Residential Capital (ResCap), the besieged mortgage unit of Ally Financial, filed for bankruptcy.  “The action by ResCap will enable Ally to achieve a permanent solution to its legacy mortgage risks and put these issues behind us,” said Ally CEO Michael Carpenter. “This action, along with pursuing alternatives for the international businesses, will allow Ally to focus 100% of its energies on further strengthening its already leading US auto finance and direct banking franchises.”  Ally expects to take a $1.3 billion charge in the second quarter for the filing.  The parent bank said ResCap will continue servicing and originating home loans during the process.  In a separate announcement Monday, Nationstar Mortgage Holdings, a servicer based in Texas, paid $700 million to acquire $374 billion in mortgage servicing rights from ResCap. Included in the deal are $201 billion in primary servicing rights and $173 billion in subservicing contracts.  Ally executives said the prearranged plan will settle all existing and potential claims between Ally and ResCap along with actions from third parties.  Ally will make a $750 million cash injection into ResCap as part of the plan.

Nationstar, which is mostly owned by Fortress Investment Group, will also make a stalking-horse bid on the entire mortgage unit of $1.6 billion or 45% of the unpaid principal on loans owned by ResCap. This bid will serve as a benchmark for companies looking to buy ResCap or its assets.  A $150 million financial facility will be created for the bankruptcy as well.  Investors holding at least a 25% stake in 290 mortgage-backed securities issued by ResCap gave support to the action as part of a settlement. These bonds, out of the 392 total from ResCap, have an original principal balance of $164 billon.  The company will also set up a $130 million mortgage repurchase reserve to buy back defaulted loans from investors. It will replace the reserve originally held at Ally.  The Treasury Department held a 74% stake in Ally before the filing. The bank said it paid back an additional $5.5 billion Monday, to reduce the taxpayer interest in the company by one-third. After completing the bankruptcy, Ally said it would pay back another third.  Timothy Massad, assistant secretary for financial stability at the Treasury, supported the action today.  “We believe that by addressing the legacy mortgage liabilities at ResCap, the action taken today will put taxpayers in a stronger position to maximize the value of their remaining investment in Ally,” Massad said in a statement.

Stocks take a tumble

Stocks tumbled Monday, with the S&P 500 falling below its key 1350 milestone, as Greece’s failure to form a coalition government increased fears that the nation would leave the euro zone.  In Europe, Greece’s socialist leader Evangelos Venizelos said efforts to form a coalition government failed over the weekend. And with new elections in June becoming increasingly likely, investors worry that the debt-ridden nation may eventually be forced out of the euro zone.  Concerns over Greece’s exit pushed the 10-year Spanish bonds yields to the highest since last December.  European shares fell to 4-month lows, with the FTSEurofirst 300 index hitting its lowest point since early January, at 1,002.90 points.

Conservative mortgages have risks too

Could troubled mortgage-financing giants Fannie Mae and Freddie Mac become victims of their rediscovered conservative financial practices ?  Fannie Mae controls 51% of mortgages reported net income of $2.7 billion in 2012′s first quarter. This comes on the heels of Freddie Mac, its smaller sibling, reporting a $577 million profit.  Both companies improving financial conditions give some clues about the nation’s brighter housing market conditions. But with a big caveat.  Less significant declines in home prices and the expectation of stabilizing home prices. A recent Fiserv Case-Shiller report says that in the fourth quarter of 2011 home prices in 70 markets, representing 18% of the 384 metro areas were unchanged or had increased compared to the fourth quarter of 2010. In 32% of the markets (122 metro areas), the price declines were under 2%.  A decline in the Fannie’s inventory of foreclosed homes, as sales of lender-owned property (REO) exceeds new foreclosures. Some people think foreclosures might pick up again after the mortgage servicer settlement tied to the robo-signing scandal. But for-sale inventory conditions are tight, suggesting that the market can handle more foreclosure supply.  Furthermore, higher foreclosures may not be as big as feared since single-family serious delinquency rates in the Fannie Mae portfolio dropped from a peak rate of 5.47% in March 2010 to 3.67% in March 2012. While this improvement is due to loan modifications, short sales, and refinancing initiatives, a bigger factor is probably a shift by Fannie Mae to borrowers with better credit scores.

This introduces the caveat and points to a more holistic risk. Aggregate foreclosure inventories for Fannie Mae, Freddy Mac, another government agency FHA and private label mortgage firms have been declining since 2010 Q3. That’s the good news. However, some would say that the risk in new mortgage origination has been “dumped” to FHA.  While Fannie Mae and Freddie Mac are basically getting good results by “creaming” the mortgage market for higher average FICO-scores clients (763 for Fannie Mae), FHA is taking on all the credit risk. FHA is a government agency that finances first-time home buyers with poor credit and less down-payment cash. Its delinquencies and credit losses are rising. If home prices do not pick up, this could force FHA to go back to Congress for more support.  If FHA doesn’t get that help, the budding housing recovery upon which Fannie Mae and Freddie Mac depend so much could be jeopardized. First-time buyers, who are the FHA’s main clients, represent about one third of all buyers these days. It would be better if Fannie Mae and Freddie Mac loosen up their credit spigot a bit now that they are better off financially, and take some of the credit risk away from FHA to provide it with some relieve. Maybe that requires too much common sense, however.

JPMorgan – loss not life threatening

Although JPMorgan Chase suffered a trading loss of at least $2 billion due to a failed hedging strategy, it will not be life threatening to the bank, CEO Jamie Dimon said in an interview aired yesterday.  “This is a stupid thing that we should never have done but we’re still going to earn a lot of money this quarter so it isn’t like the company is jeopardized,” he said in an interview with NBC’s “Meet with Press.” “We hurt ourselves and our credibility, yes — and that you’ve got to fully expect and pay the price for that.”  In response to JPMorgan’s trading loss, the Securities and Exchange Commission has begun an investigation into the bank’s trades. Dimon said the company is also doing its own internal investigation.  “So we’ve had audit, legal, risk, compliance, all of our best people looking at all of that,” Dimon responded. “We know we were sloppy. We know we were stupid. We know there was bad judgment. We don’t know if any of that is true yet. But of course regulators should look at something like this. That’s their job.”  “We intend to fix it and learn from it and be a better company when it’s done,” he added.

Major foreclosure case set to start

The Florida Supreme Court is set to hear oral arguments Thursday in a lawsuit that could undo hundreds of thousands of foreclosures and open up banks to severe financial liabilities in the state where they face the bulk of their foreclosure-fraud litigation.  The court is deciding whether banks who used fraudulent documents to file foreclosure lawsuits can dismiss the cases and refile them later with different paperwork.  The decision, which may take up to eight months to render, could affect hundreds of thousands of homeowners in Florida, and could also influence judges in the other 26 states that require lawsuits in foreclosures.  Of all the foreclosure filings in those states, sixty-three per cent, a total of 138,288, are concentrated in five states, according to RealtyTrac, an online foreclosure marketplace. Of those, nearly half are in Florida. In Congressional testimony last year, Bank of America, the US’s largest mortgage servicer, said that 70% of its foreclosure-related lawsuits were in Florida.  The case at issue, known as Roman Pino v. Bank of New York Mellon, stems from the so-called robo-signing scandal that emerged in 2010 when it was revealed that banks and their law firms had hired low-wage workers to sign legal documents without checking their accuracy as is required by law.

If the Supreme Court rules against the banks, “a broad universe of mortgages could be rendered unenforceable,” Coffey says. “The cost to the financial industry is difficult to estimate, but it could be substantial.”  For comparison, some legal experts point to the Massachusetts Supreme Court’s decision in January 2011 that ruled a foreclosure invalid because at the time of the foreclosure the bank couldn’t prove it had a valid assignment of mortgage — a similar issue to the one in the Pino case.  In the wake of the decision, hundreds of house titles in Massachusetts became void, says foreclosure attorney Tom Cox, who brought what was one of the first foreclosure fraud suits in the country.  “If the Florida court takes a strong stand, it sends a strong signal to the mortgage servicing industry in the rest of the country,” says Cox. Judges in other states could start penalizing banks with sanctions and overturning foreclosure suits, he says.

Gold down, dollar up

Gold futures, which saw modest losses during Asian trading hours, accelerated declines during European electronic trading Monday, as a push to the safety of the US dollar weighed on demand for metals.  Gold for June delivery (GCM2) dropped $12.90, or 0.8%, to $1,570.90 an ounce on the Comex division of the New York Mercantile Exchange.  The soft start to the trading week came after the metal settled at its lowest level this year on Friday, as political turmoil in Europe prompted investors to flock to the US dollar over other asset classes.  Talks between potential coalition partners collapsed in Greece on Sunday, raising the likelihood of fresh elections and stirring fears about the future of the euro zone. Greece’s political turmoil.  Against the backdrop of European uncertainty, the dollar continued its climb higher on Monday, with the ICE dollar index, which measures the US unit against a basket of six other currencies, at 80.463, from 80.250 in late North American trading Friday.  A stronger greenback adds further pressure to dollar-priced commodities such as gold, as it drives up to cost of the metal for holders of other currencies.  The market brushed aside weekend news that the People’s Bank of China will lower the ratio of reserves banks must set aside as deposits at the central bank by a half percentage point. The move was came recent data showing a slowdown for the nation, which is a big user of natural resources.

WSJ – to buy or not to buy?

It’s been a scary few years for the housing market. But at some point, the nightmare has to end (please?). Is now the time? Should first-time home buyers consider jumping into the market?  After all, home prices have fallen 34% from their 2006 peak and mortgage rates are hovering at or near record lows.  On one side are those who argue that homes are more affordable than they have been in decades, based on how much monthly income a mortgage consumes and whether owning is less costly than renting.  An uptick in home buying by investors already is under way, they say—an indication that those who wait may miss out on a good buying opportunity.  On the other side, pessimists insist that the housing slump is far from over, and that prices will continue falling—perhaps as much as 20% or more.  Excess inventories, they say, are the problem, and some estimate it could be four years before the market absorbs all of that extra supply.  Eric Lascelles, the chief economist at money-management firm RBC Global Asset Management Inc., says this is a remarkable time to be a first-time home buyer. A. Gary Shilling, president of A. Gary Shilling & Co., an economic consulting firm in Springfield, N.J., says buying now is a terrible idea.

Eric Lascelles – Yes: It’s a Rare Opportunity

This could be the best time in a generation to be a first-time home buyer.  Investors get this. While households dither, investors ramped up their home buying by 64% across 2011. They understand that this is the mother of all buyer’s markets, and won’t last forever. The prospect of making a profit by flipping these properties is still rather distant, so they lay in wait for an eventual rebound and in the meantime make money by renting out their properties for more than the monthly mortgage payment.  Investors get this. While households dither, investors ramped up their home buying by 64% across 2011. They understand that this is the mother of all buyer’s markets, and won’t last forever. The prospect of making a profit by flipping these properties is still rather distant, so they lay in wait for an eventual rebound and in the meantime make money by renting out their properties for more than the monthly mortgage payment.  Could home prices fall further? Yes they could. The home-inventory overhang is still quite large and credit availability remains poor. Home prices are unlikely to bloom in earnest for quite some time. But inventories are finally shrinking and mortgage availability has at least stabilized, and if you wind up buying a house on sale for one-third off its fair value instead of discounted by 40%, you still got one heck of a deal.

A. Gary Shilling – No: The Fall Isn’t Over

Don’t buy your first house now unless you’re willing to lose 20% of its market value in the next several years. Maybe more.  It will take a 22% drop to return median single-family house prices to the trend identified by Robert Shiller of Yale University that stretches back to the 1890s and prevailed until the housing bubble began. (It adjusts for inflation and the tendency of houses to get bigger over time.) And corrections usually overshoot on the downside just as bubbles do on the upside.  The problem is excess inventories. They are the mortal enemy of prices, and we’ve calculated an excess of two million housing units, over and above normal working levels of inventories of new and existing homes. That is huge, considering that before the housing market collapsed, about 1.5 million new homes were being built annually, a figure that shrank to 568,000 in February. At current rates of housing starts and household formation, it will take four years to work off the excess inventory, plenty of time for those surplus houses to drag down prices. 

Our estimate of two million excess homes takes into account those on the market as well as hidden inventories, such as foreclosed homes not yet listed for sale and those withdrawn from the market because owners couldn’t stomach the bids they received. A US Census Bureau category that measures such hidden inventories has leapt by one million units since 2006.  Additionally, our inventory estimate doesn’t even include future foreclosures, some five million of which are waiting in the wings. The 49% drop in new foreclosures since the second quarter of 2009 is a mirage, and was partly due to the Obama administration pressuring mortgage lenders to try to modify troubled mortgages to keep people in their homes. (They were largely unsuccessful.)  Sure, the always optimistic National Association of Realtors tells you that based on mortgage rates, incomes and house prices, single-family houses have never been more affordable. But according to their index, that was also true in December 2008, and prices have fallen 9.2% since then. Ugh! Home prices may have dropped 34% since the peak in early 2006, but that doesn’t make them cheap if prices continue to decline.

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.

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.

“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.

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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

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

Copyright Loss Mitigation Institute LLC 2011.
All Rights Reserved.

http://www.shortsalesriches.com

http://www.shortsalescoach.com

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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 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

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

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

Forward this e-mail to your friends!

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Underwater borrowers eligible for settlement write-downs

A calculation by a Brookings Institution economist narrowed down a pool of underwater homeowners to 500,000 who could qualify for principal reduction from the $25 billion mortgage settlement.  Using the parameters of the settlement, Ted Gayer found just 5% of the nation’s 11.1 million underwater borrowers could get the principal reduced on their mortgage, first reported by The Washington Post. About $10 billion of the settlement, in the form of credits, will go toward principal write-downs made by the five banks. Only homeowners delinquent on their mortgages are eligible. Gayer eliminated others according to underlying requirements, including Fannie Mae or Freddie Mac loans and homes not owner-occupied. It’s a rough calculation, Gayer warned, and he made some assumptions in the process. He eliminated any loans not held on the banks’ balance sheets, as well as any with a second loan. Mortgage bondholders may not take kindly to principal write-downs, he said.

Greek Bond Swap Deal Rests on Knife Edge

Greece faces a decisive week in its struggle to avert a sovereign default, with a planned debt swap poised on a knife-edge amid doubts over the level of participation by private bondholders. Charles Dallara, the head of the international consortium of financial institutions that negotiated the debt restructuring, declined to predict the rate but acknowledged that the complexity of the deal had required some investors to spend time understanding it. Many investors need to decide by Tuesday because of the complications of the deal. Because of the size of their holdings, a large number of bondholders will have to consult their boards, especially as the loss is about 75 percent in net present value terms. Private holders of 206 billion euros in Greek bonds have until Thursday evening to decide whether to take part in a swap where they would trade bonds for a package of bonds and cash that would knock about 100 billion euros off Athens’ debts. Private holders of 206 billion euros in Greek bonds have until Thursday evening to decide whether to take part in a swap where they would trade bonds for a package of bonds and cash that would knock about 100 billion euros off Athens’ debts.

New Jersey witnesses lending resurgence

The volume of loans written by New Jersey-based banks rose 16.5% in 2009-2011, while lending fell 5.6% nationwide over that span, according to The Star-Ledger in Newark. Most of the gains in the Garden State were attributable to MetLife expanding into mortgage lending, which the insurance giant has since abandoned. But smaller lenders stepped into the void left by the exit of some of the larger banks, as well. HousingWire explored how community banks are boosting market share as big banks write fewer home loans in our latest HW Focus on Lending, a supplement to the March issue. “We made a conscious effort to take advantage of other banks stepping back,” Kevin Cummings, president and CEO of Investors Bank of Short Hills told the Star-Ledger. Cummings’ firm increased its commercial balance sheet to $3.6 billion from $380 million at the end of 2007.

US stock futures fall on global economy worries

US stock index futures fell on Monday after data showed Europe’s private sector activity declined last month and China cut its growth target, reigniting concerns about the strength of the global economy. European stocks dropped, with shares in euro zone peripheral countries such as Italy and Spain among the worst hit, after data showed the region was likely to slide back into recession. Chinese Premier Wen Jiabao cut his nation’s 2012 growth target to an 8-year low of 7.5 percent and put a priority on boosting consumer demand in hopes of weaning the economy off a reliance on external demand and foreign capital. European markets were also pressured ahead of a March 8 deadline for Greece and private bondholders to complete a debt swap. Failure to reach agreement would put the country back on the brink of a messy default. Economists look for a drop of 1.5 percent after a 1.1 percent rise in the previous month. American International Group Inc is selling part of its stake in AIA Group Ltd to raise about $6 billion to help repay a huge federal government bailout.

DSnews.com: Treasury Reinstates HAMP Incentives

The Treasury Department says servicers participating in the Home Affordable Modification Program (HAMP) are getting better at evaluating homeowners for the program, including noticeable improvement in assessing borrower income to determine program eligibility and calculate the amount of their modified payments. HAMP performance reviews evaluate servicers based on three categories: identifying and contacting homeowners; homeowner evaluation and assistance; and program reporting, management, and governance. Treasury said it agreed to release withheld incentives for past deficiencies as part of the $25 billion federal-state mortgage servicing settlement announced last month, but officials stress that they retain the right to withhold incentives in the future should the results of HAMP compliance reviews warrant such remedial action. As of the end of January, participating servicers had granted 951,319 permanent HAMP modifications to distressed borrowers. There are an additional 76,343 HAMP trials currently in active status.

See you at the top!

Chris McLaughlin

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

Copyright Loss Mitigation Institute LLC 2011.

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 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

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

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

Forward this e-mail to your friends!

Then they can subscribe directly at the following link:

http://www.smartrealestatenews.com/

*** Join Chris’ Facebook Fan Page–>

http://www.mclaughlinchris.com

*** Follow Chris on Twitter–>

http://www.twitter.com/mclaughlinchris

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

FHA defaults rise

Defaults on Federal Housing Administration (FHA) mortgages increased in December for the ninth-straight month.  More than 711,000 FHA-backed home loans were in default at Dec. 31, nearly 19% higher a year earlier.  As defaults increased, a constricted and delayed foreclosure process is hurting the government’s ability to unload the properties once they are repossessed.  The US Housing and Urban Development Department (HUD) held 32,170 REO in December, according to a recent report, the lowest level measured since the same month in 2007. The high was reached in March 2011 at 68,997 properties.  The FHA insures roughly one-third of the mortgage market, as private insurers have been struggling with capital shortfalls since the crisis in 2007.  But the FHA is in trouble as well because of the surging defaults. The capital ratio of the agency’s mutual mortgage insurance fund slipped to 0.24% last year, well below the 2% mandated by Congress.

Analysis from the White House’s Office of Management and Budget released this week showed the fund would actually fall into the red this year and need an unprecedented bailout from the Treasury Department.  Bank of America will send roughly $500 million to the FHA as part of a settlement reached last week over past countrywide origination problems. HUD Secretary Shaun Donovan said more settlements would be announced soon, sending between $900 million and $1 billion to the FHA.  The agency will also be raising insurance premiums above the hikes set to take place in 2012 as a result of the payroll tax cut extension reached last year.  Donovan said this week that new loans written this year and last are proving to be more profitable than expected. But the market remains fragile and another downturn in housing could put the fund in further trouble.  “A very significant piece of what determines the actuarial value of the fund is what we project to happen to home prices,” Donovan said. “The better than expected performance of the new loans can be offset if home prices perform worse than we expect.”

Tax cut deal announced

A payroll tax cut for 160 million Americans, set to expire at the end of this month, would be extended through December under a bipartisan deal announced early today by US congressional leaders.  The accord would also renew expiring jobless benefits for millions of others and prevent a pay cut for doctors of elderly Medicare patients.  Economists say the tax cut extension and renewal of jobless benefits should provide a lift to the US economy, certain to be a key issue in the battle for control of Congress and the White House in the run-up to Election Day.  “We have reached an agreement and we’re moving forward,” Republican Representative Dave Camp, who headed the negotiating committee, told reporters shortly after midnight EST.  It was not immediately clear when the House of Representatives and Senate would vote on the deal, but lawmakers hoped to do so before they leave Friday for a week-long recess.  Many Republicans had initially balked at the extension while others insisted that its cost had to be offset by spending cuts to prevent an increase in the US deficit.  House Speaker John Boehner and fellow Republican leaders cleared the way for a deal on Monday when they dropped their demand that there be spending reductions to pay for the tax-cut extension.

Olick – foreclosures up again

“After a year-long reprieve from rising foreclosures, the numbers are going up again.  One in every 624 US households received a foreclosure filing in January, up 3% from the previous month, according to a new report from RealtyTrac.  Foreclosure activity froze in many states in 2011, due to processing delays after fraud, or so-called ‘Robo-signing,’ were uncovered in the fall of 2010.  The thaw is now on.  ‘We expect the pattern of increasing foreclosures to continue in the coming months, especially given the finalized mortgage and foreclosure settlement reached in early February between 49 state attorneys general and five of the nation’s largest lenders,’ said RealtyTrac’s CEO Brandon Moore in a written release.  ‘Foreclosure activity increased on a year-over-year basis for the first time in more than 12 months in Florida, Illinois, Indiana and Pennsylvania, following a pattern we saw in late 2011 in states such as California, Arizona and Massachusetts.’

While states that do not require a judge to preside over foreclosure proceedings, like California, saw a jump in filings toward the end of last year, judicial states have all but stalled. That will now change, thanks to the $26 billion dollar government-lender/servicer settlement. There will still be some delays on individual state levels, but the wheels are turning again, and that means more bank repossessions and more foreclosed properties heading to the re-sale market.  Bank repossessions, the final stage of the foreclosure process, increased at least 30%  year-over-year in several states, including Massachusetts, which saw a 75% spike.  Bank-owned or REO (real estate owned) activity hit a 16-month high in Illinois and a 15-month high in Indiana.  Default notices, the first stage of foreclosure, were flat nationally in January, but spiked in judicial states, like Connecticut and Pennsylvania (up 112%) and even in non-judicial states like Maryland (up 100%).

Nevada still posted the highest foreclosure rate, with one in every 198 households receiving a filing, despite an 8% drop in foreclosure activity. Nevada is a non-judicial foreclosure state, so the foreclosure backlog has been clearing for the last several months.  The situation is the same in California, where foreclosure activity dropped to a 50-month low, but the state still posted the second highest foreclosure rate in the nation. More than 51,000 borrowers received a foreclosure filing in January. California cities still account for nine of the top ten metro foreclosure rates, according to RealtyTrac.  As optimism seems to abound for the spring, at least among the nation’s home builders whose sentiment index jumped to the highest level in four years this month, foreclosures still stand in the way of a robust recovery.  Distressed property sales lower the value of homes around them, and that pushes more borrowers into a negative equity position, owing more on their mortgages than their homes are currently valued. Until banks work through the enormous backlog of foreclosures, which number in the millions, home prices will not hit a firm bottom, especially in the most troubled local real estate markets.”

Jobless claims down

Jobless claims slipped 13,000 from an upwardly revised 361,000 the previous week and beneath economist estimates that actually saw the number rising.  The drop in jobless claims marked a near four-year low, suggesting the labor market was finally strengthening.  Initial claims for state unemployment benefits dropped 13,000 to a seasonally adjusted 348,000, the Labor Department said, the lowest since March 2008. The prior week’s figure was revised up to 361,000 from the previously reported 358,000.  Economists polled by Reuters had forecast claims rising to 365,000. The four-week moving average for new claims, seen as a better measure of labor market trends, fell 1,750 to 365,250 — the lowest since April 2008.  Considerable slack still remains, with 23.8 million Americans either out of work or underemployed. There are no job openings for nearly three out of every four unemployed.  A Labor Department official said there was nothing unusual in the state-level data and no state had been estimated.  The number of people still receiving benefits under regular state programs after an initial week of aid tumbled 100,000 to 3.43 million in the week ended Feb. 4. That was the lowest level since August 2008.  Economists had forecast so-called continuing claims falling to 3.50 million from a previously reported 3.52 million.  The number of Americans on emergency unemployment benefits rose 16,568 to 3.00 million in the week ended Jan. 28, the latest week for which data is available.  A total of 7.68 million people were claiming unemployment benefits during that period under all programs, up 18,304 from the prior week.

Housing starts up

The Commerce Department said today that housing starts climbed 1.5% to an annual rate of 699,000 units.  Initial estimates for housing starts can be subject to large revisions and the government revised the December reading significantly higher to a 689,000-unit rate.  The Commerce Department initially estimated groundbreaking in December advanced at a 657,000-unit rate.  Economists polled by Reuters had forecast housing starts rising in January from the initial reading to a 675,000-unit pace.  Starts of multi-unit buildings, which are often rented, jumped 8.5% last month. New construction on buildings with five units or more increased 14.4%.  Groundbreaking on single-family units, which make up a much larger portion of the sector, fell 1.0%.  Permits climbed 0.7% to an annual rate of 676,000 units.

Inflation up

US producer prices outside food and energy recorded their largest increase in six months in January, but are unlikely to ignite inflation pressures given the slack in the labor market.  The Labor Department said on Thursday its seasonally adjusted core producer price index rose 0.4% last month, the largest gain since July, after increasing 0.3% in December.  Economists polled by Reuters had expected core PPI to rise only 0.2%. In the 12 months to January, core producer prices rose 3.0 after increasing 2.7% in December.  But overall prices received by farms, factories and refineries edged up 0.1% after dipping 0.1% in December.  The rise, which was smaller economists’ expectations for a 0.4% gain, reflected declines in food and energy prices.  In the 12 months to January, producer prices increased 4.1%, moderating from 4.8% December. That was the smallest increase in a year.  The Federal Reserve last month viewed inflation as largely contained and said it expected to hold interest rates near zero at least through late 2014.  Wholesale prices outside of food and energy were pushed up by a drugs costs, which accounted for about 40% of the increase. Higher prices for light motor trucks and household appliances also contributed.  Passenger car prices fell 0.8% after rising 0.5% in December.

Student loans drain retirement savings

Student loan debt amassed by parents is growing faster than loans taken out by the student.  Parents’ loan debt has more than doubled over the last decade — exceeding $100 billion dollars or 10% of all outstanding student loan debt, according to the independent research firm FinAid.org.  “Parents of every income level are increasingly borrowing for their children’s college education. It doesn’t matter whether the parents are low income, middle income or upper income. There’s been dramatic growth in the percentages of parents who’ve been borrowing,” says FinAid.org founder and publisher Mark Kantrowitz.  Many parents who co-signed loans or borrowed money on their own for their children’s education now face the loss of their retirement nest eggs, homes and other assets. As student loan debt has topped US credit card debt, “America faces the very real possibility of another major threat on par with the devastating home mortgage crisis,” according to a new study by the National Association of Consumer Bankruptcy Attorneys (NACBA).

Piling up student loans in middle age is “troublesome”, says NACBA vice president John Rao, an attorney with the National Consumer Law Center. “Parents who take out loans for children or co-sign loans will find those loans more difficult to pay as they stop working and their incomes decline.”  But, parents’ need to borrow has grown as their savings has declined and plummeting home values have made it difficult for many households to tap what was once a common financial resource — the equity in their homes.  Parents have an average of about $34,000 in student loans and that figure rises to $50,000, including interest, over a standard 10-year loan repayment period. Interest rates on the most common parental loan – the federal Parent “PLUS” loan – is fixed at almost 8%. So the return on parents’ investments needs to average at least 8% just to break even.  The fixed-rate PLUS loan is often a better choice for families than private student loans, whose rates may vary. But the need to borrow private or PLUS is often a sign of over borrowing, Kantrowitz says.  “Parents should borrow no more than they can afford to pay in 10 years because they have to worry about their own retirement. By the time they retire, they should have no debt remaining since they will have no income to repay that debt.”

Southern California – January sales up, prices down

Southern California home sales rose slightly last month as investors snapped up the region’s lowest-priced properties, sinking prices to the lowest levels in more than 2 1/2 years, DataQuick, a research firm, reported yesterday.  More than half of existing homes sold were foreclosed on in the previous year or short sales — transactions in which the price is less than what is owed on the property.  There were 14,523 new and existing homes and condominiums sold in the six-county region in January, up 0.4% from the same period last year, DataQuick said. Sales plunged nearly 25% from December, reflecting a typical seasonal decline.

Last month, 669 new homes sold, the lowest monthly tally since DataQuick began tracking sales in 1988.  The median price was $260,000, down 3.7% from $270,000 the same period a year earlier and from December. It was the lowest price since $249,000 in May 2009. During the current cycle, prices peaked at $505,000 in the middle of 2007 and bottomed out at $247,000 in April 2009.  John Walsh, president of the San Diego-based research firm, said January is typically a poor gauge of future sales but that the mortgage market “remains dysfunctional.” Nearly one-third of homes sold last month were paid for fully in cash for a median price of $199,000.  Absentee buyers — mostly investors and second-home purchasers — bought 26.8% of homes sold, paying a median price of $193,500. Absentee buyers were especially active in the Inland Empire, which has Southern California’s lowest-priced homes.  Homes that sold for at least $500,000 accounted for 16% of sales, down from 18.3% a year earlier, DataQuick said. During the last decade, a monthly average of 27.2% of homes sold for at least $500,000.

See you at the top!
Chris McLaughlin

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

Copyright Loss Mitigation Institute LLC 2011.
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

Forward this e-mail to your friends!

Then they can subscribe directly at the following link:

http://www.smartrealestatenews.com/

*** Join Chris’ Facebook Fan Page–>

http://www.mclaughlinchris.com

*** Follow Chris on Twitter–>

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

Mortgage deal closer

With a deadline looming today for state officials to sign onto a landmark multibillion-dollar settlement to address foreclosure abuses, the Obama administration is close to winning support from crucial states that would significantly expand the breadth of the deal.  The biggest remaining holdout, California, has returned to the negotiating table after a four-month absence, a change of heart that could increase the pot for mortgage relief nationwide to $25 billion from $19 billion.  Another important potential backer, Attorney General Eric T. Schneiderman of New York, has also signaled that he sees progress on provisions that prevented him from supporting it in the past.  The potential support from California and New York comes in exchange for tightening provisions of the settlement to preserve the right to investigate past misdeeds by the banks, and stepping up oversight to ensure that the financial institutions live up to the deal and distribute the money to the hardest-hit homeowners.

The settlement would require banks to provide billions of dollars in aid to homeowners who have lost their homes to foreclosure or who are still at risk, after years of failed attempts by the White House and other government officials to alter the behavior of the biggest banks.  The banks — led by the five biggest mortgage servicers, Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial — want to settle an investigation into abuses set off in 2010 by evidence that they foreclosed on borrowers with only a cursory examination of the relevant documents, a practice known as robo-signing. Four million families have lost their homes to foreclosure since the beginning of 2007.  If banks fall short of the multibillion-dollar benchmarks set out for principal reduction and other benefits for homeowners, they will have to pay the difference plus a penalty of up to 40% directly to the federal government, according to Mr. Madigan.  The settlement, if all states participate, will also include $3 billion to lower the rates of mortgage holders who are current. Banks will get more credit for reducing principal owed and helping families keep their homes, and less for short sales or taking losses on loans that were likely to go bad, like those that were severely delinquent.

102% tax?

James Ross, 58, is a founder and managing member of Rossrock, a Manhattan-based private investment firm that focuses on commercial real estate and distressed commercial mortgages.  “I realize I am very fortunate, and in fact I am a member of the 1%,” Mr. Ross wrote in an email. His résumé is studded with elite institutions: Yale, Columbia Law School and stints at the law firms Cravath, Swaine & Moore in New York, and Holland & Hart in Denver. Since his company fits the category of private equity, he has even carried interest.  Yet Mr. Ross told me that he paid 102% of his taxable income in federal, state, and local taxes for 2010.  “My entire taxable income, plus some, went to the payment of taxes,” Mr. Ross said. “This does not include real estate taxes, sales taxes, and other taxes I paid for 2010.” When he told friends and family, they were “astounded,” he said.

That doesn’t mean Mr. Ross pays more in taxes than he earns. His total tax as a percentage of his adjusted gross income was 20%, which is much lower than mine.  That’s because Mr. Ross has so many itemized deductions. Since taxable income is what’s left after itemized deductions like mortgage interest, charitable contributions, and state and local taxes are subtracted, it will nearly always be smaller than adjusted gross income and demonstrates how someone can pay more than 100% of taxable income in tax. Mr. Ross must hope that his interest expense will pay off down the road and generate some capital gains.  Still, all of Mr. Ross’s itemized deductions are money out of his pocket, which is why he’s had to draw on his savings to pay his taxes. Robert Willens, a tax expert and New York attorney, made the argument that taxable income, therefore, may be a better basis for measuring the tax burden.  Mr. Ross’s plight illustrates something that came through in nearly every response and cuts across nearly all income levels: The disparities of the tax code don’t just pit rich against poor or middle class. It taxes people within the same income brackets at grossly unequal rates.  “I cannot help but reflect on the unfairness of the current tax regime,” Mr. Ross wrote. “Why should I pay 102% of my taxable income in taxes when others, with far greater wealth than mine, pay a fraction of that?”

Bulk sales begin soon

The government is starting to shed foreclosed, single-family homes it owns — by selling them in bulk to investors, who would turn them into rental properties.  Officials, however, are saying only that test sales will occur “in the near-term” with a focus on the areas hardest hit by foreclosures. They declined to comment beyond a news release they issued.  The test comes after the government in summer 2011 asked for proposals on what to do with more than 90,000 foreclosed properties it then held. The government typically sells foreclosed properties one at a time, but officials specifically asked for ways to move homes in bulk because of the size of the backlog.  About 4,000 groups or individuals submitted ideas on how the government could unload the properties. After The Enquirer filed a Freedom of Information Act request, the government released a list of 423 companies, groups and individuals that submitted responsive proposals, but no details on their proposals.

The test sale of the foreclosures and conversion of them into rental housing is being supervised by the Federal Housing Finance Agency (FHFA). The agency has acted since 2008 as the federal conservator for Fannie and Freddie, which are public companies although they were created by Congress.  In a news release Wednesday, the finance agency said “Fannie Mae will offer for sale pools of various types of assets including rental properties, vacant properties and non-performing loans” under the test. It also asked investors to pre-qualify to participate in the test.  The investors will be required “to rent the purchased properties for a specified number of years.” FHFA officials hope the rental period will “provide relief for local housing markets that continue to be depressed by the volume of foreclosed properties, and provide additional rental options to certain markets.”

To qualify, investors will have to show the financial wherewithal to buy the assets, sufficient experience and knowledge to bear the risks and manage of the investment and agree to “keep certain information about the REO (real estate) and related matters confidential.”  Nationwide, the 83,000 homes currently up for sale and potential conversion into rental units are among more than 200,000 foreclosures of all kinds that the government holds, apparently making it the nation’s largest owner of foreclosed properties. The 200,000 is almost a third of foreclosed properties across the nation.  Moving the backlog would get them off the books of the Federal Housing Administration. It also would clear the books of Fannie Mae and Freddie Mac, which buy mortgages, bundle them and then sell mortgage-backed securities to investors.  The FHA, Fannie and Freddie became owners of the properties as hundreds of thousands of owners defaulted on their mortgages during the real estate meltdown.  Clearing the backlog would limit the loss to taxpayers, who already have bailed out Fannie and Freddie at a cost of $169 billion and counting. The losses are expected to total $220 billion to $311 billion by the end of 2014, according to latest projections in December by the Federal Housing Finance Agency.

Greece misses another deadline

Greece let yet another deadline slip on Monday for responding to painful terms for a new EU/IMF bailout, as German Chancellor Angela Merkel made clear Europe’s patience is wearing thin over drawn-out negotiations among its feuding political leaders.  Failure to strike a deal to secure the 130 billion euro ($170 billion) rescue risks pushing Athens into a chaotic debt default which could threaten its future in the euro zone.  Merkel turned up the heat, saying Athens had to come to terms with the “troika” of lenders – the European Commission, European Central Bank and IMF – to get the funds it needs to meet big debt repayments in March.  Greek political leaders, positioning themselves for a likely general election in April, have baulked at accepting another package of deeply unpopular wage and pension reductions, job cuts and tougher tax enforcement measures.

US Treasury prices pared gains notched in today’s European session that were a response to the lack of a political agreement in Greece to make reforms necessary to avoid default. Limiting gains, traders are preparing for the government’s quarterly refunding auctions, which will include sales of 10-year notes and 30-year bonds . Yields on 10-year notes, which move inversely to prices, fell 1 basis point to 1.92%. “Treasurys are modestly higher as discord among Greek coalition members over the terms of the second bailout raises the threat of default and has sent the euro and European stocks lower,” said bond strategists at RBS Securities. “We have a very quiet week of economic data up ahead and the market’s focus will be on the Treasury refunding auctions which begin tomorrow.”

New FHA standards increase Ginnie Mae risk

The Federal Housing Administration’s (FHA) recently announced plans to tighten its standards for approving lenders will increase prepayment risks for investors who own Ginnie Mae-back securities, say analysts at Barclays Capital.  The agency’s plans to eliminate the consideration of a lender’s compare ratio when deciding whether to streamline-refinance its loans will accelerate refinancing activity, they say, causing higher prepayment speeds, and, in turn, reduce investor profits.  The compare ratio is the serious delinquency rate of all loans originated by a lender during a two-year period relative to the average of all lenders operating in the same region. Higher coupon and seasoned loans have a weaker credit and greater default risks, therefore, streamline-refinancing them could lift ratio passed 150%. And if it does, the lender could lose the ability to originate FHA-backed loans.  The change is part of a larger attempt by the FHA to protect its Mutual Mortgage Insurance Fund, which many say is in danger of requiring a multibillion dollar government bailout.

Disregarding a lender’s compare ratio calculation creates an incentive for streamline-refinancing higher-risk borrowers, analysts say. This will speed up Ginnie Mae prepayments, particularly on higher coupons and pre-2009 originations since these have the worst credit quality.  “That said, we expect the effect on speeds to be modest,” they say. “We believe that this plan will be implemented and has the potential to raise GNMA speeds by a few CPR.”  The effect should be even less for pre-2010 vintages because their much better credit quality suggests they have not been constrained by the compare ratios.

Data from the Department of Housing and Urban Development (HUD) suggest that the compare ratios of most national lenders are now significantly below the 150% threshold.  In December, HUD Secretary Shaun Donovan, said as a result of an October analysis by an independent actuary of FHA’s insurance fund, HUD plans to announce how it will address premium prices in its fiscal year 2013 budget proposal.  Since then, Congress has enacted a 10 basis-point increase to the FHA annual mortgage-insurance-premium, and President Barack Obama has called on the FHA to shoulder a larger role in helping responsible home owners and the housing market.  “Given the circumstances, we think more changes to the FHA program could be in the works, and since the budgetary proposal should be released over the next few weeks, the timing is peculiar,” they said. “Therefore, Ginnie Mae faces heightened risks in the near term.”

See you at the top!

Chris McLaughlin

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

Copyright Loss Mitigation Institute LLC 2011.

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

Forward this e-mail to your friends!

Then they can subscribe directly at the following link:

http://www.smartrealestatenews.com/

*** Join Chris’ Facebook Fan Page–>

http://www.mclaughlinchris.com

*** Follow Chris on Twitter–>

http://www.twitter.com/mclaughlinchris

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

Foreclosures to take longer

Reviews of hundreds of thousands of foreclosure cases ordered by regulators last year will take months longer to complete than first expected, according to documents filed with federal banking regulators.  The delays could postpone compensation for some homeowners harmed by improper foreclosure actions.  The reviews cover foreclosure actions in 2009 and 2010 by the nation’s 14 largest mortgage servicers, which handle payments for about 65% of US mortgages. They are required by enforcement orders announced by federal regulators in April.  Under the deadlines set in April, the reviews — which are being done by independent consultants hired by servicers — should have been completed this month.  But reviews of Bank of America’s (BOA) foreclosure cases could take until November, a letter that BOA’s consultant filed with the Office of the Comptroller of the Currency (OCC) indicates. BOA is the nation’s largest mortgage servicer, and the Promontory Financial Group is its consultant.  JPMorgan Chase’s consultant, Deloitte & Touche, indicated it may need about the same amount of time, according to its letter.

Review time frames have lengthened for other servicers, too, because the detail, scope and complexity of the reviews weren’t fully known in April, says OCC spokesman Bryan Hubbard.  Some companies may finish before others. Some may beat the timelines in their letters. Some deadlines may get longer, Hubbard says.  The OCC says servicers should not wait until all reviews are done to compensate homeowners.  While 4 million cases are eligible for reviews, consultants will sample only some for errors such as unlawful foreclosures and excessive fees.  Borrowers who faced a foreclosure action on their primary home by one of the 14 servicers in 2009 or 2010 are eligible for reviews. Anyone eligible who asks for a review by the April 30 deadline will get one, the OCC says.

Consumer sentiment up

The Thomson Reuters/University of Michigan preliminary January reading on its overall index of consumer sentiment rose to 74.0 from 69.9 in December for the fifth month of gains and the highest level since May 2011.  The report topped expectations of 71.5 and was in contrast to December’s weaker-than-expected retail sales reported on Thursday.  Thirty-four% of consumers polled in the consumer confidence survey said they had heard of recent job gains, a record high in the survey’s history and well above December’s 21%.  “The data suggest a stronger consumer spending outlook, rising to about a 2.1% gain in 2012,” survey director Richard Curtin said in a statement.  But consumers still lacked confidence in government economic policies with the majority rating policies unfavorably for the sixth month in a row.  Americans also remained dour on their personal finances with just 24% expecting their finances to improve in January, slightly below 25% last month.  The survey’s barometer of current economic conditions rose to the highest since February at 82.6 from 79.6, while its gauge of consumer expectations gained to 68.4 from 63.6.

2013 for housing recovery?

A poll of 23 economists and analysts found a consensus for no change in the S&P/Case-Shiller home price index in 2012, compared with a median 0.3% decline that was forecast in the last poll in November.  Many say that a recovery in the housing market is a key requirement for any vigorous rebound in the world’s largest economy. The spectacular collapse in US housing, which sent average prices plummeting by a third, was the trigger for the 2008-09 financial crisis and subsequent recession.  The meager 1.5% gain expected in 2013 will offer little comfort to the millions of Americans trapped in negative equity — owing more to their mortgage lender, and in some cases much more, than their houses are worth.  “I think we are seeing stabilization, but unfortunately it’s stability at the bottom,” said Lindsey Piegza, economist at FTN Financial, describing the grinding halt to several years of relentless price declines.  The average price of a US home is currently around where it was nine years ago, and the most recent data, from October, showed price declines still accelerating.

The market is still under pressure from an excess of homes up for sale. Fifteen of 20 respondents said monthly foreclosures should subside this year, while five didn’t see any let-up until 2013.  Among 20 respondents, 15 said they expect foreclosures to ease some time this year, while five said it would not happen until 2013.  Gains in home sales and new home construction in November, and recent improvement in homebuilder sentiment, added only a touch of optimism at the end of last year.  Still, while the gain expected over the next two years is tiny compared with the more than 30% plunge from the peak in 2006, it is still a more cheery outlook than in some other parts of the world.  A recent Reuters poll predicted British home prices, which have not dropped anywhere near as far as they have in the US, will slip 1.7% this year. In China, they are expected to fall 10 to 20%.

Excess regulations hamper economy

Regulatory policies are badly undermining the economic objectives of governments around the globe by hampering bank activity, JPMorgan Chase chief executive Jamie Dimon said in a conference call discussing fourth-quarter earnings Friday morning.  “Regulatory policy is completely contradictory to government objectives,” Dimon said, citing restrictions on trading and new capital regulations as regulatory sources of slower economic growth.  Dimon said that although regulators have provided additional clarity on new capital rules, the clarifications are have demonstrated that the capital rules are “bad.”  He noted that higher capital requirements have made risk weighting even more important for banks. Under international capital standards, different kinds of bank assets receive different capital treatment, a practice known as risk weighting.

Dimon also criticized the so-called Volcker rule banning proprietary trading. He warned that if the rule is not carefully crafted, it could limit not just prop trading but market making.  “The United States has the widest and deepest and most transparent capital markets in the world,” Dimon said. “And the most liquid.   If you lose liquidity because you lose market making, you cost investors money.”  He said that pension funds, retirees, and other large investors could lose out if restrictions on trading go too far.  “We have to be very careful that we don’t destroy that [market making] as we try to limit — put a fair limit — on proprietary trading,” Dimon said.

Fitch downgrades Merrill mortgage securities

Fitch Ratings downgraded four classes of Merrill Lynch Mortgage Trust securities certificates backed by commercial real estate because the underlying loans are expecting losses.  At the same time, 17 classes of loans in the same series of securities were affirmed by the ratings giant.  Fitch specifically classified 76 loans as mortgages of concern. About 25 of those 76 are specially serviced loans.  The entire loan pool subjected to the downgrade had an aggregate principal balance of $2.2 billion at the end of December, compared to $2.5 billion at issuance.  Of those loans in special servicing, 16 are real-estate owned, three are in foreclosure, another three are delinquent and 1% are current.  One of the largest contributors to the expected losses in the pool is a three-story office building in Scottsdale, Ariz. The loan was moved into special servicing in October of 2009 when a large tenant that fully occupied one of the buildings terminated its lease and vacated the premises. As of mid-last year, the building’s occupancy rate stood at 62%.  A hotel located in Tampa, Fla., also is contributing to uncertainty over the pool of loans with a special servicer saying it would like to pursue a foreclosure.

See you at the top!
Chris McLaughlin

**************
Copyright Loss Mitigation Institute LLC 2011.
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

Forward this e-mail to your friends!

Then they can subscribe directly at the following link:

http://www.smartrealestatenews.com/

*** Join Chris’ Facebook Fan Page–>

http://www.mclaughlinchris.com

*** Follow Chris on Twitter–>

http://www.twitter.com/mclaughlinchris

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

NAR – short sales key to solving crisis

Stabilizing and restoring the health of the housing market is critical to a broader economic recovery, according to a white paper released yesterday by the Federal Reserve Board. Many of the issues and recommendations outlined in the paper support key principles established by the National Association of Realtors (NAR) to help revitalize the housing industry and economy.

The white paper, The US Housing Market: Current Conditions and Policy Considerations, calls for increased lending to creditworthy home buyers and more loan modifications, mortgage refinancings, and short sales to reduce the rising inventory of foreclosed homes and help stabilize and revitalize the housing industry; an approach long recommended by NAR to help spur the housing market recovery.  “As the nation’s leading advocate for homeownership and housing issues, NAR knows that a strong housing market recovery is key to the nation’s future economic strength,” said NAR President Moe Veissi. “Improving access to affordable mortgage financing for qualified home buyers and investors and aggressively pursuing more loan modifications and short sales is necessary to help reenergize the housing market and spur an economic recovery.”

For homeowners who are unable to meet their mortgage obligations, NAR has urged lenders and servicers to quickly approve reasonable short sale offers so these people can avoid foreclosure. The short sale process can be time-consuming and inefficient, and many would-be buyers end up walking away from the transaction.  “Loan modifications and short sales help stabilize home values and neighborhoods, and limit the losses incurred by lenders, the federal government and taxpayers, which is good for everyone,” said Veissi.

Jobs report strong

Non-farm payrolls jumped 200,000 in December, according to the Labor Department, pushing the jobless rate to a near three-year low of 8.5%. Economists polled by Reuters expected a gain of 150,000.  “Today’s figure should not come as a great surprise,” said Todd Schoenberger, managing director of LandColt Trading, adding that recent macro data had been pointing to good results. “The wildcard is January as retailers trim seasonal staff. An upside surprise for this month will validate the argument that an economic recovery is, indeed, talking place.”  The report comes after a handful of employment reports on Thursday that boosted sentiment as the number of planned layoffs at US firms fell to its lowest level since June last year, according to the report from consultants Challenger, Gray & Christmas. Private sector employment climbed 325,000 in December, much stronger than expected, according to payrolls processor ADP.

Bove – mortgage refinancing will hurt banks

Speculation that a new mortgage refinancing plan may be introduced drove bank stocks higher Thursday, but noted banking analyst Dick Bove believes investors actually got it wrong. He told Larry Kudlow that a program like that would actually “harm” banks.  “It’s bad for banks, it doesn’t help them in any way, shape or form,” Bove said.  The speculation was fueled by reports that suggested the White House may be preparing a new trillion-dollar plan to refinance home loans. However, administration officials told CNBC’s Dana Olick that they are not considering a $1 trillion refinancing program.  The fact that bank stocks went up on the possibility of such a program makes no sense whatsoever, Bove said. In fact, he thinks a mortgage refinancing plan would cause banks to lose money.  “If you add up all the sources of profit or loss,” he said, “they lose more than they gain.”  So why did the banks, like Bank of America, shoot up higher? Bove thinks it was a simple misreading of what a mortgage refinancing program would do for the banking industry.

He believes investors may have thought it might affect foreclosures, putbacks to the banking industry and the service income of the industry. However, Bove said it would do none of that.  “It harms the banking industry,” he said. “All it is, is taking a lot money from one class of people and giving it to another class of people under the theory that the second class of people would spend the money more than the first class.”  And banks aren’t the only ones which could be hurt, Bove said. Only 21% of the mortgages in the US are held by the banks. 55% held by Fannie Mae, Freddie Mac and mortgage pools, and the remainder is held by investors, he said.  “So the net affect is the people you are taking the money away from are the taxpayers and the investors.”

Unemployment down

The Labor Department said Friday that employers added a net 200,000 jobs last month and the unemployment rate fell to 8.5%, the lowest since February 2009. The rate has dropped for four straight months.  The hiring gains cap a six-month stretch in which the economy generated 100,000 jobs or more in each month. That hasn’t happened since April 2006.  For all of 2011, the economy added 1.6 million jobs, better than the 940,000 added in 2010. The unemployment rate averaged 8.9% last year, down from 9.6% the previous year.  Economists forecast that the job gains will top 2.1 million this year.

The December report painted a picture of a broadly improving job market. Average hourly pay rose, providing consumers with more income to spend. The average work week lengthened, a sign that business is picking up and companies may soon need more workers. And hiring was strong across almost all major industries.  Manufacturing added 23,000 jobs. Transportation and warehousing added 50,000 jobs. Retailers added 28,000 jobs. Even the beleaguered construction industry added 17,000 workers.  A more robust hiring market coincides with other positive data that show the economy ended the year with some momentum.  Weekly applications for unemployment benefits have fallen to levels last seen more than three years ago. Holiday sales were solid. And November and December were the strongest months of 2011 for US auto sales.  Many businesses say they are ready to step up hiring in early 2012 after seeing stronger consumer confidence and greater demand for their products.

Olick – renter nation

“Despite record low mortgage rates reported today and rising affordability in most US housing markets, rent is the new reality for former home owners and new households alike.  For some it is post-traumatic stress from the housing crash, for others it is the inability to get financing to buy a home. Either way, the rental market continues on its tear.  In the last quarter of 2011, the apartment sector saw its largest quarterly increase in occupied stock of the year, according to Reis, Inc.  The vacancy rate dropped to 5.2%, the lowest since 2001 and lower than the last cyclical drop in 2006.  This bucks the historical seasonal weakness typical of the colder months of the year. The fourth quarter also tends to be a weaker leasing period, according to Reis, given that most households make moving decisions in the second and third quarters.

This surge in occupancy pushed asking and effective rents up 0.4 and 0.5% respectively, which Reis calls the only disappointing figures for the sector, missing expectations. Reis blames that on slow economic growth and still high unemployment.  ‘Higher quality properties in the most desirable locations posted rent gains in excess of 5-10%, while class B/C properties, catering to lower income tenants, found it relatively more difficult to raise rents,’ notes Victor Calanog, head of research at Reis.  Nowhere is that more evident than in the Washington, DC metro area where rents are way up across the city, and developers are rushing to erect new multi-family buildings and rehab old ones.  ‘Everybody wants to be in DC,’ beams Richard Key, district manager for Camden Property Trust, one of the largest publicly traded multifamily REITs in the nation. ‘Whereas in other markets there are deals, when you get to DC area, all the REITs want to be here, and so we’re all competing for the same piece of land, and that’s driving the price up. That is really is a challenge for us.’  Key is convinced that there has been a fundamental shift in attitudes toward home ownership that will last for several more years. He is not concerned that the pendulum will swing back to buying, just as all that new rental stock hits the market around 2014. Camden has seen rents on its DC properties rise over 5% in just the past year.  ‘The nice part is we haven’t seen a drop in occupancies with that rent growth, and so the hope is that we’re able to maintain our historical occupancies and continue to see that 5, 6, gosh, 7% is not out of the question in the next couple of years,’ says Key.

Washington, DC will likely see those higher rents because home prices didn’t fall very high during the housing crash and are already rebounding. It and Detroit were the only major markets posting annual gains on the latest S&P/Case-Shiller Home Price Index.  Other markets, like Las Vegas, where home prices are rock-bottom thanks to a huge supply of foreclosures, the rental market is tougher for developers and landlords.  As for renter society, it is also being fueled by tight mortgage underwriting. Rates may be at record lows, but only if you can get them. In a paper released Wednesday, Federal Reserve Chairman Ben Bernanke noted, ‘Continued efforts are needed to find an appropriate balance between prudent lending and appropriate consumer protection, on the one hand, and not unduly restricting mortgage credit, on the other hand.’  Until that balance is found, potential home buyers will stay on the sidelines, those sidelines being rental apartments. A new twist to watch, however, may be that rental nation will go single family.  With so many bank owned homes left to clear, and so many in government and the private sector looking at bulk rental investments, apartments may have big competition in the same neighborhoods where they used to compete against single family buyers.”

IRS audits millionaires

The Internal Revenue Service (IRS) audited one in eight millionaires who filed taxes last year while only auditing 1 in 100 individuals earning less than $200,000 in an effort to “assure that there’s equity in the system.”  Just 1 in 100 individuals earning less than $200,000 had their income tax returns examined, the IRS said.  The 12% of millionaire earners audited in 2011 was appreciably higher than the 8% who were audited in 2010. IRS officials said the high ratio was part of an effort to demonstrate that tax laws are applied fairly.  “That has been something we’ve concentrated on to assure that there’s equity in the system, to assure that those at the lower end of the spectrum know that those at the higher end of the spectrum are subject to the same rules and enforcement as everyone else,” Steven Miller, deputy IRS commissioner for services and enforcement, said in an interview.  In recent weeks, President Barack Obama and congressional Democrats have sought to boost taxes on the wealthy as a way to pay for jobs programs, a theme they are expected to continue in this presidential and congressional election year. IRS spokeswoman Michelle Eldridge said the growing portion of millionaire earners’ returns audited is not related to politics.  Yeah right.  Message to Americans:  Achieve the American dream and we’ll audit you.

WSJ – business using more space

The US office market showed modest signs of improvement in the last three months of 2011, as employers slowly expanded in an uncertain economic climate.  The national office-vacancy rate stood at 17.3% in the fourth quarter, slightly down from 17.4% three months earlier, according to real-estate research firm Reis Inc. But the rate remains stubbornly high, down just slightly from the post-downturn peak of 17.6%, reached in mid-2010.  The office market generally reflects employment trends and companies’ views on growth over the next few years. With job growth slow, companies have been reluctant to add new space.

The sector is still struggling with high levels of vacancy not seen since the early 1990s, a hangover from the sharp pullback by businesses during the downturn. The amount of space occupied by businesses fell by 137 million square feet from 2008 to 2010, according to Reis, which tracks 79 metropolitan areas.  By contrast, employers occupied just an additional 20.7 million square feet in all of 2011. “We’re not seeing huge moves down in vacancy,” said Chris Connelly, who heads the Chicago office for CBRE Group, a commercial-real-estate brokerage. “We’re just niggling away at it.”  Overall rents have been creeping up, with landlords seeking an average rent of $27.97 per square foot per year in the fourth quarter, up 0.4% from the third quarter.

Still, markets vary widely, depending on whether they are home to growing industries. Cities hard-hit by the housing crisis, such as Las Vegas and Phoenix, have among the highest vacancy rates in the country, above 25%.  Meanwhile, growth in the technology and energy sectors has accelerated a recovery in areas such as Northern California and cities in Texas. Last month, landlord Brookfield Office Properties Inc. signed a 141,000-square-foot lease in Houston with Italian energy company Eni SpA, which is taking a space that is 42% larger than its current lease, according to Brookfield.  “If those drivers aren’t there, you’re probably pretty much seeing a very slow, gradual recovery,” said John Sikaitis, director of office research for brokerage Jones Lang LaSalle.

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
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