Smart Real Estate News & Commentary by Chris McLaughlin September 14, 2011
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Olick – new wave of foreclosures coming
“Bank of America is ramping up its foreclosure processing, sending out far more notices of default to borrowers in August than in previous months, well over 200% more month-to-month. A notice of default is the first stage of the foreclosure process in non-judicial foreclosures states, that is, where foreclosures do not go before a judge. The notice of default is usually sent when a borrower is 90 days or more overdue in payments, but that timeline has been extended significantly during this housing crisis, due to the so-called ‘robo-signing’ processing scandal and the sheer volume of troubled loans.
Mortgage and housing analyst and strategist Mark Hanson alerted me to unusually high legal default filing activity, and his research points to Bank of America as the primary driver. I contacted a Bank of America spokesman, who responded: ‘It appears the numbers you noted to me this afternoon generally track with our own numbers for key categories. It should be noted it’s driven more in key states like California and Nevada than overall, and certainly the progress we’re seeing is limited to non-judicial states. Judicial states continue to move very slowly, with key states like New Jersey only beginning to start processing foreclosures again this month.’
The foreclosure numbers are down very slightly year-over-year, but only because August 2010 was one of the highest foreclosure months on record, and of course was just before the ‘robo-signing’ scandal was uncovered. Delays in processing have artificially lowered the foreclosure numbers over the past year, so this new surge is likely addressing loans that have been long delinquent, but unaddressed. In other words, the foreclosure pipeline is filling again. RealtyTrac, a widely followed foreclosure sale and data site, is also confirming a surge in overall notices of default in its August numbers, to be released later this week. They do not cite Bank of America specifically, which bought Countrywide Financial, taking on millions of troubled loans. ‘We’ve been seeing REO [bank-owned property] sales, and processing of loans through foreclosure. This increase may simply be the lenders and servicers starting the next cycle. August traditionally is a high month for foreclosure actions, so part of the increase might be seasonal,’ says RealtyTrac’s Rick Sharga. ‘Could be any number of reasons – but with 3.5 million delinquent loans, this had to happen sooner or later.’
The question of course is, is this a one month catch-up purge or will it continue at high levels for a while? And if the latter, will other banks follow suit quickly? Because if other banks see Bank of America pushing more loans to foreclosure, which will inevitably means more properties heading out for sale, they may want to get in before that glut of properties pushes prices down even further. ‘This proves once again that ‘credit’ as measured by legal defaults and foreclosures is not necessarily about borrowers missing payments, rather about what the servicers chose to do about it,’ notes Hanson.”
CBO cuts economic outlook
The Congressional Budget Office (CBO) —the non-partisan budget and economic analyst for Congress—said economic growth would slow from previous estimates and a nagging, 9.1% jobless rate would basically remain stuck there through next year’s presidential and congressional elections. CBO Director Douglas Elmendorf said his agency now sees economic growth of around 1.5% this year and 2.5% in 2012. That’s down from CBO’s August estimate of 2.3% and 2.7%, respectively. New data since CBO pieced together its August outlook contributed to the downward estimates, Elmendorf said. The unemployment rate, now at 9.1%, will remain “close to 9% through the end of 2012,” Elmendorf said. Last month, CBO estimated joblessness at 8.9% this year, falling to 8.5% in 2012.
MBA – mortgage applications up
Mortgage applications increased 6.3% from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending September 9, 2011. This week’s results include an adjustment to account for the Labor Day holiday. The Market Composite Index, a measure of mortgage loan application volume, increased 6.3% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 15.4% compared with the previous week. The seasonally adjusted Purchase Index increased 7.0% from one week earlier. The unadjusted Purchase Index decreased 16.2% compared with the previous week and was 7.2% lower than the same week one year ago.
The Refinance Index increased 6.0% from the previous week, stopping a run of three consecutive weekly decreases. The Refinance Index is not seasonally adjusted but is adjusted for the holiday. On an unadjusted basis, the Refinance Index decreased 15.2% and is 23.5% lower than the same week a year ago. The four week moving average for the seasonally adjusted Market Index is down 2.9%. The four week moving average is up 0.5% for the seasonally adjusted Purchase Index, while this average is down 3.9% for the Refinance Index. The refinance share of mortgage activity increased to 77.3% of total applications from 77.1% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 6.9% from 7.1% of total applications from the previous week.
Wholesale prices flat, inflation eases
Excluding the volatile food and energy categories, core wholesale prices edged up 0.1%, the smallest increase in three months. The figures indicate that inflation pressures are easing. The Producer Price Index, which measures price changes before they reach the consumer, was unchanged in August, the Labor Department said Wednesday, after a 0.2% rise in July. In the past 12 months, the index has increased 6.5%, mostly due to higher gas and food costs. That’s the smallest 12-month rise since March, though much bigger than the annual changes late last year. Core prices rose 2.5% in the past 12 months, the same pace as July.
Food prices rose 1.1% in August, the largest increase since February. Egg prices jumped nearly 11%, the most since April, while processed chicken prices increased 3.7%, the most in five years. That likely reflects the higher cost of corn and other grains that are used for animal feed. Processed fruits and vegetables rose 2%, the most since February 1990. The core index was pushed up by a jump in tire prices, which rose 1.4%, the most in four months. Wholesale gasoline prices, meanwhile, fell 1% in August, and home heating oil dropped 1.2%. Sharp increases in the prices of oil, food and other commodities pushed up most measures of inflation earlier this year. But now that many commodities are becoming less expensive, inflation pressures are fading.
What might work in Obama’s jobs plan
House Majority Leader Eric Cantor critiqued the Obama jobs plan on Tuesday, pointing out areas lawmakers can agree on as well as areas that House Republicans will oppose — including stimulus spending and tax hikes on the rich. “We need to work very hard to try to peel off things that we can actually agree on,” Cantor said at a summit hosted by the American Action Forum, a right-leaning think tank created by deficit hawk Doug Holtz-Eakin, a former Congressional Budget Office director. Cantor provided new insight on Republican reaction to the $447 billion Obama jobs package that the White House officially sent Congress on Monday. “Let’s get some wins on the board together. And then we’ll have to disagree to disagree on some of the things that will have to be decided in public debates in the next election.”
One of those areas Republicans want to leave to voters: Tax hikes for the rich. President Obama’s largest proposed pay-for — which the White House estimates would raise roughly $400 billion over 10 years — limits itemized deductions and certain other exemptions for individuals with adjusted gross incomes of $200,000 or more ($250,000 and up for married couples). Cantor said that’s not going to happen. “Republicans are not going to accept tax increases if the goal is to grow the economy,” he said. The No. 2 House Republican also elaborated a nuanced opposition to some details of the Obama jobs package that Republicans agree on in principle, like infrastructure spending.
The White House and some Republicans have talked about creating an infrastructure bank that would pair public and private dollars to finance projects that revamp roads and bridges. But Cantor blasted that proposal on Tuesday. “I, for one, think that infrastructure bank is akin to creating a Fannie and Freddie for roads and bridges,” Cantor said comparing the idea to the struggling government-owned mortgage finance companies. “It’s something we don’t need to do.” He said he’d rather see expedited permitting for such projects, which is included in the Obama package.
With 14 million workers jobless, Cantor acknowledged the enormity of the problem. But he doesn’t believe in a no-strings-attached extension of unemployment benefits. Without going into details, Cantor said he’d favor an extension only if it were tied to “job opportunities.” “Unemployment benefits should not turn into a permanent solution,” Cantor said. “We should somehow connect unemployment benefits with work or a job opportunity.”
In his Tuesday speech, Cantor also pointed out areas of bipartisan agreement, like giving more generous tax breaks to small businesses and pulling back burdensome regulations. President Obama has said he will push hard for his new jobs proposal to be passed in its entirety — not piecemeal. However, the president won’t veto pieces of the jobs package, if Congress passes them that way, a top Administration official on Tuesday.
Orlando prices jump 15%
As foreclosures and short sales made up a shrinking share of local home sales, home prices in Orlando jumped 15% in August from a year earlier. The Orlando metro area’s median price for August was $115,000, up 21.2% from January and 15.1% from August 2010, according to a report from the Orlando Regional Realtor Association. “A steady rise in the percentage of ‘normal’ sales — those that are neither bank-owned nor short sales — continues to boost the overall price,” said the report. Those “normal” transactions made up 41% of sales in August, down a percentage point from July. That was the first decline in such sales after they rose for six consecutive months.
Even with prices on the upswing, though, sellers continue to overprice their homes, the report shows. The average home sold for 95% of its listing price in August, after spending an average of 101 days on the market before coming under contract. Affordability numbers suggest the Orlando market still has a large amount of unmet demand. The area’s affordability index rose to 248 in August, showing median income earners make more than twice as much as they need to in order to qualify for a median-priced home. “Affordability conditions this year have been enormously favorable, but many buyers are being held back because banks are offering financing to only the most highly qualified borrowers and ignoring a large share of otherwise creditworthy buyers,” said association Chairman Mike McGraw of McGraw Realty Services, Inc. “Those potential buyers represent the difference between an uneven recovery and a much more robust housing market that in Orlando and even on a national scale could stimulate additional economic activity and create jobs.”
The number of Orlando home sales completed in August fell 8.7% to 2,342 from a year earlier, as bank-owned sales fell 51%. Short sales and “normal” sales each rose 32%. Meanwhile, led by a decline in the number of condominiums for sale, Orlando’s for-sale housing inventory fell 39% to 10,055. That put inventory at a 4.29 month supply. Average interest rates paid by buyers fell to 4.26%, the lowest level since the realtor association began tracking it in 1995.
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Chris McLaughlin
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About the author:
Chris McLaughlin is widely known as America’s top
Real Estate Attorney and Investment Consultant.
* As the top Florida foreclosure and pre-
foreclosure expert, he oversees more than
100 short sale & REO closings each month
* Long-time authority on real estate investing
and rapid reselling of distressed homes. Owns
portfolio of nearly 150 high-value, high-profit
properties
* Owner of one of Florida’s largest Real Estate firms,
running 4 different offices, supporting over
420 agents, uniquely positioning him to help
thousands of investors make money in the
biggest market opportunity ever!
* In 2010, Chris’ 4 Central Florida real estate offices
closed 2,786 sides for a closed sales volume of
$392,912,927!
* Highly sought-after speaker, consultant, and
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