The rise of short sales in Metro Detroit is helping keep the number of foreclosures down, according to an analyst for a foreclosure tracking company.  Half of the states in the nation saw foreclosure activity rise in April, but Michigan continued to rack up double-digit losses — experiencing a 28% decline from a year ago, according to Irvine, Calif.-based RealtyTrac. In April, Metro Detroit saw a 32% plunge in default notices, sheriff’s auctions and lender repossessions from a year ago, though activity increased 4% from the previous month.  The total number of April foreclosure filings for Macomb, Oakland and Wayne counties amounted to 4,791, compared with 7,081 in April 2011. It was the 18th consecutive month that foreclosure activity dropped in the region. 

RealtyTrac earlier this year predicted an increase of at least 20% in foreclosure filings for the first half of this year because of a nationwide settlement of faulty practices in mortgage signings. Analysts expected that to unleash a backlog of foreclosed properties.  Instead, short sales have nearly doubled. In Metro Detroit, short sales in January jumped 69% over the same time the year before, said RealtyTrac analyst Daren Blomquist.  In April, short sales made up 12% of all residential real estate sales in Metro Detroit, according to the monthly report by residential listing service Realcomp II Ltd., a Farmington Hills multiple listing service.  Another reason foreclosure filings may not have risen as expected is because lenders worry about flooding the market with distressed property and driving down prices, according to Clear Capital, a California-based housing consulting firm.

Jobs static

Initial claims for state unemployment benefits held steady at a seasonally adjusted 370,000, the Labor Department said.  The prior week’s figure was revised up to 370,000 from the previously reported 367,000.  Economists polled by Reuters had forecast claims falling to 365,000 last week. The four-week moving average for new claims, considered a better measure of labor market trends, fell 4,750 to 375,000.  “We are really not showing much momentum in the labor market at this time,” said Sean Incremona, an economist at 4Cast in New York.  The data comes on the heels of three straight months of slowing employment gains. Companies added 115,000 new jobs to their payrolls in April, the fewest in six months.  Thursday’s report on claims covered the week for May’s payrolls survey. The four-week average of new applications fell marginally between the April and May survey periods, suggesting not much change in labor market conditions.

Olick – foreclosures move east

Foreclosure activity in April fell nationally to the lowest level since the summer of 2007, but government intervention and the recent $25 billion mortgage servicing settlement are now changing the face of the crisis.  Foreclosure filings, which include default notices, scheduled auctions and bank repossessions, fell 5% in April from March, according to a new report from RealtyTrac, and are down 14% from April of 2011. One in every 698 US housing units had a foreclosure filing during the month.  “Rising foreclosure activity in many state and local markets in April was masked at the national level by sizable decreases in hard-hit foreclosure states like California, Arizona and Nevada,” said Brandon Moore, CEO of RealtyTrac in a release. “Those three states, and several other non-judicial foreclosure states like them, more efficiently processed foreclosures last year, resulting in fewer catch-up foreclosures this year.”

Major banks are also suspending foreclosure actions, as they comply with the mortgage servicing settlement that was the result of so-called “robo-signing” in foreclosure document processing. Bank of America recently announced that it was beginning a summer-long campaign to contact 200,000 borrowers, and offer them principal reduction, as part of the settlement; foreclosure actions, bank representatives said, would be suspended until the bank had reached them all and determined if they were eligible for new loan modifications.  Lenders are also responding more efficiently to requests for short sales, which is when the home is sold for less than the value of the mortgage. New financial incentives from the government and new streamlined programs at Fannie Mae and Freddie Mac are behind much of that.  “Our preliminary first quarter sales data show that pre-foreclosure sales, typically short sales, are on pace to outnumber sales of bank-owned properties during the quarter in California, Arizona and 10 other states,” adds Moore.

As also reported today by the Mortgage Bankers Association, there is a big discrepancy between foreclosure activity in states that require a judge in the process (judicial) and states that do not (non-judicial). The MBA reported a rising number of loans in the foreclosure process in judicial states, but a falling number in non-judicial states during the first three months of the year. For April, RealtyTrac reports foreclosure activity down 7% from March and down 29% from a year ago. In judicial states, activity was down just 3% month to month but still up 15% from a year ago.  The judicial/non-judicial split is pushing the foreclosure crisis east, as some of the worst-hit states like California, Arizona and Nevada are able to clear through the backlog more quickly. The 11 cities with annual increases in foreclosure activity were all in the Midwest, South or on the East Coast, while six of the nine cities with annual decreases were out West in California, Arizona and Washington, according to RealtyTrac. California and Nevada, however, still post the top foreclosure rates, along with judicial Florida.

The supply of bank-owned properties in non-judicial states is also falling, as a growing cadre of investors sweeps in to buy distressed properties at the courthouse steps. One California Realtor speaking at the National Association of Realtors’ midyear conference this week told the conservator of Fannie Mae and Freddie Mac, “We don’t need a bulk REO sale program, we have no inventory!”  Bank repossessions (REO) are down for the third straight month, according to RealtyTrac. Lenders took back 51,415 properties in April.

Ryan on debt woes

Asked what he would be willing to give up to address the US debt crisis, Rep. Paul Ryan stood his ground Tuesday and insisted it was Democrats who needed to cede ground.  “I’m not interested in negotiating with myself on television. It’s futile, in my opinion,” he said on CNBC’s “The Kudlow Report.”  Ryan said,  “The Senate has chosen not to pass a budget in three years.  The president has chosen to disavow the fiscal commission, to not put a budget that attempts to deal with any of these issues. We have passed solutions.”  Ryan, R-Wis., who chairs the House Budget Committee, backed the idea of tax reform that would lower rates and eliminate or reduce deductions to “broaden the base,” which would lead to increased revenues.  “We think that is a good offer,” he said.  “We have yet to see any movement on the other side on fundamental entitlement reform,” he said.  “If you simply chase higher spending with higher revenues, you’ll end up shutting down the economy and not solving the debt crisis. The debt crisis is a spending-driven crisis, and there’s never been a moment where the other side has been willing to do fundamental entitlement reform that is necessary to preventing a debt crisis in the first place.”

MBA – delinquencies down

The delinquency rate for mortgage loans on one-to-four-unit residential properties decreased to a seasonally adjusted rate of 7.40% of all loans outstanding as of the end of the first quarter of 2012, a decrease of 18 basis points from the fourth quarter of 2011, and a decrease of 92 basis points from one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey. The non-seasonally adjusted delinquency rate decreased 121 basis points to 6.94% this quarter from 8.15% last quarter.  The percentage of loans on which foreclosure actions were started during the fourth quarter was 0.96%, down three basis points from last quarter and down 12 basis points from one year ago. The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure. The percentage of loans in the foreclosure process at the end of the first quarter was 4.39%, up one basis point from the first quarter and 13 basis points lower than one year ago. The serious delinquency rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 7.44%, a decrease of 29 basis points from last quarter, and a decrease of 66 basis points from the first quarter of last year.  The combined percentage of loans in foreclosure or at least one payment past due was 11.33% on a non-seasonally adjusted basis, a 120 basis point decrease from last quarter and was 98 basis points lower than a year ago. This was the lowest that this measure has been since 2008.

On a seasonally adjusted basis, the overall delinquency rate decreased for all loan types except VA loans for the fourth quarter of 2011. The seasonally adjusted delinquency rate decreased five basis points to 4.07% for prime fixed loans and decreased 17 basis points to 9.05% for prime ARM loans. The delinquency rate decreased 34 basis points to 19.33% for subprime fixed loans and decreased 24 basis points to 22.16% for subprime ARM loans. FHA loans also saw a decline, with the delinquency rate decreasing 36 basis points to 12.00, while the delinquency rate for VA loans increased two basis points to 6.57.  The% of loans in foreclosure, also known as the foreclosure inventory rate, increased overall from last quarter to 4.39%. Broken down, the foreclosure inventory rate for prime fixed loans increased seven basis points to 2.59% and the rate for prime ARM loans increased four basis points from last quarter to 8.76%. The rate for subprime ARM loans decreased 62 basis points to 21.55% and the rate for subprime fixed loans decreased 17 basis points to 10.48.  The foreclosure inventory rate for FHA loans increased 29 basis points to 3.83 while the rate for VA loans increased nine basis points to 2.46.  The non-seasonally adjusted foreclosure starts rate remained unchanged for prime fixed loans at 0.62%, decreased eight basis points for prime ARM loans to 1.75%, decreased 20 basis points for subprime fixed to 2.13% and 57 basis points for subprime ARMs to 3.22%. The foreclosure starts rate increased eight basis points for FHA loans to 0.96% and five basis points for VA loans to 0.65%.

Compared with the first quarter of 2011, the foreclosure inventory rate: decreased 77 basis points for prime ARM loans, remained unchanged prime fixed loans, decreased five basis points for subprime fixed, decreased 71 basis points for subprime ARM loans, increased 48 basis points for FHA loans and increased seven basis points for VA loans.  Over the past year, the non-seasonally adjusted foreclosure starts rate: decreased six basis points for prime fixed loans, decreased 21 basis points for prime ARM loans, decreased 43 basis points for subprime fixed, decreased 45 basis points for subprime ARM loans, increased three basis points for FHA loans and decreased eight basis points for VA loans.

Banks have to raise $566 billion

The world’s largest banks must raise a combined $566 billion to satisfy new capital requirements, Fitch Ratings said on Thursday, as the authorities demand that banks hold more cash in reserve to protect against future financial shocks.  The figure represents a 23% increase on what the banks currently hold in reserve and will most likely reduce return on equity, a critical figure used to gauge a firm’s profitability, Fitch said.  The banks affected are the 29 “systemically important financial institutions” as designated by the global Financial Stability Board. They include the likes of Goldman Sachs, JPMorgan Chase, HSBC of Britain and the Mizuho Financial Group of Japan. In total, the firms hold roughly $47 trillion in combined assets.  Under new regulatory rules, known as Basel III, the firms must have a Tier 1 common equity ratio, a measure of a bank’s ability to weather financial shocks, of roughly 9.5% by 2019, though officials are eager for banks to meet the targets as soon as possible.  To meet the deadline, Fitch says the 29 banks will probably hold onto future earnings and cut shareholder dividends, wind down exposure to risky investments like underperforming real estate portfolios, and tap investors for new cash.

NAHB – housing starts up

Nationwide housing production gained 2.6% from an upwardly revised pace in March to hit a seasonally adjusted annual rate of 717,000 units in April, according to newly released figures from the US Census Bureau and HUD. This modest gain was seen in both the single- and multifamily sectors, which registered growth of 2.3% and 3.2%, respectively.  “April’s increase in housing production comes on top of strong upward revisions to the previous month’s data, and is an encouraging sign that we are returning to a gradual, upward trend that should continue in the year ahead as builders respond to improving demand for new homes in certain markets,” said Barry Rutenberg, chairman of the National Association of Home Builders (NAHB) and a home builder from Gainesville, Fla. “Unfortunately, overly restrictive lending conditions for builders and buyers are slowing the pace of this trend considerably.”  “While still less than half the pace of what we would expect in a fully healthy market, the rate of housing production in April was very solid for this point of the recovery and in keeping with the findings of our latest builder surveys that have registered modest improvements in buyer traffic and near-term sales expectations for single-family homes,” said NAHB Chief Economist David Crowe.

The 2.6% gain in housing production this April was due to a 2.3% increase on the single-family side to a seasonally adjusted, annual rate of 492,000 units and a 3.2% increase on the multifamily side to a 225,000-unit rate.  Regionally, starts were mixed in April, with the Midwest and South posting gains of 6.7% and 11.6%, respectively, and the Northeast and West posting respective declines of 20.7% and 8.1%.  Permit issuance – which can be an indicator of future building activity – fell 7.0% to a seasonally adjusted annual rate of 715,000 units in April following an unsustainably large gain in the previous month. The decline was entirely on the more volatile multifamily side, where permits fell 20.8% to a 240,000-unit rate that is essentially back to trend. Single-family permits gained 1.9% to 475,000 units.  Regionally in April, permit activity held unchanged in the Northeast while declining 12.3% in the Midwest, 3.2% in the South and 13.9% in the West, respectively.

Bank of America (BOA) is offering some struggling homeowners payments of up to $30,000 if they sell their homes in a short sale and avoid ending up in foreclosure.  Under the plan, Bank of America will offer homeowners so-called relocation payments of between $2,500 and $30,000 if they sell their home in a short sale. In short sale deals, the sale price of the home is less than what the seller owes the bank.  The bank first tested the payments in a pilot program in Florida last fall. Under that initiative, Bank of America paid up to $20,000 to borrowers who sold their homes in short sales.  Chase started a similar initiative in late 2010 that pays as much as $35,000 to short sellers. Wells Fargo has also paid five-figure incentives to short sellers or to owners who turned over their deeds to the bank.  BOA said it has completed 200,000 short sales over the past two years. These sales are generally more cost effective for banks than foreclosures. By avoiding foreclosure, the lenders get distressed properties back from delinquent borrowers more quickly, which helps them to avoid property tax payments, maintenance expenses and legal fees that can build up for months, even years, as foreclosures work through the system.

In addition, the incentives help guarantee the homes will return to the lenders in better condition. Foreclosed properties are often poorly maintained, even sometimes sabotaged, by angry former owners, making them worth far less to the banks.  During the last three months of 2011, foreclosures sold for an average of about $150,000, according to RealtyTrac. Meanwhile, short sales sold for an average of about $185,000.  To qualify for Bank of America’s relocation payments, borrowers must obtain pre-approval on sale prices for their homes. The sale must begin by the end of 2012 and close by September 26, 2013.  The exact compensation is determined case-by-case based on a calculation that involves the home’s value, mortgage balance and other factors.  Borrowers can call 877-459-2852 to find out if they may be eligible for the program.

Business inventories up

The Commerce Department said inventories increased 0.3% to a record $1.58 trillion, after rising 0.6% in February.  Economists polled by Reuters had forecast inventories rising 0.4%.  Inventories are a key component of gross domestic product and March’s report was the latest to suggest the government could lower its 2.2% growth estimate for the first quarter.  Data on wholesale and manufacturing inventories released last week indicated a slower pace of restocking in March than the government had assumed in its initial first-quarter GDP estimate published last month.  Inventories in March were held back by declining stocks for furniture and building materials. Automobile inventories rose 1.2% in March after rising 1.4% the previous month.  Inventories excluding autos, which is used to calculate GDP, ticked up 0.1% after rising 0.2% in February.  Business sales increased 0.6% to a record $1.24 trillion in March, after rising 0.7% the prior month. At March’s sales pace it will take 1.27 months for businesses to clear shelves, down from 1.28 months in February.

MBA – refinance applications up

Mortgage applications increased 9.2% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending May 11, 2012.   The Market Composite Index, a measure of mortgage loan application volume, increased 9.2% on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index increased 8.7% compared with the previous week.  The Refinance Index increased 13.0% from the previous week.  The seasonally adjusted Purchase Index decreased 2.4% from one week earlier. The unadjusted Purchase Index decreased 2.4% compared with the previous week and was 1.0% lower than the same week one year ago. The four week moving average for the seasonally adjusted Market Index is up 1.77%.  The four week moving average is up 1.57% for the seasonally adjusted Purchase Index, while this average is up 1.88% for the Refinance Index.

The refinance share of mortgage activity increased to 74.9% of total applications from 72.1% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 5.4% from 5.7% of total applications from the previous week.  “A flare up of the sovereign debt troubles in Europe once again led investors to flee to the safety of US Treasury securities last week.  As a result, mortgage rates have reached new lows in our survey, and refinancing application volumes picked up substantially as a result,” said Michael Fratantoni, MBA’s Vice President of Research and Economics.    “Survey participants indicated that this was not due primarily to HARP volume – the HARP share of refinances fell to 28% of refinance applications, down relative to last week and last month, when the share was just above 30% in April.  The increase in refinance activity last week was concentrated in the conventional sector, which was up around 14% for the week, while government refinance applications were up only 4%.”  During the month of April, the investor share of applications for home purchase was at 5.7%, unchanged from March.  The Pacific region has the largest investor share of applications for home purchase at 9.5%. In addition, the share of purchase mortgages for second homes decreased to 5.7% in April from 5.8% in March.

Gold enters bear market

Gold entered a so-called bear market, dropping for a fourth day, after Greek leaders failed to form a government, increasing speculation that the country may quit the euro and driving the Dollar Index (DXY) to a record advance.  Immediate-delivery gold lost as much as 0.7% to $1,533 an ounce, more than 20% below its all-time high last September and fulfilling the common definition of the market slump. That’s the cheapest since Dec. 29. The precious metal traded at $1,535.75 at 2:01 p.m. in Singapore.  A second Greek vote will be held, possibly next month, as gridlock followed a May 6 ballot in which voters rejected the austerity program that underpins the country’s bailout accords. German Finance Minister Wolfgang Schaeuble called the new election a referendum on whether Greece stays in the euro.  “It’s a risk-off environment,” Peter Hickson, head of commodities research at UBS AG, said in a Bloomberg Television interview. “People are concerned about liquidity and they’re going to take security in the US dollar.”

Since peaking at $1,921.15 an ounce last year, spot bullion has exceeded the 20% decline twice before, in both September and December, and is 1.8% lower in 2012 after gaining for the past 11 years.  June-delivery bullion lost as much as 1.6% to $1,532.70 an ounce in New York, declining more than 20% from its record. Futures have also dropped into a bear market twice since reaching the record last year.  The Dollar Index, a six-currency gauge, climbed for a 14th day, the longest winning run since its inception in 1973. The euro dropped to $1.2699, the weakest since Jan. 17.  Holdings in gold-backed exchange-traded products fell 0.1% to 2,379.367 metric tons yesterday, according to data tracked by Bloomberg. Investor George Soros increased his holdings in the SPDR Gold Trust in the first quarter, while John Paulson maintained his stake, filings showed yesterday.  Spot gold’s so-called 14-day relative strength index dropped to 21.07, below the level of 30 that some analysts regard as signaling a rebound. One ounce of gold bought as much as 56.0702 ounces of silver today, the most since Jan. 9, according to Bloomberg data.

Olick – foreclosures down – a bad thing?

“A new report came out [yesterday] with a curious headline: ‘Foreclosure Activity Declines, Hurting Investors.’ I read it twice. You would think declines in foreclosure activity would be a good thing, that is, would help, not hurt. Not in this bizarre housing market. The report is from Foreclosure Radar, a foreclosure sales and analytics website.  Foreclosure starts, the first stage in the foreclosure process, fell in April in the hardest hit states of California, Arizona and Nevada, according to Foreclosure Radar. California saw the steepest slide, with Notice of Default filings down nearly 16% from a year ago and nearly 70% from the peak in March of 2009.  Foreclosure sales (sales of these properties at the courthouse steps, not sales of already bank-owned, or REO, properties) also declined, as the investor share of these purchases soared to a record high. ‘Nevada investors purchased more than 50% of foreclosure sales for the first time at 50.7%,’ according to the Foreclosure Radar report. ‘The low number of sales, combined with a record% purchased on the courthouse steps, left very little to become Bank Owned (REO). This further depletes the inventory of Bank Owned homes, as REO sales continue to outpace the addition of new inventory.’

Why all the declines? Unfortunately it’s not an overall improvement in the housing market, nor an increasing ability of borrowers to stay current on their mortgage payments.  ‘Instead we are seeing unprecedented government intervention into the foreclosure process, leaving underwater homeowners in limbo, while stealing opportunity from investors and first-time buyers,’ says Foreclosure Radar CEO Sean O’Toole, who cites new legislation in Nevada which brought foreclosure activity to a near halt, and similar pending legislation in California. ‘The reality is that these laws don’t solve anything, as they fail to address the real problem—negative equity – while instead they punish real estate professionals, homebuyers, and investors far more than the banks they were aimed at,’ argues O’Toole.  The recent $25 billion mortgage servicing settlement between the nation’s five largest lenders, state attorneys general and the US Department of Justice, has sent servicers back to the drawing board on many thousands of delinquent loans and loans that were already in the foreclosure process. Bank of America alone has suspended 200,000 foreclosure actions, as it offers principal reduction modifications to comply with its $11 billion share of the settlement.

Government and private sector programs are both trying to mitigate the foreclosure crisis, but as the rental market shows no sign of cooling off, investors are increasingly arguing that these troubled mortgages should be allowed to run their course through to foreclosure. That of course benefits investors but ignores the human toll inflicted on so many desperate American families. But again, as O’Toole argues, we’re doing none of these homeowners any good by keeping them in homes in which they will likely never see any equity; underwater borrowers are effectively renting already anyway, not to mention that they are stuck in place because they can’t sell.  Government intervention in the mortgage market, be it foreclosure mitigation, subsidized refinancing, or artificially low interest rates will not abate in an election year because politics always trump fundamental economics. What’s so interesting this year is that while politicians have consistently vilified investors throughout the housing crash, they need them now more than ever to help clear the distressed homes from the market and provide much needed rental housing.  At some point even the politicians will have to look past who did or did not act ‘responsibly’ during the run-up to the housing crash and focus on who has the best chance of setting things right again.”

First shots fired in the debt-ceiling debate

Republican speaker John Boehner vowed yesterday that the House will not wait until after November elections to find a way to avoid a year-end “fiscal cliff” – and that House Republicans will, again, refuse to raise the national debt limit, unless Congress offsets the hike with spending cuts.  “Previous Congresses have encountered lesser precipices with lower stakes and made a beeline for the closest lame-duck escape hatch,” Mr. Boehner said, at a speech at a fiscal summit sponsored by the Peterson Foundation in Washington.  “Let me put your mind at ease. This Congress will not follow that path, not if I have anything to do with it.”  With Congress putting off its challenges until the lame-duck session between the November elections and the new year, it could be said that all of Capitol Hill is staring down a massive financial collision. Whether to extend the Bush tax cuts and the budget-slashing “sequester,” raise the debt ceiling, extend unemployment benefits and the payroll tax holiday, and fix payments to physicians from Medicare may all have to be resolved in only six short weeks if the Democrats get their way.  By contrast, Boehner aims to get to work before November elections, offering by far the most concrete plans to get to work ahead of the lame-duck session of any congressional leader. The House will hold votes on the expiring Bush tax cuts before the elections, he said. It will also put together a process for an “expedited” path to tax reform in the new year.  “If we do this right, we will never again have to deal with the uncertainty of expiring tax rates,” Boehner said.

WSJ – architectural billings index slips

After five months of positive readings, the Architecture Billings Index slipped back into negative territory during April, an indication that demand for design services declined.  The score for April was 48.4, compared with 50.4 in March. A score above 50 means billings increased. The index, compiled by the American Institute of Architects (AIA), is considered an early indicator of future construction, given that developers need designs before they build. AIA economist Kermit Baker said the volatility in the index isn’t surprising considering “the continued volatility in the overall economy.”  He also noted that weather patterns may have played a role in the latest reading. “Favorable conditions during the winter months may have accelerated design billings, producing a pause in projects that have moved ahead faster than expected,” he said.

The best inventory on the market in metro Detroit — where foreclosures and short sales account for 36% of the listings — attracts multiple bids and pushed the median sales price to $70,000 last month, up 18.6% from $59,000 in April 2011, according to Realcomp, a Farmington Hills-based multiple listing service.  Its members reported 4,351 closed sales in April, which is down by 2.2% from the 4,439 homes and condos that sold in the same month a year ago.  Sales gains were seen in Macomb County, up 8.9% to 922, and Oakland County, up 1.5% to 1,448. Pulling down the metro area results were Livingston County, with a 9.5% drop to 182 homes sold in April, followed by Wayne County, with a 9% decline to 1,789 home sales from 1,965 last April.  All four counties included in the metro Detroit stats — Livingston, Oakland, Macomb and Wayne — saw median sales price increases in April. Here’s the breakdown:

-  Livingston: $150,000, up 7.1% from $140,000.

-  Macomb: $72,500, up 13.3% from $64,000.

-  Oakland: $114,500, up 9% from $105,000.

-  Wayne: $38,000, up 27.1% from $29,900.

The Detroit area, which is defined as Detroit, Hamtramck, Harper Woods and Highland Park, saw median prices rise to $9,000, up 2.3% from a year ago, but sales dropped 22% to 539 in April.  Nearly half, or 48%, of sales last month were cash sales and homes were selling an average of three days faster with 87 days on market, Realcomp said.  Inventories dropped 18.3% in April to 26,896 homes for sale in the entire multiple listing service compared with 32,910 in April 2011. The MLS includes metro Detroit plus parts of the Thumb and Genesee County.

Retail sales up slightly

Sales at US retailers barely rose in April as the boost from an unseasonably warm winter faded, pointing to some loss of momentum in consumer spending early in the second quarter.  Retail sales edged up 0.1%, held back by a decline in receipts from building materials and clothing stores, the Commerce Department said on Tuesday. That was the smallest gain since December when sales were flat.  Other data showed manufacturing remained resilient, with a gauge of factory activity in New York state bouncing higher this month as new orders and shipments rose.  The New York Federal Reserve said its Empire State general business conditions index jumped to 17.09 in May from 6.56 in April, outpacing economists’ expectations of 8.50.  “Growth is there, but it’s not that convincing,” said David Sloan, senior economist at 4CAST in New York.  March’s sales were revised slightly down to show a 0.7% rise rather than the previously reported 0.8% increase. Economists polled by Reuters had expected retail sales to gain 0.2% last month.  In the 12 months to April, sales rose 6.4%.

Olick – Obama’s “responsible” homeowners

“As part of his ‘To Do List,’ President Barack Obama visited Val and Paul Keller on Friday. The White House described them as ‘responsible’ homeowners who owe more on their mortgage than their Nevada home is currently worth.  They owe $168,000 on their mortgage, but their Reno home is currently valued at $100,000.  The president is doing so to, ‘help demonstrate a concrete and tangible example as to why this broader push [to refinance] is so important not only for millions of Americans but for our economy,’ said Shaun Donovan, secretary of Housing and Urban Development, in a conference call with reporters before the event.  During that call, Donovan used the words ‘responsible homeowners’ more than a dozen times, in describing whom the administration’s proposed refinance programs should help.  It is not the Kellers’ fault that home prices in Reno are down 52% from the peak, right? The Kellers bought their house 14 years ago, and they have not been late on a mortgage payment, according to Donovan. They were able to take advantage of the newly expanded government refinance program through Fannie Mae and Freddie Mac for severely underwater borrowers, and they are in fact putting some of their savings on the monthly mortgage toward paying down principal.  But were they responsible? 

The Kellers bought their home before the height of the housing boom. The trouble I’m having understanding this whole scenario is that the median home price in Reno is actually 7% higher today than it was 14 years ago. If the Kellers had a ‘responsible’ loan, that would be a 30-year fixed, in which case they should have paid at least some principal on the loan over the last 14 years. And didn’t these ‘responsible’ borrowers, the Kellers, put some money down on the home?  We went looking: According to Washoe County records, the Kellers purchased their home in June 1998 for $127,000. So why do they have, according to the White House, a $168,000 mortgage?  White House officials now confirm to CNBC that the Kellers did a cash-out refinance in 2007, when their home had appreciated to $250,000. Again, it’s not illegal, but are these the ‘responsible’ borrowers that the administration is looking to help? They took out a $178,000 loan, using the $51,000 to pay down debt on the family construction business, so Paul could retire. Had they not taken that money out, and continued paying on the original mortgage, they would not be underwater today.  ‘This is a family, first and foremost, that has met their responsibility, remained on time with their mortgage and used their equity in their home in a way that so many Americans do, to send their kids to college, support a small business or save for retirement,’ said Donovan, whom we contacted after learning of the refinance. ‘They deserve the chance to benefit from these record low interest rates because they have met their responsibilities.’

Another administration official familiar with the Kellers’ case says the couple were responsible because despite the incredible runup in home prices, they did not take all the equity out of the house. ‘She did not use her home as an ATM in the sense that we saw during the crisis, because she didn’t cash out all of the equity leaving her no cushion. She had a 71% LTV (loan to value ratio), or 30% equity in her home. That is by almost any definition a very responsible position to be in,’ he added. In the past, Obama has criticized borrowers, who at the peak of the housing bubble, pulled money out, referring to it as using their house as an ATM.  LTV, Donovan and the other administration official claim, is not a minor issue. So it seems they are defining ‘responsible’ as a borrower who maintains an equity cushion in the house, even when that house price has nearly doubled in just eight years.  ‘This was truly 100 year flood, and so lots of people who had 20, 30, 40% equity in their homes now find themselves underwater,’ says the White House official, who also commends the Kellers for not walking away from their mortgage.”

Europe barely dodges formal recession

Stronger-than-expected growth in Germany was enough to help the European Union and the 17-nation eurozone avoid falling into recession for the second time since 2009 during the first three months of this year.  Initial readings on gross domestic product, the broadest measure of an economy’s health, released Tuesday showed Germany’s economy grew 0.5% in the first quarter, an improvement from the decline of 0.2% at the end of 2011.  The forecast had been for growth of only 0.1% for Germany, the continent’s largest economy, and there were some fears that it could report a drop in GDP for the second straight quarter, the common definition of an economy in recession.  The growth in Germany was enough to have GDP in the 27-nation EU and the 17-nation eurozone that uses the common currency both remain unchanged compared to the previous quarter, following a 0.3% decline on that basis at the end of last year. Economists had forecast that both would fall into recession with another quarter of falling GDP.

Decline in foreclosure activity in California hurting the market

The pace of foreclosures in California is slowing to a crawl, according to figures for the month of April compiled by foreclosure information company ForeclosureRadar Inc. of Discovery Bay.  In California, Notice of Default filings were down 69.8% from the peak in March 2009, and 15.8% from April 2011.  Foreclosure sales also declined, however, foreclosure investors purchased a record percentage of the limited inventory that was actually sold. California investors purchased 41.3% of foreclosure sales last month, the report says.  The low number of sales, combined with record% purchased on the courthouse steps left very little to become Bank Owned (REO). This further depletes the inventory of Bank Owned homes as REO sales continue to outpace the addition of new inventory, says ForeclosureRadar.

Despite investors purchasing a higher percentage of foreclosure sales, margins have rapidly declined in recent months. In California the discount between market value and winning bid have on average declined to 12.3%. This leaves investors who intend to resell their purchases with record low profits after eviction, repairs, and closing costs.  “Foreclosure declines would be wonderful news if they were being driven by a true market recovery in which hundreds of thousands were no longer unable to make payments, and millions were no longer upside down,” says Sean O’Toole, founder and CEO of Foreclosure Radar.  “That is not the reality today. Instead we are seeing unprecedented government intervention into the foreclosure process leaving underwater homeowners in limbo, while stealing opportunity from investors and first time buyers,” he says.  “California’s pending legislation, which is similar to laws we previously saw enacted in Nevada, will almost certainly bring foreclosure activity to a near halt there if passed. The reality is that these laws don’t solve anything as they fail to address the real problem – negative equity – while instead they punish real estate professionals, homebuyers, and investors far more than the banks they were aimed at.”

Fed governor Duke wants certainty

Federal Reserve Gov. Elizabeth Duke on Tuesday urged policymakers to finalize regulations and rules to provide more certainty for the housing market.   Establishing regulations and deciding on the future of government-controlled mortgage giants Fannie Mae and Freddie Mac will help reduce the uncertainty contributing to tight mortgage lending, Duke said in remarks prepared for a National Association of Realtors conference on Tuesday. She did not discuss monetary policy in her remarks.  “The most important solution that I am suggesting today is that policymakers move forward with the difficult decisions that will affect the future of the mortgage market,” Duke said. “If lenders tighten more than is warranted, it will hamper the recovery of the housing market and, in doing so, restrain economic growth.”  Duke did not make specific policy recommendations, but she stressed that questions around the future of Fannie Mae and Freddie Mac must be resolved. More than three years after the government took the two mortgage giants into conservatorship, there still is no consensus about how they should be structured and what the government’s role should be, potentially discouraging private companies, Duke said.  “Private capital might be reluctant to enter the market until the future parameters of government support are resolved,” she said.

Duke did note some encouraging signs in the housing market, including a slowdown in the pace of home prices’ decline and an edging up in housing starts and permits. And she expressed confidence that as the economy slowly improves, some elements of the housing market will strengthen, as confidence increases.  Lenders seem to be reluctant now to make loans in part because of concerns over the higher cost of servicing delinquent loans and worries over regulations still being shaped, Duke said.  “Collectively, these uncertainties about the future are likely contributing significantly to the tight lending standards in the mortgage market today,” she said. The Federal Reserve will use its “best judgment to weigh the cost and availability of credit against consumer protection, investor clarity, and financial stability as it writes rules,” she said.  Duke stressed that lenders need clarity to shape business models and plan for the future.  “I don’t want to diminish the importance of any individual policy decision, but I do believe that the most important prescription for the housing market is for these decisions to be made and the path for the future of housing finance to be set,” she said.

NAHB – builder confidence up in May

Builder confidence in the market for newly built, single-family homes gained five points in May from a downwardly revised reading in the previous month to reach a level of 29 on the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), released today. This is the index’s strongest reading since May of 2007.  Derived from a monthly survey that NAHB has been conducting for 25 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores from each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.  Each of the index’s components rebounded from declines in the previous month. The component gauging current sales conditions and the component gauging traffic of prospective buyers each rose five points in May to 30 and 23, respectively, with the traffic component hitting its highest level since April of 2007. The component gauging sales expectations in the next six months rose three points to 34.  Three out of four regions registered improving builder sentiment in May. This included a six-point gain to 32 in the Northeast, and five-point gains to 27 and 28 in the Midwest and South, respectively. The West posted a two-point decline, to 29.

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

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

Stocks take a tumble

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

Conservative mortgages have risks too

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

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

JPMorgan – loss not life threatening

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

Major foreclosure case set to start

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

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

Gold down, dollar up

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

WSJ – to buy or not to buy?

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

Eric Lascelles – Yes: It’s a Rare Opportunity

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

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

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

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

Short sales, once a rare event in local real estate market, today are nearly as prevalent as foreclosures as lenders seek to avoid adding to their foreclosure inventories and troubled homeowners opt for a faster way out of default.  Historically, foreclosures have been discounted 10% or more. Now, as short sales become more popular, the difference between and short-sale discounts and foreclosure discounts is shrinking, according to the latest LPS Home Price Index.  In April 2007, as the housing bubble burst, foreclosures sold at a 19% discount and short sales sold at a discount of 10%. As the volumes of both forms of distressed sales have increased, so have the discounts, but short sale discounts have increased more. Today foreclosures sell at a 29% average discount and short sales at an average discount of 23%, a difference of only 6%.

The shrinking discount may make short sales more attractive to buyers than foreclosures. In general, home sellers undergoing short sales are motivated to do so to protect their credit to the extent possible and they tend to maintain better condition of their properties than borrowers undergoing foreclosure. Foreclosures also may be vacant for long periods of time. Today’s average processing timeline for foreclosures is about a year, and substantially higher in some judicial states. With a short sale, the property may not be vacated at all during the sales process.  LPS suggests that the task of managing the large number of distressed properties in the market today is immense, which may, in some cases, contribute to suboptimal pricing of some distressed properties. Since 2007, discounts for both foreclosures and short sales have increased, but short-sale discounts increased a bit faster.

PPI falls

The Labor Department said on Friday its seasonally adjusted producer price index (PPI) dropped 0.2% last month. That was the first drop of the year and the biggest decline since October.  Economists polled by Reuters had expected prices at farms, factories and refineries to be flat.  The decline left wholesale prices 1.9% higher in April that a year earlier, the weakest reading since October 2009.  Wholesale prices excluding volatile food and energy costs rose in line with economists’ expectations, up 0.2% after March’s 0.3% gain.  The drop in PPI was due to a 1.4% decline in energy prices, the biggest drop since October. Gasoline costs slumped 1.7%, while prices also fell for residential natural gas and liquefied petroleum gas.  The producer price index outside food and energy was pushed up by a 0.4% increase in the index for pharmaceuticals. Higher prices for civilian aircraft also pushed up the core index.  In the 12 months to April, core producer prices increased 2.7% after rising 2.9% the previous month. April’s reading was the lowest since August and just below analysts’ expectations.

Olick – mortgage market hampers recovery

“The Realtors say it, the home builders say it, and now the chairman of the Federal Reserve is saying it: ‘Some creditworthy borrowers are still having trouble getting a mortgage.’  Loose mortgage underwriting is largely blamed for the housing crash, and as a result the credit markets have swung in the opposite direction, some say too far.  ‘You’ll see fewer willing lenders at 660 than you do at the top end of the scale,’ notes Bankrate.com’s Greg McBride, referring to FICO scores (Fair Isaac Corporation).  Twenty five% of Americans today have a FICO credit score lower than 650, and twelve% more are below 700. While the Federal Housing Administration (FHA), the government’s mortgage insurer, is supposed to be serving borrowers with lower credit scores, the average FICO for an FHA loan in March was 701.  ‘It’s often the lender regarding the higher score,’ says Rick Sharga of Carrington Mortgage Holdings. Despite the FHA insurance, lenders just won’t take the chance.

Many borrowers who lost big during the housing crash are now fighting to regain their credit, but the time it takes to do that depends largely on how high their credit score was to begin with. According to FIC, a borrower with a credit score above 780 who lost a home to foreclosure will need 7 years of unblemished credit to regain their standing. A borrower who started at 680 will need just three years. Just being late on mortgage payments, up to ninety days, will drop your credit score 80 points if you started at 680 but 130 points if you were at 780. The higher you start, the harder you fall.  And it is not just credit standing in the way of a home loan. In order to get today’s record low interest rates, you need to put 20% down on the home. For a $300,000 home, that’s $60,000. On top of that you often have a 6% brokers fee and then closing costs, which averaged just over $4000 last year, according to Bankrate.com. If you do have lower credit, or a lower down payment, you will have to pay private mortgage insurance.  If you don’t have much money to put down, and you do have lower credit, the FHA is your only option now, but fees and premiums are going up there as well. 27% of home purchase financing in March of this year came from FHA loans, according to Campbell/Inside Mortgage Finance, but that was just before fees went up. The FHA share of mortgage originations has been dropping precipitously since then.

As the housing market recovers, and home prices stabilize, one might assume the credit markets would loosen as well. That has not been the case so far, according to a recent Federal Reserve survey of bankers. In fact, mortgages will likely get more expensive, as federal regulators move closer to new rules concerning risk retention in mortgage lending.  In addition to fees, credit and down payment, just less than a quarter of homeowners with a mortgage owe more on that loan than their home is currently worth. These so-called ‘underwater’ borrowers are therefore trapped, unless they have enough cash to put out and are willing to eat their losses. There are also many more who are in a near-negative equity position, which means they do not have enough equity in their homes to cover a new down payment, closing costs and brokers fees. That knocks a lot of potential buyers out of today’s market.  There is no question that we must not return to the lax lending of the past, where borrowers were asked no questions and offered whatever they wished. There is a question of how tight the mortgage market needs to be, when housing is still the chief impediment to overall economic recovery.”

Subprime is back

Mortgage backed securities are hot again.  Many of the hedge fund traders gathered at the Skybridge Alternatives investor summit at the Bellagio Hotel in Las Vegas are enthusiastically seeking out the once “toxic” mortgage bonds for their portfolios.  Even Kyle Bass, the Texan hedge fund manager who made billions shorting mortgage bonds in the years before the financial crisis, is bullish on mortgage credit. The “worst” bonds, those not backed by Fannie Mae and Freddie Mac, could see gains of 15%, he said Thursday.  The primary attraction of the bonds is their price. Although in recent months the bonds have rallied by as much as 20%, they still trade at steep discounts to par value. Last year they fell 40%.  The hedge fund mangers attracted to the bonds believe that even with massive defaults, they will continue to generate cash flows in excess of what current market prices indicate.  Some of the enthusiasm for the bonds is rooted in the idea that the housing market may be reaching a bottom. If home prices began to rise, mortgage defaults would likely decline and the prices of the bonds rise. But some traders believe that even if housing declines further and the economy stalls, the bonds could be profitable because the Federal Reserve would step in and buy them as part of a new round of quantitative easing.

NAHB – 55+ confidence up

Builder confidence in the 55+ housing market for single-family homes had a significant increase in the first quarter of 2012 compared to the same period a year ago, according to the latest National Association of Home Builders’ (NAHB) 55+ Housing Market Index (HMI) released today. The index increased 10 points to 27, and although 27 is relatively low for an index that lies on a scale of 0 to 100, it is nevertheless the highest reading since the inception of the index in 2008.  The 55+ single-family HMI measures builder sentiment based on a survey that asks if current sales, prospective buyer traffic and anticipated six-month sales for that market are good, fair or poor (high, average or low for traffic). An index number below 50 indicates that more builders view conditions as poor than good. All index components remain well below 50, but increased considerably from a year ago, each reaching an all-time high: Present sales rose 12 points to 27, expected sales for the next six months increased eight points to 32 and traffic of prospective buyers rose nine points to 26.  The 55+ multifamily condo HMI remains the weakest of the 55+ housing market indices, but also recorded an all-time high at 15, up seven points from a year ago. All index components showed an increase compared to a year ago: Present sales rose five points to 14, expected sales for the next six months increased seven points to 20 and traffic of prospective buyers jumped nine points to 15.  The 55+ multifamily rentals continue to lead the way in the overall 55+ housing market. Present production climbed 11 points to 31, expected future production increased eight points to 35, current demand for existing units rose three points to 42 and expected future demand increased one point to 45.

MOODY’s issues capital warning

Moody’s has warned that the tendency of global banks to avoid new capital requirement rules and load up on debt will continue to put pressure on their creditworthiness.  The credit rating agency announced it was placing 17 banks on review for a downgrade earlier this year, citing “vulnerabilities” in the companies’ vast and volatile capital markets businesses.  Moody’s caution could see all 17 banks downgraded when the review is finally completed, expected to happen in mid-June. Three of the banks, Credit Suisse, Morgan Stanley, and UBS, face as much as a three-notch downgrade; 10 face a two-notch slide and four a one-notch drop.  The potential downgrades have become a talking point on Wall Street, with some bankers openly criticizing Moody’s and others privately attempting to change the agency’s mind in closed-door meetings.

Commercial real estate improves slightly

Conditions in the commercial real estate sector improved in the first quarter, but investors and executives are worried about some of the commercial mortgages set to mature in the coming year and the market’s general lack of interest in sub-A real estate assets, real estate executives said.  Executives in the industry provided this “luke warm” feedback in the latest Real Estate Roundtable quarterly sentiment survey.  The survey’s overall confidence index is at 70, which shows confidence in the industry to be more favorable than not. Still, that index score is down from a reading of 77 in the first quarter of 2011, but up from a score of 59 in the fourth quarter of 2011.  To get the index number higher, the job market will have to improve, bringing demand for commercial real estate assets in the below Class-A category with it, the executives said.  “Fostering a commercial real estate recovery that extends beyond so-called class A or trophy assets in gateway markets still depends on an improved jobs picture, more confidence among businesses and consumers, and reduced uncertainty on looming tax and budget issues,” said roundtable chairman Daniel Neidich. “Our Q2 survey confirms the need for swift policy action to boost employment, business investment, and economic certainty.”  Another issue delaying full confidence in commercial real estate is the overall economy and uncertainty about how the US will handle economic issues and issues related to employment and business investment.

Foreclosure-rescue company president arrested

The president of a Palm Beach County foreclosure-rescue company was arrested Thursday and charged with several counts of fraud, including acting as a loan originator without a license, after an investigation that included law enforcement officials from Boca Raton to Tallahassee.  Guilfort Dieuvil, 38, is president of the Nationwide Investment Firm Corp., a for-profit company that has homeowners quitclaim deed their properties to it with promises to broker a short sale or loan modification, while also defending the case in court.  The arrest comes after The Palm Beach Post revealed, in a series of four articles beginning in November, lawsuits, police reports and letters to state officials from homeowners complaining that instead of getting the help they sought, they unwittingly signed over the deeds to their homes.  Some claim they were threatened with eviction and left with debt on properties to which they no longer have title.  Details of the investigation that led to Dieuvil’s arrest were not available late yesterday, but Boca Raton Police Department officer Sandra Boonenberg said detectives from her department worked in conjunction with other agencies on the case.

Short sales and huge inventories of bank-owned real estate properties continue to put downward pressure on home prices, according to data released today by California-based analytics company CoreLogic. Fifty-seven of the 100 largest statistical areas based on population posted year-over-year declines in March.  Nationally, CoreLogic’s March Home Price Index report shows prices fell 33.7% in March 2012, from their peak in April 2006.  Home prices, including distressed sales, edged downward year-over-year, falling 0.6% from March 2011 to March 2012. Excluding distressed sales, home prices rose slightly, climbing 0.9% year-over-year. In spite of the yearly decline, home prices rose month-over-month. Including short sales and real estate held by banks, prices increased 0.6% month-over-month — the first monthly rise since July 2011. Proving just how much of a drag short sales and REOs are on home values, prices have appreciated monthly for three consecutive months when distressed sales are excluded from the stats.  Even with all the bad news, the relatively flat monthly and yearly changes seem to indicate prices are beginning to steady, and some states even saw significant price appreciation. Wyoming, West Virginia, Arizona, North Dakota and Florida all saw yearly gains of 4% or more. Wyoming topped the list with an increase of 5.9% year-over-year.

Jobless claims slightly down

Slightly fewer Americans filed for new unemployment benefits last week, a reassuring sign about the labor market in the closely watched economic reading.  The Labor Department reported yesterday that 367,000 filed new jobless claims in the week ended May 5, down from 368,000 the week before. The previous week reading was revised up by 3,000.  Economists surveyed by Briefing.com had forecast 365,000 would file for help.  There have been growing worries about a weakening of the recovery in the jobs market, especially after a disappointing April jobs report that showed employers adding far fewer jobs than expected.  Jobless claims, which had been falling steadily earlier this spring, also had climbed again in recent weeks before a drop two weeks ago.

Free mortgage review, few apply

It’s been more than six months since government regulators and banks first extended an offer to 4.3 million homeowners facing foreclosure: to review, at no cost, the foreclosure process to check for any possible errors or misrepresentations.  Homeowners stand to collect compensation of as much as $100,000 if errors are found. But thus far, only a tiny percentage of those eligible have signed up.  The push for a review process was set in motion by the “robo-signing” scandal. In 2010, several banks admitted mishandling some foreclosure documents. Some borrowers may have wrongfully lost their homes as a result, and the scandal exposed systemic problems in the foreclosure process.  In the wake of the scandal, federal bank regulators required 14 mortgage companies to establish the Independent Foreclosure Review process.

The review costs homeowners nothing, but at last count, only 165,000 people — fewer than 4% of those eligible — have applied.  The original April 30 deadline has since been extended to July 31.  Last month, Housing and Urban Development Secretary Shaun Donovan tried enlisting a group of housing counselors to get more homeowners to sign up for the review.  “I am concerned that not enough folks have signed up, and that we’re going to waste that opportunity,” Donovan said.  Donovan says the process presents the first real opportunity for most troubled homeowners to get an independent read on whether their case was — or is — being handled appropriately.

Chinese banks coming to a location near you

The Federal Reserve gave three state-owned Chinese banks its stamp of approval Thursday to expand their presence in the United States.  The central bank accepted an application from Industrial and Commerce Bank of China Ltd., along with China Investment Corporation and Central Huijin Investment, to become bank holding companies by purchasing up to an 80% stake in New York-based Bank of East Asia USA.  The approval marks the first time the Fed has allowed any large Chinese bank to purchase a US bank, and it could boost merger and acquisition activity “as Chinese banks may look to acquire regional banks in order to establish a US footprint,” said Guggenheim senior policy analyst Jaret Seiberg, in a research note.  Meanwhile, the Fed also granted the Bank of China permission to open its fourth US branch in Chicago. The Beijing-based bank already has two branches in New York and one in Los Angeles.

NAR – sales up, inventory down

Median existing single-family home prices are firming in many metropolitan areas, while improving sales and declining inventory are creating more balanced conditions, according to the latest quarterly report by the National Association of Realtors (NAR).  The median existing single-family home price rose in 74 out of 146 metropolitan statistical areas (MSAs) based on closings in the first quarter from the same quarter in 2011, while 72 areas had price declines.  In the fourth quarter of 2011 only 29 areas were showing gains from a year earlier.  A new breakout of income requirements on a metro basis shows most buyers have the necessary income to buy a home in their area, assuming a favorable credit rating.

At the end of the first quarter there were 2.37 million existing homes available for sale, which is 21.8% below the close of the first quarter of 2011 when there were 3.03 million homes on the market.  There has been a sustained downtrend since inventories set a record of 4.04 million in the summer of 2007.  The national median existing single-family home price was $158,100 in the first quarter, which is 0.4% below $158,700 in the first quarter of 2011.  The median is where half sold for more and half sold for less.  Distressed homes - foreclosures and short sales which sold at deep discounts – accounted for 32% of first quarter sales; they were 38% a year ago.  Total existing-home sales, including single-family and condo, increased 4.7% to a seasonally adjusted annual rate of 4.57 million in the first quarter from a downwardly revised 4.37 million in the fourth quarter, and were 5.3% above the 4.34 million level during the first quarter of 2011 when sales spiked. 

The national median family income was $61,000 in the first quarter.  However, to purchase a home at the national median price, a buyer making a 5% down payment would only need a $34,700 income.  With a 10% down payment the required income would be $32,900, while with 20% down, the income drops to $29,300.  First-time buyers purchased 33% of homes in the first quarter, unchanged from the fourth quarter; they were 32% in the first quarter of 2011.  The share of all-cash home purchases in the first quarter was 32%, up from 29% in the fourth quarter; they were 33% in the first quarter of 2011.  Investors, drawn by bargain prices and who make up the bulk of cash purchasers, accounted for 22% of all transactions in the first quarter, up from 19% in the fourth quarter; they were 21% a year ago.  In the condo sector, metro area condominium and cooperative prices – covering changes in 52 metro areas – showed the national median existing-condo price was $157,200 in the first quarter, which is up 3.4% from the first quarter of 2011.  Eighteen metros showed increases in their median condo price from a year ago and 34 areas had declines.

Regionally, existing-home sales in the Northeast jumped 8.6% in the first quarter and are 6.6% above the first quarter of 2011.  The median existing single-family home price in the Northeast declined 3.2% to $226,300 in the first quarter from a year ago.  In the Midwest, existing-home sales rose 5.5% in the first quarter and are 11.7% higher than a year ago.  The median existing single-family home price in the Midwest increased 0.8% to $125,300 in the first quarter from the same quarter in 2011.  Existing-home sales in the South increased 2.1% in the first quarter and are 4.1% above the first quarter in 2011.  The median existing single-family home price in the South rose 1.2% to $143,600 in the first quarter from a year earlier.  Existing-home sales in the West rose 5.9% in the first quarter and are 1.4% higher than a year ago.  The median existing single-family home price in the West slipped 0.9% to $196,200 in the first quarter from the first quarter of 2011.

The number of Federal Housing Administration-insured home loans entering foreclosure jumped in March after half the mortgages it modified to ease repayment terms were in default again a year or more later.  The FHA’s role in lending to first-time buyers with poor credit and limited cash expanded after the 2008 collapse of the mortgage market put it at the center of government efforts to revive housing. The FHA allows down payments as low as 3.5 percent for borrowers with a credit score of 580, below the 640 defined as subprime by the Federal Reserve.  n increase in FHA foreclosures may lead to further demands for stricter standards that could shut buyers out of the real estate market as it shows signs of stabilizing after a six-year slump. Mark Calabria, director of financial regulation studies at the Cato Institute in Washington, in a February report called for Congress to tighten the agency’s lending qualifications to protect taxpayers, who insure the loans. First-time homebuyers accounted for 33 percent of real estate sales in March, according to the National Association of Realtors.

Borrowers with mortgages for homes bought in 2010, the FHA’s peak lending year, now owe almost 7 percent more than their homes are worth if they used the minimum down payment, according to S&P/Case-Shiller home price index data. That year, the agency insured 1.1 million loans to purchase single-family homes, more than four times the total of 261,165 in 2007.  Lenders initiated foreclosures on 36,400 FHA-backed mortgages, twice the number in April 2011, according to Lender Processing Services. The increase for Fannie Mae and Freddie Mac loans was 13 percent, the Jacksonville, Florida-based mortgage- data company said.  A Treasury Department study of modified government- guaranteed mortgages in the fourth quarter found that 49 percent were delinquent again after 12 months. The Treasury report analyzed a group of loans that was 80 percent FHA, 15 percent Veterans Administration mortgages and 5 percent Department of Agriculture rural home loans. The rate for Fannie Mae and Freddie Mac was 27 percent.  The share of government-guaranteed loans being paid on time dropped to 84.2 percent in the fourth quarter from 85.2 percent in the prior three months, the Treasury’s Office of the Comptroller of the Currency said in its March 28 report. It was the third consecutive quarterly decline.  The U.S. housing market is showing signs of having hit a bottom after prices fell 35 percent since peaking in 2006. Values in 20 U.S. cities fell 3.5 percent in February, the smallest 12-month drop since February 2011, the S&P/Case-Shiller index showed last month. New homes sold at an annual pace of 328,000 in March, up 7.5 percent from a year earlier, the Commerce Department said.

Identity theft and tax fraud

After checking employment records, the Treasury Inspector General for Tax Administration (TIGTA) said it found more returns may have been sent to tax filers using stolen identities than the IRS initially estimated.  If the IRS does not do more to catch improper refunds, up to $26 billion could be refunded to identity thieves in the next five years, J. Russell George, head of TIGTA, told a congressional hearing on Tuesday. He said IRS may have issued $5.2 billion more in refunds through ID tax fraud than the agency had earlier estimated.  The IRS did not dispute the watchdog’s figures, but said estimates for ID theft tax fraud would be lower if updated to include new IRS practices, said Steven Miller, IRS deputy commissioner for services and enforcement.

MBA – mortgage applications up

Mortgage applications increased 1.7 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending May 4, 2012.  The Market Composite Index, a measure of mortgage loan application volume, increased 1.7 percent on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index increased 2.0 percent compared with the previous week.  Increases to the seasonally adjusted Market Composite and Purchase indices were driven by increases in their Conventional components.  Application activity within the Government market decreased for both of these measures from last week.  Likewise, the Refinance Index increased 1.3 percent from the previous week, driven by a 1.8 percent increase to the Conventional Refinance Index, while the Government Refinance Index decreased 2.3 percent.  The seasonally adjusted Purchase Index increased 3.4 percent from one week earlier, spurred by a 5.4 percent increase in the seasonally adjusted Conventional Purchase Index. The unadjusted Purchase Index increased 3.8 percent compared with the previous week and was 0.4 percent lower than the same week one year ago.

The four week moving average for the seasonally adjusted Market Index is up 1.13 percent.  The four week moving average is down 0.82 percent for the seasonally adjusted Purchase Index, while this average is up 1.81 percent for the Refinance Index.  The refinance share of mortgage activity decreased to 72.1 percent of total applications from 72.6 percent the previous week.  This is the lowest refinance share since April 6, 2012.  The government purchase share decreased over the week from 37.0 percent to 35.8 percent of all purchase applications.  This is the lowest government purchase share since March 27, 2009.  The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 4.01 percent from 4.05 percent, with points decreasing to 0.41 from  0.44 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.  This is the lowest 30-year fixed interest rate recorded in the history of the survey.   The effective rate decreased from last week.

Oil down

Oil fell for a sixth day in New York, the longest run of declines in almost two years, after crude stockpiles advanced in the U.S., the world’s largest consumer of the commodity.  Futures slid as much as 0.8 percent after dropping 8.6 percent in the past five days. U.S. inventories increased 7.8 million barrels last week to 378 million, the highest level since August 1990, the American Petroleum Institute said yesterday. A government report today may show supplies rose 2 million barrels, according to a Bloomberg News survey. Oil is poised to rebound as global refiners increase purchases, Societe Generale SA predicts.  “U.S. inventory levels are preventing oil having the traditional dead cat bounce after such a steep fall,” said Christopher Bellew, a senior broker at Jefferies Bache Ltd. in London, who predicts prices will rebound this month. “The lows we’ve seen this week will probably hold, and crude will likely rise as buying by funds and weakness in the dollar assist with a recovery.”  Crude for June delivery fell as much as 76 cents to $96.25 a barrel in electronic trading on the New York Mercantile Exchange and was at $96.53 at 8:58 a.m. London time. It slipped 1 percent yesterday to $97.01, the lowest close since Feb. 6. Front-month prices are down 2.2 percent this year. The six-day decline is the longest since July 2010.  Brent for June settlement was at $112.50 a barrel, down 0.2 percent, on the London-based ICE Futures Europe exchange. The European benchmark contract’s premium to West Texas Intermediate was at $15.83, little changed from $15.72 yesterday.  The Organization of Petroleum Exporting Countries said its basket of crudes was at $109.58 a barrel yesterday, the first time the grades have fallen below $110 since Jan. 3.

WSJ – Freddie drops fee

In the latest bid to help homeowners hit by the housing crash, Freddie Mac, the U.S.-supported mortgage giant, is set to drop a fee associated with refinancing deeply underwater loans.  The firm plans to eliminate a fee of 0.5 percentage point, called a “cash adjustor,” on loans refinanced under the Home Affordable Refinance Program with balances greater than 125% of the property’s value, said Paul Mullings, a senior vice president at Freddie Mac. He spoke at a Mortgage Bankers Association conference on Monday.  Dropping the fee represents the latest sign that the government-sponsored enterprises and their regulator are determined to extend the reach of the refi program. Changes last year eliminated the loan-to-value cap and relieved banks of some liabilities that could arise with homeowners willing to default.  Freddie Mac had earlier this year dropped the cash adjustor on HARP refinancings for mortgages with loan-to-value ratios ranging from 105% through 125%, and encouraged the lenders to pass the savings to consumers. (The fee was created to help offset some of the increased risk seen in such refis.)

Where manufacturing is gaining

After hemorrhaging jobs during the recession , manufacturing has been one of the few bright spots, restoring 489,000 jobs since the beginning of 2010.  But there have been some significant geographic distinctions in that recovery, as well as some toppled assumptions, one of which is that factory jobs have steadily shifted from the Midwest to the South.  A new report from the Brookings Metropolitan Policy Program shows that since the beginning of 2010, manufacturing employment has increased by 5.2 percent in the Midwest, while it has gone up by only 2.2 percent in the South.  Southern regions remain relatively strong in manufacturing, with eight metropolitan areas on that list. But the usual narrative of an inexorably declining Rust Belt seems not quite accurate – or at least for now.

“It’s possible that this bounce-back is just a bounce-back and won’t last,” said Howard Wial, an economist and fellow at the Brookings Institution who was one of the authors of the report. “But there is an opportunity for it to be more.”  The study also examined the clustering of manufacturing companies in particular regions. Very high-tech manufacturing companies are concentrated in the Northwest and West, for example, while chemical companies are found mostly in the South.  The authors indicated that most state and local governments do little to foster a thriving manufacturing industry when they offer tax breaks and other incentives to companies or pass right-to-work laws that tend to suppress wages. Instead, they say, governments should focus on research and development and work-force training aimed at specific manufacturing sectors.  Mr. Wial said that there was some evidence that manufacturing could make more of a comeback in the United States because labor costs are rising in developing countries and “many large companies are starting to reconsider the costs and benefits of offshoring.”

CoreLogic – Market Pulse

CoreLogic today released its May CoreLogic MarketPulse report. The monthly economic publication provides insight into the current and future health of the U.S. economic climate with particular focus on housing and mortgage metrics. CoreLogic Chief Economist Mark Fleming and Senior Economist Sam Khater authored the articles and commentary.  Key findings in the May MarketPulse Report include:

-  The national housing market is transitioning to more stability in sales and home prices, with reasonable inventory levels and a declining share of REO sales.

-  Short sales, modifications, and other foreclosure alternatives are playing a larger role than in years past, and the flow of new foreclosures is declining with an improving economy.

-  Mortgage performance is experiencing a slow and steady improvement as the 90+ day serious delinquency rate in March fell to 7.0 percent, the lowest rate since July 2009. “This decline in serious delinquency represents a significant reduction of approximately three quarters of a million borrowers,” said Fleming in the report.

-  Overall home sales activity continues to improve, with total sales eclipsing 410,000, up more than 20 percent from a year ago and the highest March sales rate since 2007.

-  While the national market continues to improve, it masks regional variation where some local markets are improving much more rapidly than others. The most improved markets from a year ago are Phoenix, Boise and Salt Lake City.

-  Home prices are at, or very close to, the bottom as the Memorial Day weekend approaches.

CoreLogic today released its March Home Price Index (HPI) report which shows that nationally home prices, including distressed sales, declined on a year-over-year basis by 0.6% in March 2012 compared to March 2011. On a month-over-month basis, home prices, including distressed sales, increased by 0.6% in March 2012 compared to February 2012, the first month-over-month increase since July 2011.  Excluding distressed sales, month-over-month prices increased for the third month in a row. The CoreLogic HPI also shows that year-over-year prices, excluding distressed sales, rose by 0.9% in March 2012 compared to March 2011. Distressed sales include short sales and real estate owned (REO) transactions.  “This spring the housing market is responding to an improving balance between real estate supply and demand which is causing stabilization in house prices,” said Mark Fleming, chief economist for CoreLogic. “Although this has been the case in each of the last two years, the difference this year is that stabilization is occurring without the support of tax credits and in spite of a declining share of REO sales.”  “While housing prices remain flat nationally, in many markets tighter inventories are beginning to lift home prices,” said Anand Nallathambi, president and chief executive officer of CoreLogic. “This is true in Phoenix, New York and Washington, for example, which all reflect higher home price values than a year ago. A continuation of this trend will be good for our industry across US markets.”

Highlights as of March 2012

-  Including distressed sales, the five states with the highest appreciation were:  Wyoming (+5.9%), West Virginia (+5.3%), Arizona (+5.1%), North Dakota (+4.7%) and Florida (+4.5%).

-  Including distressed sales, the five states with the greatest depreciation were: Delaware (-10.6%), Illinois (-8.3%), Alabama (-8.0%), Georgia (-7.3%) and Nevada (-5.8%).

-  Excluding distressed sales, the five states with the highest appreciation were: Idaho (+5.4%), North Dakota (+5.1%), South Carolina (+4.7%), Montana (+3.5%) and Kansas (+3.4%).

-  Excluding distressed sales, the five states with the greatest depreciation were: Delaware (-7.6%), Alabama (-4.1%), Nevada (-3.9%), Vermont (-3.9%) and Rhode Island (-2.9%).

-  Including distressed transactions, the peak-to-current change in the national HPI (from April 2006 to March 2012) was -33.7%. Excluding distressed transactions, the peak-to-current change in the HPI for the same period was -24.5%.

-  The five states with the largest peak-to-current declines including distressed transactions are Nevada (-59.9%), Arizona (-48.6%), Florida (-48.1%), Michigan (-45.1%) and California (-42.7%).

-  Of the top 100 Core Based Statistical Areas (CBSAs) measured by population, 57 are showing year-over-year declines in March, eight fewer than in February.

Business confidence lackluster

While the National Federation of Independent Business’ Small Business Optimism Index rose two points in April to 94.5, the index is back to the same level it had been in February 2011.  “It’s positive from last month,” said NFIB chief economist William Dunkelberg. “But we’re in the same place as a year ago, so a whole year has gone by and we don’t go anywhere.”  In areas like capital outlays, indications are that while things are slowly improving, it’s “nothing to write home about,” said Dunkelberg. The Index now stands at 54%, far above the 44% in August 2010, but below the average rate of 60%.  “In the smallest businesses, we’re seeing improvement,” said Dunkelberg, “but it’s going on under the government’s radar. It will take a while before it registers” in the national picture, he said, pointing to the job creation number in particular. “Hopefully this time they will not deteriorate again.” and that’s pretty much the hope for all 10 categories in the index, many of which have, over the course of the past few years, seen ups and downs.  “We keep getting these head fakes, like last year, and we’re wondering if [the index] will do it again,” said Dunkelberg, referring to March 2011, when the survey took a dip, and then continued a downward trend throughout the spring and summer, only starting to rise again last October. “Last year, it kept getting worse; this time March took a dive, then came back.”

Regulations stifle mortgage market

Rulemakings will dominate the mortgage industry this year as the sector continues its “slow, bumpy road to recovery,” keynote speakers said as the Mortgage Bankers Association’s (MBA) secondary conference got into full swing Monday in New York City.  The rulemaking surrounding the Qualified Mortgage — or QM, repurchase requests, national servicing settlements and government-sponsored enterprise reform will dominate the year, said David Stevens, president and CEO of the MBA. But despite the attention to those four key areas, the MBA is tracking some 100 rulemakings in the Dodd-Frank Act.  Monday’s opening session was part feel-good, part dire warning as speakers struck a balance between the good and the bad in the current marketplace.  An opening video, for example, provided the feel-good atmosphere. It showed an MBA member’s recollections of his immigrant father buying a tract home in the New York burrough of Queens after World World II.

Mitch Kider, with Washington, D.C.-based law firm Weiner Brodsky Sidman Kider PC, recounted the reverence his father felt for the bank that provided the Federal Housing Administration loan that made it all possible.  “The people that work in this industry are working there because their heads and their hearts are in the right place,” he said. “As mortgage bankers, you are doing wonderful things for society.”  Stevens brought things back to earth by voicing borrower trepidation to buy homes, lender concern over burdensome regulations and investor mistrust of the process.  Borrowers, especially those on the margins, could be negatively impacted if the qualified mortgage rule — what he called “the holy grail of who gets access to a mortgage” — is too narrowly defined.  The need for more clarity in the system, for borrowers, lenders, mortgage servicers and investors, was a recurring theme from opening speakers.  On GSE reform, Stevens urged the industry do what it can without Congress, where he predicted a continued logjam.  “We need to take control of our own destiny,” he said.

Lewis Ranieri, chairman and founding partner of Ranieri Parnters, widely considered a pioneer of modern mortgage finance, said the industry must be aware of those would not be content to fix the capital market but who believe the capital markets “are not simply broken … but are profoundly the wrong thing to do.”  If it doesn’t stay aware, the industry may end of with a fundamental rewrite of the way it does business, where everything resides on the balance sheet, he said.  Two mortgage businesses came to him recently about a possible sale due to the tough regulatory environment, Ranieri said.  “I truly believe the future of our industry is decided in the next eight months,” he said. “There is a regulatory movement that isn’t just trying to fix, it’s trying to change.”  Richard Dorfman, managing director of the Securities Industry and Financial Market Association, or SIFMA, said it falls on the industry to define the issues in ways that resonate with consumers.  Instead of complaining that Dodd-Frank is a burden to the banks, regulations should be defined in ways that show how they limit mortgage access to potential homebuyers, for example, he said.  “Consumers must be served, and they can and will be served by this industry,” he said. “There is no doubt in my mind.”

Krugman’s ideas “reckless” and “silly”

The president of the Federal Reserve Bank of Dallas, Richard Fisher, rejected the idea that higher inflation would spur the economy on Monday.  Saying the last thing businesses needed in this economy was uncertainty, Fisher sided with Federal Reserve Chairman Ben Bernanke in his public feud with Paul Krugman, the leftwing economist and New York Times columnist.  Called “The Battle of the Beards” by The Washington Post, the back-and-forth between the two economists began when Krugman called on the Fed to raise inflation targets, a move Bernanke called “reckless.”  “I would say that Ben Bernanke’s guilty of understatement. It would be more than reckless. It’s a silly thing to recommend,” Fisher said.  “I understand the argumentation from Krugman’s standpoint, from his perspective. He’s just trying to broaden the window to try to make things normal if we were to go below the 2% rate. That’s our long-term target. I believe we’re going to stick with it. I personally feel that this is something that is ultra-critical for our credibility.”

Olick – $150,000 off?

“A select group of struggling mortgage borrowers are about to get an offer that sounds too good to be true. Executives at Bank of America say they will begin mailing 200,000 letters offering certain customers mortgage principal reduction.  ‘If people get these things and toss them, they won’t be eligible,’ says Ron Sturzenegger, the Bank of America executive charged with providing solutions to borrowers in need of mortgage assistance.  But the offer is real, and eligible borrowers could get as much as $150,000 knocked off the balance of their mortgages. It is all part of the $25 billion settlement reached this year between federal and state agencies and the nation’s five largest mortgage servicers over fraudulent foreclosure document processing (so-called ‘robo-signing’).  Bank of America, in a deal with state attorneys general and the US Department of Justice, committed $11 billion to mortgage principal reduction, but executives say they will go beyond that if enough borrowers respond to their offer. Five thousand borrowers have already received a collective $700 million in principal reduction through a pilot program for those already in a modification negotiation. The 200,000 borrowers being targeted now may have already exhausted modification options or may have yet to contact the lender.

Executives say borrowers receiving the letters are eligible, but they still have to prove they qualify. In order to be eligible, a borrower must be 60 days late on the mortgage payment as of Jan. 31, 2012. The borrower has to owe more on the mortgage than the home is currently worth, commonly known as being ‘underwater’ on the mortgage, and the borrower’s loan must either be owned by Bank of America or serviced by Bank of America for an investor who is allowing the modifications.  In order to qualify for the modification, the borrower must answer the letter with full documentation of income, showing that under the terms of the modification they can still make the monthly payment. A borrower with no income would therefore not qualify. A borrower’s current monthly payment must be  more than 25% of gross income, and the borrower must show they are unable to afford that.  ‘If you can afford to make your monthly payment and are choosing not to, you will not get this principal modification,’ says Sturzenegger.  If the borrower qualifies, Bank of America will bring the monthly mortgage payment down to 25% of the borrower’s gross income. That could mean principal forgiveness well over $100,000, as there is no limit to the amount of the mortgage. If enough borrowers respond, it could cost Bank of America far more than it committed to in the settlement.  ‘Yes, we have the capability to go well beyond the $11 billion,’ adds Sturzenegger.

If the borrower qualifies, Bank of America will bring the monthly mortgage payment down to 25% of the borrower’s gross income. That could mean principal forgiveness well over $100,000, as there is no limit to the amount of the mortgage. If enough borrowers respond, it could cost Bank of America far more than it committed to in the settlement.  ‘Yes, we have the capability to go well beyond the $11 billion,’ adds Sturzenegger.  Bank executives say that before choosing which borrowers will get the offer, they performed a net present value test on each loan, making sure that the principal reduction modification would net Bank of America or the investor who owns the loan more than foreclosing on the home. ‘It has to be fair to the investor as well,’ says Sturzenegger.  Not all of the 200,000 borrowers who receive the letters are expected to respond. Executives say there is a level of fatigue among delinquent borrowers who have already received several notices or who may have gone through a failed modification process already. Some borrowers simply don’t want to stay in their homes, while others may think the offer is a scam.  ‘They have been contacted by a lot of other people, and this offer may appear too good to be true,’ says Sturzenegger.

That’s why Bank of America is sending the letters by certified mail and trying to make the language as simple as possible. A sample letter obtained by CNBC shows a bring red box in the top corner labeled, ‘IMPORTANT’ and simple language stating, ‘Qualifying customers may reduce their monthly payment by an average of 35%.’  Some 6,500 letters should be arriving in mailboxes across the country this week, with a wave of new letters going out every week until the end of the summer, when all 200,000 should have been mailed. Bank of America is staggering the mailings in order to handle the expected response. The bank has staffed up to handle the task, with 50,000 employees manning servicing desks, but the process will clearly take a lot of time. That’s why Bank of America has suspended any foreclosure actions against these 200,000 borrowers until the process is complete. There are currently 5.59 million US loans that are either delinquent or in the foreclosure process, according to Lender Processing Services. Bank of America services one million of those loans, but many of them are owned by Fannie Mae and Freddie Mac. Their regulator, Edward DeMarco of the Federal Housing Finance Agency, has yet to agree to principal reduction in loan modifications, despite harsh criticism from some lawmakers on Capitol Hill and increasing pressure from the White House.”

Consumer credit on the rise

US consumer credit shot up during March at the fastest rate since late 2001 as credit-card use, and student and car loans ballooned, data from the Federal Reserve showed yesterday.  Total consumer credit grew by $21.36 billion — more than twice the $9.8 billion rise that Wall Street economists surveyed by Reuters had forecast. That followed a revised $9.27 billion increase in outstanding credit February.  It was the largest surge in consumer credit for any month since November 2001, when it climbed by $28 billion, according to the Fed’s statistics.  The increase in March was concentrated in nonrevolving credit, which includes student and car loans. It climbed by $16.17 billion following a revised $11.62-billion gain in February.  Concern about student-loan levels has increased in an environment where newly graduating students face difficulty finding a job and keeping up on payments.  Congress is currently considering how to prevent a low interest rate for student loans from doubling on July 1 and is expected to find a way to do so, if only to avoid irritating young voters ahead of November’s presidential elections.  But so-called revolving, or credit-card debt, also gained strongly in March. It rose $5.18 billion in a sharp reversal from February when this category of credit use contracted by $2.35 billion.

NAHB – 100 markets on the improving list

The list of housing markets showing measurable and sustained improvement held virtually unchanged in May at 100, down from 101 in April, according to the National Association of Home Builders (NAHB)/First American Improving Markets Index (IMI), released yesterday. The number of states represented on the list also held firm from the previous month, at 35 (including the District of Columbia).  The index identifies metropolitan areas that have shown improvement from their respective troughs in housing permits, employment and house prices for at least six consecutive months. While 83 metros held onto their previous places on the IMI and 17 new ones were added to the list in May, 18 metros dropped from the list, for a net loss of one. Metros newly added to the list in May include such geographically diverse places as Phoenix, Ariz.; Bowling Green, Ky.; Bend, Ore.; and Lubbock, Texas.  “The fact that there are 100 markets in 34 states and the District of Columbia represented on the improving list illustrates that all housing markets are local, and that the national headlines often don’t apply to what’s happening in a specific metropolitan area,” said NAHB Chairman Barry Rutenberg, a home builder from Gainesville, Fla. “In places where employment is firming up along with demand for new homes, the main factors weighing down the housing market continue to be access to credit (for both builders and buyers) and the difficulty of obtaining accurate appraisals on new construction.”

“The overall number of markets on the IMI continued to plateau this month, with more than a quarter of all US metros still showing signs of improvement,” said NAHB Chief Economist David Crowe. “Many of these are relatively small markets in terms of their population and building volume, which is why their improvement is barely registering on the national scale as of yet. Moreover, we are seeing some shifting of markets on and off the list primarily due to small seasonal house price changes in areas that have had flat, stable prices rather than a boom-and-bust cycle.”  “The fact that the number of improving metros continued to hold its own with 100 entries in May shows that there are many places across the country where confidence and consumers are returning to the housing market,” observed Kurt Pfotenhauer, vice chairman of First American Title Insurance Company.  The IMI is designed to track housing markets throughout the country that are showing signs of improving economic health. The index measures three sets of independent monthly data to get a mark on the top improving Metropolitan Statistical Areas. The three indicators that are analyzed are employment growth from the Bureau of Labor Statistics, house price appreciation from Freddie Mac, and single-family housing permit growth from the US Census Bureau. NAHB uses the latest available data from these sources to generate a list of improving markets. A metropolitan area must see improvement in all three areas for at least six months following their respective troughs before being included on the improving markets list.

Second-quarter pre-foreclosure sales jumped 19% from the previous quarter, suggesting more banks and distressed borrowers are searching for efficient ways to offload properties that are near foreclosure, RealtyTrac said. Third parties acquired 102,407 pre-foreclosures in the second quarter, while 162,680 bank-owned homes were sold in the same period. Pre-foreclosure sales are generally short sales and properties sold within the foreclosure process. As for who is nabbing up distressed and bank-owned properties, RealtyTrac said third parties acquired 265,087 homes classified as in foreclosure or bank-owned in the second quarter. That is up 6% from the revised first quarter figure and down 11% from the second quarter of last year. The average sales price for foreclosures or bank-owned properties hit $164,217 in 2Q, down less than one percent from 1Q and 5% from the second quarter of 2010.  The sales price for distressed real estate was 32% below the average sales price of homes not in foreclosure. States with the largest quarterly increase in pre-foreclosure home sales included Nevada, which experienced a 43% increase; Washington (39%), California (38%); and Texas (34%). The states with the highest number of foreclosure sales included Nevada, Arizona and California.

Budget Deficit Estimate Cut to $1.28 Trillion: CBO

The federal budget deficit will hit $1.28 trillion this year, down slightly from the previous two years, with even bigger savings to come over the next decade, according to congressional projections released Wednesday.  The nonpartisan Congressional Budget Office says budget deficits will be reduced by a total $3.3 trillion over the next decade, largely because of the deficit reduction package passed by Congress earlier this month. Nevertheless, the federal budget will continue to be awash in red ink for years to come. Even with the savings, budget deficits will total nearly $3.5 trillion over the next decade—more if Bush-era tax cuts scheduled to expire at the end of 2012 are extended.  There is more bad news in the report: CBO projects only modest economic growth over the next few years, with the unemployment rate falling only slightly by the end of 2012. The agency projects an unemployment rate of 8.5 percent for the last four months of 2012. The presidential election is in November of that year. 

“The United States is facing profound budgetary and economic challenges,” the new CBO report says. “With modest economic growth anticipated for the next few years, CBO expects employment to expand slowly.” Failure to pass a package would trigger $1.2 trillion in automatic spending cuts, affecting the Pentagon as well as domestic programs.  The new CBO report projects that the legislation will reduce deficits by a total of $2.1 trillion over the next decade. The agency also projects savings of $600 billion over the next decade from lower interest rates.

Diana Olick: Higher-End Housing Hits a Wall

Most of America won’t shed a tear for those who own higher-priced homes, especially given that the median home price in the nation has now fallen to just $174,000, but investors and homeowners alike should take note: Higher priced homes are taking a hit and the outlook for them is worse than the overall market.  That will have ramifications for recovery.  Despite the fact that just eight percent of US loans are currently jumbo, according to Inside Mortgage Finance, and that share will rise to just 10-12 percent when the conforming loan limit is lowered October 1st, high-end housing is already being hit harder than the overall market, which isn’t exactly doing so well itself. For one, weekly mortgage applications to purchase a home have been falling steadily, down 5.7 percent last week. But jumbo loan purchase applications fell 15 percent.

While sales of homes below $250,000 rose nearly 25 percent in July year over year according to the National Association of Realtors (June 2010 was the end of the home buyer tax credit, so July 2010 was artificially low, still….) sales of homes over $500,000 were basically flat.  Demand on the low end of the housing market is boosted by investors largely buying distressed properties; they either fix up and flip the homes or rent them out, waiting for the market to recover. Higher end homes have far fewer investors and may be more sensitive to a volatile stock market, as potential buyers are more likely to be invested there. Suffice it to say, we need all segments of the housing market pushing forward in order to get the full market back to health.

Markets not impacted by rise in jobless claims

Initial jobless claims rose last week, increasing by 5,000 filings for a total of 417,000 claims on a seasonally adjusted basis. That is up from the previous week’s revised figure of 403,500 claims. The Labor Department noted the numbers for the week ending Aug. 20 were impacted by 8,500 claims stemming from a labor dispute between the Communications Workers of America and Verizon Communications. Meanwhile, the advance seasonally adjusted insured unemployment rate hit 2.9% for the week ending Aug. 13, a slight decrease from the previous week’s revised rate of 3% Despite recent volatility in the stock market, analysts with Econoday said Thursday the markets “are showing little reaction to the report, which outside of the Verizon strike, points to mildly improving conditions in the labor market.”

Pre-Foreclosure Short Sales Jump 19% in Second Quarter

Short sales shot up 19 percent between the first and second quarters, with 102,407 transactions completed during the April-to-June period, according to RealtyTrac. Over the same timeframe, a total of 162,680 bank-owned REO homes sold to third parties, virtually unchanged from the first quarter. RealtyTrac’s study also found that the time to complete a short sale is down, while the time it takes to sell an REO has increased. Pre-foreclosure short sales took an average of 245 days to sell after receiving the initial foreclosure notice during the second quarter, RealtyTrac says. That’s down from an average of 256 days in the first quarter and follows three straight quarters in which the sales cycle has increased.  Nationally, REOs had an average sales price of $145,211, a discount of nearly 40 percent below the average sales price of non-distressed homes. The REO discount was 36 percent in the previous quarter and 34 percent in the second quarter of 2010.  Together, REOs and short sales accounted for 31 percent of all U.S. residential sales in the second quarter, RealtyTrac reports. That’s down from nearly 36 percent of all sales in the first quarter but up from 24 percent of all sales in the second quarter of 2010.

The Commerce Department said yesterday that construction spending ticked up 0.1 per cent.  The small March gain left construction spending at a seasonally adjusted annual rate of $808.1 billion. That’s 6 per cent above a 12-year low of $762.6 billion hit last March. Still, the level of spending is roughly half of what economists consider to be healthy.  “The weakness in construction spending in March was entirely in public spending,” said John Ryding, an analyst at RDQ Economics, in a note to clients.  Still, even with the increase in private construction spending, the trend over the last three months is weak, Ryding noted.  “We look for some gradual improvement in private construction spending in 2012, but structures investment is not a material factor in our growth forecast for this year,” he said. 

Government construction activity fell 1.1 per cent to the slowest pace since February 2007, the report said. Spending by state and local governments dropped to the weakest level since November 2006, while spending by the federal government rose 3.8 per cent to a rate of $28.9 billion.  Spending on private nonresidential projects rose 0.7 per cent. Work on office buildings, hotels and transportation projects rose. Spending in the category that includes shopping centres fell.  Private residential activity rose 0.7 per cent. The increase was driven by more construction of single-family homes.  Even with the gains, home construction continues to slump five years after the housing bubble burst. Sales of new homes fell 7.1 per cent in March, the largest decline in more than a year.  Though new-home sales represent less than 10 per cent of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to the National Association of Home Builders.  Business spending on construction projects, such as office buildings and shopping centres, is also sluggish. The government reported last week that it fell in the January-March quarter, the second consecutive quarterly decline.  The economy grew at an annual rate of 2.2 per cent in first quarter. Stronger consumer spending offset slower business investment and less growth in government spending.  Economists expect construction spending to remain sluggish this year. Tighter credit could keep businesses from receiving loans for building projects. And lawmakers are likely to keep pressure on government spending, which could hamper public works projects.

Private sector employment sluggish

Private-sector employment increased by just 119,000 in April, according a report from ADP that puts a dent into the notion that the jobs market is on the path to a solid recovery.  The report was well below forecasts of 170,000 and comes after a string of stronger numbers.  ADP said service-sector jobs rose by 123,000, but construction fell by 5,000, falling for the first time since September 2011. Manufacturing also lost 5,000, while goods-producing dropped 4,000. Financial services added 13,000 jobs.  Employment additions again were strongest in small businesses, which added 58,000 positions, and weakest in big business, which saw a net of just 4,000 new jobs.  The March number was revised downward from 209,000 to 201,000, according to the report, which is done in conjunction with Macroeconomic Advisors.

MBA – mortgage applications up

Mortgage applications increased 0.1% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 27, 2012.  The Market Composite Index, a measure of mortgage loan application volume, increased 0.1% on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index increased 0.4% compared with the previous week.  The Refinance Index decreased 0.7% from the previous week.  The seasonally adjusted Purchase Index increased 2.9% from one week earlier. The unadjusted Purchase Index increased 3.7% compared with the previous week and was 3.0% higher than the same week one year ago.  The four week moving average for the seasonally adjusted Market Index is up 0.09%.  The four week moving average is down 1.77% for the seasonally adjusted Purchase Index, while this average is up 0.75% for the Refinance Index.  The refinance share of mortgage activity decreased to 72.6% of total applications from 73.4% the previous week. The government share of purchase applications remained steady at 37.0%, a slight increase from a couple of weeks ago when the share was 36.4%. The government share of purchase applications over the last three weeks has been at the lowest level since 2009.  During the month of March, the investor share of applications for home purchase was at 5.7%, a slight decrease from 6.1% in February.  This change was led by a decline in the West South Central region.  In addition, the share of purchase mortgages for second homes remained constant at 5.8%.

US has to deleverage

The US government will have to follow its citizens and corporates in deleveraging its balance sheet, Bob Baur, chief global economist, Principal Global Investors, said today.  “It’s no question that we’re going to see more deleveraging. Households are in much better shape and companies have improved their balance sheets dramatically. It’s the government that needs to deleverage,” he said.  He added that some deleveraging had begun at the state level, but had yet to reach central government.  The US government, which pumped trillions of dollars into bailouts of the banking and automobile sector and buying mortgage-backed securities to help lenders Fannie Mae and Freddie Mac, has more than $15 trillion in debt – the ceiling for borrowing is set at $16.4 trillion.  It is also facing demographic problems such as an aging population and subsequent rising Medicare bill, which might handicap the speed at which it can reduce its debt.

Olick – where are the foreclosures?

“The number of homes entering the foreclosure process rose in March, up 8.1%, according to a new report from lender Processing Services, but the volume is down more than 30% from a year ago.  Analysts had expected this number to skyrocket immediately following the $25 billion settlement between banks and state governments over fraudulent mortgage servicing.  Foreclosures sales, which are the final stage of the foreclosure process, not sales of bank-owned homes, dropped precipitously in March to their lowest point in over two years. They dropped most sharply — 14% month-to-month — in states where a judge is not required in the foreclosure process (so-called non-judicial states).  Again, that is contrary to expectations, but could be yet another stall in the system, as banks try to modify more loans to meet some of the terms of the servicing settlement. The foreclosure sales decline also appears to be exclusively in private and portfolio loans, which again points to the settlement.  That low pace of foreclosure sales is keeping foreclosure inventory, or loans in the foreclosure process, at near historic highs, according to LPS. That number may be heading lower, however, as banks ramp up the short sale process.

Short sales, when the bank allows the home to be sold for less than the value of the mortgage, are in fact now outpacing sales of bank-owned homes in many markets, according to a new report from RealtyTrac.  Short sales rose by 15% in the fourth quarter of 2011 from the previous year, while sales of REO’s (bank-owned homes) dropped 12%. Short sales outpaced REO sales in several markets, including Los Angeles, Miami, and Phoenix, according to RealtyTrac. Georgia, where foreclosure inventories are surging, saw a 113% jump in short sales. The process, once avoided widely due to its lengthy lag time, is already speeding up, and Fannie Mae and Freddie Mac both recently announced new guidelines to reduce short sale timelines.  ‘Lenders are increasingly recognizing that short sales may be a better alternative for them than foreclosure,’ notes RealtyTrac’s Daren Blomquist. ‘This trend began in markets with stronger demand and where the distressed inventory tends to be newer homes (Phoenix, Los Angeles, Las Vegas), but the trend appears to be spreading to other markets like Atlanta and Detroit.’  Look for a special report on the Atlanta housing market on CNBC and CNBC.com Thursday.”

People renouncing US citizenship to escape taxes

About 1,780 expatriates gave up their nationality at US embassies last year, up from 235 in 2008, according to Andy Sundberg, secretary of Geneva’s Overseas American Academy, citing figures from the government’s Federal Register. The embassy in Bern, the Swiss capital, redeployed staff to clear a backlog as Americans queued to relinquish their passports.  The US, the only nation in the Organization for Economic Cooperation and Development that taxes citizens wherever they reside, is searching for tax cheats in offshore centers, including Switzerland, as the government tries to curb the budget deficit. Shunned by Swiss and German banks and facing tougher asset-disclosure rules under the Foreign Account Tax Compliance Act, more of the estimated 6 million Americans living overseas are weighing the cost of holding a US passport.  Renunciations are higher in Switzerland because American expatriates expect extra scrutiny of their affairs after the UBS case and as the US probes 11 other Swiss financial firms for aiding offshore tax evasion, said Martin Naville, head of the Swiss-American Chamber of Commerce in Zurich.

“Every dollar you save, you lose to the US tax man,” said tax lawyer Ledvina. “That’s one reason why people give up citizenship.”  The 2010 Fatca law requires banks to withhold 30% from “certain US-connected payments” to some accounts of American clients who don’t disclose enough information to the IRS.  “There is incredible frustration at the audacity and imperial overreach of this law,” said David Kuenzi, a tax adviser at Thun Financial Advisors in Madison, Wisconsin, referring to Fatca.  Failure to file the 8938 form can result in a fine of as much as $50,000. Clients can also be penalized half the amount in an undeclared foreign bank account under the Banks Secrecy Act of 1970.  “It’s a big brother concept,” said Brent Lipschultz, a partner at New York-based accounting firm EisnerAmper.  The implementation of Fatca from next year comes after UBS, Switzerland’s largest bank, paid a $780 million penalty in 2009 and handed over data on about 4,700 accounts to settle a tax- evasion dispute with the US Whistle-blower Birkenfeld was sentenced to 40 months in a US prison in 2009 after informing the government and Senate about his American clients at the Geneva branch of Zurich-based UBS.

Pushback against ideology in principal reduction debate

Federal Housing Finance Agency (FHFA) Acting Director Edward DeMarco pushed back against Democratic lawmakers yesterday, claiming the agency decision on principal reduction will be based on analytics not ideology.  Reps. Elijah Cummings, D-Md., and John Tierney, D-Mass., sent a letter earlier in the morning to DeMarco. They pointed to internal documents at Fannie Mae showing the government-sponsored enterprise and its regulator approved but then quickly closed a pilot principal forgiveness program in 2010 that could have saved the firm $410 million.  DeMarco expressed disappointment in the letter and said since 2009, the FHFA approved multiple pilot programs for principal forgiveness, but the approvals did not indicate a “pre-determined view.”

“The fact that FHFA continues to consider principal-forgiveness alternatives, including recent HAMP program changes initiated by the Treasury Department, belies any ideological tilt on our part, but rather a strict analytical-based approach to gathering and evaluating data to determine what options best fit within the legal constraints that fall upon this agency as conservator for the enterprises,” DeMarco said in the letter.  DeMarco said while many pilot programs were developed, “there was not full agreement to proceed at the enterprises or their counterparties,” which in this instance was Citigroup.  The pilot program in question involves 1,200 mortgages originated by Citi for shared appreciation and 1,000 Fannie-guaranteed loans for principal forgiveness, according to the internal documents reviewed by HousingWire. The program would have been partly rolled out in the second quarter of 2011, according to several of the internal emails. 

In an early April speech, DeMarco showed preliminary FHFA analysis on new principal-reduction incentives. The expanded HAMP effort could save Fannie and Freddie Mac $1.7 billion but would cost taxpayers a net $2.8 billion. He also outlined how principal forbearance was a substitute for a shared-appreciation program.  The FHFA delayed its decision on approving the GSEs to do principal reductions, but DeMarco said in the letter that this is a decision meant for Congress.  “Such a policy question, especially as it has to do with public funds being taken from one group of citizens to provide a benefit to another group of citizens, should be determined by Congress,” DeMarco wrote. “In the absence of clear legislative direction, however, FHFA will continue to make determinations in how best to accomplish both of these goals after careful analysis of the facts and other information available to us and the multiple legal responsibilities placed upon us.”