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
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About the author:
Chris McLaughlin is widely known as America’s top
Real Estate Attorney and Investment Consultant.
* As the top Florida foreclosure and pre-
foreclosure expert, he oversees more than
100 short sale & REO closings each month
* Long-time authority on real estate investing
and rapid reselling of distressed homes. Owns
portfolio of nearly 150 high-value, high-profit
properties
* Owner of one of Florida’s largest Real Estate firms,
running 4 different offices, supporting over
420 agents, uniquely positioning him to help
thousands of investors make money in the
biggest market opportunity ever!
* In 2010, Chris’ 4 Central Florida real estate offices
closed 2,786 sides for a closed sales volume of
$392,912,927!
* Highly sought-after speaker, consultant, and
seminar leader for current trends and hot topics
in Real Estate Investing, Entrepreneurship, and
Wealth Building
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