short sale investing

Buying a home may never be cheaper

Buying a home may never get any cheaper than this. Several housing experts are predicting that this year will be the last chance for bargain hunters to cash in on the best deals of the weak housing market.  With home prices down 34% nationally since 2006 and mortgage rates at historic lows, homes have never been more affordable — but it won’t stay this way for much longer.  Stuart Hoffman, chief economist for PNC Financial Services, said he expects home prices to flatten out by the third quarter and start climbing by next year.  A number of factors will help bolster the housing market, he said, including a decline in the number of foreclosures and continued job growth. In addition, homebuyers will have better access to mortgages as they get their finances in order and improve their credit scores. 

Some economists, like Trulia’s Jed Kolko, expect home prices to pick up even more quickly. Trulia’s data shows that the national average for asking prices already increased 1.4% in the first quarter of 2012, compared with the last three months of 2011.  “This is a strong indicator that we will start seeing home price indexes, like the S&P/Case-Shiller, start to report home price increases this summer,” he said.  Prospective homebuyers who’ve been sitting on the fence shouldn’t worry if they aren’t quite ready to make the leap. Analysts are predicting that the initial price gains will be modest, at least, in most markets.  Hoffman, for example, is forecasting a 2% increase in 2013 compared with 2012. Meanwhile David Stiff, chief economist for Fiserv, predicts that prices will turn in the last quarter of 2012 and will rise 4.2% for the 12 months through September 2013.

Job cuts up

Planned job cuts increased by 7.1% to 40,559 in April from March, the latest job cut report released by outplacement firm Challenger, Gray&Christmas showed today.  From the same month a year ago, job cuts were up 11.2% and so far this year the number of job cuts has increased by 9.8% to 183,653.  But despite the year-on-year increase, the monthly average in the first four months of this year is below the 12-month average of last year, the report pointed out.  April’s job cuts were led by the education sector, with a total of 9,027 planned cuts, up 142% from March as school districts continue to be under pressure to cut costs amid massive state and local budget deficits. But the pace of downsizing in the sector fell 32% from a year ago, the report added.  Consumer products companies have been the main job cutters for the year, having announced 20,134 planned job cuts through April, 257% more than the cuts announced by this point last year. 

“Even at its best, job creation is falling well short of what is needed to make a substantial dent in unemployment,” John Challenger, chief executive officer of Challenger, Gray & Christmas, said in a statement.  “While some would like to attribute the lack of hiring to uncertainty and regulatory roadblocks, the fact is that demand for goods and services simply has not reached a level that warrants accelerated hiring,” Challenger added.  He added that state and local governments, as well as the federal government, were still “in cost-cutting mode,” consumer spending remained soft and although business spending was improving, it was not nearly enough to make up for the shortfall in consumer and government spending.

LPS – foreclosures down

The March Mortgage Monitor report released by Lender Processing Services, Inc. shows that while March foreclosure starts increased a modest 8.1% since last month, overall, they were still down more than 31% year-over-year. Also in March, first-time foreclosure starts hit a five-month high. However, despite the increase, the number of first-time foreclosure starts in March was still far below those seen throughout much of 2011 and all of the previous three years.  As reported in LPS’ First Look, the national foreclosure inventory stayed relatively stable in March, remaining at the historically high levels maintained since the end of 2010. This national performance masks underlying differences between judicial states, where foreclosure inventory levels stand at 6.5%, and non-judicial states, where foreclosure inventory levels are more than 2.5 times lower at 2.45%.

The March data also showed that mortgage delinquencies have continued to decline, reaching their lowest level since August 2008, with seriously delinquent inventory (loans more than 90 days delinquent) declining in both judicial and non-judicial foreclosure states. Likewise, the rate of new problem loans (seriously delinquent loans that were current six months ago) continues to improve nationally, in both judicial and non-judicial states. At the same time, the LPS March mortgage performance data did show that foreclosure sales continued to behave somewhat erratically, dropping to their lowest level since December 2010, and most sharply in non-judicial states.  On the origination front, the data showed that February mortgage originations rebounded somewhat from their January lows, and that, despite slightly higher interest rates, prepayments increased in March. Mortgage prepayment activity – a key indicator of mortgage refinances – increased broadly, across all investor categories.

As reported in LPS’ First Look release, other key results from LPS’ latest Mortgage Monitor report include: 

Total US loan delinquency rate:​  7.09 % ​

Month-over-month change in delinquency rate:​  -6.3 %​

Total US foreclosure pre-sale inventory rate:​  4.14 %​

Month-over-month change in foreclosure pre-sale inventory rate:​  -0.1 %​

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

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

*Non-current totals combine foreclosures and delinquencies as a% of active loans in that state.

Jobless claims down slightly

Initial claims for state unemployment benefits dropped 27,000 to a seasonally adjusted 365,000, the Labor Department said. That was the biggest weekly drop since early May last year.  The prior week’s figure was revised up to 392,000 from the previously reported 388,000. The four-week moving average for new claims, considered a better measure of labor market trends, edged up 750 to 383,500 – the highest level since December.  Economists polled by Reuters had forecast claims falling to 380,000 last week.  The data has no bearing on the government’s closely watched employment report for April, to be released on Friday. Employers are expected to have added 170,000 new jobs to their payrolls last month, a step up from March’s 120,000 tally, according to a Reuters survey.  However, there is a downside risk to this forecast as initial claims were elevated for much of April. An independent survey on Wednesday showed private employers added only 119,000 jobs last month, the fewest in seven months, and well below economists’ expectations for a gain of 177,000 positions.  Nonfarm payrolls had averaged 246,000 jobs per month between December and February. Most economists have viewed the pull-back in job growth as payback after the weather-induced gains in the previous months.

The number of people still receiving benefits under regular state programs after an initial week of aid dropped 53,000 to 3.28 million in the week ended April 21.  The number of Americans on emergency unemployment benefits slipped 4,772 to 2.72 million in the week ended April 14, the latest week for which data is available. The number of people on extended benefits declined 57,528 to 354,883.  Nine states lost eligibility for extended benefits beginning that week and five others reduced the duration of emergency compensation.  A total of 6.60 million people were claiming unemployment benefits during that period under all programs, down 85,523 from the prior week.

WSJ – Beazer homes surges in home sales

Beazer Homes USA Inc. reported a narrower fiscal-second-quarter loss Wednesday as the builder recorded a surge in home closings and sounded a hopeful note for the months ahead.  The Atlanta-based company, one of the largest home builders in the US, said its closings climbed 50% in the latest period to 844 homes. New orders, meanwhile, climbed 29% to 1,512 homes.  The results come as the US housing market has begun to show signs of emerging from the worst downturn in generations, albeit in fits and starts, as buyers get back into the game. With several home builders reporting increased sales and orders in recent weeks, many industry-watchers now think the hard-hit sector is set for a rebound.  “We remain hopeful, but cautious, about the prospects for a sustained market recovery, as a number of factors continue to pose challenges for prospective home buyers,” Chief Executive Allan Merrill said Wednesday in a statement accompanying the results.

For the quarter ended March 31, Beazer posted a loss of $39.9 million, or 51 cents a share, compared with a year-earlier loss of $53.8 million, or 73 cents a share.  The latest period included charges of $1.2 million for inventory impairments and $2.7 million tied to the refinancing of debt. The year-earlier period included charges of $17.8 million for inventory impairments.  Revenue surged 52% to $191.6 million. Analysts expected a loss of 43 cents a share on $192 million in revenue.  The average sales price rose to $224,700 from $216,300, while home-building gross margin narrowed to 10.9% from 12.4% in the prior year. Several of Beazer’s peers are seeing improved margins.  The builder’s cancellation rate rose to 22.5% from 20%, indicating more deals are unraveling before completion. “Given that most peers had declining cancellation rates, we were surprised” by the increase, wrote David Goldberg, a builder analyst with Credit Suisse, in a client note.

Retail slows

Retailers are reporting sales gains for April that show a slowdown in spending from the previous month as cooler weather, an early Easter and renewed worries about the economy dampened shoppers’ enthusiasm to buy.  As merchants report their sales figures Thursday, Costco Wholesale Corp. and Target Corp. posted gains that were smaller than Wall Street expected. Teen retailer Wet Seal Inc. posted a bigger-than-expected sales drop.  The figures are based on revenue at stores open at least a year. That metric is considered a key indicator of a retail health because it measures growth at established locations while excluding results from stores recently opened or closed.

Freddie earns $577 million

Freddie Mac reported net income of $577 million in the first quarter before it made a $1.8 billion dividend repayment to the Treasury Department.  The government-sponsored enterprise and one of the largest mortgage financiers in the country drew $19 million from the Treasury as part of its ongoing conservatorship bailout.  Net income for the quarter dropped from a $676 million gain one year ago because of higher derivative losses and lower net interest income.  Higher valuations of the mortgage bonds Freddie holds available for sale pushed total comprehensive income to $1.78 billion in the first quarter. The $1.8 billion repayment to the Treasury offset this total, forcing the remaining to be drawn from the government.  Freddie financed over $114 billion in mortgages during the first quarter, up from $105 billion one year ago.  Roughly 87% of its business was refinancing. More than 416,000 borrowers refinanced their Freddie-guaranteed home loan in the first three months of 2012, but the company said it is still too early to estimate how many will ultimately qualify for the expanded Home Affordable Refinance Program.

69,000 foreclosures in March

CoreLogic today released its National Foreclosure Report for March, which provides monthly data on completed foreclosures, foreclosure inventory and 90+ day delinquency rates. There were 69,000 completed foreclosures in March 2012 compared to 85,000 in March 2011 and 66,000* in February 2012. Through the first quarter of 2012, there were 198,000 completed foreclosures compared to 232,000 through the first quarter of 2011. Since the start of the financial crisis in September 2008, there have been approximately 3.5 million completed foreclosures.   Approximately 1.4 million homes, or 3.4% of all homes with a mortgage, were in the national foreclosure inventory as of March 2012 compared to 1.5 million, or 3.5%, in March 2011 and 1.4 million, or 3.4%, in February 2012. The number of loans in the foreclosure inventory decreased by nearly 100,000, or 6.0%, in March 2012 compared to March 2011.   

The share of borrowers nationally that were more than 90 days late on their mortgage payment, including homes in foreclosure and real estate owned (REO) assets, fell to 7.0% in March 2012 from 7.5% in March 2011, and remained unchanged from 7.0% in February 2012.  Also in March, the inventory of REO assets held by servicers nationwide grew more slowly than the pace of REO sales, as measured by the distressed clearing ratio.  The distressed clearing ratio is calculated by dividing the number of REO sales by the number of completed foreclosures. The higher the distressed clearing ratio, the faster the pace of REO sales relative to the pace of completed foreclosures.  The distressed clearing ratio for March 2012 was 0.81, up from 0.76 in February 2012.

 Highlights as of March 2012

-  The five states with the largest number of completed foreclosures for the 12 months ending in March 2012 were:  California (150,000), Florida (92,000), Michigan (62,000), Arizona (58,000) and Texas (57,000). These five states account for 49.1% of all completed foreclosures nationally.

-  The% of homeowners nationally who were more than 90 days late on their mortgage payments, including homes in foreclosure and REO, was 7.0% for March 2012 compared to 7.5% for March 2011, and 7.0% in February 2012.   

-  The five states with the highest foreclosure rates were:  Florida (12.1%), New Jersey (6.6%), Illinois (5.4%), Nevada (4.9%) and New York (4.9%).

-  The five states with the lowest foreclosure rates were:  Wyoming (0.7%), Alaska (0.8%), North Dakota (0.8%), Nebraska (1.1%) and South Dakota (1.4%).

-  Of the top 100 markets, measured by Core Based Statistical Areas (CBSAs) population, 35 are showing an increase in the year-over-year foreclosure rate in March 2012, two more than in February 2012 when 33 of the top CBSAs were showing an increase in the year-over-year foreclosure rate.   

*February data was revised.  Revisions are standard, and to ensure accuracy CoreLogic incorporates newly released data to provide updated results.

BOA to cut 400 jobs

Bank of America (BOA) is planning to cut up to 400 jobs in its investment banking, corporate banking, and sales and trading units, The Wall Street Journal reported, citing people familiar with the situation.  An expected sale of the bank’s non-US wealth-management operations in Asia, Latin America, and Europe would eliminate up to 2,000 jobs, the Journal reported.  Reuters reported on April 17 that Bank of America was looking to sell its wealth-management units outside the US for as much as $3 billion.  BOA declined to comment on the Journal report.  Last spring, the bank announced a cost-cutting program called Project New BAC that aims to eliminate 30,000 consumer banking and technology jobs over the next few years.  The bank has said it expects to wrap up plans for the second phase of the program, which focuses on investment banking, commercial banking, and related support jobs in May. The second phase is expected to cut fewer jobs than the first because it covers a smaller, more efficient part of the bank.  At the end of March, Bank of America had about 278,700 employees worldwide.

Olick – renter nation

“More Americans are renting homes, and fewer are owning them; it’s not as if this is news to anyone who follows the US housing market, but a new report from the Census Bureau today really put an historical exclamation point on the trend.  The share of US household renting reached a fifteen year high, and home ownership reached a 15-year low. Funny how those numbers travel together.  34.6% of households were renters in the first quarter of this year, and that number is climbing, as lack of credit or sufficient down payment keeps Americans young and old from becoming home owners. Rental vacancies are therefore falling, the lowest rate out West, where foreclosures have run the highest during this housing crash. That is also where investors are rushing in to buy foreclosed properties and put them up for rent. Single family homes for rent, in fact, surpassed multi-family units, taking 52% of the $3 trillion rental market, according to CoreLogic.

Both rental and homeowner vacancies are down, which is a general positive for the housing market, because empty houses are a blight on communities. ‘The vacancy rates will only decline if household formation is increasing or units are being destroyed,’ notes ISI Group’s Stephen East.  While banks have bulldozed some foreclosed properties here and there, the practice is by no means popular or widespread. That should mean that household formation is increasing, which is generally a product of an improving jobs picture. Younger Americans who have been living together or with their parents may finally be getting into their own homes, more likely into rentals, but at least they’re forming their own households. That is thanks to a small drop in the unemployment rate among 25-34 year olds to its lowest rate in three years. The home ownership rate now stands at 65.4%, down a full percentage point from a year ago, and down from just over 69% at the peak in 2004.  Since the recession began, growth in overall new households has been about 50% short of trend lines, according to analysts at Goldman Sachs. While household formation is rebounding for single or un-related Americans, formation among families is still waning; that may be due to the types of homes they need, i.e. larger, single-family homes. It thus stands to reason that pent-up demand will show itself first in single family rentals in the future and less in multi-family. No wonder investors are flooding the foreclosure market.”

No more easing?

Two top Federal Reserve officials — one with a dovish, employment-focused bent, and the other a self-avowed inflation hawk — yesterday both said they see no need for the US central bank to ease monetary policy any further.  But the comments, from San Francisco Fed President John Williams and Dallas Fed President Richard Fisher, do not mean they believe the central bank should quickly move to raise rates, which it has kept near zero for more than three years.  The economy grew at a 2.2% pace last quarter, down from its 3% growth rate in the final three months of the year. Recent economic data, including a gauge of business activity in the US Midwest, signal growth may slow further this quarter.  “I don’t think we are ready to exit yet,” Fisher, an inflation hawk, told Reuters at the Milken Institute Global Conference in Los Angeles.  Fisher said he would oppose the extension of Operation Twist, the Fed bond-buying program that is set to end in June, but stopped short of calling for outright monetary tightening.  “We’ll have to see how the year works out,” he said.

US home ownership sets new record – down

The US homeownership rate fell to the lowest level in 15 years in the first quarter as borrowers lost homes to foreclosure and tighter inventory and credit kept buyers off the market.  The rate dropped to 65.4% from 66% in the fourth quarter and fell a full percentage point from a year earlier, the Census Bureau said in a report today. That is the lowest level since the first quarter of 1997, and down from a record 69.2% in June 2004.  Mounting foreclosures are displacing borrowers, while a lack of inventory has kept home sales from accelerating amid record affordability, the National Association of Realtors reported April 19. Stricter mortgage standards are also limiting purchases as rental demand surges, said Paul Diggle, property economist with Capital Economics Ltd. in London.  “Although house prices and mortgage rates have fallen to a level that makes buying preferable to renting, ongoing problems accessing mortgage credit are preventing many households from taking advantage,” he wrote in a note today.  The US apartment vacancy rate fell to 4.9% in the first quarter, an 11-year low, according to New York-based Reis Inc. (REIS).  The vacancy rate for rental homes was 8.8% in the first quarter, compared with 9.7% a year earlier, the Census Bureau said in today’s report.

Of the estimated 132.6 million US homes, 18.5 million, or 13.9%, were vacant in the first quarter. A year earlier, about 19 million homes were vacant, according to the report. That includes homes for sale or rent or held off the market, and vacation properties used seasonally.  The ownership rate may drop below 64% by the end of 2015 and stay there for years, Scott Simon, the mortgage bond head of Pacific Investment Management Co. in Newport Beach, California, said in an e-mail today.  “It will be lower by 2017,” he said. “It will be lower in 2020.”  About 6 million borrowers will lose their properties in the next five years because of inability to pay, creating 4 million new rental households, Simon said in an April 24 interview on Bloomberg Television.  The homeownership rate fell 3 percentage points from a year earlier to 61.4% in the first quarter for people aged 35 to 44, the biggest drop of any age group. The Northeast had the biggest regional decline, with the ownership rate falling 1.4 percentage points to 62.5%. The West had the lowest ownership rate at 59.9%, down 1 percentage point from a year earlier. 

The US homeownership rate rose to a record in 2004 when President George W. Bush, running for re-election, called for expanding home-loan availability to create an “ownership society.” The current rate of 65.4% matches the average since 1965, when the Census Bureau began reporting the figures, according to data compiled by Bloomberg.  Home prices fell 3.5% in February from a year earlier and are 35% below their July 2006 peak, according to the S&P/Case-Shiller index of 20 US cities. The average rate for a 30-year fixed loan was 3.88% last week and reached 3.87% in February, the lowest level in at least four decades, according to Freddie Mac.  About 2.37 million homes were listed for sale in March, a and 6.3 month supply and down 22% from a year earlier, the Realtors association said on April 19. A six-month supply is considered a healthy market, according to the group.

Olick – short sales up, prices down

“Buyer traffic is strong, supply of homes for sale is low, and yet home prices continue to defy the usual formula, falling again in March. Prices usually rise as supply shrinks, but demand is still too low to make those historical ‘norms’ compute, not to mention that the type of supply available is largely distressed.  Foreclosures and short sales accounted for 47.7% of sales, in a three month running average measured by Campbell/Inside Mortgage Finance. That’s the 25th month in a row that distressed sales have topped 40% of the market.  ‘With nearly half of the market being distressed, we’re a long way from a return to a normal market,’ said Thomas Popik, research director at Campbell Surveys. ‘Agents responding to our survey say that homeowners with well-maintained properties in good locations are very reluctant to list at today’s prices. That’s why inventory is low–and also why forced REO and short sales are such a big proportion of the remaining market.’  Home prices for non-distressed properties fell 5.7% in March year-over-year, according to the survey. Prices for ‘damaged’ REO (bank-owned properties) fell 5.7% and for move-in ready REO fell 2.5% during the same period. The real sticker shock is in short sales. Prices of those homes fell 14.3% from March of 2011.

Short sales have been ramping up of late, as banks attempt to comply with the so-called ‘robo-signing’ mortgage settlement. Those are part of the losses the banks are required to take in the $25 billion deal. Over the past six months, short sales have moved from 17.8% of all sales to 19.9%, according to the Campbell/IMF survey. They now represent the number one segment for distressed properties.  That share is likely to grow, as the conservator of Fannie Mae and Freddie Mac, the Federal Housing Finance Agency (FHFA), last week announced it was directing the two mortgage giants to ‘develop enhanced and aligned strategies for facilitating short sales, deeds-in-lieu and deeds-for-lease in order to help more homeowners avoid foreclosure.’ It includes a requirement that mortgage servicers review and respond to short sale requests within thirty days.  Lengthy timelines have long been the biggest complaint in the short sale sector.

Fannie Mae and Freddie Mac hold hundreds of thousands of distressed loans, and accelerating the process will surely move the numbers up quickly, although the rules don’t go into effect until June 1. The FHFA is requiring the two make final decisions on these sales within 60 days. Previously, short sales could take up to a year and even beyond, with buyers often dropping out in frustration.  ‘This could put short-term downward pressure on home prices, as short sales by their nature occur more quickly than foreclosures,’ writes Jaret Seiberg, analyst at Guggenheim Partners. ‘That could raise questions about the status of the housing recovery, which could be negative for those with housing exposure. That would include homebuilders, mortgage lenders and mortgage insurers.’  On the plus side, short sales tend to sell at higher prices than foreclosures. It appears, however, that regardless of the FHFA edict, banks are already ramping up the short sales. Some began doing so in the aftermath of the robo-signing scandal, as foreclosures stalled. Even now, foreclosures falling as short sales rise. The good news is that sales of distressed properties are rising, but the headlines will likely focus more on the falling prices, than the much-needed clearing of these homes.”

No QE expectations

Wall Street is not expecting additional quantitative easing (QE) from the Federal Reserve at its meeting this week but increasingly believes in the Fed’s promise to keep interest rates low until late 2014, according to the latest CNBC Fed Survey.  Just a third of the 53 economists, fund managers, and strategists who responded to the CNBC survey see additional QE from the Fed in the next 12 months, unchanged from the March survey. And just a quarter expect Operation Twist to be extended beyond its expiration in June.  The survey found that 49% now believe the Fed will keep interest rates “exceptionally low” through late 2014, up from just 40% in March. The same percentage, however, disagree, showing that while there has been improvement, Fed Chairman Ben Bernanke has not yet made believers of all investors.  James Paulsen of Wells Capital Management called on the Fed “to move beyond its crisis mindset and appropriately normalize policy to reflect the maturation of the US economic cycle from crisis to recovery. Failure to do so soon risks creating another crisis — an inflation crisis!”  In fact, 42% of respondents agreed with the statement that the Fed’s forecast that it will keep interest rates low through 2014 is a mistake that could undermine the Fed’s credibility; 38% said it’s a good decision that has helped drive down interest rates.

Home prices drop

Home prices dropped in February in most major US cities  for a sixth straight month, a sign that modest sales gains haven’t been  enough to boost prices.  The Standard & Poor’s/Case-Shiller home-price index shows that prices dropped in February from January in 16 of the 20 cities it tracks.  The steepest declines were in Atlanta, Chicago and Cleveland. Prices rose in Phoenix, San Diego and Miami. They were unchanged in Dallas.  The declines partly reflect typical offseason sales. The month-to-month prices aren’t adjusted for seasonal factors.  Still, prices fell in 15 of the 20 cities in February compared with the same month in 2011. That indicates that the housing market remains far from healthy despite the best winter for sales in five years.

Bloom – economy stuck in “Death Valley”

Having raised hopes of a self-sustaining recovery, the US economy has disappointed and finds itself stuck in “Death Valley”, says David Bloom, the global head of the FX strategy team at HSBC.  He believes the data is neither weak enough to guarantee a third round of quantitative easing nor strong enough to convince the market the Federal Reserve is about to end its extraordinary measures.  “At this stage the economy worsened markedly, eventually leading the Fed to its commitment to keep rates low for an extended time period. The point is that we are now neither at the stage where the economy has deteriorated markedly, nor are we seeing the economy improve to the extent where the Fed is certain not to add stimulus” said Bloom in a research note.  With the market looking for clues on what the Fed will do next when Ben Bernanke holds a press conference on Wednesday, Bloom believes euro/dollar is stuck in a tight range as a game of chicken and egg is played out in the euro zone.  “We have the uncertainty of the French and Greek elections and the recent blow-out in Spanish bond yields. Meanwhile, the ECB (European Central Bank) is sending out signals that it is reluctant to engage in another LTRO (long-term refinancing operation). Once again a game of chicken is being played out in the euro zone,” said Bloom.  So until we get confirmation of which direction the US economy is heading into or evidence that investors are negative on the euro area as a whole and not just Spain, Bloom believes the euro will remain on the sidelines despite volatility elsewhere.

WSJ – ready for another Dodd-Frank spat?

Get ready for another spat over Dodd-Frank mortgage lending rules.  It’s been more than a year since regulators unveiled the first set of proposed (and yet-to-be completed) mortgage rules resulting from the 2010 financial overhaul law.  Now a new consumer regulator is hashing out a separate rule that will define what kind of loans mortgage lenders will be able to make.  At issue is a part of the Dodd-Frank law, known as the “qualified mortgage” rule. It is designed to protect consumers from the kind of risky lending practices that shook the financial system in 2008.

The Consumer Financial Protection Bureau (CFPB), also created by the Dodd-Frank law, has the difficult task of completing these rules, which were initially proposed by the Federal Reserve last year. The idea is to provide an incentive for the industry to make safer loans, and ensure that they lenders consider a borrower’s ability to repay the loan.  Loans made under the qualified-mortgage standard will receive a degree of protection from lawsuits, though the level of that shield is a matter of intense debate.  In a speech last week, Raj Date, the consumer bureau’s deputy director, gave some broad outlines of the consumer bureau’s thinking:  “We want to ensure that consumers are not sold mortgages they do not understand and cannot afford. We want to minimize compliance burden where possible, in part through the careful definition of those lower-risk “qualified mortgages.” We want to ensure that, as the market stabilizes over time, every segment of prudent loans has the benefit of sufficient investor appetite and a competitive market.”

It’s a daunting challenge, given that the mortgage-lending market has contracted since the housing market went bust. Mortgage lenders have tightened their standards dramatically, eliminating most of the problem loans that helped cause the housing market’s woes. Many argue that tight lending is hampering the economic recovery, so a misstep by the CFPB could harm the housing market further.  The Dodd-Frank law mandates that the mortgage rule exclude certain exotic varieties of loans that fed the housing boom — such as “option” adjustable-rate mortgages, which only require low minimum payments and allow the principal balance to increase, and “interest-only” loans, which don’t require principal payments for several years.

Other pieces are much less clear. One key issue that’s been debated in policy circles is how much limits the mortgage rule should place on the amount of debt that consumers can take on.  One joint proposal between an industry group and three consumer organizations attempts to solve this problem.  It says that qualified mortgages should automatically include any loans made to borrowers who are spending no more than 43% of their pretax income on all debt, including home loans, credit card debt and car loans. Loans could be allowed up to a 50% debt-to-income ratio if the borrower’s housing costs only comprise 31% of income, or if the borrower demonstrates stable income or cash reserves.

Still, it remains to be seen whether the consumer bureau will accept this approach. And many in the lending and real estate industry say they are worried that the regulator will enact requirements that could crimp lending.  One big concern, particularly for small lenders, is that the rule will lack the industry’s top priority — a shield against lawsuits for loans that meet guidelines set out by the consumer bureau.  Without those legal protections “lending is going to become more conservative,” said Bill Cosgrove, chief executive of Union National Mortgage Co. in Strongsville, Ohio. “That is a problem. It’s a problem for the housing recovery.”  Richard Cordray, the consumer bureau’s director, told lawmakers last month that the legal protections sought by the industry wouldn’t necessarily choke off lawsuits, although reducing litigation is one of the bureau’s goals. “We don’t want this to be punted into the courts,” Mr. Cordray said.  Consumer groups say they aren’t trying to spark a barrage of lawsuits against the mortgage industry. Instead, they argue that the threat of litigation will give lenders an incentive to comply with the new lending rules.

Smart Real Estate News & Commentary by Chris McLaughlin March 6, 2012

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January on a high for repeat foreclosures

Repeat foreclosures hit an all-time high in January, representing 47% of all starts. Foreclosure starts rose in January suggesting the pipeline is starting to move, according to the latest mortgage monitor report from Lender Processing Services. LPS said foreclosure starts in the first month of 2012 rose 28% from December but fell 11.5% from a year earlier. The data firm says 203,458 starts were recorded in January, compared to 230,023 in January 2011. LPS sees positive changes in the foreclosure pipeline, but  says it’s too soon to call it a trend. When looking at new problem loans, the ratio of troubled mortgages is relatively low nationally but the states with the most seriously delinquent home loans in January included Nevada, Florida, Mississippi, Arizona and Georgia. Nationwide more than 40% of loans in foreclosure are more than two years past due. LPS estimates that refinance opportunities under the new HARP 2.0 are possible for 27.6 million borrowers, but only 6.8 million are probable.

Big Names Rally to Romney

Leading members of the Congress and influential conservatives are showing signs of rallying around Mitt Romney in the presidential race signaling that a coast-to-coast burst of voting on Super Tuesday should mark a moment to start concentrating on defeating President Obama. The endorsements come as the Romney campaign is pressing elected officials and activists in the 10 states that are voting Tuesday and those that do so in the following weeks to help nudge the contest toward a conclusion. A methodical effort is under way among governors, donors and top Republicans to make the case that a long nominating fight could weaken the party’s chances to win the White House, maintain control of the House and gain a majority in the Senate. It is a significant moment for Mr. Romney, but also a critical one for Rick Santorum, who is scrapping for delegates but also trying to win the popular vote in Ohio to revive doubts about Mr. Romney’s appeal among conservative and working-class voters. Newt Gingrich is also fighting to stay in the race, staking the future of his candidacy on a victory in Georgia. Here in Ohio, where voters have developed a well-earned reputation as a bellwether that captures national political sentiments, the primary will help determine the length of the presidential race and the direction of the Republican Party. The state could also provide one of the best opportunities for Mr. Santorum to slow Mr. Romney’s march to the nomination.

Olick: Buying Foreclosures – One Investor’s Key to Success

With potentially millions of foreclosed, bank-owned homes coming to the housing market over the next few years, cash-heavy investors are poised to profit, especially when buying in bulk. The Federal Housing Finance Agency, regulator of Fannie Mae and Freddie Mac, recently announced a pilot property sale program of 2500 foreclosures now on the books of Fannie Mae. Phoenix investor Geoffrey Jacobs is hoping to get in on it. “The ability to buy in bulk adds to our ability to grow our portfolio in a meaningful way in a short period of time,” says Jacobs, principal at Empire Group, which has already bought over 1000 Phoenix-area homes in the past two and a half  years. “When you look at how well these properties lease and the type of  rental yields, it’s a compelling investment.”  When Empire Group first began buying foreclosures in 2009, it farmed out the property management to smaller companies and individuals. Jacobs quickly learned that method was costing precious profit. Just twenty percent of the nation’s 8.7 million single family rental properties are managed by professionals, according to Steve Cook of Real Estate Economy Watch. Individual owner/investors do the bulk of the rest. Owners, according to Cook, may be spending too much time and money on maintenance. Jacobs’ group, however, is very profitable, with 8-9 percent annual returns on his properties. His renters stay, he says, with a 65-70 percent re-up rate. He credits good management and hopes, someday, that his long-term renters will become buyers. Unfortunately, that may take a while, as so many of them need to rebuild their credit. Empire Group has already passed the first round of pre-qualification for the FHFA REO to Rent program and is hoping to clear the second round and start bidding on bulk properties in the next few weeks.

Factory orders fall, as economy staggers once again

New orders for U.S. factory goods dropped in January by the most in over a year as businesses cut orders. The Commerce Department said on Monday orders for manufactured goods fell 1 percent, a less steep decline than the 1.5 percent drop expected by private forecasters in a Reuters poll. Still, it was the biggest decline since October 2010. Many economists think the expiration of some tax breaks on capital spending at the end of 2011 led businesses to bring forward investments. Orders for non-defense capital goods, excluding aircraft fell 3.9 percent in January. This is a closely watched category because it is taken as a sign of businesses’ future spending plans. Shipments for this category declined 3 percent. Business spending and manufacturing have been drivers of the recovery since the 2007-2009 recession.

Home prices fall by smallest margin: Clear Capital

National home prices fell by the smallest margin in 10 months in light of REO saturation increases, a trend that Clear Capital calls “unusual and encouraging.” Prices declined 1.9% year-over-year, according to the firm’s Home Data Index market report. Short-term prices remained stable, falling only 0.6% quarter-over-quarter, highlighting short-term stability over the last few months. All regions showed improvements in yearly and quarterly price drops, while three out of four saw upticks in real estate-owned properties for sale. Clear Capital found that the nation’s top 15 performing metropolitan statistical areas were resilient against higher REO saturation, with six of them showing quarterly price appreciation greater than 2%. Alex Villacorta, Clear Capital’s director of research and analytics, said markets such as Atlanta and Tucson, Ariz., hit hard by the foreclosure epidemic, are filled to the brim with REO properties for sale and will see a falloff in 2013 — if not before.

Ds News: Consumer Credit Points to End of Housing Downturn

Consumer credit data suggests spending will increase and the housing market will begin to emerge from its slump this year, according to Equifax and Moody’s Analytics. Both companies note that as key market data align with pre-recession totals, consumers should anticipate steady economic growth for major credit sectors. Looking across the full spectrum of consumer credit, Equifax and Moody’s found that delinquency rates for auto, bankcard, and consumer finance are back to pre-recession levels. These sectors are expected to contribute to the U.S. economy’s nascent recovery.  The home mortgage lending sector continues to see the highest percentage of delinquencies, the companies’ report notes, even with outstanding mortgage balances (including first liens and home equity lines and loans) having declined by $1 trillion since 2008 and continuing to drop. The companies also note that tighter lending guidelines are reflected in loans made to the prime risk segment. Consumers that fit the bill of a prime risk now account for more than 80 percent of all new mortgage originations.

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 2011, Chris’ 4 Central Florida real estate offices
closed 3,336 sides for a closed sales volume of
$430,902,643!

* 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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