You can extrapolate that scenario to any market and see that the low end will continue to fall victim to distressed pricing. That can, of course, trickle up, as the move-up buyer is hamstrung by the inability to sell at a decent price.”

Citigroup VP charged with fraud

Gary Foster, a former Citigroup executive, was arrested Monday on charges he embezzled more than $19 million from the bank. According to a criminal complaint unsealed in New York, Foster allegedly transferred millions of dollars from various Citigroup accounts into his personal account at JPMorgan Chase on eight separate occasions between May 2009 and December 2010. Foster, 35, is also accused of using fraudulent contracts and deal numbers to mask the transfers. The former vice president of Citigroup’s Treasury finance department was arrested at John F. Kennedy International Airport on Sunday morning when he arrived on a flight from Bangkok. The charges were announced by the U.S. Attorney’s office and the Federal Bureau of Investigation. “The defendant allegedly used his knowledge of bank operations to commit the ultimate inside job,” said Loretta Lynch, the U.S. Attorney for the Eastern District of New York.

Citigroup informed law enforcement officials immediately after discovering suspicious transactions, she said, adding that the bank is fully cooperating with the prosecution “to ensure Mr. Foster is prosecuted to the full extent of the law.” According to the complaint, Foster transferred money from internal Citigroup accounts including its interest expense account and debt adjustment accounts, to the bank’s cash account. From there, he allegedly wired the money to his personal account at Chase, according to prosecutors. Foster is expected to appear in court later Monday in Brooklyn, N.Y. He plans to plead not guilty, according to his lawyer, Isabelle Kirshner of Clayman & Rosenberg. Kirshner said she had just received the complaint and was reviewing the charges. “These are serious charges and we will investigate them fully,” she said. If convicted, Foster could face up to 30 years in prison.

Cash for short selling

Most banks figure they’re doing homeowners a favor simply by signing off on short sales and forgiving the amount owed. But in some cases, Chase and Wells Fargo borrowers receive that and cash at the closing. Lenders routinely hand homeowners a few thousand dollars if they leave the properties in good shape after foreclosure. That’s known as “cash for keys.” Also, homeowners are entitled to $3,000 of government money if they complete short sales through the Home Affordable Foreclosure Alternative program. Wells Fargo and Chase don’t specifically address why they offer the money for short sales. Rather, they explain they’re cutting their losses in choosing to forgo the potentially lengthy process of foreclosure. “Our goal is to help as many people avoid foreclosure as possible,” Chase spokeswoman Nancy Norris said, pointing out that the bank has completed more than 110,000 short sales nationwide since early 2009. Wells Fargo offers the cash to homeowners in Florida and other states “where the foreclosure process is lengthening,” spokesman Tom Goyda said.

The average foreclosure in Florida took 619 days for cases completed in the first three months of 2011, according to RealtyTrac Inc., a foreclosure listing firm. That’s more than 30 percent longer than cases completed a year ago. The lenders decide whether to make payments after considering individual circumstances, and they don’t disclose what those are. The banks won’t say how many people have been offered the cash. Chase and Wells Fargo don’t say how many home loans they own in Florida. The money for short sales is an effort by the lenders to be viewed as good corporate citizens as they expand aggressively in Florida after the banking takeovers, Miami-based banking analyst Ken Thomas said. Ward Kellogg, chairman of Paradise Bank in Boca Raton, said his community bank occasionally has offered money to homeowners who cooperate in short sales. He figures Chase and Wells Fargo are agreeing to the incentives so that they can write off the bad loans as soon as possible. “Without cooperation, it’s going to take a year and half,” Kellogg said. “With cooperation, it could be 30 to 60 days.”

See you at the top!
Chris McLaughlin

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

Copyright Loss Mitigation Institute LLC 2010.
All Rights Reserved.

http://www.shortsalesriches.com

http://www.shortsalescoach.com

http://www.sixfigurebpo.com

http://www.reomillionaireclub.com

http://www.youtube.com/shortsalesriches

http://www.smartrealestatenews.com

(subscribe to this newsletter)

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

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

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

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

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

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

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

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

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

   Smart Real Estate News & Commentary by Chris McLaughlin May 13,

2011

Forward this e-mail to your friends!

Then they can subscribe directly at the following link:

http://www.smartrealestatenews.com/

*** Join Chris’ Facebook Fan Page–>

http://www.mclaughlinchris.com

*** Follow Chris on Twitter–>

http://www.twitter.com/mclaughlinchris

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

More political interference

Calling housing “the biggest headwind on the economy right now,”

Obama broached two relatively new ideas for the White House:

Longer-term mortgage modifications and principal reductions.  “In

addition to these short-term loan modifications, we want to see

if we can get longer-term loan modifications. And in some cases,

principal reduction, which will be good for the … person who

owns the home, but it’ll also be good for the banks over the long

term,” Obama said.  Both ideas would require Congress to pass

laws to force the banks to cooperate, and principal reduction is

sure to stir Wall Street banks, because it is direct interference

by the government in private finance.  When Obama campaigned, he

had talked about pushing for policy to give bankruptcy judges the

ability to write down principal owed on homes whose owners are

bankrupt, but when he took office, he stood on the sidelines of

legislation that would have allowed principal reductions, and his

administration said that current housing policy was good enough.

House Republicans passed a bill to kill the administration

programs that most experts have gauged a failure.

Inflation up

The Consumer Price Index, the government’s key inflation measure,

rose 3.2% over the last 12 months ended April 30, according to

today’s report from the Labor Department. It was the biggest

12-month jump since October 2008. Half of the increase was due to

rising energy prices, the government said.  Meanwhile, so-called

core-CPI, which strips out volatile food and energy prices and is

considered a better long-term predictor of inflation, rose 1.3%

from a year ago.  Gas prices alone surged 3.3% in April, and are

up 33.1% over the past year.

Overall, prices jumped 0.4% in April, in line with forecasts from

economists surveyed by Briefing.com.  Core CPI rose 0.2% during

the month, surpassing economists’ forecasts, which called for a

0.1% tick higher.

MBA – CEO testifies

David H. Stevens, President and CEO of the Mortgage Bankers

Association (MBA), testified before the Senate Committee on

Banking, Housing and Urban Affairs’ Subcommittee on Housing,

Transportation and Community Development on “The Need for

National Mortgage Servicing Standards.”  Following are portions

of his remarks:  “Presently,  servicers face a growing number of

checks and balances, ranging from federal laws and regulations,

such as RESPA and TILA, to fifty state laws, regulations, and

local ordinances, as well as court rulings and FHA, VA, and Rural

Housing servicing requirements. These requirements are in

addition to Fannie Mae standards, Freddie Mac standards, and

other contractual obligations. In short, servicers are faced with

complex and often contradictory rules and regulations, many of

which are still emerging.  What is the answer?  A consolidated

servicing standard that could drive these reforms.  Creating an

industry standard would streamline and eliminate many of these

overlapping requirements, providing clarity and certainty for

borrowers, lenders and investors alike.  It is critical that all

of the federal regulators involved act in a coordinated manner to

establish one national consolidated servicing standard that

applies to the entire industry, rather than piling on requirement

after requirement.”

“A national standard should start with a complete analysis of

existing servicer requirements and state laws governing

foreclosures.  Development should include an open dialog with

stakeholders in the servicing arena, all of whom must ultimately

implement and comply with the national standard.  MBA has

initiated this process by convening a blue-ribbon Council on

Residential Mortgage Servicing.  That Council examined the entire

servicing model and is forming recommendations to improve the

system for all stakeholders.  I am pleased to announce that we

are releasing the preliminary White Paper from the Council today

and ask that it be included as part of my written testimony.  

In the White Paper, the Council aims to examine the current

servicing model, address public misconceptions relating to

servicing practices and incentives, and educate the public on the

role and compensation of servicers.   I believe this White Paper

will provide useful information to you and other policymakers

that are currently debating national servicing standards.  I

encourage this subcommittee to use MBA and it’s Council on

Residential Mortgage Servicing as a resource going forward.  In

conclusion, as we develop servicing standards, I will urge you to

pay careful attention to the interdependence of servicing and the

impact that changes to the servicing system will have on the

economics of mortgage servicing, tax and accounting rules and

regulations, and the effect of the new requirements on Basel

capital requirements and on the TBA market.  Servicing does not

exist in a vacuum; instead it is part of a broader ecosystem

which involves all the varied elements of the mortgage industry.

The housing market remains fragile.  Therefore, when considering

changes to the current model, policy makers must be mindful of

unforeseen and unintended consequences that could ultimately

result in higher housing costs for consumers and reduced access

to credit.”

Retail sales up .05%

Total retail sales increased 0.5% last month, the Commerce

Department said. Sales rose 0.9% in March and have risen every

month since July 2010.  Economists had expected a 0.6% gain,

according to consensus estimates from Briefing. com.  Sales

excluding autos and auto parts were up 0.6%, roughly in line with

estimates.  Despite the overall increase in retail sales,

economists said the data suggest that consumer spending may be

slowing down.  Sales at gas stations were up 2.7% in April. Food

and beverage retailers had a 1.2% increase in sales, while

grocery store sales were up 1.5% last month.  Gas prices have

surged this year, with the national average near $4 a gallon. In

addition, food prices have risen sharply due to poor crop yields

and higher production costs due to the spike in energy prices.

Many economists had anticipated a bump in sales during April due

to the Easter holiday, which occurred later in the month than it

normally does.  But department store sales actually fell 0.2% in

the month, according to the report.

NAR – questions Dodd-Frank Act

The National Association of Realtors (NAR) says that a proposed

rule to define qualified residential mortgages (QRM) under the

Dodd-Frank Wall Street Reform and Consumer Protection Act (the

Dodd-Frank Act) would unnecessarily restrict access to home

ownership.  On July 21, 2010, President Barack Obama signed the

Dodd-Frank Act into law. A provision in the Act requires that

financial institutions retain 5% of the risk on loans they

securitize. The purpose is to discourage excessive risk taking

and create strong incentives for responsible lending and

borrowing. Exempt from the requirement are certain QRMs; FHA and

VA mortgages are also exempted.  Six agencies are developing the

risk retention regulation – the Department of Housing and Urban

Development, Federal Deposit Insurance Corp., Federal Housing

Finance Agency, Federal Reserve, Office of the Comptroller of the

Currency, and the U.S. Securities and Exchange Commission.  The

proposed rule narrowly defines QRMs, requiring an 80%

loan-to-value, which necessitates a 20% down payment. The rule

would also limit mortgage payments to 28% of gross income, a very

tight standard.

Following are some of NAR’s remarks:  “As the leading advocate

for housing and home ownership, NAR firmly believes Congress

intended to create a broad QRM exemption – strong evidence

shows that responsible lending standards and ensuring a

borrower’s ability to repay have the greatest impact on

reducing lender risk, and not high down payments.,” said NAR

President Ron Phipps, broker-president of Phipps Realty in

Warwick, R.I. “Saving the necessary down payment has always

been the principal obstacle to buyers seeking to purchase their

first home. Proposals that require high down payments will only

drive more borrowers to FHA, increase costs for borrowers by

raising interest rates and fees, and effectively price many

eligible borrowers out of the housing market.”

According to NAR Research, 60% of recent home buyers made less

than a 20% down payment, and it would take 14 years for a typical

person to save up a 20% down payment to buy a median-priced home.

 NAR wants federal regulators to honor Congressional intent by

crafting a QRM exemption that includes a wide variety of

traditionally safe, well underwritten products such as 30-, 15-,

and 10-year fixed-rate loans; 7-1 and 5-1 ARMs; and loans with

down payments in the 5% – to 20% range with mortgage insurance,

where required, and with other features found in low-risk loans

such as no prepayment penalties or balloon payments.

Business inventories up

The Commerce Department said inventories increased 1.0% to $1.48

trillion, the highest level since November 2008, after increasing

by an upwardly revised 0.7% in February.  Economists polled by

Reuters had forecast inventories rising 0.8% after a previously

reported 0.5% increase in February.  Inventories are a key

component of gross domestic product changes and March’s

bigger-than-expected gain could see the government raise its

first-quarter GDP estimate.  The economy grew at a 1.8% annual

rate in the first quarter, with inventories accounting for 0.93

percentage point, after a 3.1% pace in the fourth quarter.

Business sales rose 2.2% to $1.20 trillion in March, the highest

level since July 2008, after rising 0.5% the prior month. March’s

percentage increase in sales was the largest since March 2010.

March’s sturdy sales pace pushed down the

inventory-to-sales-ratio (which measures how long it would take

to clear shelves at the current sales pace) to a record low 1.23

months from 1.24 months in February.

NY foreclosure courts face 7 year backlog

According to RealtyTrac, at the rate the New York court systems

are currently working through the backlog of foreclosure cases,

it will take more than seven years to clear.  New York is a

judicial state, whereby foreclosures are completed through the

court system. But as cases mounted, the state developed the

largest foreclosure timeline in the country.  It currently takes

an average of 900 days for a foreclosure to wind through the New

York system, according to RealtyTrac, which maintains a count of

filings at the county level.  At the end of April, New York held

an inventory of 39,000 properties that received the initial

foreclosure notice or had been scheduled for auction but remain

unsold. Daren Blomquist, the editor of the RealtyTrac’s monthly

reports, said there is some estimation involved because the firm

doesn’t automatically remove a property from the active inventory

if there has been no update or sale within a certain number of

days.  New York averaged 314 scheduled auctions and 224

repossessions to REO per month so far in 2011. That’s down from

roughly 700 auctions and 520 REO each month last year. Assuming

only half of the 39,000 ends up being foreclosed and the rate of

repossession holds, it would take 87 months to clear this

inventory, Blomquist said.  New York implemented new rules giving

homeowners more protection in February, which may further delay

not only the process but a recovery.

See you at the top!

Chris McLaughlin

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

Copyright Loss Mitigation Institute LLC 2010.

All Rights Reserved.

http://www.shortsalesriches.com

http://www.shortsalescoach.com

http://www.sixfigurebpo.com

http://www.reomillionaireclub.com

http://www.youtube.com/shortsalesriches 

http://www.smartrealestatenews.com

(subscribe to this newsletter)

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

About the author:

Chris McLaughlin is widely known as America’s top

Real Estate Attorney and Investment Consultant.

    * As the top Florida foreclosure and pre-

      foreclosure expert, he oversees more than

      100 short sale & REO closings each month

   * Long-time authority on real estate investing

      and rapid reselling of distressed homes.  Owns

      portfolio of nearly 150 high-value, high-profit

      properties

    * Owner of one of Florida’s largest Real Estate firms,

     running 4 different offices, supporting over

     420 agents, uniquely positioning him to help

     thousands of investors make money in the

     biggest market opportunity ever!

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

      closed 2,786 sides for a closed sales volume of

      $392,912,927!  

    * Highly sought-after speaker, consultant, and

      seminar leader for current trends and hot topics

      in Real Estate Investing, Entrepreneurship, and

      Wealth Building

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

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

Smart Real Estate News & Commentary by Chris McLaughlin November 30 , 2010

Forward this e-mail to your friends! 

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Home prices down more than expected

The Standard & Poor’s/Case-Shiller composite index of 20 metropolitan areas declined 0.8 percent in September from August on a seasonally adjusted basis.  Economists polled by Reuters had expected a decline of 0.3 percent.  S&P, which publishes the indexes, also said home prices in the 20 cities index rose 0.6 percent from September 2009, slower than the 1.1 percent expected.  The index has risen 5.9 percent from their April 2009 bottom. But it remains nearly 28.6 percent below its July 2006 peak.  Prices in San Francisco and Los Angeles, which had been increasing, both fell in August from July. Washington and Las Vegas were the only metro areas to post gains in monthly prices.  Prices rose in many cities from April through July, mostly boosted by government tax credits which have since expired. Job worries and record high foreclosures are dampening buyer demand and weighing on prices.  The national quarterly index, which measures home prices in the nine U.S. census regions, dropped 2 percent in the third quarter from the previous quarter.

Cyber Monday sales up 20%

Cyber Monday is the first Monday after Thanksgiving and is a relatively recent retail phenomenon, compared to Black Friday, the day after Thanksgiving. Many retailers traditionally open their doors at midnight on Black Friday, attracting shoppers with heavily advertised discounts.  Cyber Monday online sales in the U.S. were up 19.4% in 2010 compared to last year, reported Coremetrics.  More people were shopping online and the individual orders were larger than last year. Coremetrics said the average order value on Cyber Monday was $194.89, an increase of 8.3% from last year’s average of $180.03.  Cyber Monday sales also outdid this year’s Black Friday online sales by 31.1%, according to Coremetrics.  Shoppers also used mobile devices to make their purchases, with nearly 4% of all Cyber Monday shoppers using smartphones and other devices.

NAR – Commercial real estate flattening

The Society of Industrial and Office Realtors, in its (SIOR) Commercial Real Estate Index, an attitudinal survey of more than 400 local market experts,¹ shows vacancy rates are slowly improving, but rents continue to be soft with elevated levels of subleasing space on the market.  The SIOR index, measuring the impact of 10 variables, rose 1.6 percentage points to 42.6 in the third quarter, but remains well below a level of 100 that represents a balanced marketplace. This is the fourth straight quarterly improvement following almost three years of decline.  The last time the commercial market was in equilibrium at the 100 level was in the third quarter of 2007; the index now matches where it was at the beginning of 2009. Fifty-nine percent of respondents expect improvements in the office and industrial sectors in the current quarter.  Commercial real estate development continues at stagnant levels with little investment activity, but is beginning to pick up in many parts of the country. 

Office Markets:  Vacancy rates in the office sector, where a large volume of sublease space remains on the market, are forecast to decline from 16.7 percent in the current quarter to 16.4 percent in the fourth quarter of 2011, but with very little change during in the first half of the year.  Industrial Markets:  Industrial vacancy rates are projected to decline from 13.9 percent currently to 13.2 percent in the closing quarter of 2011.  Retail Markets:  Retail vacancy rates are expected to change little, declining from 13.1 percent in the fourth quarter of this year to 13.0 percent in the fourth quarter of 2011.  Multifamily Markets:  The apartment rental market – multifamily housing – is expected to get a boost from growth in household formation. Multifamily vacancy rates are forecast to decline from 6.4 percent in the current quarter to 5.8 percent in the fourth quarter of 2011.

Unemployment benefits dry up

The deadline to file for extended unemployment insurance is officially Nov. 30, so many jobless have already filed their last claim for benefits.  Since lawmakers aren’t moving to extend the deadline anytime soon, many more unemployed Americans will run out of their extended federal benefits in coming weeks. About 2 million people are expected to stop receiving checks in December.  Federal jobless payments, which last up to 73 weeks, kick in after the state-funded 26 weeks of coverage expire. These federal benefits are divided into four tiers of emergency unemployment compensation, which last between six and 20 weeks, followed by up to five months of extended benefits. The jobless must apply each time they move into a new tier. 

Unemployed Americans who’ve just exhausted their state benefits are already blocked from entering the federal system in most states. They would have had to file their initial federal claim by this past weekend.  Those already in a federal emergency benefits system will not be able to move to the next tier after this coming weekend. However, they can continue to collect the benefits available in their current level. So those who just entered a tier could continue receiving benefits for awhile, but those who are near the end of their tier will see payments dry up sooner.  Many of the jobless who are in the last stage of the federal safety net — the up to five months of extended benefits — will stop getting checks this month no matter when they started this level. That’s because the federal government will stop fully funding this stage after Nov. 30.

Olick – will rising rents spur home ownership?

A positive in the commercial real estate sector may be a sign of better things to come in residential housing down the road, or that’s the theory. “As rents rise and the cost of home ownership declines, owning is becoming more attractive,” notes California real estate analyst John Burns.  Apartment demand is rising, and supply has fallen to low levels. In fact, net absorption nationally increased by 84,000 units in Q3, which pushed vacancy rates down to 7.2 percent, according to Reis. Rents didn’t grow by a lot nationally, up just 0.6 percent, but in larger markets rents are making bigger gains.  Is that really enough to push people back to home ownership? Well, on the one hand, mortgage applications to purchase a home jumped last week, despite rising rates. “The increase in purchase applications last week aligns with other incoming data suggesting that consumers are feeling somewhat more confident with their financial situation,” said Michael Fratantoni, MBA’s Vice President of Research and Economics.  There was also the small issue of a shortened previous week due to Veteran’s Day, but the Mortgage Bankers Association’s purchase index is at its highest level now since the expiration of the home buyer tax credit. Still, one week does not a trend make.  […]

Now for our real estate education section…

Money Madness

When it comes to investing it seems nearly everyone either “knows someone” in the business or has read about a “hot tip”…odd that more people are not millionaires. Of course, this begs the question of who and where to get reliable investment information and how to evaluate the source. Today we will spend a bit of time comparing various venues in order to identify the good, bad and downright ugly truth about financial advice.

Mainstream Media

A surprising number of people still follow the advice of mainstream media including major news channels, magazines and other shows. Yes, the same people that brought you “The Simpsons” are considered reputable outlets for investing…in some circles. The problem is not actually the source but rather the sponsors. Mainstream media makes money by selling advertising so the first thing any potential investor should ask is “who is the sponsor?”. If you enjoy listening to a famous “celebrity investor” then ask yourself what they do for a living…talk radio or real estate? Stock investing or dancing with stars? Just because they are well known does not mean they know what they are talking about.

Guru

Closely related is the tendency for many investors (including short sale real estate investors) to follow the advice of a guru or well known personality. However, it is important to differentiate someone with wealth from someone that made their wealth by investing. Timing is also important. Even though someone made a lot of money doing something in the past does not mean they know how to make it work for them now. Search for someone with a proven track record of success who is still in the business today!

Academic Research

Oh yes, it is impressive looking but do all those charts and citations really make it more reliable? It really depends. The first step is to determine who sponsored the research…although a bit different than media sponsorship or advertising, research – even academic research – is often sponsored by a corporate or for-profit entity. The type of question asked, statistics utilized and comparisons made may all dramatically influence outcomes. Examine the assumptions being made, the underwriters and the supporting relationships carefully. It’s not a bad idea to check the net worth of the main author either.

Bloggers

Bloggers, Facebook and other social media websites have become hot sources for investment information but they are not all created equal. Just like a website, anyone can write nearly anything. It’s important to see a track record of success – not just thoughts on paper. Find out the credentials and network of the author to see if they put their money where their mouth is.

See you at the top !

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

Copyright Loss Mitigation Institute LLC 2010.

All Rights Reserved.

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

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

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

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

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