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Smart Real Estate News & Commentary by Chris McLaughlin February 1, 2012

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Foreclosures drawing private equity

Private equity firms are jumping into distressed housing as the US government plans to market 200,000 foreclosed homes as rentals to speed up the economic recovery.  GTIS Partners will spend $1 billion by 2016 acquiring single-family homes to manage as rentals, Thomas Shapiro, the fund’s founder said. That followed announcements this month that GI Partners, a Menlo Park private equity fund, expects to invest $1 billion, and Los Angeles-based Oaktree Capital Management LP will spend $450 million on similar housing.  “It’s a massive market,” Shapiro said in a telephone interview from New York. “We’re starting to see this as a billion dollar opportunity to buy rental housing.” Increasing rentals may reduce lenders’ losses on foreclosed and surrendered properties and curb declines in home prices, according to a Federal Reserve study Chairman Ben S. Bernanke sent to Congress on Jan. 4. Private equity funds began focusing on these investments in September, after the administration asked for proposals to sell the government’s inventory of foreclosed homes — about half of all houses seized from delinquent borrowers.

Private sector gains 170,000 jobs

The private sector created 170,000 jobs in January, boosted again by a surge in service-sector employment, according a report from ADP and Macroeconomic Advisors.  With economists looking for signs of life in the jobs market, the ADP number was close to consensus estimates and likely sets the stage for solid though not overwhelming overall growth when the government releases its monthly report Friday.  The private payrolls report showed service jobs growing by 152,000 in January, after rising a revised 241,000 in December.  Goods-producing jobs rose 18,000 while manufacturing added 10,000 and construction gained 2,000 for the month.  The total number of private sector jobs created is a substantial dropoff from December’s report that showed a revised 292,000, revised down from 325,000.  The Labor Department on Friday is expected to report nonfarm payrolls growth of 159,000 and an unchanged unemployment rate of 8.5%, according to StreetAccount estimates. Economists sometimes use the ADP numbers to adjust their projected unemployment estimates.  ADP’s numbers have been running on average 10,000 more than the government, though that number swelled to 92,000 in December, raising caution that seasonal distortions could be influencing the payroll firm’s figures.

November home prices down 3.7% from previous year

The average price of a single-family home fell again in November, with decreases in 19 of the 20 largest metropolitan areas during the month, according to the Standard & Poor’s/Case-Shiller index.  The ratings agency’s 20-city composite index and 10-city index both declined 1.3% from a month earlier. The larger, benchmark index drop 3.7% from November 2010 and the 10-city index for November was 3.6% lower than the year earlier.  S&P said both indices are one-third lower than the peak in the summer of 2006 and home prices are now at levels last seen in the middle of 2003.  Atlanta home prices for November were nearly 12% lower than the prior year, while Detroit at 3.8% and Washington with a 0.5% gain are the only metropolitan areas to post annual increases. Home prices in Atlanta, Las Vegas, Seattle and Tampa, Fla., all reached new lows in November, according to S&P/Case-Shiller.  “Despite continued low interest rates and better real GDP growth in the fourth quarter, home prices continue to fall,” said David Blitzer, chairman of the S&P index committee.  He said Phoenix, one of the hardest-hit areas in recent years, was the only MSA to post an increase in prices from October with a 0.6% gain.  “Annual rates were little better as 18 cities and both composites were negative,” Blitzer said. “The trend is down and there are few, if any, signs in the numbers that a turning point is close at hand.”  Analysts with Toronto-based Capital Economics agreed and said “there are still no signs that house prices are on the verge of turning around,” as the Case-Shiller indices fell for the seventh month in a row.  “But things should be different in six months’ time, when the recent rises in home sales will have helped to put a floor under prices,” the analysts said.

California is broke

California needs to come up with more than $3 billion to avoid burning through its cash by March, according to the state controller, who urged borrowing and delaying some payments.  “Assuming no additional revenue loss, erosion of borrowable internal funds, or significant spikes in spending, $3.3 billion of cash solutions are needed to address California’s liquidity needs during this period,” State Controller John Chiang said in a letter to the chairman and vice chairman of the Joint Legislative Budget Committee released on Tuesday.  Chiang said California does not need to issue IOUs again as it did during a cash crunch in 2009 or delay tax refunds, noting he has developed a plan with the state treasurer’s office and the state’s finance department that would postpone some payments and borrow from external sources and from state accounts to bolster the state’s cash.  “It is not an ideal solution, but it is the best way to manage the challenge without relying on IOUs or delaying tax refunds — actions that can disrupt the delivery of essential public services and slow California’s economic recovery,” Chiang said.  Senator Mark Leno, chairman of the Joint Legislative Budget Committee, said he expects the Senate and Assembly by the end the week will approve borrowing from state funds. Leno said he expects the internal borrowing will raise approximately $850 million.  Chiang noted California’s dwindling cash reflects revenue coming in below forecast in the state’s budget and spending exceeding expectations.

MBA – mortgage applications down

Mortgage applications decreased 2.9% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 27, 2012.  The Market Composite Index, a measure of mortgage loan application volume, decreased 2.9% on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index increased 9.0% compared with the previous week.  The Refinance Index decreased 3.6% from the previous week.  The seasonally adjusted Purchase Index decreased 1.7% from one week earlier. The unadjusted Purchase Index increased 17.1% compared with the previous week and was 4.3% lower than the same week one year ago.  The four week moving average for the seasonally adjusted Market Index is up 4.11%.  The four week moving average is up 2.48% for the seasonally adjusted Purchase Index, while this average is up 4.22% for the Refinance Index.

The refinance share of mortgage activity decreased to 80.0% of total applications from 81.3% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 5.6% from 5.3% of total applications from the previous week.  “The Federal Reserve surprised the market last week by indicating that short-term rates were likely to stay at their current low-levels until the end of 2014.  Longer-term treasury rates dropped in response, and mortgage rates for the week were down slightly as a result,” said Michael Fratantoni, MBA’s Vice President of Research and Economics.  Fratantoni continued, “Although total application volume dropped on an adjusted basis relative to last week, refinance volume remains high, with survey participants reporting that the expanded Home Affordable Refinance Program (HARP) contributed to roughly 10% of their refinance activity.”  In December 2011, Connecticut had the largest increase in refinance applications, increasing by 80.1% from November. Maine saw a 30.8% increase in applications for home purchase, which was the largest state-increase in applications for home purchase. Only 12 states had a decrease in home purchase activity in December, while every state in the US saw an increase in refinance volume.

Europe on life support

The European Central Bank (ECB) has saved the euro zone from a heart attack, but its members face a long convalescence, made worse by the insistence that fiscal starvation is the right remedy for feeble patients.  Last week’s downgrading of its forecasts by the International Monetary Fund (IMF) shows the dangers. The IMF now forecasts a recession in the euro zone this year, with a decline of 0.5 per cent in overall gross domestic product (GDP).  GDP is forecast to fall sharply in Italy and Spain, and stagnate in France and Germany. This is a terrible environment for countries seeking to cut fiscal deficits. Forecasts are far from satisfactory for other high-income countries. But the euro zone is the most dangerous part of the world economy: only there do we see important governments — Italy and Spain — menaced by a loss of creditworthiness.

Elsewhere, governments of high-income countries can continue to support their economies, largely because they possess a central bank and an adjustable exchange rate. This combination has given them the ability to run large fiscal deficits. In post-crisis conditions, such deficits are both the natural counterpart and the principal facilitator of necessary private sector deleveraging.  The euro zone has no such internal mechanisms. When private external financing dried up, as happened to a number of countries, affected members needed both financing — in the short run — and a mechanism for adjusting their external accounts — in the longer run — other than via deep slumps.  The euro zone lacks both capacities. It has turned out, as a result, to have limited ability to cope with the global financial disease. As Donald Tsang, chief executive of Hong Kong, remarked in Davos: “I have never been as scared as I am now.” Astute observers have a sense that little stands between them and a wave of sovereign and banking defaults inside the euro zone, with ghastly global repercussions.

Olick – refinancing to go through FHA

“After announcing during his State of the Union address a new government refinance program for, ‘responsible’ but ‘underwater’ borrowers with privately held mortgages, President Obama is expected to detail the plan today.  It will go through the government mortgage insurer, the Federal Housing Administration (FHA) and could cost between 5 and 10 billion dollars, according to senior administration officials.  The cost of the program, officials say, would be covered by a tax on major lenders, which is likely to make it a no-go in Congress.  It would cover closing fees for borrowers and additional risk to the FHA, which doesn’t insure new loans where the borrower owes more than the home is worth.  Critics will also argue that the FHA, which now has an inordinately, historically large share of the mortgage market, is in no position to take on any more risk. The FHA could be considered ‘underwater’ itself, guaranteeing about $1 trillion in mortgages but sitting on just a $1.2 billion dollar cushion to cover losses.  To that end, officials say they could create a separate fund for these loans, not the regular mutual mortgage insurance fund (MMI). This would be a special risk fund, designed to handle high losses.  ‘In this program we’re talking about extraordinary circumstances,’ says Brian Chappelle of Potomac Partners. ‘People have played by the rules, they made payments in addition to the fact that their house is underwater, they’re paying excessively high rates. It’s a unique homeowner, not somebody looking for a handout.’

To be eligible, borrowers would have to be current on their mortgages, not having missed a payment in at least six months. They need a credit score (FICO) above 580, must be employed, and must have a conforming loan (between $271,050 and $729,750 depending on their location). No appraisal would be necessary, according to officials.  Estimates are that the plan could help 3.5 million borrowers in addition to the 11 million expected to qualify for the existing refinance program for those with Fannie Mae and Freddie Mac loans (HARP). The one sticking point could be the mortgage insurance premiums charged by the FHA. If rolled into the loan, they would put a borrower further underwater.  ‘To use taxpayer dollars to bail out the few who are current and don’t need payment assistance but are underwater is ludicrous and worsens their equity position,’ says JT Smith of Aristar Funding.  The plan would also require lenders to write down the value of the loan if it exceeded 140% of the value of the home. Administration officials say the trade-off for lenders is they get rid of a risky loan.

On the flip side, the government would then be backing that same risky loan, but officials argue they would offset some of that risk because in order to get closing fees paid, the borrower has to agree to use the lower interest rate savings on the refinance to pay off principal balance.  The plan faces many headwinds, first and foremost being Congressional approval; borrowers and lenders would also have to agree to all the requirements, as this is not an automatic plan but a voluntary, borrower-initiated deal. It would also rile Wall Street, as hundreds of thousands of loans could ‘pre-pay,’ which means the bondholders lose.  ‘Some say it undermines the value of existing [mortgage] securities, so they would build a premium in,’ notes Chappelle. That could make future loans for other Americans more expensive.”

US to charge European traders

US authorities are preparing to charge four former Credit Suisse employees with criminal and civil fraud related to write-downs on subprime mortgage derivatives at the height of the financial crisis, sources familiar with the matter said.  Credit Suisse will not be charged in the matter, which is being investigated by federal prosecutors and the US Securities and Exchange Commission (SEC), the sources said.  The four people to be charged were former Credit Suisse traders who were fired, another source said, but it was unclear when and for what reason.  The suspected illegal conduct took place roughly four years ago, the source said, adding that the bank had been cooperating with officials.  The investigation stems from $2.85 billion in write-downs that Credit Suisse took on collateralized debt obligations in 2008, said the sources, who spoke on the condition of anonymity.  Credit Suisse revealed those CDO losses in early 2008, and blamed them on a group of rogue traders – who the bank said had deliberately mispriced securities – and on a failure of internal controls.  Credit Suisse, the Federal Bureau of Investigation, the SEC and Manhattan US attorney Preet Bharara declined to comment on the matter.

WSJ – housing’s firmer foundation

The Case-Shiller index is closely watched for a reason. It was quicker than a US government price index to show just how bad things were as housing came off the rails in 2007.  But right now, the connection between what the S&P/Case-Shiller index says and what is actually going on with housing may be lukewarm at best.  The difference: The Federal Housing Finance Agency index includes only homes with mortgages guaranteed by Fannie Mae and Freddie Mac, while the Case-Shiller index includes those backed by jumbo and subprime mortgages.  Many homes that were backed by subprime mortgages are now being sold in foreclosure. They aren’t in nearly as good condition as when they were last bought, and are selling for less than if they had been properly maintained. Because the Case-Shiller index is based on repeat sales, such homes may be biasing it downward.  Moreover, the Case-Shiller index is based on a three-month average of sales, so its November level includes transactions that were completed in October and September. Consider that it takes about two months between a sale and a closing (often longer with mortgage hassles these days), and you are talking about deals agreed on in the summer, when recession fears filled the air. Things now look better. Home prices probably do, too.

See you at the top!
Chris McLaughlin

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

Copyright Loss Mitigation Institute LLC 2011.
All Rights Reserved.

http://www.shortsalesriches.com

http://www.shortsalescoach.com

http://www.sixfigurebpo.com

http://www.reomillionaireclub.com

http://www.youtube.com/shortsalesriches

http://www.smartrealestatenews.com

(subscribe to this newsletter)

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

About the author:

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

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

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

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

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

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

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

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

Smart Real Estate News & Commentary by Chris McLaughlin January 31, 2012

Forward this e-mail to your friends!
Then they can subscribe directly at the following link:

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Washington state considers short sale protection

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

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

Olick – US Treasury forcing principal forgiveness

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

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

Treasury department stirs the pot

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

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

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

See you at the top!
Chris McLaughlin

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

Copyright Loss Mitigation Institute LLC 2011.
All Rights Reserved.

http://www.shortsalesriches.com

http://www.shortsalescoach.com

http://www.sixfigurebpo.com

http://www.reomillionaireclub.com

http://www.youtube.com/shortsalesriches

http://www.smartrealestatenews.com

(subscribe to this newsletter)

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

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

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

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

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

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

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

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

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

Smart Real Estate News & Commentary by Chris McLaughlin December 7, 2011

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

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

Home prices fall

According to the CoreLogic Home Price Index (HPI), national home prices, including distressed sales, also declined by 3.9% on a year-over-year basis in October 2011 compared to October 2010.  This follows a decline of 3.8% in September 2011 compared to September 2010.  Excluding distressed sales, year-over-year prices declined by 0.5% in October 2011 compared to October 2010 and by 2.1% in September 2011 compared to September 2010.  Distressed sales include short sales and real estate owned (REO) transactions.

Highlights as of October 2011

-  Including distressed sales, the five states with the highest appreciation were:  West Virginia (+4.8%), South Dakota (+3.1%), New York (+3.0%), District of Columbia (+2.4%) and Alaska (+2.1%).

-  Including distressed sales, the five states with the greatest depreciation were: Nevada (-12.1%), Illinois (-9.4%), Arizona (-8.1%), Minnesota (-7.9%) and Georgia (-7.3%).

-  Excluding distressed sales, the five states with the highest appreciation were: South Carolina (+4.6%), Maine (+3.1%), New York (+3.1%), Alaska (+2.9%) and Kansas (+2.8%).

-  Excluding distressed sales, the five states with the greatest depreciation were: Nevada (-8.8%), Arizona (-7.0%), Minnesota (-5.7%), Delaware (-3.9%) and Georgia (-3.6%).

-  Including distressed transactions, the peak-to-current change in the national HPI (from April 2006 to October 2011) was -32.0%.  Excluding distressed transactions, the peak-to-current change in the HPI for the same period was -22.4%.

-  Of the top 100 Core Based Statistical Areas (CBSAs) measured by population, 78 are showing year-over-year declines in October, two fewer than in September.

Citigroup plans layoffs

Citigroup is cutting 4,500 jobs worldwide, Chief Executive Vikram Pandit said on Tuesday, becoming the latest large bank to trim staff.  Pandit, speaking at the Goldman Sachs Financial Services Conference, said the bank would record a $400 million charge in the quarter for severance and other expenses related to the layoffs.  The cuts are equal to about 2% of Citi’s workforce of 267,000 employees at the end of third quarter 2011.  Pandit said the cuts would be completed over “the next few quarters” and would come from a range of businesses.  Citi joins other banks worldwide that have cut more than 120,000 jobs as regulations have imposed tighter industry rules and the economy remains weak.  Pandit said Citi’s reductions would involve its proprietary trading units, which are being wound down.  The 2010 Dodd-Frank financial reform law features a provision known as the Volcker Rule that limits banks from betting their own capital in the market.  Pandit also said Citi’s expense previously disclosed expense reduction program generated $1.4 billion in savings so far this year, nearly 4% of the bank’s $37.72 billion of operating expenses in the first three quarters.

MBA – mortgage applications increase

Mortgage applications increased 12.8% from one week earlier (which included the Thanksgiving holiday), according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending December 2, 2011.   The Market Composite Index increased 12.8% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 60.2% compared with the previous week. The Refinance Index increased 15.3% from the previous week. The seasonally adjusted Purchase Index increased 8.3% from one week earlier to its highest level since August 5, 2011. The unadjusted Purchase Index increased 47.2% compared with the previous week and was 0.8% lower than the same week one year ago.  “Coming out of the Thanksgiving holiday, applications increased significantly as mortgage rates dropped to their lowest levels in about two months,” said Michael Fratantoni, MBA’s Vice President of Research and Economics. “In particular, refinance applications increased sharply, with some lenders seeing refinance volume double. Despite this surge, aggregate refinance activity is still below levels reported two weeks ago. Some lenders indicated they are beginning to see an increase in HARP loans, but that increase is still a small portion of the move this week.”

The four week moving average for the seasonally adjusted Market Index is down 3.20%. The four week moving average is up 3.33% for the seasonally adjusted Purchase Index, while this average is down 5.13% for the Refinance Index.  The refinance share of mortgage activity increased to 76.0% of total applications from 73.9% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 5.7% from 5.8% of total applications from the previous week.  In November 2011, among refinance borrowers, 52.9% of applications were for fixed-rate 30-year loans, 26.2% for 15-year fixed loans, and 5.8% for ARMs. The share of refinance applications for “other” fixed-rate mortgages with amortization schedules other than 15 and 30-year terms was 15.1% of all refinance applications. The shares for 30-year fixed and the “other” fixed category increased from the previous month, while the 15-year fixed and ARM shares decreased from last month.  For applications for home purchase, 85.5% were for fixed-rate 30-year loans, 6.8% for 15-year fixed loans, and 5.9% for ARMs. This is the second lowest ARM share for purchases since January 2011.

Stock market in for a beating?

Robert Prechter, founder and president of Elliott Wave International, says there’s a big storm coming our way.  Prechter compares the current phase of the market to the late stages of the 1929 – 1933 period in US history; a time marked by extreme volatility eventually ending in tears.  “One of the things that happened in 1929 was that a consortium of the biggest banks in the country tried to stop the market from going down,” notes Prechter. Those banks failed of course, just as Prechter says they did when the Central Banks tried to prevent the coming financial meltdown in 2008 by offering essentially free credit.  The timing is only different, he says, because “banks these days are much bigger than they were in 1929.” In the 20′s institutions were reliant on client money to lead their bailout attempts. Today Central Banks have the ability to call on future, often overstated, tax revenues and are unencumbered by anything such as a gold standard when attempting to ward off the human desire to hide under the covers, financially speaking.

Prechter also draws parallels to April of 1930, 1937, and other periods in which relatively brief recoveries dissolved. Pick a tool, any tool, and Prechter says it suggests a stock market going lower. “Patterns, sentiment indicators, or momentum are all saying the same thing: This is a bear market rally.”  According to Prechter, not all the Central Banks in the world trump international trends towards a cautious, negative mood already impacting all things financial. This trend, the inverse of those giddy days of the 1990′s when all things seemed possible (even Internet stocks and the Euro!), causes predictable behaviors in the masses. They tend to sell stocks, stop spending, and start revolting against current leadership; all of which should sound familiar to those who read the newspaper.  It’s an environment confounding to bulls and bears alike. At the beginning of 2011, Prechter notes, the bulls were betting on a sharp recovery in stocks and “got hurt quite a bit.” Commodities were a bad bet, hurting “hyper-inflationist” bears.  Let’s remember that real estate isn’t in the stock market.

Olick – two housing markets?

“As we head toward the end of the year, for some reason the drumbeat to claim that housing has bottomed is growing louder.  There were a few positive indicators in September, rising housing starts and rising home sales, that gave some analysts fodder for optimism, but the readings on prices are far less rosy, and alas far more complicated.  Two reports out today show home prices are falling again after seeing some gains in the Spring and Summer. Lender Processing Services says they’re down 3.7% annually in September, erasing the gains of the Spring, and they say all of the 13,500 zip codes it tracks are in the negative.  Meanwhile CoreLogic says prices fell 3.9% in October, but when you take out foreclosures and short sales (the latter when the home is sold for less than the value of the mortgage), home prices are down just 0.5% annually. The vaunted S&P/Case-Shiller home price index was down 3.9% in September, and that’s a three month running average including distressed and non-distressed property sales.

So why are analysts now predicting a house price recovery?  Goldman Sachs put out a report late last week predicting that S&P/Case-Shiller would drop 2.5% further and then bottom, probably in the summer of 2012. This when the S&P/Case-Shiller folks themselves predict a 3.5% drop and a bottom later in 2012. The Goldman theory is based on some kind of ‘equilibrium’ price model for each market. They also claim that homes no longer appear ‘expensive.’ when you look at price/rent ratios, and that historical models suggest that income and population, as always, will drive improved demand.  Then this week analysts at Barclays Capital honed in on the difference in price drops between distressed and non-distressed properties. They claim the non-distressed market is stabilizing, so that must mean that a foreclosure or short sale is, ‘increasingly being seen as a poor substitute for a non-distressed home,’ according to analyst Stephen Kim. He claims the disparity will in fact widen over time.

So are we just supposed to ignore the distressed market? What about the fact that in some cities more than half of the properties selling are distressed? And what about the fact that there are more distressed properties coming to market, as the banks ramp up the long-stalled foreclosure process? And how about appraisers using distressed properties as comps to non-distressed properties?  I realize many of you think I’m too bearish on housing’s recovery, but trust me, nobody’s more sick of reporting the same lousy numbers than I am. The problem is that while sales are improving slightly, and consumer sentiment may be settling a bit, the mess left to clean up from the past is still weighing heavily on the future. The economy may be improving slightly, buyers may be considering getting back in, but we are barely half way through the overhang of distress, and any change in the economy could set us back even further.  I am in no way claiming that housing is in for a quadruple dip nor that we are going to see more big losses. Frankly I think we’re going to be flat in housing for a long time, which is not a very interesting story to tell from a reporter’s perspective. While there may be two types of properties (distressed and non-distressed), there is just one housing market, and you cannot negate one to inflate or deflate the other.”

Small business more optimistic, maybe

Optimism of small business owners remained flat in November at 53%, according to a new scorecard by SurePayroll, the leading online payroll service for small businesses with less than 100 employees. That’s fairly good news after optimism rebounded by 20% in October from an all-time low of 33% in September.  The report, which measures the current health of small business in America, also showed hiring was down from October, but wages on the other hand did tick up slightly. Still both remain down 3% and 0.5% year-to-date, respectively.  Small businesses make up 99.7% of all employer firms and employ more than half of private sector workers in this country, according to the US Small Business Administration, which describes a small business as having fewer than 500 employees.

While 53% of small business owners are optimistic about the state of the economy and the health of their business, one must not forget roughly the same amount of are just as pessimistic. Alter says most of SurePayroll customers describe themselves as “cautiously optimistic” and that sentiment rests heavily upon what happens in Washington.  Next year one of the biggest factors to impact the decisions made by small businesses is the Supreme Court’s ruling over the constitutionality of Obama’s health care law, according to SurePayroll’s November scorecard. By a ratio of 2 to 1, the small business owners surveyed are hopeful the Supreme Court finds the health care legislation unconstitutional. If that were to happen, hiring and wages would likely see a boost, says Alter.  Another big factor to impact small businesses is whether Congress will act to extend the employee payroll tax credit and if so, who will have to foot the bill. Passing an extension would provide many Americans with an extra $1000 dollars in discretionary spending, which would be good for business, says Alter. But, if it is businesses who have to cover the expense of that credit, that would certainly hurt hiring and wages.

WSJ – delinquent CMB loans declines

The share of delinquent commercial mortgages that were bundled together and sold as securities declined modestly during the third quarter for the first time since the property downturn began four years ago, according to a survey released yesterday by the Mortgage Bankers Association.  The share of loans at least 30 days past due fell to 8.92% from 9.02% in the second quarter for commercial and multifamily loans in mortgage-backed securities. Those loans have had the worst performance among all commercial mortgages originated during the boom, and the delinquency rate was still above the 8.52% mark of one year ago.

Commercial mortgages held by US banks had a 90-day delinquency rate of 3.75% at the end of the third quarter, down from 3.94% in the second quarter. Delinquencies on bank-held commercial loans have fallen or remained flat in each of the past four quarters.  Delinquencies posted small increases on multifamily mortgages held by Fannie Mae and Freddie Mac, but the increases came from very low absolute levels. Freddie Mac has a delinquency rate of just 0.33%, or around one-tenth of the level of delinquencies of commercial banks. That was up from 0.31% in the second quarter but down from 0.36% in the first quarter.  Nearly 0.57% of Fannie Mae multifamily mortgages were delinquent at the end of September. That was up from 0.46% at the end of the June, but down from 0.71% at the end of 2010.

See you at the top!

Chris McLaughlin

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

Copyright Loss Mitigation Institute LLC 2011.

All Rights Reserved.

http://www.shortsalesriches.com

http://www.shortsalescoach.com

http://www.sixfigurebpo.com

http://www.reomillionaireclub.com

http://www.youtube.com/shortsalesriches

http://www.smartrealestatenews.com

(subscribe to this newsletter)

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

About the author:

Chris McLaughlin is widely known as America’s top

Real Estate Attorney and Investment Consultant.

* As the top Florida foreclosure and pre-

foreclosure expert, he oversees more than

100 short sale & REO closings each month

* Long-time authority on real estate investing

and rapid reselling of distressed homes.  Owns

portfolio of nearly 150 high-value, high-profit

properties

* Owner of one of Florida’s largest Real Estate firms,

running 4 different offices, supporting over

420 agents, uniquely positioning him to help

thousands of investors make money in the

biggest market opportunity ever!

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

closed 2,786 sides for a closed sales volume of

$392,912,927!

* Highly sought-after speaker, consultant, and

seminar leader for current trends and hot topics

in Real Estate Investing, Entrepreneurship, and

Wealth Building

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

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

Smart Real Estate News & Commentary by Chris McLaughlin December 1, 2011

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Foreclosure crisis only halfway over?

A new analysis suggests that the tide of home foreclosures isn’t going to recede soon.  The report from the Center for Responsible Lending, “Lost Ground, 2011,” finds that at least 2.7 million mortgages loaned from 2004 through 2008, or about 6%, have ended in foreclosure and that nearly 4 million more home loans (roughly 8%) from the same period remain at serious risk.  Put another way, “The nation is not even halfway through the foreclosure crisis,” says the report, which analyzed 27 million mortgages made over the five years.  Across the country, low- and moderate-income neighborhoods and neighborhoods with high concentrations of minorities have been hit especially hard, the report found.  The report also noted that certain types of loans have much higher rates of completed foreclosures and serious delinquencies. They include loans originated by brokers; hybrid adjustable-rate mortgages, option ARMs, loans with prepayment penalties and loans with high interest rates (subprime). African Americans and Latinos were more likely to receive a high-cost mortgage with risky features, regardless of their credit. For example, among borrowers with good credit (a FICO score of over 660), African-Americans and Latinos received a high-interest-rate loan more than three times as often as white borrowers.

Jobless claims jump back over 400,000

Weekly applications for unemployment benefits rose 6,000 to a seasonally adjusted 402,000, the Labor Department said Thursday. Applications had been below 400,000 for three straight weeks.  The four-week average, a less volatile measure, was mostly unchanged at slightly below 400,000.  The average fell to a seven-month low two weeks ago. Weekly applications had been declining for two months.  Applications would need to stay below 375,000 consistently to push down the unemployment rate significantly. They haven’t been at that level since February.  The report comes one day before the government reports on job growth in November. Economists project that employers added a net 125,000 jobs, while the unemployment rate stayed at 9% for the second straight month.  While the job growth would be an improvement from October, when the economy added just 80,000 jobs, it’s still barely enough to keep pace with population growth.  Some economists are more optimistic after payroll provider ADP said Wednesday that companies added 206,000 workers last month, the most this year. That survey doesn’t include government agencies, which have been cutting jobs.

WSJ – home prices decline

Home prices declined in September and are poised for a grim winter as banks step up their efforts to take back and sell foreclosed properties.  Prices fell 0.6% from August, according to the widely watched Standard & Poor’s/Case-Shiller index of 20 major metropolitan areas, breaking a five-month run of increases during the spring and summer, when higher sales volumes typically firm up prices.  For the third quarter, prices were down 3.9% nationwide compared with a year earlier, a slight improvement from the 5.8% annual decline recorded at the end of June, according to the Case-Shiller National Index.

Prices remain under pressure as the housing market continues to digest high volumes of foreclosed and other “distressed” properties that tend to sell at a discount. Though sales picked up at the end of the summer, analysts said buyers were only closing deals they perceive as a bargain, which could help explain why prices are sliding again.  “Buyers don’t want to tell their friends ‘I bought a home.’ People look at you sideways. But if it’s a foreclosure, they pat you on the back,” said John Burns, president of a home-building consulting firm in Irvine, Calif. “People need to feel like they’re getting a great deal.”  Prices fell in September from the previous month in all but three of the 20 cities, with a 1.2% gain in Washington, D.C., and 0.1% gains reported in New York and Portland, Ore. For the year, prices were up in just two markets: Detroit reported a 3.7% gain, while Washington posted a 1% increase.  A different home-price index, released Tuesday by the Federal Housing Finance Agency, found that prices in September were up 0.9% from August on a seasonally adjusted basis but were down by 3.7% from year ago. The FHFA index captures mortgages financed by Fannie Mae and Freddie Mac.

Black Friday boosts retail

With a strong start to the holiday season, most retailers were reporting better-than-expected same-stores sales in November.  According to Thomson Reuters, analysts on average are expecting sales at stores open at least 12 months to rise 3.1% from a year ago. But retailers are up against strong performances last year, when they gained, on average, 5.5% during the month.  Macy’s, Costco Wholesale, Limited Brands, and teen retailer Buckle all reported sales gains that topped Wall Street’s estimates.  At Costco, same-store sales rose 9% topping analysts’ estimates of 6.5% growth.  Although the warehouse club operator was helped by higher gasoline prices, even without that boost same-store sales were strong. Without fuel, same-store sales rose 7%.  The Limited, the parent of Victoria’s Secret and Bath & Body Works, said same-store sales rose 7%, comfortably outpacing analysts’ estimates, which called for a 4.4% gain.  However, there were some notable shortfalls. Discount retailer Target said its same-store sales rose 1.8%, short of analysts’ estimates, which called for 2.8% gain, according to Thomson Reuters.

Olick – average foreclosure time sets a record

“Foreclosures are setting new records again, this time not in their overall numbers, but in the time it is taking for all of these properties to be processed through the legal system. The average loan in foreclosure has now been delinquent a record 631 days, according to a new report from Florida-based Lender Processing Services.  The after effects of the so-called ‘robo-signing’ foreclosure paperwork scandal, now more than a year old, continue to plague states which require these cases to go before a judge.  The differences in processing times are blatant when you compare judicial versus non-judicial states. Non-judicial state foreclosures inventories are less than half those of judicial states, and foreclosure sale rates in non-judicial states are four to five times that of judicial states. Judges are starting to ramp up the process.  Bank repossessions actually surged in October in many judicial states, up 48% in New Jersey and up 73% in Indiana month-to-month, according to RealtyTrac. Still the backlog is still enormous. Overall foreclosure inventory is at an all-time high, 4.29% of all active loans, according to LPS.  ‘The discrepancy will go on in perpetuity, as there always has been a difference between judicial and non-judicial timelines,’ said Kyle Lundstedt, managing director of LPS Applied Analytics. ‘Even prior to the worst of the crisis, loans were 4-5 months more delinquent in judicial states at time of foreclosure sale. The number today is more like 8 months, but will return to the 4-5 month difference depending on when and how fast foreclosure sales occur.’

A record-high inventory of foreclosures in process does not bode well for the near future of the housing recovery. All those distressed properties will sell at a deep discount, likely bringing down the prices of surrounding homes.  They will also add to already historically high existing home inventories, while demand is still weak. While there is considerable investor demand for distressed properties, new foreclosures are still outnumbering foreclosure sales by over 3:1.  In addition to the ‘robo-signing’ delays, we are now beginning to see the effects of ineffective loan modifications. Repeat foreclosures made up nearly 45% of new foreclosures in October. Of the 2.1 million modifications since the start of 2008 more than 10% were in foreclosure with another 27.4% delinquent 30 or more days, as of the end of the third quarter of this year, according to the Office of the Comptroller of the Currency.  Lundstedt said foreclosure moratoria, process/documentation reviews, evaluation for loss mitigation and bankruptcies make up the rest of the repeat foreclosures.  As the mortgage market continues to work through the backlog of troubled loans, looking forward, loans originated in 2010 and 2011 are now the best performers on record, thanks to tighter credit requirements.  Of course that begs the question: Did the pendulum swing farther than necessary to the conservative side? Is underwriting now unnecessarily restrictive?”

Troops foreclosures investigated

The US Treasury Department is investigating whether Bank of America, Wells Fargo and eight other major banks may have illegally foreclosed on 4,500 active-duty servicemen and women.  Bank of America has agreed to review more than 2,400 foreclosures of homeowners who indicated they were eligible for relief under a federal law called the Service members Civil Relief Act, according to the Treasury’s Office of the Comptroller of the Currency.  Wells Fargo has agreed to review 871 foreclosures of homeowners who indicated they were eligible under the act. The law is intended to postpone or suspend certain civil obligations to allow active-duty service members to devote their full attention to their military duty.  The other banks being investigated are Aurora Bank, Citibank, EverBank, HSBC, MetLife Bank, OneWest, Sovereign and US Bank.  Bank of America spokesman Rick Simon said it’s unlikely that there will be a large number of improper foreclosures. Wells Fargo officials say the investigation doesn’t mean anything improper was done.

See you at the top!

Chris McLaughlin

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

Copyright Loss Mitigation Institute LLC 2011.

All Rights Reserved.

http://www.shortsalesriches.com

http://www.shortsalescoach.com

http://www.sixfigurebpo.com

http://www.reomillionaireclub.com

http://www.youtube.com/shortsalesriches

http://www.smartrealestatenews.com

(subscribe to this newsletter)

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

About the author:

Chris McLaughlin is widely known as America’s top

Real Estate Attorney and Investment Consultant.

* As the top Florida foreclosure and pre-

foreclosure expert, he oversees more than

100 short sale & REO closings each month

* Long-time authority on real estate investing

and rapid reselling of distressed homes.  Owns

portfolio of nearly 150 high-value, high-profit

properties

* Owner of one of Florida’s largest Real Estate firms,

running 4 different offices, supporting over

420 agents, uniquely positioning him to help

thousands of investors make money in the

biggest market opportunity ever!

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

closed 2,786 sides for a closed sales volume of

$392,912,927!

* Highly sought-after speaker, consultant, and

seminar leader for current trends and hot topics

in Real Estate Investing, Entrepreneurship, and

Wealth Building

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

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