REO

Smart Real Estate News & Commentary by Chris McLaughlin June 22, 2011

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NAR – existing home sales decline

According to the National Association of Realtors (NAR), Existing-home sales, (completed transactions that include single-family, townhomes, condominiums and co-ops), fell 3.8% to a seasonally adjusted annual rate of 4.81 million in May from a downwardly revised 5.00 million in April, and are 15.3% below a 5.68 million pace in May 2010 when sales were surging to beat the deadline for the home buyer tax credit.  There were notable regional differences in home sales. “A large decline in Midwestern existing-home sales can be attributed partly to the flooding and other severe weather patterns that occurred, but this also implies a temporary nature of soft market activity,” Lawrence Yun, NAR chief economist, explained.  The national median existing-home price for all housing types was $166,500 in May, down 4.6% from May 2010. Distressed homes³ – typically sold at a discount of about 20% – accounted for 31% of sales in May, down from 37% in April; they were 31% in May 2010.  NAR President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I., said a number of proposals being considered in Washington could further jeopardize the housing recovery. “We’re concerned about the flow of available capital, including a possible rule that would effectively raise minimum down payment requirements to 20%,” he said. “We don’t need to throw the baby out with the bath water – increasing down payment requirements would effectively shut many qualified families out of the market. What we critically need is a return to the basics of providing safe mortgages to creditworthy buyers willing to stay well within their budget.”

Bernanke not likely to make big changes

Federal Reserve Chairman Ben Bernanke is unlikely to announce a major change in monetary policy at his second-ever news conference later today, but investors will hang on his every word for clues on whether the Fed will scale back its presence in financial markets, analysts said.  The central bank will release quarterly economic forecasts and analysts expect them to be revised lower to reflect the recent weakness, but they said Bernanke will be quick to say he sees an acceleration in the recovery.  “I’m sure he’ll predict one,” John Wraith, fixed income strategist at Bank of America Merrill Lynch (BAML), said. “I’m sure he won’t announce any reversal of the stimulus.”  The Federal Open Market Committee is likely to take the formal decision to end the second round of quantitative easing – a program under which it pumps liquidity in markets by buying assets – at the end of June but to leave the reinvestment policy in place, according to analysts from Barclays Capital.  Mark Olson, former Fed governor, said he would be surprised if the FOMC did not vote unanimously to stay the course and that he does not expect big changes in the Fed’s statement.

The Fed’s statement is due at 12:30 pm New York time and Bernanke’s news conference is expected to start at 2:15 pm.  The statement is likely to say that headline inflation was pushed higher by a rise in commodity prices but that these have fallen back somewhat and inflation expectations remain stable, Barclays Capital analysts wrote.

MBA – mortgage applications drop

After experiencing a 13% surge in mortgage applications, the mortgage market lost steam last week with applications dropping 5.9% for the week ending June 17.  While homeowners rushed to refinance earlier in the month, that trend reversed itself, with the refinance index and purchase index falling 7.2% and 2.8%, respectively, the Mortgage Bankers Association said Wednesday.  In addition, the four-week moving averages for the market index and the refinance index are up 0.4% and 0.8%, respectively, while the seasonally adjusted purchase index is down 0.7%.  Refinancing activity cooled as the refinance share of mortgage activity fell to 69.2% of total applications from 70% the previous week. In addition, the adjustable-rate mortgage share of activity fell to 5.9% from 6.1% the prior week.  Meanwhile, the average interest rate on the 30-year, fixed-rate mortgage grew to 4.57%, up from 4.51% a week earlier. The 15-year fixed-rate mortgage also rose to 3.70%, up from 3.67% a week earlier.

Mortgage lender CEO sentenced

Paul Allen, 55, the former CEO of Taylor, Bean & Whitaker, or TBW, pleaded guilty in April to one count of making false statements and one count of conspiring to commit bank and wire fraud.  He was sentenced to more than three years in prison.  The Justice Department said the fraud scheme contributed to the failure of TBW, which was one of the largest privately held U.S. mortgage lending companies, as well as the bankruptcy of Alabama-based Colonial Bank, which was one of the 50 largest U.S. banks.  Former TBW Chairman Lee Farkas, who was convicted on April 19 on 14 counts of fraud for his role in masterminding the scheme, is scheduled to be sentenced on June 27. The Securities and Exchange Commission (SEC) also has a civil action pending against Farkas in the Eastern District of Virginia.  Allen’s co-conspirator Sean Ragland, a 37-year-old former senior financial analyst at TBW, was also sentenced today by Judge Leonie Brinkema to three months in prison.  Four other senior officials with TBW and Colonial Bank have also been sentenced to time in prison ranging from three months to eight years for their role in the fraud.

Assistant Attorney General Lanny Breuer said Allen “concealed TBW’s staggering deficits through false financial reports, which ultimately caused investors to lose more than $1.5 billion.”  He said the sentencing sent a “strong message that corporate fraud by senior executives will not be tolerated,” but also showed that plea deals like Allen’s — under which he provided “substantial assistance” to government investigators — would be taken into account at sentencing.  According to court documents and information presented at trial, Allen and Ragland distributed materially false documents to investors in Ocala Funding, a TBW multi-billion dollar lending facility, from early 2005 through August 2009.  As a result, investors in Ocala Funding lost more than $1.5 billion, while Colonial Bank lost $900 million.

Olick – on the distressed property sales drop

“The share of distressed sales in May, that is foreclosed properties and short sales (when the property is sold for less than the value of the loan), fell to 31% of all sales from 37% in April. Investors, who purchase a large share of these distressed properties, also represented a smaller share in May. So what’s going on?  We know there is still a huge supply of bank owned (REO) properties, and we also know that banks are pushing short sales on many more properties than ever before. But they are also pushing REO sales, thanks to new sales incentives from lenders and the GSE’s (Government-Sponsored Enterprises).  ‘Realtors and mortgage loan officers nationwide are driving mid-to-high end organic, short and distressed sales on the fear that buyers will be unable to qualify for loans once the QRM (Qualified Residential Mortgage) rules are in place requiring 20% down,’ says mortgage market analyst Mark Hanson, describing new rules being considered for risk retention by banks (part of the banking overhaul legislation passed last summer).

Some bloggers though, writing in to me after the existing home sales report, claimed that Fannie and Freddie are holding on to REOs, trying to game home prices. Fannie strongly disputes that.  ‘Fannie Mae doesn’t have a shadow inventory of REO properties that are available to be sold. As soon as we acquire a property, we quickly identify a market competitive price, determine whether to make any necessary repairs and list the property. In the first three months of 2011, we sold a record number of REO properties, selling more properties than we acquired,’ said Amy Bonitatibus, Fannie Mae spokeswoman.  ‘We watch taxpayer dollars like it’s our own money. We have an immense responsibility to get the most possible value from each REO property we sell. We are committed to stabilizing neighborhoods and preserving communities across the country,’ she added.

In fact, Fannie Mae recently launched another program of financial incentives to Realtors to sell REO properties. A note from analysts at Goldman Sachs, titled Foreclosure Sales: Federally Backed Lenders Shifting to Net Sellers, states:  ‘Although these entities could hold property off the market to reduce the negative effects of distressed properties on house prices, they do not appear to be doing so…in Q1 the GSEs and FHA became net suppliers of foreclosed properties to the market for the first time since 2009. Moreover, if the temporary slowdown in REO sales over the last two quarters ends, the federal entities seem likely to add roughly 30% to the sales of fore loses property over the next year as compared with the previous four quarters.’

Bottom line, in order for this housing market to recover, the distressed properties need to go, whether by short sales or REO sales. The distress is driving the fear, which in turn keeps buyers on the sidelines. We need investors, and we need first time buyers, and I will say it until I’m blue in the face: These buyers need better access to credit.”

Oil down

Oil prices fell below $94 a barrel today after a crude supply report reflected mixed signs about U.S. demand and the dollar strengthened against other currencies.  By early afternoon in Europe, benchmark oil for August delivery was down 82 cents to $93.35 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose 54 cents to settle at $94.17 on Tuesday.  In London, Brent crude for August delivery was down 41 cents to $110.54 a barrel on the ICE Futures exchange.  The American Petroleum Institute (APA) said late Tuesday that crude inventories fell 81,000 barrels last week while analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., had predicted a drop of 2.0 million barrels.  Inventories of gasoline dropped 1.5 million barrels last week, surprising analysts who had forecast an increase of 1 million barrels. Distillates fell 541,000 barrels, the API said.

May delinquencies down

U.S. mortgage delinquencies are faring much better compared to one year ago, according to Lender Processing Services’ “First Look” report released yesterday.  The report provides month-end mortgage performance statistics from LPS’ loan-level database of nearly 40 million mortgages. The Jacksonville, Fla.-based firm will release more detailed reporting in its upcoming “Mortgage Monitor” report, which comes out at the end of this month.  According to the report, 7.96% of U.S. home loans were 30 days past due but not in foreclosure in May, down a staggering 18.3% compared to the same month in 2010. This figure is down a slight 0.1% from April. LPS estimates there are 4.2 million mortgages in delinquency status, with 1.9 million seriously delinquent, meaning 90-plus days past payment.  Foreclosure pre-sale inventory, on the other hand, continued to stay above last year’s averages. Inventory was up 4.11% last month compared to the year ago period, totaling 2.2 million homes.

Florida posted the highest percentage of noncurrent loans statewide in May, followed by Nevada, Mississippi, New Jersey and Illinois. The states with the least percentage were, in descending order, Montana, Wyoming, Alaska, South Dakota and North Dakota.  In other recent news, LPS recently lowered its second quarter earnings estimate by 31% based on the sluggish mortgage market.

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 3, 2011

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500 cities see more rentals

In the aftermath of the nation’s housing-market collapse and recession, more than 500 midsize and large cities have seen a rise in the share of homes that are rented rather than owned, according to a USA TODAY analysis of Census data.  Almost 4 million homes have been lost to foreclosures in the past five years, turning many former owner-occupied homes into rentals.

The shift to rental housing is potentially long-lasting and portends changes for neighborhood stability and how people build wealth, economists say.  “The changes are big but glacial,” says Mark Zandi, economist at Moody’s Analytics. 

The swing from owner- to tenant-occupied homes in the past decade has been dramatic in some places:

-  Of the 100 largest cities, some of those with the largest shifts were Irvine, Calif., which went from about 40% of occupied homes rented in 2000 to 49.8% in 2010; Philadelphia, from 40.7% to 45.9%; and Birmingham, Ala., 46.3% to 50.7%.

-  Twenty-five cities — including Baltimore, Minneapolis, Salt Lake City and Sacramento — swung from having more than half homeowners in 2000 to majorities of renters in 2010. In one — Reading, Pa. — 57.6% of occupied homes were rentals in 2010, up from 49% in 2000.

-  Florida, California and Arizona had the most cities where the share of renter-occupied housing grew by at least 5 percentage points. All three states have been hit hard by foreclosures.

Nationwide, 34.9% of occupied homes — including houses, condos, and apartments — were rented in 2010, up from 33.8% in 2000. The Census data that USA TODAY analyzed for cities covered only housing within the cities’ boundaries, not their much larger metropolitan areas.  Vacant properties, excluding seasonal or vacation homes, accounted for 7.9% of U.S. housing units in 2010. It’s not clear how many of those have since become rentals or owner-occupied homes.  The renter household market remained fairly stable from 1990 to 2006, says Daniel McCue, senior research analyst at Harvard University’s Joint Center for Housing Studies.  Since 2006, when housing prices peaked, the number of renter households in the U.S. has grown an average of 692,000 a year, while owner households have fallen an average of 201,000 a year, Census surveys show.  Several factors will boost rental growth for years to come, Zandi says, including continued foreclosures, continued drops in home prices that frighten buyers and potential cuts to government subsidies supporting homeownership. On the other hand, 74% of renters think owning is superior to renting, said a recent survey by mortgage giant Fannie Mae.  “There’s still a pull toward homeownership, although it’s been diminished,” McCue says.

Jobs growth paltry

U.S. employment rose far less than expected in May to record its weakest reading since September, while the jobless rate rose to 9.1% as high energy prices and the effects of Japan’s earthquake bogged down the economy.  Nonfarm payrolls increased 54,000 last month, the Labor Department said on Friday, with private employment rising 83,000, the least amount since June. Government payrolls dropped 29,000.  Economists polled by Reuters had expected payrolls to rise 150,000 and private hiring to increase 175,000 in May. The government revised employment figures for March and April to show 39,000 fewer jobs created than previously estimated.  Stock index futures plunged following the announcement, while Treasury’s surged in price and sent the yield on the 10-year note to 2.96%.  The report provides one of the best early reads on the health of the U.S. economy and it regularly sets the tone for global financial markets. Worries about the pace of the U.S. economic recovery weighed on stocks on Thursday. 

The unemployment rate rose to 9.1% last month from 9.0% in April as some discouraged workers who had been inspired by the pick-up in hiring in April re-entered the labor market.  The employment report showed weakness across the board, with the private services sector adding 80,000 jobs last month after increasing payrolls by 213,000 in April.  Within the private services sector, leisure and hospitality fell, showing no boost from McDonald’s recruitment of about 50,000 new staff in April, which was after the survey period for that month’s payrolls. Spring is traditionally a strong hiring period for McDonald’s.  Retail employment, which recorded its largest increase in 10 years in April, fell 8,500 last month. Manufacturing payrolls growth contracted 5,000 last month, while construction employment rose 2,000.  The report showed the average work week steady at 34.4 hours and few signs of wage inflation, with average hourly earnings rising 6 cents.

DSNews.com – CMBS delinquencies fall

The delinquency rate on loans held in commercial mortgage-backed securities (CMBS) fell slightly in May from the new record high set the month before, according to Trepp LLC.   The New York-based research firm says the age of CMBS loans 30 or more days delinquent, in foreclosure, or REO has fallen back 5 basis points to 9.60%.  Trepp explained that although small, May’s decline is actually the biggest rate drop for U.S. commercial real estate loans in CMBS in about two years, setting aside October 2010 when the Extended Stay Hotels loan was resolved.  Still, at 9.60%, CMBS delinquencies remain highly elevated, rising more than a full age point over the previous 12 months. Trepp reports that in May 2010, the overall delinquency rate was 8.42%.

According to Trepp’s market analysis, the value of delinquent loans within commercial mortgage bonds now stands at $61.5 billion.  There were seven loans with balances of over $50 million that moved into the 30-plus day delinquent category in May, Trepp reported. That contrasted sharply with April when five loans of over $100 million ($1.07 billion in total) moved into the delinquent bucket.  “[In April] the delinquency rate posted its biggest rate of increase since late 2010 – a 23 basis point jump,” said Manus Clancy, managing director of Trepp. “The increase took many CMBS pros by surprise as it came after three consecutive months of improving results.”  Clancy noted, “While there may be additional bumps along the way, we think the May numbers accurately reflect a leveling off in the market.”  Based on Trepp’s report, the industrial and office delinquency rates worsened last month while all other major property types saw improvement.  The industrial delinquency rate spiked 120 basis points in May, boosting the rate to nearly 12%. Six months ago, the rate was under 7%.  The office delinquency rate was up three basis points in May, yet remains the best performing major property type at 7.23%.  Delinquencies in all other major property types – retail, multifamily, and hotel/lodging – declined for the month.

Moody’s warns of US credit rating

Moody’s Investors Service said yesterday Moody’s it would put the Aaa U.S. rating on review for a possible downgrade if lawmakers in Washington do not make substantive progress in budget talks by the middle of July.  “Since the risk of continuing stalemate has grown, if progress in negotiations is not evident by the middle of July, such a rating action is likely,” Moody’s said.  The ratings agency, whose announcement follows a similar warning from Standard & Poor’s earlier this year, said if the debt limit is raised and default avoided, the Aaa rating will be maintained. Still, the rating outlook will depend on the outcome of debt talks in Washington, Moody’s said.  “Moody’s downgrade adds pressure on Congressional leaders to work hard at reaching an agreement to increase the debt ceiling,” said Kathy Lien, director of currency research at GFT Forex in New York.  If a downgrade were to occur, Moody’s said it would put the U.S. credit in the Aa range.

Olick – 20% mortgages under fire

“To call it an uneasy alliance is too simple, but that’s exactly what the characters were going for when they called their morning press conference in downtown DC.  The new president of the Mortgage Bankers Association, Dave Stevens, arrived carrying a message from Wall Street and Main Street money makers in the breast pocket of his navy blue suit; he was seated in a row just down from Ethan Handelman of the National Housing Conference, who sported a pony tail and an agenda favoring low-income borrowers.  In between them was Ken Edwards, of the Center for Responsible Lending, who referred to the group as, ‘an eclectic mix.’ 

Adversity makes strange bedfellows, and today’s mortgage market is nothing short of adverse. The group came together to argue against what Edwards called ‘draconian requirements’ for a the proposed ‘Qualified Residential Mortgage’ (QRM) standard. The QRM is part of new risk retention rules, mandated by the Dodd-Frank Financial Reform legislation of last year. The proposal, which is under comment period until the end of next week, includes a 20% down payment for a home loan to qualify as a QRM. If the loan does not meet the QRM standards, the lender must hold on to 5% of the risk.  They call that ‘skin in the game,’ but banks big and small say it will make mortgages more expensive and difficult to obtain, while consumer advocates say it is nothing short of discrimination.  ‘We believe that the regulators, while being very thoughtful through this process, have overreached by adding loan to value and DTI (Debt to Income), which will create societal boundaries, which we believe were unintended by those who drafted the law in the first place,’ said Stevens, who as recently as a few months ago headed up the Federal Housing Administration (FHA), currently the only low down payment option available for low-income borrowers.  John Taylor of the National Community Reinvestment Coalition was a tad more blunt: ‘It’s coming from the very agencies who had the job and the responsibility to prevent the predatory lending, the kind of abusive lending products, that got us into this mess. We now get a solution that’s going to constrict access to housing in a way that we haven’t seen since the Jim Crow era.’

These gentleman join nearly 40 Senators who have signed onto a letter calling for the QRM proposal to be re-written more broadly. They characterize the 20% down payment as ‘unnecessarily tight.’  I personally don’t know what the right down payment number is, 10, 20, 5%? I don’t claim to have any better answers than anyone else. I just report what everybody else claims is right. But here’s a thought:  All these organizations, companies, entities, etc. want to see the free flow of credit again. That’s really the only way housing can regain its footing and the economic recovery can start cooking with gas. The nation’s banking system was infected with greed and that infection spread to everyday homeowners and individual investors all over the nation. In the end, it was deadly. Now the government, federal regulators, whoever, are trying to re-invent the market, to make sure it is infection-proof in the future. But now it seems as if many of the players who themselves were hurt by this crisis would rather see the ills of the mortgage market treated with Novocain than with medicine.”

Factory orders decline

According to a Commerce Department report, overall factory orders fell 1.2% to a seasonally adjusted $440.4 billion after an upwardly revised 3.8% rise in March. That was steeper than the 1% fall that Wall Street economists surveyed by Reuters had forecast for April and implied some weakness in the factory sector that had performed relatively well until recently and helped support economic recovery.  Transportation orders plunged 9.3% in April, nearly wiping out a 10.6% rise in March orders. It was the sharpest falloff in monthly transportation orders since an 11.9% fall in December.  But order declines were widespread in April, affecting categories including primary metals, machinery, computers and electrical equipment in addition to cars and other transportation goods.

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

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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 February 3, 2011 

Forward this e-mail to your friends! 

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issues surrounding mortgage assignments TONIGHT at 8:30 PM ET,

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Home prices showing signs of life

According to the Clear Capital home price index, home prices stopped declining in early January and even increased for the first time since August.  Over the last three months, home prices did decline 1.6% from the previous period. But at the start of 2011, Clear Capital said prices began “showing life.” The company’s senior statistician Alex Villacorta said it is the first uptick since the homebuyer tax credit was in force. It expired in April 2010, and prices have dropped off since.  Villacorta warned however that any conclusions of a recovery would be premature, but he did say it was a positive sign.  “This recent national change in price direction is encouraging for the overall housing sector, yet it is still too early to determine whether this current uptick in home prices is a temporary reprieve or the start of a sustained recovery,” Villacorta said. 

The changes in prices, especially during a point in the year when sales are slow, is a sign that demand may be returning. Even more encouraging, Clear Capital said the main driver of the price increase was the slowing rate of sale of REO properties, those repossessed through foreclosure.  Every spike in REO saturation, or the percentage of REO sales of all activity, has coincided with a drop in prices. But over the past three months, that saturation increased 1.4%, a drop from recent gains of 3.2%. If this deceleration continues, Clear Capital said, home prices could be poised for future gains “ahead of a seasonal spring lift.”  But RealtyTrac‘s Senior Vice President Rick Sharga said from what his company is looking at, major banks currently hold 1 million REO and have kept 70% of that off of the market so far.  Still, Clear Capital reported that thirteen of the highest performing markets posted gains over the last three months. The largest gains came in Cleveland (12.6%) and Dayton, Ohio (9.6%). However, Cleveland prices remain 55% below its peak in 2006.  “Although many markets still remain under significant downward pressure in light of increased distressed sale activities, it is clear that the severity of the downturns observed in October and November have subsided,” Villacorta said.

Initial claims down for the week

There were 415,000 initial jobless claims filed in the week ended Jan. 29, the Labor Department said today. That was down 42,000 from the week before, and better than the 425,000 claims economists surveyed by Briefing.com had expected.  Continuing claims — which include people filing for the second week of benefits or more — fell to 3,925,000 in the week ended Jan. 22, a decline of 84,000 from the week before.  While the latest report shows an improvement, jobless claim figures have been jumping around recently, so economists haven’t been reading too much into the weekly figures, said Robert Dye, a senior economist at PNC Financial Services.  The 4-week moving average of initial claims — a measurement used to smooth out week-to-week volatility — is viewed as a more accurate representation of job market conditions. While that number rose by 1,000 to 430,500, Dye said this is still well below the high levels seen in 2010.  The report comes a day before the government releases its widely anticipated monthly jobs report. Economists expect the report to show that the economy added 149,000 jobs in December and that the unemployment rate rose to 9.5%.

Olick – kicking tires

“Yesterday the folks at online real estate sale and data site Zillow were all a twitter (on Twitter) about how they had reached 15.7 million unique monthly visitors in January. That’s up 75 percent year over year and a new record. While they touted the merits of their web site, I wondered, no offense to Zillow, if part of it didn’t have to do with increasing buyer traffic on the web overall last month. So I asked.  ‘Off the cuff, I’d put the split at about 50/50, with maybe half of our surge in usage coming from greater Zillow brand awareness, and half from more people starting to show interest in real estate,’ confessed Zillow’s CEO Spencer Rascoff. 

‘We’re seeing this increased usage in Zillow Mortgage Marketplace as well. Loan requests from borrowers were up 56% from December to January, so that definitely signals that people are thinking about diving into the market.’  We also saw a surge in mortgage applications last week in the Mortgage Bankers Association survey, with applications to purchase a home up 9.5 percent from the previous week. The MBA, however, cautions that the previous week had a holiday in it and so applications had fallen accordingly; the two week average for purchase applications is basically flat. Refis are down.  January isn’t exactly a hot season for home sales historically, and this year, in many markets, you’d be hard pressed to find any homes under all the snow. Still, the traffic online, where I imagine most folks go before even heading to an open house, is an important sign, as we head into the Spring market. The question mark remains in financing. 

Federal regulators are still working on the definition of a ‘Qualified Residential Mortgage,’ (QRM), which will determine for which loans banks will have to hold some risk on the books and which they will be able to sell off in securities entirely. That’s a pretty big deal, given that Fannie, Freddie and the FHA are still the only mortgage games in town, and a return of private capital to the mortgage world is essential for the future health of housing.  Next week all kinds of banking types will convene at the annual conference of the American Securitization Forum. QRM will be the hot topic, no doubt. It will be interesting to see what the financers of this still-crawling housing recovery think will happen to all that blossoming buyer interest, with a still-uncertain mortgage market.  No doubt there is a cautious optimism in the air, but there is still a very large fence running through today’s housing market, with a whole lot of buyers lodged on it indefinitely.”

Retail sales up in January

According to Thomson Reuters, the retail sector reported same-store sales growth of 4.2 percent on average. That far outpaced the average estimate of 2.7 percent.  Among the surprises were Limited, Zumiez, Wet Seal and Gap, which all reported sales at stores open at least 12 months were higher than analysts’ estimates. Some of these companies also raised their forecasts for the latest fiscal quarter.  Limited, the parent of Victoria’s Secret and Bath & Body Works, reported January sales surged 24 percent, adding to its recent streak of strong results. Analysts surveyed by Thomson Reuters were expected same-store sales to rise 6.7 percent.  Warehouse club store Costco Wholesale also outpaced analysts’ estimates, saying same-store sales rose 9 percent, ahead of the 6.1 percent average analyst estimate.

Shadow inventory will push foreclosures

Two reports from separate credit rating agencies are drawing the same conclusion: Foreclosures will reach new heights this year, even after setting records in 2010.  “DBRS expects foreclosure filings and completed foreclosures to reach record levels in 2011 as alternatives such as modifications for seriously delinquent borrowers are exhausted,” said Kathleen Tillwitz, an operational risk strategist at the rating agency. “Consequently, losses to residential mortgage-backed securities will likely increase as REO inventories are sold at deep discounts causing writedowns in transactions — particularly the subordinate tranches.”  Standard & Poor’s ratings currently estimates that the principal balance of distressed homes amounts to about $450 billion, representing nearly one-third of the nonagency RMBS market currently outstanding, according to the firm’s fourth quarter 2010 report on foreclosure timelines, also released this week.  S&P expects that it will take 49 months to clear the supply of distressed homes on the market in the U.S. — an 11% increase over the previous quarter and a considerable 40% increase from 4Q 2009.  S&P reports that the volume of distressed residential mortgage properties that are not associated with Fannie Mae or Freddie Mac continues to fall, but at an ever-slowing pace. 

The company estimates that the principal balance of these distressed homes amounts to about $450 billion, representing nearly one-third of the private RMBS market outstanding.  And in some markets, clearing the shadow inventory will take a very long time.  “The shadow inventory in the New York MSA will take the longest to clear — 130 months as of fourth-quarter 2010. That is at least twice as long as it will take in any of the other top 20 MSAs and 2.7 times the average time to clear for the U.S. as a whole,” the S&P report states. “This is primarily due to very low liquidation rates in New York.”

Now for our real estate education section…

Taxing Issues at Auction

One of the more common sources of confusion among novice bird dogs and other investors seeking to purchase a property at auction is the issue of tax liens and second mortgages. In fact, many buyers make the (often tragic) mistake of not even realizing the type of auction they are attending. Still others fail to realize that a property with an existing mortgage can still be auctioned via a tax lien sale and vice versa. Today we are going to take a few minutes to sort out these taxing issues surrounding buying investment property at auction.

Step One – Understand the Auction. The very first step is to understand the type of auction. Begin by reviewing the petitioner; who is actually asking for the property to be sold? If it is the bank or lien holder, be sure to identify the position of the mortgage (first mortgage, second, etc…). If it is a government entity, find out what is late (property taxes, special assessment liens etc).

Step Two – Make sure you are bidding at an auction that will actually make you the owner rather than an investor in notes or other form of guarantor. For example, many auctions are “sold” at tax lien sales (government sales for back property taxes) even though there is still a mortgage in effect. 

Step Three – Calculate the cost of “assumables”. A thorough title search is imperative but wise bird dogs and investors still perform their own due diligence in order to understand the total cost of any liens, back taxes, HOA fees or other items for which they may become responsible. Be sure to take these into consideration when bidding on the property; depending upon the type of auction, you may or may not be responsible for additional  liens associated with the parcel.

Step Four – Change the contact information! Once you purchase a property and have it recorded in your name or the name of your investment company, be sure to update the tax records and insurance information with the property mailing address. The last thing you want is to fall behind at tax time.

Step Five – Try out other auctions! Once you have successfully purchased property at an auction, why not try out other forms? It’s not only a great way to expand and diversify into other potentially lucrative areas of real estate investing but it’s actually a lot of fun. Common examples include tax liens, tax deeds and even surplus land sales. Many require at little as $100 to get started.

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
–