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Washington state considers short sale protection

Banks could soon be barred from pursuing deficiency judgments against Washington state borrowers after a short sale. A Senate committee in the Washington State Legislature will hold a hearing over H.B. 2718, which states that if a bank “writes off debt from the short sale, they can’t then subsequently collect this debt from the seller. The bill was modeled after similar action passed in Oregon last summer. The bill if passed does not require the lender to accept a short sale offer. It would go into effect with 90 days of being passed. According to a Washington Realtors alert put out late last week, a borrower would report the write off to the Internal Revenue Service and take a tax deduction for the loss. This same amount is also counted as taxable income for the seller. “Providing certainty and consumer protections for short sale sellers is critical in the current real estate market,” the trade group said. “Successful short sales often prevent foreclosures that would harm consumers, tax revenue and economic recovery.” After the Oregon bill took effect in June, REO numbers became choppy and then began to fall at the end of the year. In September, repossessed homes totaled 1,420, according to RealtyTrac. That number increased to 2,057 the following month then slid to 936 in November and 874 in December. Some of that could be due to seasonal trends. Most lenders put repossessions on hold during the holiday season, but the December total was down 29% from the same month one year earlier.

S&P warns of rate cuts over health costs
Ratings agency Standard & Poor’s warned it may downgrade “a number of highly rated” Group of 20 countries from 2015 if their governments fail to enact reforms to curb rising healthcare spending and other costs related to aging populations. Developed nations in Europe, as well as Japan and the United States, are likely to suffer the largest deterioration in their public finances in the next four decades as more elderly strain social safety nets, S&P said in a report. “Steadily rising healthcare spending will pull heavily on public purse strings in the coming decades,” S&P analyst Marko Mrsnik wrote in the report. “If governments do not change their social protection systems, they will likely become unsustainable.” If no reforms are adopted, healthcare-related credit downgrades would likely start within three years, eventually leading to an increase in the number of junk-rated countries as of 2020, the study showed.

Olick – US Treasury forcing principal forgiveness

“Late Friday the US Treasury Department announced a major expansion of its Home Affordable Modification Program (HAMP). The three-year-old program has been largely deemed unsuccessful, as it has provided just about 750,000 borrowers with permanent loan modifications. The initial expectation from government officials was that it would help three to four million borrowers. ‘Clearly the initial program erred on the side of making sure taxpayers were protected, but it didn’t do enough to help the overall economy,’ said Michael Barr, former Asst. Treasury Secretary for Financial Institutions and one of HAMP’s original architects. Now taxpayers will pony up the cash, as Treasury is tripling the financial incentives to lenders and opening the program up to Fannie Mae, Freddie Mac and investors in rental properties. The money would come out of TARP funds, i.e. from the taxpayers. We still don’t know if Fannie and Freddie will participate, since their conservator, the FHFA’s Ed DeMarco, has been actively fighting principal write down for years. A week ago he sent a letter to members of congress explaining the math behind his argument.

But the Treasury may be forcing DeMarco’s hand. He claimed that writing down mortgage principal would cost $4 billion more than the modifications that Fannie and Freddie are doing now. Those involve interest rate reduction and principal forbearance. The newly expanded HAMP, however, with its triple- sized cash incentives, would shore up that $4 billion hole. Funny how he mentioned that hole on Monday, and the Treasury announced the new plan Friday. ‘If he [DeMarco] doesn’t get to yes, then he has no political leg to stand on,’ says FBR’s Ed Mills, who estimates the enhanced program could add one million borrowers to its ranks. Mills says a ‘no’ from DeMarco would enable the Obama Administration to replace him, which it tried to do once before, only to be blocked by members of Congress. ‘It would be an appropriate response for him to do it,’ says Barr of DeMarco. ‘I do think they should participate.’ I asked Barr why the Treasury waited three years to use the TARP funds for principal reduction. The obvious answer is that this is presidential election year, and the housing market is still floundering, but Barr claims the Treasury was just being careful. ‘It’s a use of taxpayer funds, and you want to make sure you’re not providing more of an incentive than is required,’ he said. ‘One person’s successful program is another person’s bailout.’”

Treasury department stirs the pot

The Treasury Department is investigating a report that Freddie Mac, the mortgage giant, bet against homeowners’ ability to refinance their loans even as it was making it more difficult for them to do so, Jay Carney, the White House spokesman, said yesterday. ProPublica and National Public Radio reported that Freddie Mac, which maintained slightly tighter restrictions than Fannie on homeowners’ eligibility to refinance, had a multibillion-dollar investment whose value hinged on borrowers continuing to pay higher interest rates. Beginning in 2010, Freddie bought several billion dollars’ worth of “inverse floater” securities — essentially the interest-paying portion of a bundle of mortgages — for its investment portfolio while selling the far less risky principal portion. Fannie and Freddie are supposed to be decreasing the size of their investment portfolios. There is no evidence that Freddie tailored its refinancing standards to its investing strategy, but “inverse floaters” make less money if the loans they cover refinance to a lower interest rate. Freddie issued a statement yesterday defending its commitment to helping homeowners. “Freddie Mac is actively supporting efforts for borrowers to realize the benefits of refinancing their mortgages to lower rates,” it said. The company said refinancing accounted for 78% of its loan purchases in 2011.

HAMP 2.0
The expansion of the Home Affordable Modification Program (HAMP) by the Treasury Department is expected to benefit special mortgage servicers, mortgage insurers and nonagency mortgage-backed securities holders, while having no material effect on agency MBS, Keefe, Bruyette & Woods said yesterday. Previously, if a borrower’s first-lien monthly mortgage payment was lower than 31% of income, the borrower was ineligible for HAMP. Factoring other debts to the evaluation will expand the pool of borrowers who can now qualify for HAMP. Investors also were given new incentives for accepting principal write-downs, with the financial benefits for such an action increasing from a range of 6 to 21 cents on the dollar to 18 to 63 cents. The Obama administration also extended the HAMP program deadline through December 2013. “We believe that the more flexible debt-to-income ratio and the inclusion of some investor properties will have a positive impact on modification activity,” KBW analysts said in its research note. “The impact of the increased principal reduction incentives remains unclear.

While it should help the nonagency sector, the impact would be far greater if there was GSE participation. The response from FHFA on Friday afternoon suggests that the GSEs might not participate,” according to KBW analysts. The research firm expects the changes to have “no material impact on agency MBS prepayment speeds.” However, special servicers in the mortgage industry are expected to benefit from the modifications. Ocwen Financial Corp. earned $28.3 million in HAMP incentive fees in the first nine months of 2011, and KBW believes other firms also will benefit from an expanded HAMP program. Barclays Capital analysts also see the changes as having no significant impact on agency MBS. “The reason is that the vast majority of debt forgiveness will be on delinquent loans, which are typically already bought out of the agency MBS trust,” Barclays wrote. “The only effect might be from the moral hazard side: if underwater borrowers in agency MBS pools start going delinquent on purpose to qualify for debt forgiveness, speeds will obviously rise. But we think this is unlikely to have a significant effect on agency speeds.”

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

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

Orlando short sales 12% higher price

The median price of homes sold in Orlando during December 2011 ($118,000) was 12.38 percent higher than the median price in December 2010 ($105,000). During 2011, Orlando’s median price climbed 24.34 percent from a low of $94,900 in January to a high of $118,000 in December. The median price of “normal” sales that closed in December 2011 was $159,900 (representing a decrease of 0.06 percent compared to December 2010). The median price for short sales in December 2011 was $105,000 (an increase of 10.53 percent compared to December 2010), and the median price for bank-owned sales in December was $80,000 (an increase of 6.67 percent compared to December 2010). Orlando Regional Realtor Association (ORRA) members participated in 13.86 percent less home sales in December of this year than in December of 2010: 2,125 and 2,467, respectively. At year’s end, the number of sales for all of 2011 (27,703) was 3.48 less than in all of 2010 (28,701).

In month-over-month comparisons, sales of foreclosed homes declined 56.29 percent in December 2011 compared to December 2010. Short sales and “normal” sales both increased (by 24.41 percent and 14.15 percent, respectively) in December 2011 compared to December 2010. Normal sales (871) accounted for 40.99 percent of all transactions in December 2011, while short sales (785) accounted for 36.94 percent and bank-owned sales (469) made up the remaining 22.07. The Orlando average interest has dropped to a new low once again. Buyers who purchased an Orlando area home in December paid an average interest rate of 3.99 percent, which is the lowest since the ORRA began tracking the statistic in January of 1995. Homes of all types spent an average of 103 days on the market before coming under contract in December 2011, and the average home sold for 92.40 percent of its listing price. In December 2010 those numbers were 97 days and 94.45 percent, respectively.

New York’s factory index up

The New York Fed’s “Empire State” general business conditions index rose to 13.48 from a revised 8.19 in December, topping economists’ expectations of 11.0. It was the highest level since April 2011. New orders climbed to 13.70 from a revised 5.99, while inventories also gained to 6.59 from minus 3.49. The survey of manufacturing plants in the state is one of the earliest monthly guideposts to U.S. factory conditions. Employment gauges showed strength. The index for the number of employees rose to 12.09 from 2.33 and the average employee workweek index climbed to 6.59 from minus 2.33. Manufacturers were also more optimistic about their outlook with the index of business conditions six months ahead rising to its highest level since last January at 54.87 from 45.61.

More failed HAMP trials

Mortgage servicers are putting more failed Home Affordable Modification Program (HAMP) trials through foreclosure than they were one year ago. According to Treasury Department data released last week, 10.6% of the more that 615,000 canceled HAMP trials completed the foreclosure process as of Nov. 1. That’s more than double the 4.4% of failed HAMP trials foreclosed on as of November 2010. While foreclosures are increasing, alternative modifications on these loans are dropping. Of the canceled HAMP trials, 39.7% went through the bank’s own private programs, down from 45.4% over the same time period, according to Treasury data. Foreclosure completions as a percentage of borrowers never accepted into HAMP trials are lower but still increasing as well. Of the 1.8 million borrowers denied a HAMP trial, 7.6% completed the foreclosure process as of Nov. 1, up from 5% one year before. Roughly 26.5% of these borrowers received alternative modifications, which held flat over the last year.

The increase in more foreclosure completions on failed HAMP trials occurred at nearly every large servicing shop participating in the program. Citigroup saw the highest jump. Of the 71,808 HAMP trials it canceled, roughly 13.5% completed the foreclosure process as of Nov. 1, up from 3.1% one year ago. At Ally Financial, the percentage increased to 12.8% from 6.4% over the same period. At JPMorgan Chase, the increase went to 11.3% from 6.2%. And at Bank of America, the largest servicer in the program, 9.3% of failed HAMP trials went through foreclosure compared to just 1.9% the year before. The highest percentage is currently held by OneWest Bank. It foreclosed on more than 19% of its roughly 20,000 failed HAMP trials, up from 10% last year. Interestingly, Wells Fargo has one of the lowest percentages of completed foreclosures on these mods at 6.7%, almost the exact same percentage one year before.

According to the Office of the Comptroller of the Currency, 17% of the 108,000 HAMP modifications began in the second quarter of 2010 went 60 or more days delinquent within one year. That’s compared to a 31% redefault rate for other private programs. D. Corwyn Jackson, whose company The Corwyn Group helps to train housing counselors for foreclosure prevention, said servicers are getting mixed signals from the government-sponsored enterprises Fannie Mae, which administers HAMP, Freddie Mac and other stakeholders across the country. “The servicers are mandated to stick to the agreed upon foreclosure time lines by state,” Jackson said. “But other stakeholders such as nonprofit housing counseling agencies across the nation are requesting servicers during the negotiation to exhaust their loan workout options before starting the foreclosure process.”

The GSEs charge servicers for taking too long to complete the foreclosure process under specific, state-by-state guidelines. Servicers are expected to still consider the borrower for the GSE programs, but time is of the essence. BofA, for example had to pay Fannie and Freddie $1.3 billion in foreclosure delay penalties in the first nine months of 2011. GSE policies and the failed HAMP trial foreclosure rates is beginning to show in the overall economy. Over the same time period covered by the Treasury data, the shadow inventory of homes in foreclosure or on the verge it has been declining. According to CoreLogic, roughly 1.6 million homes sit in this inventory, down from 2.1 million in November 2010.

DOJ steps up ratings probe

The Justice Department (DOJ) has stepped up its investigation of Standard & Poor’s (S&P) mortgage bond ratings during the financial crisis, the Wall Street Journal reported today. At least five former S&P analysts have been contacted by federal prosecutors in recent weeks, after some had not heard from investigators for more than six months, the newspaper said. The McGraw-Hill Cos Inc unit disclosed in September it had received a Wells notice from the Securities and Exchange Commission indicating it could face civil charges for its ratings of a 2007 mortgage bond deal called Delphinus 2007-1. It has not yet disclosed any investigation by the DOJ, which the WSJ reported is a civil probe. Prosecutors are examining whether S&P managers pushed to weaken standards the company had set for rating the mortgage deals, and whether the company followed its established criteria in assigning ratings. The recent interviews lasted two to three hours, and the former employees were told they would likely by contacted again, the Wall Street Journal said.

DSNews.com – vacant foreclosures cost money

A recent study from the Government Accountability Office (GAO) found that non-seasonal vacant properties across the United States rose 51 percent over the span of a decade, from nearly 7 million in 2000 to 10 million in April 2010. Ten states saw vacancies go up by 70 percent or more as a result of high foreclosure rates. Those with the largest increases over the last decade were Nevada (126 percent), Minnesota (100 percent), New Hampshire (99 percent), Arizona (92 percent), and Florida (90 percent). Georgia, Michigan, Colorado, Rhode Island, and Massachusetts also experienced increases above 70 percent. The elevated number of vacant homes carries with it a hefty price tag for lenders that must resume ownership after foreclosure. GAO found that in 2010, Fannie Mae and Freddie Mac reimbursed servicers and vendors over $953 million for property maintenance costs. However, it’s local governments, many of which are already dealing with depleted funds, that are feeling “significant” pressures from the rise in home vacancies, according to GAO.

The agency notes that other studies have concluded vacant foreclosed properties may reduce prices of nearby homes by as much as $17,000 per property. As a result, municipalities report being out millions of dollars in lost tax revenues. That’s in addition to extra expenditures to put staff, systems, and programs in place to ensure local property ordinances are met, as well as costs associated with addressing public safety issues posed by extended periods of vacancy or improper property maintenance. GAO says the localities it studied are all engaged in multiple strategies to try to minimize the costs and other negative impacts that vacant properties create for their communities.

Efforts range from simple data-gathering to more precisely identifying vacant properties, to acquisition and rehabilitation or, in some cases, demolition of abandoned properties. In addition, some local governments have tasked servicers with additional responsibilities for maintaining properties, amended their code enforcement rules to establish greater incentives for property maintenance, and established specialized housing courts to address vacant property and other housing issues. These strategies, however, face various challenges, particularly the lack of financial support to effectively address such a large-scale problem, according to GAO. As a result, governments in many of the communities GAO examined are reaching out to members of the community – including neighborhood groups and private developers – in an attempt to leverage all available resources. In addition, local governments have called for increased federal funding and greater attention by federal regulators to servicers’ role in managing vacant properties.

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

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

Short sales gaining popularity

US home prices may get a boost from an unlikely source: a pickup in sales of properties in default before they reach the stage where they are repossessed by the bank and sold.  There has been a “dramatic shift” in banks’ willingness to sell a property for less than the mortgage balance to avoid foreclosing, said Ron Peltier, chairman and chief executive officer of HomeServices of America Inc.  The short sales typically change hands at a discount of about 20% to homes not in financial distress, compared with a 40% price cut for bank-owned homes, according to RealtyTrac Inc. Short sales jumped 19% in the second quarter from the prior three months while foreclosure sales were flat, the data seller said.  “Banks have become much more supportive of short sales,” said Peltier, whose Minneapolis-based company is a unit of Warren Buffett’s Berkshire Hathaway Inc. “That’s better for the lenders, who have smaller losses on a short sale, and it’s going to be better for homeowners, who won’t have as much psychological distress as a foreclosure.”

Distressed sales brokered by HomeServices used to be 60% foreclosures and 40% short sales, Peltier said in an interview. Now, that ratio has flipped, according to the CEO.  “There’s a huge backlog of homes in default that the banks want to get rid of,” said Thomas Popik, research director for Campbell Surveys in Washington. “They don’t want to be homeowners.”  Banks are being more agreeable to short sales as foreclosures slow following a yearlong probe of so-called robo- signing, or pushing through unverified default documents. Foreclosure filings have fallen for 12 straight months through September as banks work through a backlog of paperwork, according to RealtyTrac.  Almost a third of all home transactions in August were foreclosures or short sales, according to the National Association of Realtors.

Goldman Sachs posts loss

Goldman Sachs posted a loss that was even worse than expected of 84 cents a share on a 33% drop in investment banking revenue from a year ago.  Wall Street had expected the company to post only the second quarterly loss since Goldman went public in 1999, but estimates were for just 16 cents a share in the red.  Shares, though, rebounded from earlier losses after company officials insisted the firm was well-positioned after the economy recovers and financial markets stabilized. Goldman stock rose 1% in premarket trading.  Goldman posted $3.59 billion in revenue, a decrease from $8.90 billion a year ago when it posted a profit of $2.98 a share.  Analysts had expected revenue of $4.29 billion.  Investment banking revenues came in at $781 billion, a one-third fall from the third quarter in 2010 and a 46% drop from the previous quarter. Financial advisory revenues were $523 million, up a bit from the same quarter last year.  Goldman’s loss-driver was its Investing & Lending division, which holds stocks, bonds, loans and private equity assets as long-term investments.  The division reported negative revenue of $2.48 billion as the value of those assets dropped sharply. Goldman’s stock investment in Industrial and Commercial Bank of China alone generated more than $1 billion of paper losses.  Goldman was also hurt by big declines in bond trading and investment banking revenue.  Its fixed income, currency and commodities client trading business reported $1.73 billion in revenue, a 36% decline from a year earlier.

Federal officials and banks try to hammer out a mortgage deal

Officials and big banks are working on a plan that would make refinancing available to some borrowers whose houses are worth less than their loans, so long as they are current on mortgage payments, the Wall Street Journal reported.  Such borrowers typically are not able to refinance because they lack equity in their homes. The plan would apply only to mortgages owned by the banks, the Journal said, citing people familiar with the matter.  Federal officials have been trying to broker a settlement with the five largest mortgage servicers — Ally Financial, Bank of America, Citigroup, J.P. Morgan Chase and Wells Fargo — the Journal said.  It is not clear how many borrowers would qualify for help, the paper added.  Officials are pushing for a plan in a bid to break a legal impasse with big banks over alleged foreclosure abuses and ease problems in the housing market, the paper said.  Discussions are still fluid and any final outcome is uncertain. Talks between government officials and the banks are expected to continue this week.

Oil down

Oil fell for a second day in New York after China said its economy grew at the slowest pace in two years and US crude stockpiles were forecast to increase.  Futures dropped as much as 0.5%, extending yesterday’s 0.5% decline, after China’s statistics bureau said the economy grew at 9.1% in the third quarter, less than predicted. An Energy Department report tomorrow may show US crude inventories climbed for a second week, according to a Bloomberg News survey. Technical indicators indicate prices may have advanced too fast to be sustainable.  “The number from China is getting a bit worse than before,” said Ken Hasegawa, an energy trading manager at broker Newedge Group in Tokyo, who forecasts prices will decline $5 a barrel. “If the recovery of the economies in Europe and the US is getting worse, then the economies of China and Asia will show some damage.”  Crude for November delivery fell as much as 40 cents to $85.98 a barrel in electronic trading on the New York Mercantile Exchange. It was at $86.10 at 2:45 p.m. Singapore time. Yesterday, the contract lost 42 cents to $86.38, the lowest settlement since Oct. 13. Prices are down 5.8% this year.  Brent oil for December settlement on the London-based ICE Futures Europe exchange dropped as much as 45 cents, or 0.4%, to $109.71 a barrel. The European benchmark contract was at a premium of $24 to US futures. The difference narrowed 16% yesterday, the most since June 16.

Rentals surge

Despite the most affordable buying market in decades, households across the country are slowly choosing rentals versus homeownership, signaling a positive economic trajectory for the multifamily sector, according to Freddie Mac’s October 2011 economic outlook report released Monday.  In the year ending June 2011, the Census Bureau reported a net increase of 1.4 million households that moved into rental housing, a 4% rise in the number of tenant households.  The US homeownership rate fell about 1.5% over the past year, according to Freddie Mac’s report.  Hessam Nadij, managing director of research and advisory services for Marcus & Millichap, said in the August issue of HousingWire magazine that “apartments, which are considered part of the commercial real estate sector, are well ahead of retail, office properties and industrial properties in the recovery because of the release of pent up demand.”  Much of the rental demand is from household heads under 30 years old who have decided to postpone homeownership in favor of renting during uncertain economic times, according to the report. Owner rates for those under 25 years old fell 4.4% to 21.9% while rates for those 25 to 29 years old fell 7% to 34.7%.

Bank of America Merrill Lynch estimated a net decline of 1.2 million homeowners since 2007, alongside a net increase of 3.4 million renters. Americans expect home prices to continue to fall, according to a recent Fannie Mae National Housing Survey. Another Fannie survey released in August also predicted a rise in renters.  Financing for rental housing is becoming more readily available. Frank E. Nothaft, Freddie Mac vice president and chief economist, attributed the rise in lending to low mortgage rates, improving apartment-sector economics and the return of traditional lenders that had curtailed activity during the recession. Nothaft said this year’s multifamily loan origination volume is “stronger” than last year’s.  Texas is the hottest market for apartments this year. A majority of the growth is coming from the Dallas-Fort Worth metro area, according to, a unit of RealPage, Inc. The North Texas region started more than 7,300 new units, according to the firm’s mid-year data.

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

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

Short sales spike in Los Angeles

Foreclosed homes and short sales are making up an increasingly large chunk of the housing market in Los Angeles, moving toward 50% in Glendale, according the latest real estate figures.  Sales of distressed homes made up 47.5% of total sales in Glendale in September. In Burbank, the ratio was almost 34%.  The figures were far higher than a year ago, when distressed homes made up about 36% of total sales in Glendale and nearly 16% in Burbank.  The trend started in August as banks ended their self-imposed foreclosure moratoriums.  Short sales saw the most dramatic rise in Burbank, skyrocketing from about 4% in September last year to almost 18% last month.  In Glendale, the sale of bank-owned properties jumped from a little less than 11% in September 2010 to about 21% last month.  Average home sale prices continued to tumble in September with Burbank taking the biggest hit, dropping $87,530 when compared to September 2010.  The average price in Burbank was $446,655, a 19.6% slide from $534,185 in September 2010.  The number of new home sales also took a hit in September, decreasing from 74 a year ago to 56 last month. There were 63 new listings in September, dipping from 67 in September 2010.  Glendale fared better, though it was still in decline. The average home sale price was $504,244, a 7.1% decrease from $540,258.  New home listings decreased by 15, from 102 in September 2010 to 87 last month. New sales dropped slightly from 64 to 61.  In La Cañada Flintridge, the average home sale price was about $1 million in September, a 2.7% drop from roughly $1.1 million the same month last year.   In the La Crescenta-Montrose area, the bright spot was the number of new home sales, which came in at 37, up from 29 last year. But the average home sale price was $516, 621, about a 1% dip from $520,964 last year.

Real debt battle looming in 2012

Dec. 23, 2011, is the legal deadline for Congress to approve at least $1.2 trillion in savings over 10 years to avoid an equal amount of across-the-board spending cuts, as part of a deal reached during debt talks in August.  But a series of even more important events will dovetail following the November 2012 presidential election to create what some are calling a “perfect storm” for the nation’s economic affairs.  “A whole lot of things happen in late 2012 and early 2013,” said James Horney, a fiscal policy expert with the liberal Center on Budget and Policy Priorities.  Looming at the top of the list is the scheduled expiration of sweeping Bush-era tax cuts that in 2001 and 2003 lowered taxes across the board. President Barack Obama has called for extending these cuts for families earning less than $250,000 while taxing everyone else.  Also by the end of 2012, Congress will have to decide on fixing a glitch in the Alternative Minimum Tax so that middle-class Americans are not forced to pay a tax that originally was aimed only at the upper middle class.  Taken together, the future of these two tax policies could make for a multi-trillion-dollar swing for the Treasury, either in the way of higher revenues or more rapidly escalating debt.

By the end of 2012, Congress and Obama likely will need to increase the government’s borrowing authority. A battle over the US credit limit nearly led to a government default on its debt in August. Republicans used the debt limit increase as leverage to win $917 billion in spending cuts over 10 years.  The Nov. 6, 2012, elections, when the United States will elect a president, all members of the House of Representatives and one-third of the Senate, are a big wild card, with the outcome likely to influence the outgoing Congress. It will sit until the new Congress is sworn in the following January.  “At that point,” said Horney, the United States might “be in a better situation (than this year) to get some kind of an agreement” on fiscal matters.

WSJ – lack of attractive inventory

The housing market, which has struggled with an oversupply of homes for years, is facing a new problem: a lack of attractive inventory.  There were more than 2.19 million homes listed for sale at the end of September, down 20% from a year earlier, according to a new report from the real-estate website Realtor.com. That is the lowest level since the company began its count in 2007.  The report is the latest sign of how the US housing market can’t seem to catch a break. While falling inventories are typically a sign of health, because reduced competition can boost prices, that isn’t the case right now.  Instead, real-estate agents say, people are pulling their homes off the market rather than try to sell them at today’s discounted prices. At the same time, banks have been more slowly moving to take back properties through foreclosure ever since processing irregularities surfaced last fall, temporarily reducing the supply of foreclosed properties. The shrinking supply isn’t driving up prices because demand is soft.

Yet there is still a substantial “shadow” supply of foreclosures and other distressed homes, estimated to be more than one million, that is likely to stream onto the market in the coming years. The pent-up supply is another constraint on any of the price gains that might normally occur when supply falls.  The decline in inventory also suggests that there are fewer opportunities for buyers and sellers to strike deals. That can further chill sales, as buyers become afraid to overpay while sellers are similarly cautious about under-pricing their homes.  In Detroit, the inventory of homes for sale was down by 28% from a year earlier, according to Realtor.com. Listings were down by 49% in Miami, by 48% in Phoenix and by 46% in Orlando, Fla. Housing inventory was down from one year earlier in all 146 markets tracked by Realtor.com except for Denver and El Paso, Texas.  The Realtor.com data include only single-family homes, townhouses and condominiums listed for sale on more than 900 multiple-listing services across the country. They don’t include unsold homes listed as “for sale by owner” or other properties that don’t find their way onto the multiple-listing services.

Manufacturing slows

The New York Fed’s “Empire State” general business conditions index was little changed, up a hair at minus 8.48 from minus 8.82 the month before. Economists polled by Reuters had expected a reading of minus 4.0.  The survey of manufacturing plants in the state is one of the earliest monthly guideposts to US factory conditions. Manufacturing has helped support the economic recovery, though the pace of growth has slowed this year and some regions have contracted.  New orders rose to 0.16 from minus 8.0, while inventories were up at minus 8.99 from minus 11.96. Despite the flat reading, new orders were still at the highest level since May, hinting some stabilization may be underway.  Employment gauges were mixed. The index for the number of employees rose to 3.37 from minus 5.43, but the average employee workweek index fell to minus 4.49 from minus 2.17.  The outlook for the coming months worsened, with the index of business conditions six months ahead dropping to its lowest level since February 2009 at 6.74 from 13.04 last month.

Soft outlook for homebuilders

Fitch Ratings believes homebuilders could face negative rating actions in the coming months as the economy slugs through a weak recovery.  Fitch analysts issued the negative rating warning at a time when weak employment and consumer confidence are pummeling the housing market, keeping homebuyers on the sidelines.  Robert Curran, managing director and lead homebuilding analyst for Fitch, said for the first time in a long time, housing “is not fulfilling its role as a key impetus to the early stages of an economic recovery.”   Curran said the pressures have already prompted Fitch to downgrade Beazer, KB Home and Pulte in recent weeks.  “The outlook does not look promising either with home prices likely to remain soft over at least the next few quarters,” said Curran. “Stagnant employment and declines in real income may also pile on the already formidable pressure homebuilders are feeling.”  Curran said analysts will be watching several key indicators closely—namely balance sheets, land deals, development and liquidity.  Yet, on the more positive side, Toll Brothers posted a third-quarter profit of $42.1 million, or 25 cents a share, on revenue of $394.3 million. The luxury homebuilder earned $27.3 million, or 16 cents a share, for its year-ago fiscal third quarter.  In the first half, homebuilder PulteGroup spent $640 million acquiring land and executing development activities. The company expects to spend nearly $1.1 billion on land and development this year, up from $980 million in 2010.

Sales up, confidence down

A strange economic trend appears to be emerging with American consumers. Retail sales have been trending higher while consumer confidence is at a 30-year low.  Retail sales grew 1.1% in September, the fastest pace since February, we learned on Friday. Even excluding strong auto purchases, the figures were better than expected. Data for earlier in the summer was also revised for the better. All this, even in the midst of stock market tumult and fears of another recession.  Meanwhile, those same economic concerns are still weighing on confidence. Consumer confidence plunged more in October than expected, according to the Thomson Reuters/University of Michigan index. It’s now at the lowest measure since May 1980.

How is this contradiction possible? Howard Davidowitz, president of Davidowitz & Associates says it’s simple. “We have got a bifurcation that keeps getting bigger and bigger,” he explains to Aaron and Henry in the accompanying clip.  What accounts for the increase in sales is the top earners in the country are doing fine. “Ten% of the consumers account for 40% of the spending,” he says. This group is primarily made up of college graduates who are not suffering from massive unemployment. In fact, unemployment for that segment of the population is under 5%.  But there’s another larger group that’s struggling to get by, which explains the consumer worry. “Eighty% of consumers are in a depression,” says Davidowitz.  It’s this growing gap between the haves and have-nots that is responsible for the Occupy Wall Street movement, says Davidowitz.

CMBS market stalls

The market for bonds backed by commercial real estate recovered over the last 18 months but growth in the third quarter has stalled, said property market researchers Friday.  “There’s been a little bit of a stumble in the third quarter,” said Ben Thypin, director of market analysis for Real Capital Analytics, a commercial real estate research firm, in a presentation at the Appraisal Institute’s annual fall conference in San Francisco.  He said he’s expecting little growth in the issuance of commercial-mortgage-backed securities in the third quarter, and that total volume this year will likely end up around $35 billion. New CMBS issuance will likely remain at that rate through 2012, he said.  Still, that’s a big improvement over a couple of years ago.

The dollar volume of CMBS deals in just the first half of 2011 was more than twice what it registered in 2010, increasing to $25.7 billion from $12.7 billion in all of 2010, according to Matt Anderson, managing director of  Trepp, a provider of commercial mortgage information, analytics and technology.  “There were hopes that volume might reach $50 billion this year,” he said, but those have been tempered by the shakiness of European economies and concerns that the US could enter a double-dip recession.  Especially considering that commercial banks, which usually lend about half their capital for commercial real estate markets, are on the retreat, the CMBS market is a linchpin to CRE recovery, according to Anderson.  The number of banks with a concentration of investment in commercial real estate was more than 2,500 in the first quarter of 2007, but by the first quarter of this year had fallen to about 900 “and that’s probably headed lower,” he said.

Still, CRE markets are past the worst in terms of delinquencies and distressed properties, and the volume of properties in trouble has remained fairly steady over the last year or more, he said.  While CRE sales volume has fallen to less than half its level in 2007, all segments of the market have clocked gains over the past year, according to data from Real Capital Analytics.  Senior living properties saw more than a fourfold increase in sales volume in the first half compared with the first six months of 2010, followed by hotel and multifamily properties. About $23.1 billion in apartment properties in changed hands in the January-June period.  Apartments exist in a “parallel universe” from other CRE properties because of their access to Fannie Mae and Freddie Mac financing, said Thypin.  “The foreclosure crisis in the single-family market has helped the apartment market,” he said.  Both Thypin and Anderson agreed that the state of the economy will be crucial in determining how the market moves in the coming months.  “We’re looking at a fragile recovery in commercial real estate markets,” said Anderson. “It’s very much capital driven, not so much fundamentals-driven.”  The market is going to be fairly rocky in the short term, but compared to other assets, commercial real estate is a good buy, he said.

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

Short sale incentives

Bank of America is testing Florida’s foreclosure waters with an incentive program for defaulting homeowners to “short sell” their homes instead of enduring a foreclosure, which can take years.  Guidelines for Bank of America’s new Florida Enhanced Short Sale Relocation Assistance program state that a borrower may use the incentive to pay off existing liens or for relocation expenses. FHA, Ginnie Mae, VA and USDA loans are not eligible. Details are available by calling 1-866-880-1232.

Short-sale incentives are an outgrowth of earlier, “cash for keys” programs offered by lenders and real-estate companies. Also, the US Treasury Department has tried to boost the number of short sales with its Home Affordable Foreclosure Alternatives program, which provides $3,000 for borrower-relocation assistance, $1,500 for servicers to cover administrative and processing costs, and as much as $2,000 for investors who meet certain requirements.

Other programs currently available:

-  Wells Fargo offers incentives of $10,000 to $20,000 to certain homeowners who opt for a short sale or who transfer a home’s title back to the bank. The program is aimed at properties in Florida and other states known for protracted, judicial foreclosures. The money is available only on first-lien loans that the company owns, which is about 20% of its portfolio. Details: 1-800-678-7986.

-  JPMorgan Chase has not reported how much it offers for short-sale incentives, though real-estate agents have reported sellers getting $20,000. The lender also has declined to specify how it determines the amount of its incentives. Details: 407-248-3945.

-  Citibank has reported it offers an average of $12,000 for borrowers when it owns the mortgage. The amount is determined upfront and varies depending on a borrower’s financial circumstances and mortgage-payment history. The money is disbursed when the short sale closes. Details: 1-866-272-4749.

More regulations on the way

US regulators on Tuesday are set to give nervous insurance companies, mutual funds and other big players in financial markets a better idea of whether they will be tapped for the same type of additional government scrutiny facing large US banks.  On Tuesday, the Financial Stability Oversight Council is scheduled to release a new proposal on how it will determine which non-bank firms are important enough to the financial system that they merit greater oversight by the Federal Reserve.  Also on Tuesday, banking regulators are scheduled to vote on a proposal banning most proprietary trading done by banks, known as the Volcker rule.  Both rules are parts of the 2010 Dodd-Frank financial oversight law.  Companies that are tapped for greater Fed supervision will be designated systemically important financial institutions (SIFIs), and will be subject to new capital and liquidity rules.  They will also be required to draft detailed plans on how they could be broken up if the company falters and is seized by the government.

Olick – where to find demand

“Given record low interest rates and still-falling home prices, you would think housing demand would be surging, but these are strange, strange times. Difficult credit conditions, combined with a steep drop in consumer confidence have cancelled out housing’s positives. Most concerning is a generational shift in housing demand.  While the overall home ownership rate fell a little more than one percentage point over the last decade, the numbers were much worse for younger Americans.  ‘Particularly hard hit were households headed by those age 25 to 54, who experienced homeownership rate declines ranging from 3.5 to 3.9 percentage points,’ according to a Fannie Mae analysis of new Census data.  The change in home ownership has been geographically widespread.  As home prices seem to be taking a turn for the worse again now, potentially a triple dip, consumer confidence in housing has fallen right in line.  Fannie Mae’s September housing survey, ‘showed a marked deterioration in consumer expectations of home prices over the next year—their weakest outlook since monthly tracking began in June 2010,’ said Doug Duncan, vice president and chief economist of Fannie Mae.  This even as negative headlines over the potential US debt crisis abated in September. Oddly, this pessimism came at the same time that the share of consumers expecting mortgage rates to go up dropped sharply to the lowest level recorded. That is further evidence that even record-low mortgage rates are having a minimal effect on any housing recovery.

If housing demand cannot be spurred by low interest rates, low prices or even a slightly brighter economic picture, then where can we find it? For now, it’s with investors.  Investors do not rely on credit as much as the general population and the potential revenue stream from increased rental demand can overcome fears of any further declines in home values.  As leaders in the industry and government mull potential new housing incentives and fixes, they should focus more on investors. With little newly-built rental inventory coming to market and still-surging rental demand, investors can help on many levels, sopping up distressed supply and providing more housing to limit the surge in rent rates.”

60% chance of recession

The bond market indicator that has predicted every US recession since 1970 shows that the economy has about a 60% chance of contracting within 12 months.  The so-called Treasury yield curve, adjusted for distortions caused by the Federal Reserve’s record low zero to 0.25% target interest rate for overnight loans between banks, shows that two-year notes yield 20 basis points, or 0.20 percentage point, less than five-year notes, according to Bank of America Corp. research. The unadjusted gap of 79 basis points at the end of last week indicates the chance of recession at about 15%.

Short-term rates have been higher than longer-term yields, or inverted, before each of the seven recessions since 1970. Unemployment has held at or above 9% every month except two since May 2009, including a reading of 9.1% in September. “The adjusted curve is giving a powerful signal for an upcoming US recession,” said Ruslan Bikbov, a fixed-income strategist in New York at Bank of America, one of the 22 primary dealers of US government securities that trade with the Fed. “If that happens, the Fed’s target rate could remain near zero beyond 2014,” more than a year longer than the central bank has indicated, he said in an interview on Oct. 3.

Bank of America’s research is sending the same message as the Economic Cycle Research Institute and Bill Gross, manager of the world’s biggest bond fund, which say the US may be headed into a decline. Fed Chairman Ben S. Bernanke said last week in testimony to Congress that the central bank can take further steps to sustain a recovery that’s “close to faltering” after almost three-years of near-zero interest rates and $2.35 trillion of bond purchases.  The Organization for Economic Cooperation and Development cut its forecasts for the US last month, saying the $15 trillion economy likely grew 1.1% in the third quarter and will expand just 0.4% in the fourth.

WSJ – US gambles with mortgage retreat

Three years after virtually nationalizing the US mortgage market, the government has embarked on a pullback to see whether private industry picks up the slack.  Some people in the housing industry worry that Washington’s move will cause fresh pain in many regions where demand has yet to recover amid the sluggish economy.  At issue are the loan limits that Congress expanded in 2008, allowing Fannie Mae and Freddie Mac to buy mortgages that exceeded the national cap of $417,000.  When the mortgage market melted down four years ago and sent private mortgage investors fleeing, interest rates rose sharply on “jumbo” mortgages—those too large for backing by Fannie, Freddie or agencies such as the Federal Housing Administration. That accelerated home-price declines in high-end markets throughout California and the Northeast, where many pricey homes couldn’t be bought with a government-backed loan.

To stem the fallout in prices, Congress raised the loan caps to as high as $729,750 in markets such as Los Angeles and New York. It then passed a series of one-year extensions to keep the higher limits in place. But this year, Congress and the Obama administration opted against an extension.  As a result, the limits in hundreds of counties fell by 10% or more on Oct. 1. For loans backed by Fannie and Freddie, the limits declined to between $417,000 and $625,500 in about 200 counties.  More worrisome to real-estate agents are declines in the FHA limits, which fell to between $271,050 and $625,500 in 600 counties. Those changes are causing heartburn because the FHA allows buyers to make down payments of just 3.5%, and it has financed as many as half of all home purchases in recent quarters.

Policy makers allowed the limits to fall because they want private companies to hold more mortgage risk, and dialing down loan limits is one way to carve out space for those investors. Fannie, Freddie, and the FHA currently back nine in 10 new mortgages. Taxpayers already are on the hook for $141 billion in losses at Fannie and Freddie, and the FHA’s reserves have plunged to razor-thin levels.  Mortgages that don’t qualify for government backing typically have higher borrowing costs, including interest rates around 0.75 percentage point above conforming loans. Mortgage rates currently are very low, but jumbo loans also require bigger down payments—at least 20%—and can have tougher qualification rules.  “The net-net here is that the available pool of credit for housing is shrinking. Prices will have to decline,” said Christopher Whalen, co-founder of risk-management consultant Institutional Risk Analytics.

On one side of the debate are mortgage investors who say the government needs to give the private sector more room to compete if a vibrant market for nongovernment-backed loans is to re-emerge. “The banking industry, flush with excess deposits, will fund those loans,” said Mike McMahon of Redwood Trust, a real-estate investment firm in Mill Valley, Calif.  Assuming a 20% down payment, the new limits still allow homeowners in parts of California to qualify for a government-backed mortgage on a $780,000 home. Critics say there’s little public policy rationale to subsidize loans for those borrowers, who need substantial incomes.  On the other side are real-estate agents and some economists who say sellers are in for a nasty surprise when they find that fewer potential buyers qualify to purchase their properties. They say the changes also could hamstring “trade-up” buyers who typically used home equity, which has plunged during the bust, as their down payment to move to a bigger residence.  The loan limits wouldn’t appear to have much of an impact on the overall housing market. In 2009, about 1.5% of home-purchase loans backed by government entities wouldn’t have been eligible under the new limits, according to a study by the Furman Center for Real Estate and Urban Policy at New York University.  But the same study emphasized the outsize local impact. Some 9% of purchases would have been affected in San Jose, Calif., and 5% in San Diego.

Meanwhile, banks would have to increase the number of jumbo loan originations by 56% to make up the gap, “which the private sector could be hard pressed to fill,” said Mark Willis, one of the study’s authors. “If you want to get the market moving, why would you decrease the availability of credit for any part of it?”  Ultimately, the loan-limit issue shows the broader challenge in bringing back private capital and reducing taxpayer exposure: Housing markets are shaky, and the government is still offering better terms than private lenders.  Steps that raise borrowing costs could attract private investors, but if that pushes home prices down in the process, it may do more harm to the economy and to individual housing markets still reeling from the real estate bust.

“Systemic risk” in Europe?

European Central Bank President Jean-Claude Trichet warned of threats to the financial system as the conflict among political leaders intensified over how to extricate Europe from the debt crisis.  “The crisis has reached a systemic dimension,” Trichet told European lawmakers in Brussels today. “Sovereign stress has moved from smaller economies to some of the larger countries. The crisis is systemic and must be tackled decisively.”  European officials are toiling to meet an end-of-month deadline set by French President Nicolas Sarkozy to get to grips with the crisis, which has propelled Greece to the brink of default, shaken world markets and fueled speculation that the 17-nation currency might not survive in its current form.  Trichet’s message coincides with a shift in the focus of Europe’s crisis response today to Slovakia, where the government may struggle to achieve a majority of lawmakers needed to ratify the euro region’s retooled bailout fund. The country is the only member of the 17-nation euro area that hasn’t ratified the measure agreed between leaders on July 21 to fight turmoil that has spread from Greece to larger nations including Italy.  In many ways, what happens in Europe impacts what happens in the US.

Americans expect further house declines

Americans believe home prices will drop another 1.1% over the next year while mortgage rates maintain record low levels, Fannie Mae said in its September national housing survey.  Fannie Chief Economist Doug Duncan said the September survey showed a marked deterioration in consumer expectations for home prices, making it the weakest month on record over the last 18 months.  “Despite a decline in negative economic headlines during September — in contrast to their ubiquity during the debt ceiling debate in August — consumers continue to demonstrate very negative attitudes,” Duncan said. “At the same time, the share of consumers expecting mortgage rates to go up dropped sharply to the lowest level we have recorded, likely influenced by the news that the Federal Reserve will attempt to keep interest rates low for years to come. All these factors together do not bode well for the housing market.”  In fact, pessimism abounds in the housing market, with one-third of respondents expecting mortgage rates to go up in the next year. And for the fourth consecutive month, most Americans taking the Fannie survey said they expect home prices to decline from year-ago levels.  About 68% of those surveyed said it’s a good time to buy a home, while only 10% believe it’s a good time to sell a house.

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

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

California pulls out of foreclosure talks

The state of California pulled out of multi-state mortgage negotiations with large US banks, dealing a sharp blow to long-running efforts to secure a broad settlement over allegations of lending abuses.  California Attorney General Kamala Harris wrote in a letter on Friday that she will pursue her own investigation.  “California was being asked for a broader release of claims than we can accept and … the relief contemplated would allow too few California homeowners to stay in their homes,” Harris said in the letter to government officials leading the talks.  New York had exited the talks in August over a disagreement about how much legal immunity the banks should receive in any settlement.  Representatives of the banks met with Harris last week in an attempt to keep California on board.  The state has faced some of the worst default rates in the country, with an unemployment rate of 12.1% and two million residents who owe more on their mortgage than their home is worth.  Eight of the 10 hardest hit US cities in terms of foreclosure rates are in California, Harris said.  State and federal officials have discussed penalties totaling roughly $20 billion from institutions that include Bank of America, JPMorgan Chase, Wells Fargo and Citigroup.

Public sector pensions go on a diet

To fix their persistent pension problems, some US states are looking to reshape their retirement plans to resemble those in the private sector.  Over the last few decades, the private sector has ditched traditional pension plans with their defined benefits. They have been replaced with defined contribution accounts, such as 401(k)s, in which employees allocate a set amount each month to invest — often partly matched by employers — and then cash out at retirement.  This has left the public sector as the main provider of defined benefit plans, which pay employees a fixed amount each month after retiring.  But pension funds have been stung by the recent financial crisis and recession, leaving taxpayers and political leaders agonizing over the possibility they will be unable to afford those defined payments. Estimates of a total shortfall range from around $700 billion to $3 trillion, due to differing forecasts of investment returns.  “If the idea is that tax revenues are down and state budgets are crunched, and they surely are … I think it’s worthwhile to take a step back and look at the actual costs,” said Ilana Boivie, director of programs for the National Institute on Retirement Security, or NIRS.

No rise in home prices till 2020?

A survey of bank risk managers says that home prices are unlikely to recover before 2020 and mortgage defaults will persist for years.  The survey, conducted by the Professional Risk Managers’ International Association for FICO, found that 49% of respondents do not expect housing prices to rise back to 2007 levels for another nine years. Only 21% of respondents said they would.  The findings, which authors called “a decidedly pessimistic outlook”, are a sharp reversal from cautious optimism the survey respondents expressed late last year and in early 2011.  In addition, 73% of surveyed bankers say they expect mortgage defaults to remain elevated for at least another five years. And 46% believe mortgage delinquencies will increase over the next six months.  Only 15% of respondents expect mortgage delinquencies to decline during that period.  A large number of respondents says they also expect to see an uptick in delinquencies on auto loans, credit cards and student loans.  Small businesses are expected to continue face a challenging credit environment. More than one-third of respondents forecast an increase in delinquencies on small business loans.  Bankers also appear to be pessimistic about recovery in consumer spending, with 64% of respondents expecting credit card usage to remain below pre-recession levels for at least five more years.  Half of the respondents expect credit card balances to increase over the next six months, due to higher spending by some households and smaller monthly payments by others.

Fed will act if it needs to

The US Federal Reserve will act if the economy weakens further and has the tools to do so, a top Fed official said on Friday.  St. Louis Fed President James Bullard said he expects the economy to grow modestly over the next year—though the sluggish pace leaves it vulnerable to shocks.  “Should economic performance deteriorate, monetary policy will respond,” Bullard said, according to slides of a presentation he was scheduled to make. “The Fed is not now, or ever, ‘out of ammunition’.”  With interest rates near zero, Bullard said, the Fed can support the economy through inflation and inflation expectations and asset purchases are a “potent tool”.  Dealers polled by Reuters earlier this month gave a median chance of 32% that the Fed will embark on a third round of quantitative easing.  The Fed said last week it plans to buy $400 billion of longer-term Treasurys and sell the same amount of shorter-term Treasurys by the end of June 2012, in an effort to lower longer-term borrowing costs.  It also said it would support the mortgage market by reinvesting principal payments from its mortgage-related debt into mortgage-backed securities.

Housing market has hit bottom?

The US housing market hit bottom this year and will remain flat until 2014, when it will start to slowly recover, said Rick Sharga, an executive vice president with Carrington Mortgage Holdings.  “We’re looking at a catfish recovery,” he told attendees at the Asian Real Estate Association of America conference in San Francisco Friday, saying the market will bump along the bottom for some time before starting to revive.  More than a million foreclosure actions that should have taken place this year have not yet moved forward, and that delay pushes a resolution of the housing market’s problems into next year and beyond, he said, citing data from RealtyTrac, where Sharga served as a senior vice president until this week.  “We can’t expect to see home price appreciation until we work through these distressed assets,” he said.  Since 2005, there’s only been one quarter in which US banks have sold more properties than they’ve taken back through foreclosure, leaving a huge overhang of real estate-owned assets that need to be cleared out.

Banks hold about 800,000 REOs, and three-quarters of those are not listed for sale, said Sharga. Another 800,000 homes are in foreclosure and 1.5 million loans are delinquent.  This “shadow inventory” will slow down a housing market recovery, he said, as monthly foreclosure numbers will remain elevated through 2012 and REO inventories will stay high through 2013.  Even with the continuing distress in the housing market, the country is not likely to enter a double-dip recession, said Eugenio Aleman, a director and senior economist at Wells Fargo & Co.  Although US workers have suffered as the nation has lost 9 million jobs over a two-year period, the manufacturing and service sectors are expanding, he noted.  “The rest of the economy is not booming, but it’s doing fine,” said Aleman. Wells Fargo is projecting that the US economy will expand over the next few years, but at anemic rates: 1.6% this year, 1.4% in 2012 and 1.9% in 2013.  “We are standing firm,” said Aleman of Wells Fargo’s economic forecast. “We are not going to go into a recession.”

ECRI says recession inevitable

Weakness in leading economic indicators has become so pervasive the Economic Cycle Research Institute now predicts a new recession is unavoidable.  “The vicious cycle is starting where lower sales, lower production, lower employment and lower income [leads] back to lower sales,” co-founder Lakshman Achuthan declares in the accompanying video.  Whereas Achuthan said the jury is still out in late August, the weakness in leading economic indicators — and ECRI uses a dozen for the US alone, he notes — has become a “contagion” that is spreading like “wildfire.”  Although the recovery has been “subpar” by nearly every measure, Achuthan refutes the idea the economy never got out of recession in the first place. “Just because it looks and feels a certain way doesn’t mean it’s a recession,” he says. “You haven’t seen anything yet. It’s going to get a lot worse.”  It’s too soon to predict just how bad it’s going to get, but he expects another spike in unemployment and further expansion of the federal government’s $1 trillion deficit. This forecast has huge ramifications for the 2012 election and the already struggling US consumer and Achuthan says a “mild” recession is the best-case scenario.  By now you may be wondering what separates ECRI’s recession call from the myriad other recession calls out there. First, ECRI’s primary raison d’etre is predicting recession and recovery calls. Second, and more importantly, The Economist reports ECRI has never issued a “false alarm” on a recession call, meaning many of the Chicken Littles currently declaring “the sky is falling” might actually be right this time around.

Mortgage help for unemployed disappears

The federal government can’t even give money away to help the unemployed pay their mortgage.  A $1 billion program to assist the jobless will likely end up spending only half the funds, at most, because so few people met the strict criteria.  The Housing Department, which had to approve the applications for the Emergency Homeowners’ Loan Program by Friday, expects that only 10,000 to 15,000 people will qualify. That’s only a small sliver of the roughly 100,000 who applied.  “No one could have anticipated how difficult the statutory requirements make it to reach homeowners,” said Lemar Wooley, a HUD spokesman.  Those who make the cut are expected to receive between $35,000 and $45,000 in aid, he said.  Many had high hopes for the loan program because it was targeting a segment of delinquent homeowners not being helped by other federal initiatives, such as mortgage modifications.

The initiative quickly became a quagmire of delays and requirements, however. The rollout was postponed for months, finally launching in late June. HUD originally gave people less than six weeks to apply, but then pushed back the deadline to mid-September.  But it was the income and delinquency guidelines that prevented many seemingly eligible people from getting assistance, housing counselors say. HUD used a complicated formula that took into account monthly payments, income and arrears.  Only 34 of the 174 homeowners who came to Tierra del Sol Housing Corp. in Las Cruces, N.M., met the criteria, said Rose Garcia, the agency’s executive director. Some people were turned away because they were already too far behind in their payments or because their income fell because of a family member’s illness.  “This program could have made a difference to save people from being homeless,” she said. “But it doesn’t meet people’s needs.”  In Philadelphia, Michelle Lewis is waiting to see how many of the 400 applications her Northwest Counseling Service received will be approved. She fears it will be few.  One problem she ran into was that many applicants lost their jobs more than a year ago. Under HUD’s rules, the circumstance that caused the delinquency had to have occurred within the past 12 months.  The Pennsylvania loan program, which ended in June because of state budget cuts, allowed for many more hardship conditions so it was able to reach more people than the federal effort, she said.  “The [HUD] guidelines were so restrictive that it knocked out a lot of otherwise eligible and worthy consumers,” said Lewis, the agency’s chief executive.

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

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

Short sales on the increase

According to RealtyTrac, short sales are increasing as a percentage of home sales in many states, helping some neighborhoods and homeowners avoid the more devastating impacts of foreclosures.  The increases were sharper in some states, including California, Nevada, Michigan, Georgia and Colorado, the data show.  In Colorado, short sales were 17% of all sales in the second quarter, up from 10% a year earlier. In California, they made up 25% of sales, vs. 18%.  Bank of America, the largest home mortgage servicer, expects to complete more than 100,000 short sales this year — more than double what it did in 2009, the bank says.  Wells Fargo Senior Vice President J.K. Huey says short sales have been “steady to slightly” up in recent months, partly because there are fewer bank-owned houses for sale in some markets, and that has forced buyers to pursue more short-sale properties.

In the second quarter, short-sale homes sold at a 21% discount to non-foreclosure homes, while bank-owned homes went at a 40% discount, RealtyTrac says. Short sales may also reduce losses for loan owners because they avoid full foreclosure costs. Borrowers may qualify for new mortgages sooner after a short sale than after a foreclosure.  Short sales peaked at 16% of the market in early 2009, RealtyTrac says. Realtors say there should be more short sales and that they should get done faster.

Consumer spending, inflation, up

The Commerce Department said consumer spending increased 0.8%, the largest gain since a matching increase in February, after slipping 0.1% in June.  Economists polled by Reuters had expected spending, which accounts for about 70% of US economic activity, to rise 0.5%.  When adjusted for inflation, spending rose 0.5% last month, the largest gain since a matching increase in December 2009, after being flat in June.  Spending on durable goods increased 2.0% last month, likely reflecting a pick-up in motor vehicle sales as the shortage of autos caused by the supply disruptions from Japan ease.

Overall spending in July was lifted by a 0.3% rise in income as employers stepped-up hiring. Income rose 0.2% in June and economists had expected a 0.3% increase last month.  Disposable income increased 0.3%, but when adjusted for inflation fell 0.1% – the first decline since September. With spending outstripping real disposable income, savings fell to an annual rate of $582.8 billion from $638.6 billion in June.  The report showed inflation pressures remain elevated. The personal consumption expenditures price (PCE) index rose 0.4% after slipping 0.1% in June. Compared to July last year, the index was up 2.8%, the largest increase since October 2008, after advancing 2.6% in June.  The core PCE index—excluding food and energy—rose 0.2% for the second straight month.  The core index, which is closely watched by Federal Reserve officials, increased 1.6% in the 12 months through July, the largest increase since May 2010, after rising 1.4% in June. The Fed would like to see it close to 2%.

Lending shrinks

Analysts at Bank of America Merrill Lynch doubt government attempts to improve the mortgage refinancing process will help lenders build capacity.  “The economics of the mortgage lending industry have changed,” the analysts said. “Originators used to have 2-3 points of upside with very little downside. With putback risk taking center stage, they now face 2-3 points of upside and 40-50 points of downside. This change in economics has caused the lending industry to shrink by half.”  BofAML said participation in the government’s HARP has been limited to higher-quality borrowers. Whereas, focusing on refinancing high-loan-to-value and low-FICO borrowers “can have a bigger impact on the economy.” And any new federal effort to boost the number of mortgage refinancings must help build out lending capacity, according to BofAML.  “Lift the specter of putback risk and the pieces fall into place: banks are freed to compete over riskier borrowers; GSEs get updated information about loans on their books and reduced default risk; mortgage financing finds its way to homeowners who have been on the outside; and Washington’s involvement is minimal,” according to Bank of America Merrill Lynch.

Hiring slows

Intuit, a payrolls processing company, said small businesses added 35,000 jobs after increasing employment by 40,000 in July.  The survey is based on responses from about 66,000 employers at businesses with fewer than 20 employees that use the Intuit Online Payroll system and covered the period from July 24 to August 23.  According to a Reuters survey, nonfarm payrolls probably increased 80,000 this month after July’s 117,000 gain.  Three of the 62 economists polled predicted a contraction in nonfarm employment this month, citing the erosion of business confidence and a strike by 45,000 Verizon Communications workers during the payrolls survey period.  They cautioned, however, that a drop in August employment should not be interpreted as a sign the economy was back in recession. The economy grew at a 1% annual rate in the second quarter after expanding only 0.4% in the January to March period.  The average work week for small business employees fell 0.3% to 24.9 hours, according to the Intuit survey, while the average monthly salary eased 0.08% to $2,649.

Irene’s footprint

According to the most recent government model, projected economic loss from wind damage alone is forecast to top $1 billion. That’s less than earlier estimates that topped $2 billion but it does not account for flood and other storm damage.  More than 4 million people up and down the Eastern seaboard are still without power. “For a lot of folks, the danger still exists,” FEMA administrator Craig Fugate told CNN Sunday. “We still will have trees coming down, heavy rain, strong winds.”  So far, the estimates are nowhere near the $45 billion in private insurance damage that Hurricane Katrina left in its wake in 2005 not including flood losses, according to the Insurance Information Institute.  In hurricanes, damages are often caused by coastal flooding, which is typically covered only if you have federal flood insurance.  But damage can also result from gusts of wind that pick up and throw items like lawn chairs and tree limbs through windows. Fallen trees and utility poles can also damage houses and cars.  Damage from wind gusts, downed trees and the like is often covered by car or home insurance; consumers with damages should call their insurer about claims.  “The Mid-Atlantic and New England have experienced damaging hurricanes in the past, and the growth in coastal population and property values makes today’s storms even more costly,” said Consumer Federation of America Institute president Robert Hartwig in a statement on Thursday.

See you at the top!
Chris McLaughlin

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

Copyright Loss Mitigation Institute LLC 2010.
All Rights Reserved.

http://www.shortsalesriches.com

http://www.shortsalescoach.com

http://www.sixfigurebpo.com

http://www.reomillionaireclub.com

http://www.youtube.com/shortsalesriches

http://www.smartrealestatenews.com

(subscribe to this newsletter)

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

About the author:

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

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

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

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

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

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

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

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

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

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

10,000 HAFA short sales

Servicers completed 10,438 short sales through the government’s Home Affordable Foreclosure Alternatives program since it launched in April 2010, according to the Treasury Department. HAFA was designed to provide an incentive to servicers for completing short sales and deeds-in-lieu of foreclosure for loans that fail out of the larger Home Affordable Modification Program. Through June, servicers started 21,412 short sales and DILs, up 20% from the month before. A total of 10,754 were completed, up 25%. JPMorgan Chase is the programs leading performer, completing nearly 3,600 through the program, including nearly 1,000 in June alone. Wells Fargo was second, completing more than 3,100 since the program launched and roughly 700 in June. Bank of America completed 1,873 HAFA transactions, an increase of roughly 200 in the month.

Pam Marron, a senior loan officer with Gold Start Mortgage Financial Group in Tampa Bay, Fla., said more and more homeowners in negative equity view a short sale as their only way out. Many, she said, are defaulting because banks require them to do so in order to qualify for a short sale. “The growing problem in Florida is the alarming increase in the number of short sale listings that are coming onto the market. These people are still employed but severely underwater and are having to short sale because they are not able to pay the vast difference owed between the mortgage amount and the value of these homes,” Marron said. “Banks are requiring homeowners to default in order to qualify for the short sale.” In 22% of the HAFA agreements started — equal to roughly 4,700 mortgages — the homeowner began a HAMP trial but later requested a HAFA agreement or was disqualified from HAMP.

Moody’s keeps AAA rating

In his first comments since S&P’s decision, Moody’s analyst Steven Hess sounded a note of caution about Moody’s rating of the U.S., repeating that the Aug. 2 plan to cut deficits by $2.1 trillion was positive for America’s credit standing, but not enough to keep its rating on a stable outlook. Moody’s had earlier put the U.S. on “review for downgrade” on July 13, before removing the ratings watch and affirming the triple-A rating on Aug. 2, after the U.S. Congress passed a measure cutting the fiscal deficit and raising the statutory borrowing limit. “If the process for further deficit reduction that is included in the Budget Control Act produces results that are not really credible, that combined with the economic performance could potentially cause an early move on the rating,” Hess told Reuters in an interview.

Even the $917 billion in savings that have already been agreed by Republicans and Democrats are not guaranteed in the long term, Hess said. Those savings come mostly from slowing the growth of the discretionary programs that Congress approves annually, covering everything from the military to food inspection. If the U.S. manages to keep its triple-A rating until the end of 2012, Moody’s will likely take into account how the government will handle the expiration of Bush-era tax cuts to make a decision on the triple-A rating, currently under a negative outlook. Plans from the next administration for additional deficit-reduction measures will also be taken into consideration, Hess said.

WSJ – higher mortgage rates coming?

Mortgage markets in the U.S., which remain on government life support, could be rattled by the downgrade of the U.S. credit rating, potentially raising borrowing costs for consumers. Given the “sufficiently perilous” state of the U.S. mortgage market, a downgrade “can do nothing but harm the market,” says Karen Shaw Petrou, managing partner of Federal Financial Analytics, a research firm in Washington. “The question is how much?” To be sure, no one knows for certain the impact of the unprecedented downgrade on the mortgage market, even if that market is fundamentally intertwined with the federal government.

One concern is that downgrades may trigger forced selling by mutual funds or foreign investors to comply with investor-specific capital requirements restricting them to assets rated triple-A. But analysts said that most institutional investors’ rules for investing in government-backed mortgage debt aren’t contingent on ratings. And with investors seeking traditional safe-haven assets such as Treasury and government-backed mortgage securities, “there just doesn’t seem to be much else to invest in,” says Andrew Davidson, a mortgage-industry consultant in New York. “What would people put their money in if they sold their agency mortgages? It’s hard to see what the trade is.”

Mortgage rates are closely tied to yields on the 10-year Treasury note. Rising demand for Treasurys pushed down yields over the past two weeks, even as the threat of a U.S. default from the debt-ceiling debate in Washington dragged on, because investors looked for less risky assets amid concerns over the European debt crisis and the sluggish U.S. economy. Mortgage rates dropped to an eight-month low last week, with 30-year fixed-rate mortgages averaging 4.39% for the week ended Thursday, according to a survey by Freddie Mac. Still, the uncertainty created by the downgrade has investors on edge. The interplay of a downgrade, on top of the euro-zone crisis and renewed fears over a double-dip recession in the U.S., could lead to increased volatility in mortgage markets. “There are so many moving parts to this that no one really knows how it will go,” says Mr. Simon.

S&P cuts Fannie, Freddie

Standard & Poor’s on Monday downgraded the credit ratings of Fannie Mae, Freddie Mac and several other U.S. government entities, reflecting their dependence on federal support. Included in S&P’s latest downgrade were the senior issue ratings on debt issued by Fannie and Freddie, the giant mortgage-finance firms. Ten of the 12 Federal Home Loan Banks, which also provide funding for home loans, also received downgrades. Two of the Federal Home Loan Banks–of Chicago and Seattle–already had the lower AA-plus credit rating. The downgrades of Fannie and Freddie reflect the mortgage firms’ “direct reliance” on the U.S. government, S&P said. Fannie and Freddie depend on the U.S. government’s support to stay afloat, and therefore would be on a shaky footing if the U.S. ever defaulted on its debt. S&P on Friday removed for the first time the triple-A rating the U.S. had held for 70 years, saying the budget deal reached in Washington last week didn’t do enough to address the gloomy outlook for America’s finances. Fannie and Freddie, which were placed under federal control in September 2008, receive infusions of cash from the Treasury Department on a quarterly basis if their net worth drops below zero. Stabilizing the two firms has cost taxpayers $141 billion so far.

Next recession could be worse than the last one

If the economy falls back into recession, as many economists are now warning, it could be more painful than the last time around. Given the tumult of the Great Recession, this may be hard to believe, but the economy is much weaker than it was at the outset of the last recession in December 2007, with most major measures of economic health — including jobs, incomes, output and industrial production — worse today than they were back then. And growth has been so weak that almost no ground has been recouped, even though a recovery technically started in June 2009. Anxiety and uncertainty have increased in the last few days after the decision by Standard & Poor’s to downgrade the country’s credit rating and as Europe continues its desperate attempt to stem its debt crisis.

Housing recovery on hold

According to the latest analysis of home price trends in 384 markets based on the Fiserv/Case-Shiller Indexes, it will be well into the first quarter of 2013 before median home prices across the nation will even be on par with prices from the first quarter of this year. And that’s not saying much. During the first quarter of 2011, prices fell in 302 of the 384 housing markets tracked by the Fiserv/Case-Shiller index, dropping by an average of 5.1% year-over-year. As a result of continued weakness on the jobs front and the debt ceiling fiasco, Fiserv pushed back its projections of a housing market turnaround by three months. Now, it doesn’t expect home prices to start gaining any ground until the second quarter of 2012. Instead, Fiserv expects median home prices to continue to fall by an average of 3.1% between March 31 of this year and March 31, 2012. After that, it expects to see prices increase by 2.7% until the first quarter of 2013.

See you at the top!
Chris McLaughlin

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

Copyright Loss Mitigation Institute LLC 2010.
All Rights Reserved.

http://www.shortsalesriches.com

http://www.shortsalescoach.com

http://www.sixfigurebpo.com

http://www.reomillionaireclub.com

http://www.youtube.com/shortsalesriches

http://www.smartrealestatenews.com

(subscribe to this newsletter)

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

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

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

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

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

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

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

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

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

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

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

Mortgage applications decrease

Mortgage applications decreased 5.0% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA)Weekly Mortgage Applications Survey for the week ending July 22, 2011.  The Market Composite Index, a measure of mortgage loan application volume, decreased 5.0% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 4.9% compared with the previous week. The Refinance Index decreased 5.5% from the previous week. The seasonally adjusted Purchase Index decreased 3.8% from one week earlier. The unadjusted Purchase Index decreased 3.4% compared with the previous week and was 2.2% higher than the same week one year ago.  The four week moving average for the seasonally adjusted Market Index is down 0.3%. The four week moving average is down 0.5% for the seasonally adjusted Purchase Index, while this average is down 0.3% for the Refinance Index.  The refinance share of mortgage activity decreased to 69.6% of total applications from 70.1% the previous week.  The adjustable-rate mortgage (ARM) share of activity increased to 6.1% from 5.8% of total applications from the previous week.

GOP debt bill revisions coming up

House Speaker John Boehner will rewrite his debt ceiling legislation to ensure that it meets his oft-stated pledge to cut spending more than Congress increases the federal borrowing limit after the Congressional Budget Office (CBO) on Tuesday evening estimated that the Budget Control Act of 2011 would reduce deficits by only $851 billion over 10 years.  Boehner’s plan — and a competing Democratic bill in the Senate — are the only live bills this week that would increase the debt ceiling by Aug. 2. The ceiling must be raised by then, when the Treasury Department estimates it will no longer be able to pay all its bills without borrowing.  A House vote planned for Wednesday was pushed back a day following the CBO report.  The CBO said the bulk of deficit savings under Boehner’s original bill — $710 billion — would result from caps on discretionary spending.  The other big chunk of savings — $136 billion — would come from reduced interest costs on the debt.  The spending caps in Boehner’s bill would result in small savings in the early years, but the savings would grow over time.  In addition, the Boehner bill would require that both chambers of Congress vote on a Balanced Budget Amendment but doesn’t require that one be enacted.

Olick – debt and mortgage rates

“As we edge ever closer to D-Day (default day, debt ceiling day, however you choose to see next Tuesday, August 2nd), those of us who live and breathe the housing market are trying to figure out what this will mean to mortgage interest rates.  They are currently bouncing around historic lows and have been for some time. Refinances are surging, as the seven people left who haven’t yet refied are scrambling to do so.  But are we all worried over nothing?  ‘The debt crisis is probably the biggest factor hanging over mortgage rates at the moment,’ says Guy Cecala of Inside Mortgage Finance. ‘Once investors feel there is any uncertainty about the US government’s ability to guaranty its debt, Treasury rates and mortgage rates will start to rise – probably by at least 25-50 basis points.’  That’s the clearest answer I’ve gotten from the many experts we’ve had discussing this on CNBC today. Most just say, ‘We can’t know.’ I’ve been arguing that the debt crisis is not as big a deal as the scheduled drop in the conforming loan limits at Fannie Mae, Freddie Mac and the FHA. Experts say the change from the $729,750 limit in the highest priced markets to $625,000 and the drop back to $417,000 in lower-priced markets will really only affect 5% of homes nationally, but the percentage is far higher in certain local markets.  ‘But some FHA borrowers will be pushed towards the Fannie/Freddie market and higher down payments since the FHA loan limits don’t bottom out at $417k (like the GSE limits do),’ reminds Cecala.

While we all worry about what that lowest rate can be and where, the fact is that while the ‘average rate’ on the 30-year fixed is very low, today’s buyers are not all eligible, especially as those rates require big down payments and super-clean credit.  ‘Those people are not qualifying for the super low rates now, and 30% of our sales now are to cash buyers, investors and foreigners, anyway,’ notes Shari Olefson of Fowler, White, Boggs, who argues we’re missing the point.  ‘The bigger issue with those rates, other than housing and the crisis, is going to be the adjustable rate mortgages. If the rates go up, we are absolutely going to be seeing more defaults and more foreclosures as a result of those adjustable rate mortgages.’  And that’s just what we need, as we are finally now seeing a drop in initial mortgage delinquencies. Given today’s rates, most borrowers with expiring ARMs are actually adjusting to lower rates. And let’s remember that: Rates are historically low, and even a bump up of 50 or even 75 basis points still puts us at very low rates. That’s why, again, we have to look beyond the rate to what the rate effects.

‘A downgrade of US government debt would plausibly raise interest rates, and that would communicate to mortgage rates, but more important would be the effect on confidence and our national spirit, which is so conflicted right now,’ says Robert Shiller of the S&P Case-Shiller home price index. ‘It is harming our sense of confidence that matters more than the direct effects on interest rates.’  Last month 16% of home buyers who signed a contract on an existing home bailed out of that contract before closing. The norm is about a 4% cancellation rate, according to the National Association of Realtors. A real estate agent in Burbank, California says he’s seeing cancellations in the 70% range right now. Is it mortgage rates? Mortgage availability? Appraisals? No, he says. It’s a complete lack of consumer confidence.”

Oops – maybe it’s not so bad

For weeks, President Barack Obama and Treasury Secretary Timothy Geithner have stressed that the US Treasury will run out of room to borrow funds next Tuesday and have warned of dire consequences if Congress does not raise the nation’s $14.3 trillion debt ceiling in time.  But Treasury officials have never said when the government will run out of cash to pay the nation’s bills, and the consensus among Wall Street analysts is that the cash won’t run out until about two weeks after the August debt-ceiling drop-dead date.  “The first risk of a legitimate default is Aug. 15,” said Ward McCarthy, chief financial economist and managing director at Jefferies & Co. “Cash is not going to be an immediate problem. The debt ceiling space is not going to be an immediate problem.”  McCarthy and other Wall Street analysts predict that the Treasury will have enough cash to meet its early-to-mid August obligations, including $23 billion in Social Security payments to the elderly and disabled on Aug. 3.  That view lends credence to claims that some Republicans have been making for days now that the US government will be able to keep functioning and paying its bills even if there is no deal by Aug. 2.

Analysts also expect that the US Treasury will be able to roll over the $90 billion in US debt that matures Aug. 4.  “In all forecasts, it appears as if they have ample cash to cover their obligations,” said Lou Crandall, chief economist with research firm Wrightson.  Wrightson and Jefferies expect the United States would start defaulting on its obligations on Aug. 15, the date the government must pay out $41 billion, including around $30 billion in interest on US debt.  Barclays Capital has said Treasury may run out of cash to pay its bills around Aug. 10, when $8.5 billion in Social Security payments are due.  A Treasury spokesperson on Tuesday had no comment.  Analysts do not expect the credit rating agencies to downgrade US debt if Congress does not raise the limit by Aug. 2 and the government is still able to pay its bills.

WSJ – banks fight over splitting foreclosure tab

US banks trying to negotiate a settlement over the home-foreclosure mess have hit a new hurdle: They are squabbling over how to split the tab.  The lack of a deal so far among the nation’s largest home-loan servicers has already depressed bank stocks, and an extended impasse could further spook investors.  “As time goes on, banks will lose the PR battle,” said Paul Miller, banking analyst with FBR Capital Markets. The terms of a settlement, he said, are less important than getting it done. “They need to get everything behind them.”  As federal and state officials prod banks toward a multibillion-dollar deal to atone for a host of irregularities in foreclosing homes around the US, Wells Fargo & Co. has told government officials it should pay less than Bank of America Corp. or J.P. Morgan Chase & Co., according to people familiar with the situation.

The behind-the-scenes infighting has delayed a resolution and could prolong the months-long uncertainty over the ultimate cost of ending one of the biggest controversies stemming from the financial crisis.  Negotiations already have dragged on past the mid-June target set by US officials, despite shareholder pressure on banks to reach a deal.  Settlement talks with Bank of America, Wells Fargo, J.P. Morgan, Citigroup and Ally Financial Inc. began in March and include a mix of all 50 state attorneys general, the Treasury Department, Justice Department and Department of Housing and Urban Development.  The latest disagreement among banks is a contrast to the largely unified public stance taken by financial firms as they work to put the foreclosure woes behind them.  Wells Fargo contends it should be rewarded for having fewer risky or delinquent mortgages than the other two, people familiar with the matter said.  Citigroup Inc. also has told regulators the structure of a settlement should reflect differences between financial institutions, claiming it should pay less because of its stronger controls on foreclosure practices, these people said.

Durable goods orders fall in June

Orders for durable goods fell 2.1% last month, with the weakness led by a big drop in orders for commercial aircraft, the Commerce Department reported Wednesday. A number of other categories also showed weakness including autos and auto parts. A key category that tracks business investment plans fell 0.4% in June.  The 2.1% decline in June orders came after an even bigger 2.5% drop in April. Orders had risen 1.9% in May. The latest drop was a disappointment to economists who had forecast a slight rise, believing that the disruptions caused by the Japanese natural disasters and the surge in energy prices earlier this year were beginning to wane.  The June decline pushed durable goods orders down to $191.98 billion on a seasonally adjusted basis. That is still 29.1% higher than the recession low hit in April 2009, but it is 21.6% below the high set in December 2007 as the recession was beginning.

Demand for commercial aircraft plunged 28.9% while orders for new cars and auto parts fell 1.4%. Total demand for transportation products fell 8.5% as orders for military aircraft were also done. Outside of transportation, orders would have shown a small 0.1% increase.  Demand for primary metals such as steel rose 1% but orders for heavy machinery fell 2.3% and demand for computers and related products dropped 0.8%.  The category of capital goods excluding aircraft, considered a good proxy for business investment plans, fell for the second time in three months, dropping 0.4% in both June and April.  The Federal Reserve reported recently that auto production fell 2% in June, the third straight month of declines for autos. US automakers have had trouble getting component parts out of Japan. Overall industrial production showed a slight 0.2% rise in June. Gains in mining and utilities offset a flat reading for factory output.  A closely watched gauge of manufacturing activity grew more strongly in June after a sluggish May. The Institute for Supply Management’s manufacturing index rose to 55.3 last month after a May reading that was the weakest in 20 months. A reading above 50 indicates manufacturing is continuing to expand.

DSNews.com – prices stabilizing?

Median prices for REO and short sale transactions continue to decline and have fallen 10% since 2009, according to a new report from CoreLogic.  Distressed sales are taking their toll on market readings of home prices. CoreLogic says when the distress factor is excluded from the equation, home prices are actually beginning to stabilize.  In May 2011, the company’s “excluding distressed sales” price index dropped 0.4% from a year ago, compared to a decline of 7.4% for the all-transactions index. Non-distressed median prices for both existing and new homes are back to 2009 levels, according to CoreLogic.

While the distressed property market has been a prominent factor of the current housing cycle, the analysts at CoreLogic believe that prominence may begin to wane somewhat in the months ahead.  New foreclosure auction filings have dropped significantly since last October, according to the research firm.  At the same time, the industry’s shadow inventory – which is the estimated pending supply of distressed properties – declined to 1.7 million homes in April 2011. That’s down from 1.9 million homes a year ago and down nearly 20% from the shadow inventory peak hit in January 2010.  With these two distressed sale drivers narrowing, CoreLogic says such transactions will likely begin to decline late in 2011 and into 2012.  Although presently the market share for distressed sales remains high, the company has found that geographical sources of distress are shifting and becoming more dispersed.  According to CoreLogic’s report, as of December 2008, four of the top five largest distressed sales markets were all located in California, and the top five markets averaged a distressed sale share of 68%.  As of April 2011, only two of the top five markets were in California and CoreLogic says more importantly, the average distressed share in the top five markets dropped to 56%.

CoreLogic’s data show that Detroit (59%) and Las Vegas (58%) led the nation with the highest share of distressed transactions in April. They were followed by Sacramento (57%) and Riverside (54%) in California and Warren, Michigan (51%).  While much of the focus on distress surrounds the share of sales, CoreLogic says the price discount for REO properties is an equally important factor.  REO price discounts are largest generally outside the markets with the highest share of distressed sales. Miami leads the way with a 62% REO price discount, followed by Chicago (60%), Detroit (60%), St. Louis (60%), and West Palm Beach (58%).  CoreLogic also notes in its report that equity – or lack thereof – remains a primary concern for the industry.  “Depreciation in home prices during the last four years has reduced home equity by more than half to $6.1 trillion and caused a rapid increase in the number of foreclosures,” CoreLogic said in its report.   Nearly 11 million, or 23%, of all residential properties with mortgages were in negative equity at the end of the first quarter of 2011, according to CoreLogic’s assessment.  The company says distribution of negative equity is heavily skewed to a small number of states. Nevada had the highest negative equity percentage in Q1 with 63% of all mortgaged properties underwater, followed by Arizona (50%), Florida (46%), Michigan (36%), and California (31%).

Recession here again?

Burt Flickinger, managing director of retail consultancy Strategic Resource Group, said the US has just entered a 500-day retail recession, and before it’s over, the US will see weaker retail sales, more store closures and even additional retailers joining Borders in bankruptcy.  Helping to drive the trend is a weak labor market, Flickinger said.  Job growth has remained elusive, pushing the unemployment rate to 9.2%. Flickinger also expects more people will be joining the ranks of the unemployed as state and local governments make further cuts to their budgets.  The latest consumer confidence report from the Conference Board showed consumer attitudes perked up from the prior month, but it also captured growing fears about jobs. Those fears are likely to curtail spending, especially when you consider the large numbers of households that are living paycheck to paycheck.

Flickinger also cited the long-term unemployed who will stop receiving extended unemployment benefits this year as another contributing factor. Once the checks stop arriving, these people will have even less money than they do now.  A recent study by Moody’s Analytics estimated that close to $2 of every $10 that went into American’s wallets last year were payments like jobless benefits, food stamps, Social Security and disability. As the jobless benefits expire, about $37 billion will be drained from the nation’s pocketbooks, according to Moody’s.  Couple these trends with sky-rocketing inflation for food and clothing as well as for gasoline prices, which are on the rise again, and you quickly see just how pinched the consumer is.

See you at the top!
Chris McLaughlin

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

Copyright Loss Mitigation Institute LLC 2010.
All Rights Reserved.

http://www.shortsalesriches.com

http://www.shortsalescoach.com

http://www.sixfigurebpo.com

http://www.reomillionaireclub.com

http://www.youtube.com/shortsalesriches

http://www.smartrealestatenews.com

(subscribe to this newsletter)

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

About the author:

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

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

* Long-time authority on real estate investing
and rapid reselling of distressed homes.  Owns
portfolio of nearly 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

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Home prices slightly up in May

The housing market showed signs of life again in May. Home prices rose for the second consecutive month following an eight-month slide. Prices for an index of 20 major metro areas increased 1% compared with April, according to the S&P/Case-Shiller home price index. The 10-city index rose 1.1% month-over-month. David Blitzer, a spokesman for S&P, was cautious in detailing the index gains. “While the monthly data were encouraging, most [metro areas] and both composites fared poorly in annual terms,” he said. “The 10-City Composite was down 3.6% and the 20-City Composite was down 4.5% in May 2011 versus May 2010.” Prices are also still off more than 32% from their highs, set in July, 2006 and hover at about the same level they were in mid-2003.. Blitzer attributed much of the home price increase for May to seasonal effects. Spring is the hottest time of year for home buying and the added demand usually drives prices higher. Taking those seasonal factors into account, the 10-city showed a gain of just 0.1%.

President complains about GOP, GOP answers back

President Obama and House Speaker John Boehner delivered rival debt ceiling/deficit plans to the nation on Monday evening in back-to-back speeches explaining the current state of the debt debate and its impact on Americans. And though they may not have intended it this way, the message of unwillingness to compromise in Washington sounded out loud and clear. Months of increasingly tense negotiations have failed to bring a deal that can win approval from all of the necessary players — the Republican-led House, Democratic-led Senate and the White House. The talks initially involved a broad deficit-reduction plan intended to reduce the mounting gap between how much the government spends and how much revenue it collects.

On Monday, Democratic and Republican congressional leaders unveiled separate new proposals that the other side quickly rejected, demonstrating the cavernous partisan divide that exists. Both plans — one by Senate Majority Leader Harry Reid, a Nevada Democrat, and the other by House Speaker John Boehner, an Ohio Republican — provide a path to raise the debt ceiling through the end of 2012, but they differ in scope and over key components involving requirements for future congressional action. Obama immediately endorsed the Reid plan. Boehner’s plan would require two separate votes by Congress. The first would approve approximately $1.2 trillion in spending cuts over the next decade while raising the debt ceiling through the end of 2011, two GOP leadership aides told CNN. Any failure on the part of Congress to enact the mandated spending reductions would trigger automatic across-the-board budget cuts. The second vote would raise the debt limit through 2012, but only if Congress approves a series of major tax reforms and entitlement changes outlined by a bipartisan committee composed of Senate and House members.

Boehner’s plan, while allowing a total debt-ceiling increase of roughly $2.6 trillion, also would require both a House and Senate vote on a balanced budget amendment to the Constitution between October 1 and the end of the year.
This plan is “less than perfect,” Boehner said, but “reflects bipartisan negotiations” conducted with Senate Democrats over the weekend. Democrats are vehemently opposed to the idea of holding more than one vote to raise the debt limit through the 2012 election, arguing that such a requirement is politically unrealistic and could prove to be economically destabilizing. Republicans want to lock in long-term tax and spending changes, and argue that Obama is trying to avoid politically tough decisions in a presidential election year.

In his response to Obama’s speech, House Speaker John Boehner said the president’s proposals fail to deal with the fundamental problem: that the nation spends more than it takes in. “The sad truth is that the president wanted a blank check six months ago, and he wants a blank check today,” Boehner said. “That is just not going to happen.”

MBA – wants amendments to Dodd-Frank

On Friday, the Mortgage Bankers Association (MBA) filed a comment letter with the Federal Reserve on the Board’s proposed rule that would implement amendments to the Truth in Lending Act (TILA) under the Dodd-Frank Act to establish Ability to Repay/Qualified Mortgage (QM) requirements. In the letter, MBA’s President and CEO David H. Stevens reiterates MBA’s support for the establishment of an ability to repay requirement for mortgage loans and emphasizes the importance of a final rule that provides unambiguous definitions and means of compliance. According to MBA, clear “bright line” requirements will ensure the availability of sustainable mortgage credit to the widest array of qualified borrowers at affordable costs. MBA strongly believes that any final rule must:
1. Structure the QM as a legal safe harbor with specific product features, documentation and underwriting requirements that may be more extensive than the requirements proposed in order to ensure the availability of sustainable, affordable mortgage credit to the widest array of qualified mortgage borrowers;
2. Significantly adjust the limit on points and fees in the QM alternatives proposed to ensure the availability of credit and address several other major concerns; and
3. Provide a well-defined QM safe harbor that will serve as an alternative to the proposed QRM. The right QM definition will incentivize the origination of sustainable mortgages and, thus, serve the interests of investors as well as borrowers and invite private capital back to the market.

Ford has bad Q2

Ford Motor Co. said today that in Q2 it earned $2.4 billion, or 59 cents per share, down 8% from $2.6 billion, or 61 cents per share, a year earlier. The company warned last month that its profit could slip, citing investments in future products. Worldwide sales were up 7%, but the company spent more on raw materials like steel and copper and on product development. In Asia, Ford reported a pretax profit of just $1 million, down $112 million as it invests in new plants and products. Ford wants to introduce five new cars in India and 10 cars in China in the next four years. The company currently controls less than 3% of the market in both India and China. In addition to the slew of new cars in Asia, the company is in the midst of an expensive overhaul of its flagging Lincoln luxury brand in the US It also plans to introduce the hybrid-only C-Max minivan in the US early next year.

Without one-time items, including $110 million for employee reductions, Ford would have earned $2.9 billion, or 65 cents per share. That beat analysts’ forecast of 60 cents per share. The company projects that annual US sales will be in the lower end of its 13 million to 13.5 million forecast. Ford was able to command higher prices for its cars and trucks in the US, partly because of tight supplies of vehicles after the earthquake. For the second quarter, revenue rose 13 percent to $35.5 billion. Analysts polled by FactSet had forecast revenue of $32.15 billion. Ford paid off $2.6 billion in debt during the quarter. The company now has $14 billion in debt, down from $16.6 billion in the same quarter a year ago, a legacy of its 2006 decision to borrow $23 billion to restructure the business. Ford hopes its steady reduction in debt will convince ratings agencies to return the company to investment-grade status, which would make it cheaper to borrow money.

Olick – mortgage interest deduction and the government

It’s not like the housing market needs any more headwinds, so here’s the government potentially giving us another: The mortgage interest deduction is back in big play in the budget deal. It never exactly came off the table, but the bigger the budget deal, the more likely the mortgage deduction will take a bigger hit. Right now, home loan borrowers can deduct the amount of interest they pay on their mortgages from their taxable income. This goes for principal residences and second homes. The interest deduction is capped at the first million dollars of debt on the home. For home equity loans it’s capped at $100,000 in debt. The deduction costs the US Treasury about $100 billion a year. There are proposals now to either reduce the cap to $500,000 and/or to eliminate the deduction on second homes. Eliminating the deduction on second homes would save about $15 billion, and reducing the cap to $500,000 would save another $15 billion, according to economist William Wheaton at MIT. 10.5% of existing home sales in June were of homes over $500,000 according to the Mortgage Bankers Association.

Then there’s the idea from the President’s bipartisan commission of turning the interest deduction into a 12 percent credit, limited to $500,000 in mortgage debt, only on primary residences. That could save the Treasury $65 billion. Obviously all this hits the middle class, urban borrowers the hardest because they’re the ones with homes in the $500,000 to $1 million range. Realtors, home builders, investors, vacation home owners, even politicians hate these proposals, because they take money out of their pockets and because they provide a strong disincentive to buy a home right now. Then again, others argue that it just fosters over-borrowing, as potential homeowners see the deduction as making the loan less than it really is, which it doesn’t. Interesting, in Canada, they don’t have a mortgage interest deduction on personal residences, but they do on investment properties; this makes a lot more sense to me, as it is a business expense. It also fosters investment in housing, which is precisely what the US could use more of right now. Of course if the US government defaults on its debt, the housing/mortgage markets will have a lot bigger issues to deal with than the potential loss of a tax deduction; like, say, mortgage rates going through the roof.

See you at the top!
Chris McLaughlin

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

Copyright Loss Mitigation Institute LLC 2010.
All Rights Reserved.

http://www.shortsalesriches.com

http://www.shortsalescoach.com

http://www.sixfigurebpo.com

http://www.reomillionaireclub.com

http://www.youtube.com/shortsalesriches

http://www.smartrealestatenews.com

(subscribe to this newsletter)

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

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

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

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

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

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

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

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

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