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Smart Real Estate News & Commentary by Chris McLaughlin August 4, 2011

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WSJ – listings fall.

The number of homes listed for sale declined sharply in a number of US cities during the second quarter, offering glimmers of hope that some housing markets are starting to recover.  At the end of June, nearly 2.34 million homes were listed for sale on multiple-listing services in more than 900 metro areas, the lowest level for that time of year since at least 2007, according to Realtor.com. In some cases, inventory levels are at their lowest levels since the housing downturn began five years ago.

The Wall Street Journal’s latest quarterly survey of housing-market conditions in 28 major metropolitan markets found inventory levels were down in all but three markets and were down by double digits in 16 markets in the second quarter, compared with a year ago. Listings in Miami were down 43% from a year ago and were off 30% in Washington, D.C. Several cities, including Charlotte, N.C.; Seattle; and San Francisco, saw declines greater than 20%.  In markets such as Sacramento, Calif., and Phoenix, where home values are down nearly 50% from the peak in 2006, it would take just four months to sell the supply of homes listed for sale at the current sales pace.  Home values, meanwhile, fell at a slower pace during the second quarter, with 19 markets reporting quarterly gains, according to data from Zillow.com. Values were still below year-earlier levels in every market.

Shrinking inventory often is seen as a positive sign for housing because it usually means demand is rising, which often leads to higher prices. But in the current environment, the decline in inventory may instead reflect how the market remains anything but healthy. While sales are picking up in some cities, analysts say the sharp decline in inventory also reflects the slow pace at which banks are processing foreclosures.  The bottleneck in bank foreclosures has contributed to that situation. In the past year, banks have been accused by federal and state officials of circumventing legal procedures when foreclosing on homeowners.

To correct those problems, banks are moving more cautiously when repossessing a home.  As a result, the number of newly initiated foreclosures has dropped to a three-year low. But the number of homes in foreclosure—a backlog of 2.1 million—is near a high, according to LPS Applied Analytics.  If supply remains constrained, prices could stabilize. “We’re not at the end of the housing nightmare, but we seem to be getting closer,” said Jeffrey Otteau, president of Otteau Valuation Group, an East Brunswick, N.J., appraisal firm. But if banks accelerate foreclosures, inventories will swell again. Mr. Otteau says it is too soon to celebrate because “we are all expecting that foreclosure ‘tidal wave’ to begin sometime soon.”

400,000 unemployed

The Labor Department says there were 400,000 initial unemployment claims filed in the week ended July 30, down 1,000 from an upwardly revised 401,000 the prior week. Economists surveyed by Briefing.com were expecting jobless claims to rise to 405,000.  Initial claims have sat above 400,000, a level typically associated with payroll growth and a lower unemployment rate, for 17 consecutive weeks.  Overall, the four-week moving average of initial claims — calculated to smooth out volatility — fell by 6,750 to 407,750 in the latest week.  Continuing claims — which include people filing for the second week of benefits or more — increased by 10,000 to 3,730,000 in the week ended July 23, the most recent data available. That was more than economists’ forecasts for 3,700,000.  The jobless claims data came ahead of Friday’s closely watched monthly jobs report, which is expected to show that the US economy created 75,000 jobs in July.  The unemployment rates is expected to hold steady at 9.2%.

Olick – mortgage rates low, but won’t help housing

The one positive in all the uncertainty surrounding the nation’s debt was a plunge in Treasury yields, which in turn sent mortgage rates to record lows.  The 30 year fixed hit a near-low of 4.45% last week from 4.57%, and the 15 year made a new low of 3.52%, according to the Mortgage Bankers Association. Those low rates pushed refinance applications up 7.8% and purchase applications up 5.2% (both seasonally adjusted).  So are we housing geeks now jumping for joy? All good? Maybe not so much.

“Refinance application volume increased, but even though 30-year mortgage rates are back below 4.5%, the refinance index is still almost 30% below last year’s level. Factors such as negative equity and a weak job market continue to constrain borrowers,” notes the MBA’s VP of research and economics, Michael Fratantoni. “Purchase activity increased off of a low base, returning to levels of one month ago, but remains weak by historical standards.”  So even ridiculously low rates are not exactly boosting the housing recovery; that’s because rates have been historically low for a while.  “The problem is not the price of credit,” says economist Paul Dales at Capital Economics. “The key issue is that the high unemployment rate, tight credit criteria and high share of homeowners underwater on their mortgage are all keeping a lid on demand regardless of the price of credit. With the economy now weakening once again, these constraints are not going to go away soon.”

This is why Dales sees home prices weakening further, and we see that in data today from CoreLogic. Home prices were down 6.8% in June year over year, if you include distressed sales (foreclosures and short sales). That is a slightly deeper fall than May’s annual number. Without distressed sales, home prices were down 1.1% in June annually. That’s a bit better than the 2.1% annual drop in May. Of course you have to remember that distressed sales make up more than a third of the housing market right now, and far higher percentages in certain local markets.  “The improvement [in home prices month-to-month] is largely due to distressed sales accounting for a smaller share of overall sales,” notes Dales. The Realtors reported 30% of sales in June were distressed properties, but that share drop is only due to a gain in regular sales, not the actual number of distressed properties decreasing.

So back to where we started, do these lower mortgage rates provide any help to the housing recovery? Perhaps in the refinance area, as some borrowers can get lower monthly payments and lower their risk of default; the trouble with that premise though is that the borrowers who are in real trouble are likely also underwater on their mortgages and unable to qualify for a refi at these low rates. Most people who can do the easy refi already have.  The bigger issue going forward is new banking rules currently under debate which could raise the cost of lending, which would then be passed on in the form of higher interest rates. These risk retention rules (known as QRM or “qualified residential mortgage” standards) just reached their final comment period this week. So this is coming down the pike. I guess the lower the starting point, though, the better.

Factory orders down, layoffs up

The Institute for Supply Management said its services index fell to 52.7 last month from 53.3 in June. The reading fell shy of economists’ forecasts for 53.6, according to a Reuters survey.  A reading above 50 indicates expansion in the sector. The new orders gauge slipped to 51.7 from 53.6, while employment fell to 52.5 from 54.1.  As well, new orders received by US factories fell in June, pulled down by weak demand for transportation equipment.  The Commerce Department said orders for manufactured goods fell 0.8% after a revised 0.6% increase in May. Economists had forecast a 0.7% decline after a previously reported 0.8% rise.  Economists surveyed by Reuters had forecast the ADP National Employment Report would show a gain of 100,000 jobs. June’s private payrolls were revised down to an increase of 145,000 from the previously reported 157,000. The report is jointly developed with Macroeconomic Advisers.

Also on the labor market front, the number of planned layoffs at US firms jumped to a 16-month high in July as sectors which had been seeing fairly few layoffs unexpectedly bled jobs.  Employers announced 66,414 planned job cuts last month, up 60.3% from 41,432 in June, according to a report from consultants Challenger, Gray & Christmas.  Layoffs in the pharmaceutical and retail sectors overtook nonprofit and government job cuts last month.

Man tries to ban foreclosures

A California man is on a mission to end foreclosures across his state, claiming an outright ban on the practice would force banks to help distressed borrowers.  In documents filed with California’s secretary of state, Sacramento resident David Benson said he’s trying to gain enough signatures – 807,615 to be exact – to get his foreclosure ban considered by voters across the state.  Benson wants to amend the California constitution, making homeownership a fundamental right.  His plan would require lenders to assist borrowers unable to pay for their homes due to financial distress and illness.  It also would force lenders to reduce a loan’s principal amount to reflect declines in property value that go beyond 10%.

Benson’s proposal says any “loan issued for and secured by a home or property by any lending institutions, loan servicers, mortgagee, trustees and beneficiaries doing business in the state of California, shall be able to be refinanced without credit review or penalty at minimum cost, within 45 days of being requested.”  That provision would automatically apply if a borrower has maintained the mortgage for at least three years.  Anthony Laura, an attorney at Patton Boggs who reviewed the proposal, said the amendment “would have the opposite effect of diminishing, not enhancing, homeownership in California.”  “While homeownership may be part of what many consider to be the American Dream, I have a hard time conceiving it as a constitutional right. Should this proposed amendment make it on the ballot and ultimately pass, it would only serve to discourage lenders from making mortgage loans in California.”  Laura said without those mortgages, few people could afford homes.

DSNews.com – seasonal gains haven’t changed housing outlook

A study released by Clear Capital Thursday reveals home prices continue to correct from winter’s extended declines, edging up thanks to the seasonal increase in sales activity that comes with warmer weather.  The California-based valuation company says its gauge of US home prices increased 4.1% when comparing the most recent rolling quarter to the previous one.  [Note: Clear Capital’s patent-pending rolling quarter intervals compare the most recent four months of home pricing data to the previous three month.]  But even recent gains off the record low experienced earlier this year have not been enough to change the broader housing picture, Clear Capital says. Its latest reading of national home prices shows a decline of 7.9% since June 2010.  Only a handful of Northeast markets bucked the trend of year-over-year price declines, with the broader New York City area, Rochester, Pittsburgh, and Washington, D.C. posting positive year-over-year price growth, according to Clear Capital’s report.  All four US regions posted quarterly gains without any tax credit stimulus for the first time since 2006. In the Midwest the rolling quarter gain was 6.3%. The Northeast saw a 5.2% increase. In the South prices were up 4.2%, and in the West 0.7%.

Although the short-term price gains may seem encouraging, Clear Capital says many markets are still near, or at record lows as REOs remain a significant proportion of overall sales activity.  Distressed sales have only served to intensify the market slump. According to Clear Capital, while the level of REO saturation has leveled off somewhat in recent months, more than one-in-four home sales across the country remain distressed.  The national REO saturation rate – the share of REO homes sold as a proportion of total sales – now sits at 28%, according to Clear Capital’s assessment. That’s down 5.7 percentage points from last quarter.  Still, Clear Capital says the negative correlation between the level of distressed sale activity and home prices has been consistent in nearly every market around the country.

As the REO saturation rate increases, the overall market value is weighed down by REO sales used as comparables, and fair market sellers – those marketing non-distressed properties – are forced to actively compete with homes that have significant discounts, Clear Capital explained.  “Economic fundamentals have been re-defined in this post-crash marketplace to not only include the traditional measures such as employment and consumer confidence, but also the inescapable presence of distressed activity,” the company said in its report.

See you at the top!
Chris McLaughlin

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

Copyright Loss Mitigation Institute LLC 2010.
All Rights Reserved.

http://www.shortsalesriches.com

http://www.shortsalescoach.com

http://www.sixfigurebpo.com

http://www.reomillionaireclub.com

http://www.youtube.com/shortsalesriches

http://www.smartrealestatenews.com

(subscribe to this newsletter)

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About the author:

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

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

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

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

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

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

* Follow me on Twitter: http://twitter.com/mclaughlinchris
* Join my Facebook Fan Page: http://www.mclaughlinchris.com

Smart Real Estate News & Commentary by Chris McLaughlin February 25, 2011 

Forward this e-mail to your friends! 

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NAR – pending sales fall

Pending home sales eased moderately in January for the second straight month, but remain 20.6% above the cyclical low last June, according to the National Association of Realtors (NAR).  The Pending Home Sales Index (PHSI), a forward-looking indicator, declined 2.8% to 88.9 based on contracts signed in January from a downwardly revised 91.5 in December. The index is 1.5% below the 90.3 level in January 2010 when a tax credit stimulus was in place. The data reflects contracts and not closings, which normally occur with a lag time of one or two months.  The pace of January existing-home sales, 5.36 million, is slightly higher than NAR’s annual forecast for 2011. If contract activity stays on its present course, there should be an 8% increase in total existing-home sales this year.  The PHSI in the Northeast declined 2.4% to 73.5 in January and is 3.0% below January 2010. In the Midwest the index fell 7.3% in January to 78.0 and is 3.2% below a year ago. Pending home sales in the South rose 1.4% to an index of 97.7 but are 0.4% below January 2010. In the West the index fell 5.2% to 98.7 and is 0.9% below a year ago.

Americans earning and saving more

According to data released today by the Commerce Department, personal income surged 1% in January, following a 0.4% increase in December,. Economists surveyed by Briefing.com were predicting a modest increase of just 0.3% in the month.  But consumers chose to stash the extra cash, rather than spend it. Americans saved $677.1 billion during the first month of the year, compared with $620.9 billion the prior month. And personal savings as a percentage of disposable income rose to 5.8% from 5.4% in December.  Meanwhile, spending by individuals ticked up just 0.2%, compared to a 0.5% increase the prior month. Economists were expecting an increase of 0.4% in January.  Private sector wage and salaries were also up, increasing by $14.8 billion last month. But the increase wasn’t as large as in December, when salaries jumped $20.8 billion.

WSJ – only 1 in 4 get mortgage relief

Just one in four of the 2.7 million homeowners who sought to participate in the Obama administration’s signature mortgage assistance program have succeeded in getting their monthly payments reduced.  The rest failed to qualify for the program or were disqualified after they were initially accepted into the program, according to an analysis by the Wall Street Journal of data on applicants to the program newly released by the Treasury Department.  In all, about 680,000 homeowners who applied for the Home Affordable Modification Program, or HAMP, had received permanent modifications of their loans and were making timely payments or were still in the trial phase as of December.  Almost 6.7 million U.S. homes were lost to foreclosure, short sales or turned back to lenders between 2000 and 2010, according to Moody’s Analytics. Another 3.6 million could meet the same fate through 2013. The White House launched the HAMP program in 2009 as a broad attempt to reverse the rising number of home foreclosures by reducing families’ mortgage payments, typically by lowering the interest rate and extending the term of a loan.

But the administration’s strict eligibility criteria resulted in far lower participation than expected.  Almost half of the applicants to the program, or about 1.3 million homeowners, were declared ineligible from the start.  Applicants were most often rejected because they didn’t submit the necessary paperwork, or it was lost by their mortgage company. Nearly 266,000 applicants were denied for this reason. Another 255,000 were ineligible because they were considered to have affordable mortgages, defined as less than 31% of pretax income. Borrowers also were turned down because they had loans for more than $730,000 or were not considered in danger of defaulting soon.  Another 770,000 homeowners started the program but were later disqualified, most for the same paperwork and eligibility problems as the applicants turned away at the outset. Only a small number were rejected for failing to make trial payments.  Homeowners in southern states had the hardest time getting into the program and staying there. In the four-state region of Arkansas, Louisiana, Oklahoma and Texas, about 83% of applying homeowners failed to complete the loan-modification process. That proportion was 80% in the four-state region of Alabama, Kentucky, Mississippi and Tennessee. 

Homeowners had the least trouble getting into the program in New England, where the rejection rate was 72%, and in western states, including Alaska, California, Hawaii, Oregon and Washington.  The program has faced sharp criticism. Neil Barofsky, the departing special inspector general overseeing the program, has faulted the administration for launching it with inadequate analysis and only partially developed guidelines. This led to delays and confusion, and the program “continues to fall short of any meaningful standard of success,” he said a report released in January.  House Republicans have called the program a waste of money and are considering a bill this week to end the program. “In an era of record-breaking deficits, it’s time to pull the plug on these programs that are actually doing more harm than good for struggling homeowners,” Rep. Spencer Bachus (R., Ala.) said last week.

Buy low…

According to the latest quarterly survey of attitudes toward homeownership from Fannie Mae, fewer than two in three Americans now think owning their own home is a safe investment, down sharply from more than four out of five who thought it was a good investment less than a decade ago.  That attitude shift is likely to cause rents to rise as more Americans opt for renting over buying.  The National Housing Quarterly Survey found just 64% of Americans think owning their own home is a safe investment, down from 70% at the beginning of last year and sharply lower than the 83% who thought it was a safe investment in 2003.  As with any shock to the market, fear sets in and prices go down for a while. 

That’s what is happening in the housing market too – just like the aftershocks when the stock market crashes (more people think stocks are dangerous), now we’re seeing an aftershock in the housing collapse, with people seeing housing as a “dangerous” investment.  The irony is that rents are rising, making property investing the best of both worlds…low cost investments for high immediate returns and high long-term property returns!  An overhang of foreclose properties is weighing down the property market even as the broader economy appears to have entered a sustainable growth path.  “The public is aware that the demand side increase is going to be in the rental market, not the housing (purchase) market,” Doug Duncan, chief economist at Fannie Mae, said in a telephone interview.  Growing demand for rental properties as the economy strengthens is set to lift underlying U.S. inflation gauges, though the Federal Reserve is not expected to raise interest rates anytime soon. 

High rental vacancies have weighed on the core consumer price index, which excludes volatile food and energy prices, and economists now see this anchor slipping loose.  In the fourth quarter of 2010, the rental vacancy rate fell to 9.4% — the lowest since the second quarter of 2007 — from 10.3% in the July-September period, according to government statistics.

Budget is a major worry

A survey of 47 top economists by the National Association of Business Economics predicted that the Federal deficit will jump to $1.4 trillion in the fiscal year ending in September. In the November survey, the economists had forecast a $1.1 trillion deficit.  The economists’ forecast is a bit more optimistic than the latest projection of a $1.5 trillion gap from the nonpartisan Congressional Budget Office.  Asked to rank the seriousness of various economic problems, with one meaning no concern and five equaling extreme concern, the federal deficit was the biggest worry, with an average score of 4.1.  State and local government budget deficits and debt was the second biggest worry with a score of 3.4.  The survey results come as fierce debates are raging in Congress and in statehouses across the nation about how to address gaping budget gaps. There is a chance the federal government could even shut down without a budget deal, and public employee unions across the country are protesting proposed cuts at the state and local level.  Despite the budget worries, the economists are more optimistic about growth than they were three months ago. They expect economic growth of 3.3% in 2011, up significantly from the 2.6% growth rate forecast in November.  And economists are less concerned about a double-dip recession. When asked about the likelihood of three months ago, they suggested there was about an 8% chance of the economy falling into another recession. Today they see the chance of a double-dip in the 1% range.

Wells Fargo and BOA says they will face fines

Wells Fargo, the largest U.S. mortgage lender, said it is likely to face fines from regulators and other government agencies as a result of a probe into the industry’s foreclosure practices.  The bank may also face charges from the U.S., it said in its annual filing with securities regulators.  Bank of America (BOA) said the wide-ranging probe could lead to “significant” legal costs in 2011, according to its annual report filed on Friday with U.S. securities regulators.  BOA said it could not predict the outcome of the various investigations now being conducted by state and federal authorities, but said the probes could result in enforcement actions or various fines and penalties.  Sources familiar with discussions among federal authorities have said they could seek as much as $20 billion in total from lenders to settle the foreclosure probe, which began last fall.  Analysts said Wells Fargo’s acknowledgment of its potential foreclosure liability highlights the continuing struggles of the largest U.S. banks. 

Now for our real estate education section…

Transactional Funding & Agents

Transactional funding is a fabulous tool when properly used but many novice investors are surprised to find their real estate agent resistant to the very concept. Upon closer questioning, it’s not because of a bad experience much less any type of legal restrictions but rather confusion or even outright ignorance of the very existence of such a mechanism. The reality is that most agents and brokers never encounter transactional funding and are even less informed than most novice investors. Unless you have the good fortune to find an agent that has worked with someone who has used transactional funding in the past, it is often necessary to educate and inform agents about the benefits to be derived. Below are some of the most common questions or concerns confronting novice investors:

Money in the Bank – The majority of agents have only dealt with three types of sales: standard mortgages, owner financed terms and straight cash that is in the bank. Transactional funding seems unfamiliar to them so one option is to obtain a Proof of Funds letter from the lender to satisfy this insecurity. However, not all transactional funding sources provide a POF letter due to the individual nature of each deal. Some agents tend to view transactional funding as “same as cash” although it’s rarely offered without conditions/contingencies and the inability to offer a bank statement or proof of other liquid assets can negate the “same as cash” on the most technical level. In nearly all situations, simply speaking to the agents concern over the ability to close is sufficient.

Resale Concerns – The next pressing concern expressed by unfamiliar agents is the question or reselling the property but this requires close attention to detail. Remember, double sales and simultaneous closings are red flags for most agents so avoid using inflammatory language. Instead, simply indicate you have a buyer lined up as well as a secure title company.

Owner/Occupant Status – Many agents enjoy working with a specific type of buyer so it is a good idea to find someone that knows and understands the needs of investors. Don’t be afraid to keep moving until you locate an agent or broker that is able to fully meet your investing needs.

Earnest Money – While it is entirely possible to purchase a property with zero money out of pocket, tossing in a bit of earnest money can go a long way toward sealing the deal…especially for the most competitively priced properties. Don’t dismiss the idea of using a little of your own money if the eventual outcome is pure profit in your pocket.

See you at the top!

Chris McLaughlin
**************

Copyright Loss Mitigation Institute LLC 2010.

All Rights Reserved.

http://www.shortsalesriches.com
http://www.shortsalescoach.com
http://www.sixfigurebpo.com
http://www.reomillionaireclub.com
http://www.youtube.com/shortsalesriches 

http://www.smartrealestatenews.com (subscribe to this newsletter)

*************************************************
About the author:

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

    * As the top Florida foreclosure and pre-
      foreclosure expert, he oversees more than
      100 short sale & REO closings each month
   * Long-time authority on real estate investing
      and rapid reselling of distressed homes.  Owns
      portfolio of nearly 150 high-value, high-profit
      properties
    * Owner of one of Florida’s largest Real Estate firms,
     running 4 different offices, supporting over
     420 agents, uniquely positioning him to help
     thousands of investors make money in the
     biggest market opportunity ever!

   * In 2010, Chris’ 4 Central Florida real estate offices

      closed 2,786 sides for a closed sales volume of

      $392,912,927!  
    * Highly sought-after speaker, consultant, and
      seminar leader for current trends and hot topics
      in Real Estate Investing, Entrepreneurship, and
      Wealth Building
    * Follow me on Twitter: http://twitter.com/mclaughlinchris
    * Join my Facebook Fan Page: http://www.mclaughlinchris.com
–

Smart Real Estate News & Commentary by Chris McLaughlin December 13, 2010

 Forward this e-mail to your friends!  Then they can subscribe directly at the following link:  http://www.smartrealestatenews.com/

 *** Join Chris’ Facebook Fan Page–> http://www.mclaughlinchris.com

 *** Follow Chris on Twitter–> http://www.twitter.com/mclaughlinchris

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Watch this video NOW to get your B of A short sales approved:

 http://www.equatorloopholemagic.com     

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More foreclosures = fewer underwater mortgages

 There were fewer homeowners underwater on their mortgage at the end of the third quarter than the second quarter, but it’s because more properties that had severe negative equity were foreclosed upon and not because of an increase in home values.  CoreLogic said 10.8 million residential properties, or 22.5% of all U.S. homes, were in negative equity at Sept. 30, down from 11 million, or 23%, the prior quarter.  “Negative equity is a primary factor holding back the housing market and broader economy,” according to Mark Fleming, chief economist with CoreLogic. “The good news is that negative equity is slowly declining, but the bad news is that price declines are accelerating, which may put a stop to or reverse the recent improvement in negative equity.”  The data analytics firm said the number of borrowers who owe more on their mortgage than their home is worth has decreased by more than 500,000 this year. Still, another 2.4 million homeowners had less than 5% equity in the third quarter, and 27.5% of all mortgages are in negative equity or near-negative equity.  CoreLogic said five states – Arizona, California, Florida, Michigan and Nevada – continue to have the largest numbers of underwater mortgages. Two-thirds of Nevada mortgages are for more than the property is valued. Conversely, nearly half of New York homeowners have 50% or more positive equity.

 Fed committed to QE2?

 When the Federal Reserve meets tomorrow, economists and other Fed watchers expect the central bank’s statement to be somewhat more upbeat than a month ago, acknowledging some signs of improvement in the economy.  That might seem like a change from the tone that Fed Chairman Ben Bernanke took in his recent interview on “60 Minutes” when he warned about the U.S. economy was still at risk of another recession, and that unemployment would likely not return to desired levels for another four to five years.  But stronger than expected consumer spending, highlighted by a good start to the holiday shopping season, coupled with falling levels of workers filing for initial jobless claims has helped to lift expectations that the economy might finally take a pronounced turn up soon.  Still, economists say the central bank is likely to stress that the improvement is not enough to make it change its controversial efforts to try to jumpstart the economy — at least not yet.  “They have to acknowledge that the data has turned better, but they’re going to want to see a much higher rate of growth, an escape velocity, before they’ll start to signal any kind of change of policy,” said Michael Gapen, senior U.S. economist at Barclays Capital. 

The Fed announced plans at its Nov. 3 meeting to pump $600 billion into the sputtering U.S. economy. That sparked attacks from overseas finance officials as well as economists, politicians and even some Fed members. The policy is known as quantitative easing, or QE2 in popular short-hand because it is the second round of such purchases.  Many have argued QE2 risks driving down the value of the dollar and sparking a return of inflation. Some critics think the Fed should cut short its plans to buy the full $600 billion of Treasuries.  But Gapen said the Fed is unlikely to do so — even if the central bank gives a more positive economic outlook.  “We don’t see anything in recent months altering our view they will complete their intended purchases of the full $600 billion,” he said.  Bernard Baumohl of the Economic Outlook Group said the Fed’s statement may include assurances to the market that it is ready to change policy as conditions warrant. But that’s different from signaling and end to QE2.  “They still need to be convinced that QE2 is no longer necessary,” he said. “They’ll say there’s been recent signs of improvement, but not enough to justify a change in policy.”  Still, the Fed faces a more delicate task Tuesday, given the attacks since the last meeting. That’s why Baumohl is looking for hints that the Fed is actually willing to stop short of completing QE2.  “The Fed is under much greater scrutiny these days,” he said. “Somehow it has to send a signal it is not fully committed to the $600 billion in purchases, and that it plans to monitor economic conditions on a monthly basis.”

 Olick – Principle write downs, but not through government

“A Wall Street Journal article Wednesday began, ‘Fannie Mae and Freddie Mac are in talks with Obama administration officials to join fledgling government programs aimed at reducing loan balances of mortgages where borrowers owe more than their homes are worth.’  They may be in talks, but the talks clearly aren’t going well.  When I asked the folks over at Fannie Mae to comment, they obliged quickly with, ‘We regularly review our policies regarding the modification of mortgages based on changing economic circumstances and our analysis of whether the effectiveness of the policies can be improved. We have been and will continue to work closely with FHFA on these matters.’  I know.  The FHFA, the GSE’s federal regulator charged with keeping the two mortgage giants afloat while still protecting taxpayers, responded with ‘No comment.’  It’s all about the FHA’s ‘short refi’ program, which offers lenders cash incentives to reduce balances on underwater loans (by at least 10 percent), if the borrowers are still current on their payments. In turn, the lender can then refinance to an FHA-insured loan.  So I called over to the FHA, where commissioner David Stevens had plenty to say, including that the GSE’s were being ‘shortsighted.’ He used that word with several media outlets, I noticed. But he went on…  ‘What we believe they need to value seriously is that unlike other modification programs where there’s potential high redefault risk, and they retain the asset, the value of being able to monetize the remaining asset and not retain future risk has significant value.”

 ”But the fact is, and I know it is barely a few months old, exactly three loans have made their way through the program to date. Fannie and Freddie hold the lions share of loans that would benefit from this, and the big servicers aren’t going to jump in on their own without them.  Bank of America spokesman Dan Frahm says BofA is still considering the FHA program, but admits, ‘Our calculations of the program show the number of our customers that would benefit from the program would be very limited without the participation of Fannie Mae and Freddie Mac.’  Bank of America already reduces principal in many of its proprietary modifications. Implementing the FHA program could result in ‘capacity strains of required technology and training programs’ which Frahm says might not be justified by the benefits to so few eligible customers.  With so much resistance to the program, rumors began circulating that FHA might dump the program, but apparently without merit.  ‘No way,’ Commissioner Stevens told me this afternoon. ‘We are looking at what else could be done within reason to help make our programs work more effectively, but these are movements on the margin if anything.’”

Healthcare bill to be starved of funding?

 President Obama’s former director of the Office of Management and Budget, Peter Orszag, told CNBC Friday that he’s concerned that the new Congress could stymie the health-care bill by blocking funding.  “You could end up where all the legislation is in place, but that implementation is done either very late or in an imperfect way, because of a very constrained funding environment,” said Orzaq, who has a new job at Citigroup as a vice chairman in global banking.  Orszag predicted that health-care reform will need an “evolutionary approach” in which promising ideas, such as accountable-care organizations, bundled payments or pay-for-performance need to be tested first.  “We need to try them and then have a mechanism for moving the scale immediately when something proves to be promising or promises to be effective,” said Orszag. “The new legislation does create some mechanisms to do that through the innovation center, through the independent-pay advisory board.”  Meanwhile, big employers faced with incorporating the first round of health-care changes next month are grappling with how to comply with the long list of new rules.

Many companies are hiring consultants to help sort though the mountain of new mandates, which include extending dependent coverage to children up to age 26, and may eventually result in covering more employees. Some are also considering changes to their plans—including pushing costs to workers.  There is also some concern about how to digest the sheer volume of paperwork.  “There’s administrative burden just to try and understand the 2,400 pages of the document,” says Jenn Mann, vice president of human resources at software maker SAS Institute Inc.  To help get under the threshold level, in January SAS is eliminating its higher-cost indemnity plan and is also doubling co-pays to $20 from $10, she says. The company may still have to shift more costs to employees to avoid the tax, she says.  A survey conducted by Ernst & Young in August and September of 381 executives found that 31% are most concerned about the cost of compliance with the law, while 16% were most concerned about their overall readiness to comply with the law.  Is it just me or should some of these issues have been studied BEFORE it was signed into law?

Reuters – BOA to sell $1 Billion in toxic mortgages

 Bank of America Corp has put up for sale at least $1 billion worth of toxic mortgage assets, the New York Post said on Monday, citing sources.  Bids are due by the end of December for the assets, which includes already written-off loans and mortgage-servicing rights, the paper said.  The asset sale is part of a larger effort by the bank to unwind a trove of assets in the wake of the purchases of Countrywide Financial and Merrill Lynch, the Post said.  Bank of America declined to comment to the New York Post. The company could not be immediately reached for comment by Reuters outside regular U.S. business hours. 

 Tightening credit to stall housing?

 Economists are worried that the housing sector may be heading into another downdraft as mortgage lenders continue to tighten already restrictive lending standards.  Such a scenario seemed less likely earlier this year, when home-buyer tax credits fueled a surge in sales. But sales have plunged in the second half of the year after those credits expired. New and existing home sales were down by more than 25% in October from a year ago.  The U.S. has normally relied on an expanding housing market to help lift the economy as it exits a recession by fueling manufacturing, consumer spending and job growth. In the first year of all postwar recoveries, residential investment has accounted for nearly one percentage point of gross-domestic-product growth, says Doug Duncan, chief economist at Fannie Mae. But today, it has accounted for around 0.1 percentage point of GDP growth. 

 Given the glut of foreclosures that will continue to hit the market, “at a time when you need more borrowers, you actually have less,” says Laurie Goodman, senior managing director at Amherst Securities Group LP.  Lenders clamped down on the lax standards that fueled the housing bubble three years ago by requiring larger down payments, higher credit scores and greater documentation of borrowers’ incomes and assets.  Economists say lending standards typically ease at this point in the business cycle as banks look for new business. But that isn’t happening now because private lenders have ceded the market to government entities Fannie Mae, Freddie Mac and the Federal Housing Administration. Those agencies, saddled with losses, are under heavy political pressure to avoid taking any new risks. “The general feeling is, ‘Let them be as tough as they want,’ ” says Guy Cecala, publisher of Inside Mortgage Finance.  During the third quarter, 13% of bank loan officers surveyed by the Federal Reserve reported that standards had grown tighter, while fewer than 4% said standards had loosened.  Banks have become more restrictive in part because Fannie and Freddie are stepping up demands for banks to buy back defaulted loans when they can prove that the mortgage didn’t meet underwriting guidelines, an expensive proposition for banks.  “Originators are scared to death. We are being intensely cautious because we understand that the franchise could be on the line,” says Mr. Walters. He says tightening could continue “for at least a year, maybe longer.”  Loan officers say one of the biggest problems right now is a requirement that borrowers prove their incomes by relying on at least two years of tax returns. That often trips up self-employed workers and small-business owners who take deductions that shrink their taxable income. It could also sink borrowers who were unemployed for a short time or had a recent salary reduction. 

 The consequence is that lending is bifurcating into two worlds. Salaried workers who can easily document their earnings are able to qualify for mortgages with down payments as low as 3.5% through the FHA. Self-employed borrowers are having a harder time even if they have assets stashed away.  Ivy Zelman, chief executive of housing research firm Zelman & Associates, says there are reasonable concerns that the government has provided “too much liquidity” in some markets through the FHA. But she says it’s also the case that originators aren’t always taking a careful look at an individual’s ability to repay a loan, “and that could be preventing some truly good borrowers from getting loans.”  Another worry is that the industry has also come to rely too heavily on credit-score cutoffs, something loan officers say can inhibit common sense underwriting. While the FHA has a minimum credit score for low-down-payment loans of 580, many banks won’t sponsor loans with credit scores below 640. Average credit scores for borrowers with FHA-backed loans surpassed 700 in October for the first time.  No one wants a rerun of the past five years, when carelessness in underwriting fueled a painful explosion in mortgage liquidity. But the inverse carries its own dangers today: By imposing rigid standards that shut out qualified borrowers, banks and the government risk making it harder for the housing market to dig out of its hole.

 Now for our real estate education section…

 

Fannies Five Predictions for 2011

 Wonder what Fannie and Freddie think the new year has in store? Just keep reading to find out. Although their track record of success isn’t exactly impressive, real estate agents and investors alike should still take notice when Freddie decides to make a prognostication if for no other reason than to understand the mindset at work among clients and the media at large. So, what is on the horizon? Analysts for the big duo point to five key predictions they believe will drive real estate during 2011.

 1. Continuation of low interest rates. Although interest rates saw a dramatic increase last week, Freddie analysts predict a continuation of low interest rates throughout most of next year with a 30 year fixed below 5% and 5/1 hybrid ARM’s below 4%. Will they be right? Only time will tell….

 2. Escalation of prices. Although Freddie analysts firmly believe housing prices will remain a bargain into the foreseeable future, they maintain that prices have already hit rock bottom. Housing prices are expected to start a slow but steady recovery at some point in the second half of 2011.

 3. Sustained affordability. The housing affordability index has recorded some of the most advantageous rates in decades; despite an escalation of prices, Freddie anticipates a continuation of this trend due to low interest rates combined with a large selection and increased demand. Despite escalating prices, Freddie predicts stronger home sales for 2011 than 2010 with the second half of the year expected to show the most growth.

 4. Refinance contraction. According to Freddie, most borrowers interested in obtaining a refinance have already done so; combined with a gradual increase in interest rates, expect a contraction in the refinance department.

 5. Declining delinquency rates. Based upon the recovery of employment payroll, Freddie anticipates a decline in the number of “seriously delinquent”homeowners (those that are 90 days or more past due). According to the federal government, payrolls started to rise in January with seriously delinquent rates following suite a few months later. Since it is “clear” that the nation is in a recovery phase (according to the federal government…not necessary the Short Sales blog), delinquency and foreclosure rates should continue to decline throughout 2011.

Will the predictions hold true? Perhaps but savvy short sale investors may not want to bet the house on it (literally). Unemployment rates may not be increasing at the same rate, but adjusted for seasonality, the number of unemployed and/or under-employed remains high with a significant number of new jobs having been created by the government. State and local governments are experiencing severe budget shortfalls with hiring freezes or even downsizing expected in some of the hardest hit areas. Rising interest rates combined with generalized uncertainty and anxiety may result in a lackluster “recovery” at best.

 See you at the top!

 Chris McLaughlin
*************

Copyright Loss Mitigation Institute LLC 2010.

All Rights Reserved.

http://www.shortsalesriches.com
http://www.shortsalescoach.com
http://www.sixfigurebpo.com
http://www.reomillionaireclub.com
http://www.youtube.com/shortsalesriches 

http://www.smartrealestatenews.com (subscribe to this newsletter)

*************************************************
About the author:

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

    * As the top Florida foreclosure and pre-
      foreclosure expert, he oversees more than
      100 short sale & REO closings each month
   * Long-time authority on real estate investing
      and rapid reselling of distressed homes.  Owns
      portfolio of nearly 100 high-value, high-profit
     properties
    * Owner of one of Florida’s largest Real Estate firms,
     running 4 different offices, supporting over
     400 agents, uniquely positioning him to help
     thousands of investors make money in the
     biggest market opportunity ever!
    * Highly sought-after speaker, consultant, and
      seminar leader for current trends and hot topics
      in Real Estate Investing, Entrepreneurship, and
      Wealth Building
    * Follow me on Twitter: http://twitter.com/mclaughlinchris
    * Join my Facebook Fan Page: http://www.mclaughlinchris.com
–

Smart Real Estate News & Commentary by Chris McLaughlin November 8, 2010

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Mods led to foreclosures say suits

Treasury statistics show that only about one-third of the nearly 1.4 million homeowners accepted into the government’s payment reduction program over the past year have had their reductions made permanent.  Several federal lawsuits filed in Boston accuse major lenders of breach of contract under the government’s Home Affordable Modification Program, in which banks agreed to participate as part of the bank bailout.  The lawsuits say the banks agreed under HAMP to grant permanent mortgage modifications to borrowers who make all payments during trial modifications.  Attorney Shennan Alexandra Kavanagh said several of the plaintiffs lost their homes after their payments reverted to their original sums that they were unable to pay. She said she believes tens of thousands of borrowers in Massachusetts alone could be covered by the suits if they get class-action status. 

One of the lawsuits, against Bank of America Corp., was consolidated earlier this month with similar complaints in five other states, Kavanagh said.  Bank of America spokeswoman Shirley Norton said in an e-mail that the lender will continue aggressively defending itself against the cases.  Joseph R. Mason, a professor at Louisiana State University’s business school who has written widely on the subprime lending debacle, said he suspects the loan modification disputes are a legacy of the federal government’s rush to stem the flow of foreclosures before it had adequate plans in place.  “These policymakers said, just go out and do this and don’t let us worry about the details,” he said. “These details are now what are coming to the fore in these modification cases.”

Fed’s asset buying limited

In an opinion column for the Wall Street Journal, Kevin Warsh, a board governor, said last week’s decision by the U.S. central bank to buy an additional $75 billion of long-term Treasury securities per month through the second quarter of 2011 was not made unconditional or open ended.  “I consider the FOMC’s action as necessarily limited, circumscribed and subject to regular review,” he wrote. “Policies should be altered if certain objectives are satisfied, purported benefits disappoint, or potential risks threaten to materialize.”  He said risk-free rates and higher equity prices could raise confidence in the strength of the economy. But equally the dollar’s weakness and run-up in commodity prices could pose a risk if passed along into final prices.  “In such a case — even with the unemployment rate still high — we would have cause to consider the path of policy. This is truer still if inflation expectations increase materially,” he wrote.  Warsh urged the adoption of pro-growth economic policies in the United States, and said to counter the creep of trade protectionism “the U.S. should signal to the world that it is ready to resume leadership on trade.”

Obama might compromise on tax cuts

President Obama Obama told CBS’ “60 Minutes” in an interview to air Sunday night that his top priority was making sure taxes did not rise on Americans making less than $250,000 a year when Bush-era tax cuts expire at the end of the year and that a Republican proposal to extend tax cuts to wealthier Americans for two years represents a “basis for conversation” and he sees a potential for compromise heading into negotiations.  The battle over the tax cuts represents the first major challenge facing Obama and resurgent Republicans, testing both sides’ willingness to compromise.  In the interview, Obama was asked about a proposal from Republican John Boehner, who is in line to replace Democrat Nancy Pelosi as House speaker, to extend the tax cuts for two years and roll back domestic government spending outside of entitlement programs to 2008 levels.  “I think that when we start getting specific like that, there’s a basis for a conversation,” Obama said.  “I think that what that means is that we can look at what the budget projections are. We can think about what the economy needs right now, given that it’s still weak. And hopefully, we can agree on a set of facts that leads to a compromise,” he said.  The conciliatory tone comes after Obama argued fervently for months that the country could not afford to keep tax rates low on high-income earners, contending it would cost the budget $700 billion over a decade.  I guess the “facts” change when you take a shellacking.

Growing risk at Ginnie Mae

Barclays Capital notes that the amount of previously delinquent and now-cured mortgages in Ginnie Mae pools are raising investor concerns because of higher probability of redefaults and spotty performances from individual servicers.  Ginnie Mae does not buy or sell loans or issue mortgage-backed securities. It guarantees investors a timely payment of principal and interest on MBS backed by Federal Housing Administration and VA loans.  The BarCap analysts estimate that as much as 12% to 13% of new production Ginnie pools are backed by reperforming loans — meaning servicers worked with the borrower to turn the mortgage from delinquent to current either through a modification or some other form of loss mitigation.  Analysts added that 45% of these reperforming loans will redefault over the next two years, which would boost prepayments. 

Who services those loans often determines the delinquency rates and is a clear sign of risk, according to Deutsche Bank analysts.  According to a recent report on Ginnie delinquencies, mortgages serviced by Countrywide – since bought by Bank of America – hold a 1.94% 90-day delinquency rate in the Ginnie Mae I program of pools. That’s 63 basis points higher than for all other pools in the program. Countrywide holds a 3.2% 60-day delinquency rate, nearly double the rest of the program.  “Countrywide serviced pools continued to exhibit high delinquency rates despite the heavy buyout activity at the end of last year,” writes Steven Abrahams, the head of securitization analysis for Deutsche Bank.  Ginnie put in new policies and holds servicers to strict delinquency limits to mitigate the risk in its pools. It recently increased the base net worth requirement for participants in its single-family mortgage loan program. The minimum net worth will move from a $1 million base net worth requirement to $2.5 million in 2011.  The number of loans in 60-plus day delinquency or foreclosure must be less than 7.5% of the total number of loans from the issuer. The rate limit on 90-plus day delinquent loans is 5%.  With Countrywide less than two percentage points from the 60-day delinquency limit, Deutsche Bank analysts urged investors to pay attention to who is servicing those loans.

Now for our real estate education section…

Who Wants to Be a Millionaire?

Dream of becoming a millionaire? Perhaps you are already well on your way. Whatever your current economic status, real estate has traditionally been one of the most sure-fire ways to reach the millionaire status…but it’s not the only one. In fact, there are several ways to become a millionaire – each with its own pro’s and con’s. Today we are going to examine each in order to decide if real estate, or perhaps another method, is the best route to riches for your individual situation.

The Number ONE Way to Become a Millionaire

There is actually a faster and easier way to become a millionaire that does NOT include real estate investing but rather a heavy reliance upon national banking. Take for instance this little recognized fact; in recent years, the nation with the highest percentage of millionaires was actually Zimbabwe. Yes, you read that right…the poverty stricken nation became the home to the largest percentage of “millionaires” thanks to hyperinflation and a corresponding currency collapse. Unfortunately, many economic experts predict heavy inflation in the United States which could certainly lead to a large number of “millionaires” here at home; sadly, when everyone else is in the same boat and the currency is worthless, the status simply doesn’t have the same meaning.

The Number Two Way to Become a Millionaire

Okay, so if you have dismissed the idea of becoming a “paper” millionaire due to hyper-inflation , the next most reliable method of becoming wealthy is via real estate investing. Not only has it held true throughout the history of this nation, but even other countries (including Zimbabwe) have a strong correlation between real wealth and the ownership of land rights. Of course, there are numerous ways to invest in real estate including flipping, rentals, leasing, owner financing, REIT’s and many others. The common ingredient is the value of land and property including real assets.

The Number Three Way to Become a Millionaire

The third most effective way to become a millionaire is via ownership of a small business. While “virtual” properties and websites or software applications have become very popular in recent years, the tried and true method of building a business placed a heavy emphasis on productivity and real assets….including real estate, plant and other property. Farm land, manufacturing, service sector rentals, retail and other endeavors were all heavily reliant upon a good location and the better the location, the better the business. While the Internet has resulted in some changes in  the importance of location among many business entities, it still remains a cornerstone of success. Even more telling, a quick glance at the books of many major corporations (and small business owners) throughout the United States shows an interesting point…much of the wealth or assets of the company is held in the form of real estate!

Bottom Line – Real estate is the road to riches during good times and bad.

See you at the top!

Chris McLaughlin
**************

Copyright Loss Mitigation Institute LLC 2010.

All Rights Reserved.

http://www.shortsalesriches.com
http://www.shortsalescoach.com
http://www.sixfigurebpo.com
http://www.reomillionaireclub.com
http://www.youtube.com/shortsalesriches 

http://www.smartrealestatenews.com (subscribe to this newsletter)

*************************************************
About the author:

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

    * As the top Florida foreclosure and pre-
      foreclosure expert, he oversees more than
      100 short sale & REO closings each month
   * Long-time authority on real estate investing
      and rapid reselling of distressed homes.  Owns
      portfolio of nearly 100 high-value, high-profit
     properties
    * Owner of one of Florida’s largest Real Estate firms,
     running 4 different offices, supporting over
     400 agents, uniquely positioning him to help
     thousands of investors make money in the
     biggest market opportunity ever!
    * Highly sought-after speaker, consultant, and
      seminar leader for current trends and hot topics
      in Real Estate Investing, Entrepreneurship, and
      Wealth Building
    * Follow me on Twitter: http://twitter.com/mclaughlinchris
    * Join my Facebook Fan Page: http://www.mclaughlinchris.com
–