Smart Real Estate News & Commentary by Chris McLaughlin April 12, 2011
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Inventory rises for spring
Housing inventory around the country is on the rise, as sellers look to capitalize on the spring home buying season. Home sale inventory was up 2.97% in March and up 6.83% over the three months ended in March, according to the Altos Research 10-City Composite Index. The index is a statistical compilation of property prices highly correlated with the S&P/Case-Shiller Index. The 10-city index is based on single-family homes in Boston, Chicago, New York, Los Angeles, San Diego, San Francisco, Miami, Las Vegas, Washing D.C., and Denver; however, Altos also reports figures from other cities around the country.
Sale inventory in Boston increased the most during the month, up nearly 16% to 14,297 properties, followed by New York (up 8.24%), Philadelphia (up 7.68%) and San Francisco (up 6.71%). Prices, on the other hand, are trending downward, Altos said. The national average sale price fell 0.29% in March 2011 compared to one year prior, down to $432,307. Over the three months ended in March, prices fell 2.3%. Prices decreased the most in Atlanta, down 1.13% to $182,276, followed by Las Vegas (down 1.03%), San Diego (down 1.03%) and Detroit (down 0.79%). Realcomp reported Monday morning that sales in Detroit dropped 9.6% in March.
Trade deficit lower
The Commerce Department says that the trade balance, which measures the difference between the nation’s exports and imports, narrowed to a $45.8 billion deficit in February, down from a revised $47 billion in January. The data falls in line with economists’ estimates for a $45.7 billion deficit. Exports totaled $165.1 billion in February, down $2.4 billion from the month before. Imports totaled $210.9 billion, or $3.6 billion less than in January. The United States has had a trade deficit since 1975, as Americans use more foreign goods than they export. Meanwhile, the trade gap between China and the United States — the world’s largest trade imbalance between two countries — narrowed as well. In February, China exported $18.8 billion more in goods and services to the U.S. than it imported from Uncle Sam. That gap stood at $23.3 billion the month before.
Florida appellate court says foreclosure note is enough
A trustee that holds a homeowner’s original note and mortgage has enough evidence to establish standing to foreclose even if the homeowner believes the trustee failed to provide documents showing an official assignment of the mortgage note, a Florida appellate court ruled. That’s the decision the Fourth District Court of Appeal of the State of Florida wrote in the Isaac v. Deutsche Bank National Trust case. The homeowners, who filed the complaint, appealed a lower court’s grant of summary judgment for Deutsche Bank National Trust on the grounds that the lower court failed to consider their argument that Deutsche Bank lacked standing to foreclose. The plaintiffs argued on appeal that “Deutsche Bank failed to provide sufficient documentation reflecting how it obtained ownership of the mortgage and note from the original assignee, an entity called Option One.”
On the other hand, court records say “Deutsche Bank argues that it established its standing to foreclose based upon its possession of the original note and mortgage, combined with the affidavit of a representative of Option One’s successor in interest affirming Deutsche Bank’s ownership.” The court agreed with Deutsche and held that the trustee has legal standing to foreclose. The trustee proved its case by providing the court with the original mortgage, the note and a piece of paper annexed to the promissory note from Option One Mortgage, the original assignee. Court records say the annexed paper, which was signed by the assistant secretary of Option One, “did not state a payee.” Because it did not include a payee, the note became payable to the bearer. The court added that in this situation, the instrument is negotiated by transfer of possession. “Deutsche Bank, by virtue of its possession of an instrument payable to bearer, is a valid holder of the note and, therefore, is entitled to enforce it,” the court held in a decision entered April 6. The case is similar to a series of cases that have surfaced in Alabama, where three courts have reached differing opinions on the issue of whether a trustee holding securitized notes has the standing to foreclose.
Budget cuts
Nearly $40 billion will be trimmed — cutting back on a wide range of programs and services including high-speed rail, emergency first responders and the National Endowment for the Arts. Hundreds of individual programs are facing reductions, with the biggest cuts running in excess of $1 billion dollars. Almost $3 billion for high-speed rail funds are cut, along with roughly $3 billion for highway construction, $6.2 billion in Department of Defense construction projects, and $1 billion from programs that help prevent the spread of sexually transmitted diseases. Grants to states that help pay for drinking water infrastructure projects are cut by $1 billion. Every broad category of government receives a reduction in funding levels, with the exception of two: The Department of Defense and the Department of Veterans Affairs. The Pentagon would end up with a boost of about $5 billion above last year’s level. At the same time, the bill would slash $4.2 billion in military earmarks — a type of spending Republicans have vowed to eliminate from the budget.
The Department of Veterans Affairs’ budget would increase by $600 million over fiscal year 2010, an increase that is accomplished by reducing funds for military construction by about $10 billion while boosting spending on veterans’ health care and benefits. The bill would cut $377 million from the U.S. contribution to the United Nations. USAID will get $39 million less for operating expenses. Almost $1 billion is cut from a community development fund run by the Department of Housing and Urban Development. ”My committee went line-by-line through agency budgets this weekend to negotiate and craft deep but responsible reductions in virtually all areas of government,” House Appropriations Committee Chairman Hal Rogers said in a statement. Funding is also cut for four so-called administration “czars” including those who work on urban affairs, climate change, health care and autos. Congress will vote on the measure later this week. And that should close the book on the tortured 2011 budget process. In the meantime, the one-week funding extension lawmakers passed Friday will fill the gap.
DSNews.com – drop in subprime delinquencies
Recent improvements in the job market are translating into falling subprime delinquency rates, according to Fitch Solutions. At the same time, prices on U.S. subprime credit-default swaps (CDS) have been steadily rising, up for five consecutive months. Multiple reports on the secondary market signal growing investor appetite for subprime mortgage bonds and structured finance instruments like CDS, which provide a type of insurance protection for investors in which the risk of default is transferred from the holder of the security bond to the seller of the swap. While subprime bonds have become the black eye of the mortgage industry, these high-risk loan pools offer high yields, and therein lies the attraction for investors. According to a Wall Street Journal report, prices within the subprime bond market have doubled from 30 cents on the dollar at the low point of the crisis to roughly 60 cents today. Fitch says it’s also seeing a rate of increase in prices of subprime default swaps that’s equivalent to a “rally.” The agency’s overall subprime CDS price index rose 5.8% in March to hit its highest level since October 2008. Fitch says the 2004 vintage led the charge with a 9.4% monthly increase, followed by the 2007 vintage which registered a 6.7% gain in March. Rising subprime prices and the increased investor interest stems from a noticeable improvement in credit performance for these high-risk mortgages. Fitch reports that the percentage of subprime borrowers who were 30-days delinquent decreased by 5.3% in March, while the percentage of borrowers 60-days delinquent fell by 4.4%.
Additionally, the firm found that fewer subprime borrowers are rolling from the early stages of delinquency to the later, and there has been an increase in cured loans from previously delinquent borrowers. Fitch notes that the 2004 vintage saw a sharp increase in cured loans with the%age of 60-day delinquent borrowers who rolled to current increasing by 50% and the percentage of 30-day delinquent borrowers who rolled to current up by 30%. According to Fitch, the area that is most likely to weigh on subprime prices going forward is the increasing amount of time needed to sell foreclosed or real estate owned homes. “Homes in foreclosure remain near record highs, while foreclosed homes sold each month continue to decline,” said Alexander Reyngold, senior director at Fitch Solutions. “Loan loss severities have increased proportionally to the time required for the loan to be liquidated over the last year.” Reyngold explained that the resulting increase in loss severities can lead to lower CDS prices as losses to the reference bond also accrue to the CDS. As an example, for the 2007 vintage, the percentage of foreclosed homes was 19.8%, almost unchanged from the previous year, according to Fitch’s report. However, the percentage of loans rolling from foreclosure or REO to liquidation was half the rate of a year ago at 2.5%. As a result, Fitch says over the same period, loss severities on foreclosed or REO homes rose from 70% to 77%.
See you at the top!
Chris McLaughlin
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About the author:
Chris McLaughlin is widely known as America’s top
Real Estate Attorney and Investment Consultant.
* As the top Florida foreclosure and pre-
foreclosure expert, he oversees more than
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* Long-time authority on real estate investing
and rapid reselling of distressed homes. Owns
portfolio of nearly 150 high-value, high-profit
properties
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Standard & Poor’s (S&P) says it expects losses on loans behind mortgage securities to rise to as high as 40% and the dire assessment could “significantly impact” bonds with AAA rating. S&P increased its loss projections for subprime loans made in 2006 to 32% and for 2007 loans to 40%. The housing market is currently at its lowest level since 1930s and investors have seen a significant decline in the market value of their debt over the last couple of years. A rating downgrade could mean a further reduction in the market value of the securities. S&P expects loss severities, including the cost of foreclosure and liquidation, and decline in property values, to increase to 70% for subprime bonds issued in 2006 and 2007. For Alt-A bonds issued in 2006 and 2007, S&P expects loss severities to rise to 60%. “We have observed increases in loss severities and we expect them to continue to rise until we reach the trough of the market value decline, which we believe will be in the first half of 2010,” S&P said in a report.
PMI Group, the fourth- largest mortgage insurer in the U.S., expects home prices to drop in more than 50% of the largest cities in the U.S. through the first quarter of 2011. The decline will be across “all regions of the nation” from California, Florida, Nevada and Arizona, the states most affected by the housing downturn. “The housing market has been hit by a demand shock of high unemployment and a supply shock of distressed foreclosure sales,” said LaVaughn Henry, senior economist at PMI. Analysts believe prices have to fall further in many areas before home values reach their trough. According to PMI, some 15 areas including Miami, Fort Lauderdale, West Palm Beach, Orlando, Tampa and Jacksonville in Florida; Riverside, Los Angeles, Santa Ana, Sacramento and San Diego in California; Las Vegas; Phoenix; Providence, Rhode Island; and Detroit have a 99% probability of lower prices in 2011. The areas with the lowest probability (of 6%) of lower prices in 2011 include Cleveland; Pittsburgh; Columbus, Ohio; San Antonio; Houston; Dallas, and Fort Worth, Texas.
Bonds issued by the Golden State are anything but gold now. Fitch Ratings, a credit rating agency, has downgraded California’s long-term debt to “BBB,” just one category above junk status. Fitch has cited California’s budget woes as the main reason for the downgrade. “[I]nstitutional gridlock could persist, further aggravating the state’s already severe economic, revenue and liquidity challenges,” Fitch said in a release. The state’s budget gap of $26.3 billion forced it to issue IOUs last week for the first time in 17 years. Consequently, many county agencies will get paid in paper. “The fact that they have to take this step shows how tight the state’s cash became and how limited their options are in the absence of a budget solution,” said Douglas Offerman, Fitch credit analyst. “Without a budget, [the controller's] flexibility gets more and more reduced over time.” Will California default on its debt obligations? “It won’t happen,” says Tom Dresslar, spokesman for California Treasurer Bill Lockyer. California has a lot to worry about regarding the rating of its bonds. If its bonds are reduced to “junk,” the state’s debt raising capability may be severely impaired.
