Legislation aimed at providing a so-called “safe harbor” for loan servicers will actually lead to more abuse and shoddy loan modifications, according to a report from Amherst Securities Group. The bill is intended to give loan servicers, including big banks like Bank of America and Citi, flexibility to modify loans without investor lawsuits.
The report also found that many of the supposed loan modifications are simple repayment plans that actually increase the monthly payments and the balance of the mortgage thus resulting in the loan servicers to collecting more fees. The report cited claims one servicer modified loans that were “destined to fail” in order to keep the servicing fee revenue.
A release from law firm Grais & Ellsworth LLP alleges that the safe harbor agreement is simply a “second bailout” for the big four banks (Bank of America, Wells Fargo, Chase and Citi Bank) . The lawyers’ claims are similar to the Amherst report. It asserts that the big banks keep principal balances high so they can take in more servicing fees instead of providing more meaningful loan modification solutions that reduce loan balances. They also argue that the servicer safe harbor will hurt American’s pensions, 401k plans, and savings that rely on the performance of these mortgages and believe such a measure will make it more difficult to obtain mortgage financing in the future as new investors steer clear.
Grais & Ellsworth believe the main reason the banks want the safe harbor is to protect their $400 billion in second mortgages, which by law should be modified before the investor-owned first mortgages. “If the Big Four followed the law and modified their own junior mortgages first, they would lose so much money they would have to ask Congress for another bailout,” the release said.
Nearly half of loans modified in the second quarter of last year were 60 days or more past due after just eight months, mainly because many of the supposed workouts resulted in unchanged or higher monthly payments
Wednesday, April 29, 2009
Saturday, April 25, 2009
California Housing Slump Shows Signs of Ending
California's housing slump showed improvement in March, with sales of existing single-family homes increasing 64% from the privious year and median home prices rising month-to-month for the first time since August 2007, according to the California Association of Realtors.
The state saw sales of 522,980 existing single-family homes in March, compared with 319,290 in the year-earlier period, the report said. Inventory of unsold homes fell in March to a three-year low of only five months, according to a report released Monday. That compares with 12.2 months of inventory the group reported for March 2008.
Stimulus efforts helped the state's home sales in the month, said Delores Conway, a professor at the University of Southern California's Marshall School of Business. Some Californians benefited from about $8,000 in credit for first-time home buyers from the federal economic-stimulus plan, and some from an additional $10,000 credit from a state stimulus measure.
The state saw sales of 522,980 existing single-family homes in March, compared with 319,290 in the year-earlier period, the report said. Inventory of unsold homes fell in March to a three-year low of only five months, according to a report released Monday. That compares with 12.2 months of inventory the group reported for March 2008.
Stimulus efforts helped the state's home sales in the month, said Delores Conway, a professor at the University of Southern California's Marshall School of Business. Some Californians benefited from about $8,000 in credit for first-time home buyers from the federal economic-stimulus plan, and some from an additional $10,000 credit from a state stimulus measure.
Friday, April 24, 2009
New Home Sales Beat Expectations
New home sales in the U.S. beat expectations as builders start to see long-awaited encouraging signs about the housing market.
The Department of Commerce reported new home sales fell to an annualized pace of 356k, a 0.6% decrease from February. This would not have been the case had The Commerce Department not revised February’s readings up from 337k sales to 358k. Economists were expecting sales to remain unchanged in the month at 337k.
The Department of Commerce reported new home sales fell to an annualized pace of 356k, a 0.6% decrease from February. This would not have been the case had The Commerce Department not revised February’s readings up from 337k sales to 358k. Economists were expecting sales to remain unchanged in the month at 337k.
Wednesday, April 22, 2009
Unexpected Rise in House Prices in February
House prices unexpectedly rose in February, according to a report from the Federal Housing and Finance Administration on Wednesday. The report showed a 0.7% month-over-month increase in U.S. house prices, following a downwardly revised 1.0% increase in January. Economists were expecting a 0.7% drop.
The largest increase was in the Pacific region, up by 3.8%, and the West South Central region, with prices climbing 1.9% month-over-month. In the West North Central region, home prices were up 1.5% and the New England area saw a 2.2% jump in prices. The largest decrease came in the East North Central region, down 1.2%, reversing a 3.3% increase the month prior. Prices were down 0.8% in the South Atlantic region and down 0.2% in the East South Central region.
On an annual basis, house prices are down 6.5% from February 2008
The largest increase was in the Pacific region, up by 3.8%, and the West South Central region, with prices climbing 1.9% month-over-month. In the West North Central region, home prices were up 1.5% and the New England area saw a 2.2% jump in prices. The largest decrease came in the East North Central region, down 1.2%, reversing a 3.3% increase the month prior. Prices were down 0.8% in the South Atlantic region and down 0.2% in the East South Central region.
On an annual basis, house prices are down 6.5% from February 2008
Tuesday, April 21, 2009
Geithner Says, "Thanks, but No Thanks"
Treasury Secretary Timothy Geithner said Tuesday that some financial institutions may be in a position to repay government loans early, providing as much as a $25 billion boost for the federal bank rescue program within a year. However, federal regulators will consider the needs of the economy as a whole — including whether banks are issuing loans — in deciding whether to accept repayment, Geithner told the congressional panel overseeing the Troubled Asset Relief Program. "Our central objective, our obligation, is to ensure that the financial system is stable, and it's able to provide the credit necessary for economic recovery," he testified.
In recent weeks, several banks have announced that they want to repay TARP money as a show of strength to investors — and to avoid government restrictions on executive compensation. But Geithner said that may not be desirable. Financial institutions must not only be stable enough to repay government loans, he said, they must also be able to provide enough credit to support a growing economy. Currently, reports on bank lending show a significant decline in loans for consumers, businesses and industry, though mortgage refinancing has increased.
Geithner said the uncertainty over the value of toxic assets held by banks is impeding their ability to lend. The Treasury Department is in the midst of assessing the banks' health through "stress tests" that he said should reassure investors and get credit flowing. The Treasury secretary said most banks have more capital than they need, but the toxic assets and poor economy have reduced lending. "For every dollar that banks are short of the capital they need, they will be forced to shrink their lending by $8 to $12," he said. Nearly $110 billion of the $700 billion approved by Congress still remains in the TARP fund. Institutions are expected to repay about $25 billion within the next year.
Geithner's testimony came in the wake of a report that warned Obama administration initiatives could increasingly expose taxpayers to losses and make the government more vulnerable to fraud. A special inspector general assigned to the bailout program concluded in a 250-page quarterly report to Congress that a private-public partnership designed to buy up bad assets is tilted in favor of private investors and creates "potential unfairness to the taxpayer."
Geithner said the new plan "strikes the right balance" by letting taxpayers share the risk with the private sector while at the same time letting private industry use competition to set market prices for the assets. "If the government alone purchased these legacy assets from banks, it would assume the entire share of the losses and risk overpaying," Geithner said in his remarks. "Alternatively, if we simply hoped that banks would work off these assets over time, we would be prolonging the economic crisis, which in turn would cost more to the taxpayer over time."
Sunday, April 19, 2009
Freddie Mac Chief Says Housing Near Bottom
U.S. housing sales are near a bottom said Frank Nothaft, the chief economist of Freddie Mac on Saturday. Speaking on a panel at a conference in Nashville, Tennessee, he also said that a third of sales are now of foreclosed properties.
Nothaft also warned that there was still a great risk of future delinquency. Unemployment is a primary factor for prime borrowers becoming delinquent and house price declines can also add to foreclosure risk, he said.
He noted that Federal Housing Administration lending has increased with FHA loans at the largest share of the U.S. housing market since 1942. He also noted that mortgage rates are at a 50-year low.
Nothaft also warned that there was still a great risk of future delinquency. Unemployment is a primary factor for prime borrowers becoming delinquent and house price declines can also add to foreclosure risk, he said.
He noted that Federal Housing Administration lending has increased with FHA loans at the largest share of the U.S. housing market since 1942. He also noted that mortgage rates are at a 50-year low.
Friday, April 17, 2009
Have Home Values Bottomed Out?
The median price paid for a Southern California home last month was $250,000, the same as in January and February, Data Quick reported. That’s still down 35.1 percent compared to last March, and more than 50 percent from its peak of $505,000 in mid-2007.
Does this mean home values have bottomed out? Unfortunately, it’s hard to gauge the direction of home values using this measure because 55.4 percent of March resales were previously foreclosed. Also, higher-cost home sales are stagnant. “Because of the lopsided sales mix profile, the decline in the median overstates the decline in home values,” the report said. “It appears that homes in older, more costly, neighborhoods have come down in value by about half as much as homes in newer, more affordable, neighborhoods.”
“We’re still waiting for the upper half of the mortgage market to open up,” said John Walsh, MDA DataQuick president. “We know that sales of lower-cost housing, especially foreclosure resales in Riverside and San Bernardino counties, are driving today’s market. What we don’t know is how the recession has affected the more expensive neighborhoods.”
“Of late the statistics haven’t represented the overall market. Rather, to a large extent they’re simply a reflection of what is selling - mainly distressed properties and homes in the more affordable neighborhoods,” Walsh added.
Southland home sales were up 27.9 percent from February, which is a common seasonal trend, and up 52.1 percent from March 2008, the slowest March in DataQuick’s 21-year history. Jumbo loans accounted for just 10 percent of home purchases last month, down from roughly 40 percent two years ago; FHA mortgages made up 37.8 percent of purchase loans, up from 10.1 percent last year.
Does this mean home values have bottomed out? Unfortunately, it’s hard to gauge the direction of home values using this measure because 55.4 percent of March resales were previously foreclosed. Also, higher-cost home sales are stagnant. “Because of the lopsided sales mix profile, the decline in the median overstates the decline in home values,” the report said. “It appears that homes in older, more costly, neighborhoods have come down in value by about half as much as homes in newer, more affordable, neighborhoods.”
“We’re still waiting for the upper half of the mortgage market to open up,” said John Walsh, MDA DataQuick president. “We know that sales of lower-cost housing, especially foreclosure resales in Riverside and San Bernardino counties, are driving today’s market. What we don’t know is how the recession has affected the more expensive neighborhoods.”
“Of late the statistics haven’t represented the overall market. Rather, to a large extent they’re simply a reflection of what is selling - mainly distressed properties and homes in the more affordable neighborhoods,” Walsh added.
Southland home sales were up 27.9 percent from February, which is a common seasonal trend, and up 52.1 percent from March 2008, the slowest March in DataQuick’s 21-year history. Jumbo loans accounted for just 10 percent of home purchases last month, down from roughly 40 percent two years ago; FHA mortgages made up 37.8 percent of purchase loans, up from 10.1 percent last year.
Thursday, April 16, 2009
Banks Withholding Foreclosed Homes
By LESLIE BERKMAN The Press-Enterprise
Lenders for months have been holding back a high volume of homes in the foreclosure pipeline that could further depress home values if they are released at once into the market, industry experts say.
The artificially created shortage of foreclosed homes for sale comes when there is a strong resurgence of home buying, with consumers finding, often to their surprise, that they must make multiple offers to compete for a diminished supply of bargain homes.
Meanwhile, financial institutions have been encouraged by federal and state lawmakers to slow the foreclosure process to provide more time to work with borrowers on mortgage modifications in an effort to reduce foreclosures.
Scott Anderson, vice president and senior economist with Wells Fargo, said also by withholding a portion of foreclosed properties from the market, lenders may deliberately be preventing home prices from falling as fast as they otherwise would.
A tally by one company that closely monitors foreclosures showed only about a third of repossessed houses are being actively marketed. If this "phantom supply" of bank-owned houses is put up for sale at once, Anderson said, it would probably prompt another steep plunge in property values.
"The danger is this could be devastating for the banks' balance sheets and for anyone else trying to sell a house or refinance their mortgage," he said. The banks "would be crazy to flood the market and cause prices to sink. Their own assets would be worth more if they brought the foreclosures in slowly," said John Husing, a Redlands-based economist.
Husing has predicted Inland Southern California home prices will stop falling in the next couple of months because of shrinking inventory and growing buyer demand.
Sean O'Toole, founder and chief executive of ForeclosureRadar, a California information Web site, said mortgage servicers have told him "They want to be careful about putting out too many properties at one time because they believe supply and demand are affecting prices."
The median price of an Inland house has dropped 43 percent in San Bernardino County and 39 percent in Riverside County in the past year, but the rate has slowed in recent months.
Statistics confirm that banks are keeping foreclosed houses off the market much longer than usual, said Rick Sharga, senior vice president of RealtyTrac, a company that monitors foreclosure trends nationally.
Sharga said RealtyTrac studied the 234,716 bank-owned California homes in its database as of the end of November and discovered that only 34 percent were advertised through the state's dozens of multiple listing services, which is how bank-owned properties are normally marketed. "We were frankly stunned by that," Sharga said. Usually repossessed houses are processed, fixed up and listed for sale within 30 days, he said.
While the gradual release of foreclosed properties helps to prop up prices, it also could prolong the real estate recession, Anderson said.
Other objectives the banks may have, Sharga said, include deferring accounting losses they would have to show once foreclosed properties are sold at depressed prices. Or they may be waiting to see if the federal government will offer them more money for their defaulted mortgages than they could get by selling foreclosed houses on the open market.
Lenders for months have been holding back a high volume of homes in the foreclosure pipeline that could further depress home values if they are released at once into the market, industry experts say.
The artificially created shortage of foreclosed homes for sale comes when there is a strong resurgence of home buying, with consumers finding, often to their surprise, that they must make multiple offers to compete for a diminished supply of bargain homes.
Meanwhile, financial institutions have been encouraged by federal and state lawmakers to slow the foreclosure process to provide more time to work with borrowers on mortgage modifications in an effort to reduce foreclosures.
Scott Anderson, vice president and senior economist with Wells Fargo, said also by withholding a portion of foreclosed properties from the market, lenders may deliberately be preventing home prices from falling as fast as they otherwise would.
A tally by one company that closely monitors foreclosures showed only about a third of repossessed houses are being actively marketed. If this "phantom supply" of bank-owned houses is put up for sale at once, Anderson said, it would probably prompt another steep plunge in property values.
"The danger is this could be devastating for the banks' balance sheets and for anyone else trying to sell a house or refinance their mortgage," he said. The banks "would be crazy to flood the market and cause prices to sink. Their own assets would be worth more if they brought the foreclosures in slowly," said John Husing, a Redlands-based economist.
Husing has predicted Inland Southern California home prices will stop falling in the next couple of months because of shrinking inventory and growing buyer demand.
Sean O'Toole, founder and chief executive of ForeclosureRadar, a California information Web site, said mortgage servicers have told him "They want to be careful about putting out too many properties at one time because they believe supply and demand are affecting prices."
The median price of an Inland house has dropped 43 percent in San Bernardino County and 39 percent in Riverside County in the past year, but the rate has slowed in recent months.
Statistics confirm that banks are keeping foreclosed houses off the market much longer than usual, said Rick Sharga, senior vice president of RealtyTrac, a company that monitors foreclosure trends nationally.
Sharga said RealtyTrac studied the 234,716 bank-owned California homes in its database as of the end of November and discovered that only 34 percent were advertised through the state's dozens of multiple listing services, which is how bank-owned properties are normally marketed. "We were frankly stunned by that," Sharga said. Usually repossessed houses are processed, fixed up and listed for sale within 30 days, he said.
While the gradual release of foreclosed properties helps to prop up prices, it also could prolong the real estate recession, Anderson said.
Other objectives the banks may have, Sharga said, include deferring accounting losses they would have to show once foreclosed properties are sold at depressed prices. Or they may be waiting to see if the federal government will offer them more money for their defaulted mortgages than they could get by selling foreclosed houses on the open market.
No Hope for Homeowners?
Congress passed the Hope for Homeowners Act last summer, setting aside $300 billion to help people refinance into more affordable mortgages. The Congressional Budget Office estimated that the program could help 400,000 people keep their homes when it was first introduced. But the program has failed.
More than six months after the program was launched, the Federal Housing Administration says only one homeowner has made it all the way through the government program and received the FHA guarantee. The FHA says it has only received 868 applications. Fifty-one of those have been finalized to some degree by lenders. And the FHA has only guaranteed one loan.
More than six months after the program was launched, the Federal Housing Administration says only one homeowner has made it all the way through the government program and received the FHA guarantee. The FHA says it has only received 868 applications. Fifty-one of those have been finalized to some degree by lenders. And the FHA has only guaranteed one loan.
Monday, April 13, 2009
Price Depreciation is a Leading Cause Default
The Boston Fed released a report last week that found home price depreciation is a leading cause of mortgage default. This challenges the common arguments that attribute rising delinquencies to unaffordable mortgage payments.
“We find that the DTI ratio at the time of origination is not a strong predictor of future mortgage default,” the report said. “A simple theoretical model explains this result.” It went on to say, “While a higher monthly payment makes default more likely, other factors, such as the level of house prices, expectations of future house price growth and intertemporal variation in household income, matter as well.”
The economists estimated that a 10 percent decrease in income increases the probability of 90-day delinquency by just seven to 11 percent. A one percent increase in the unemployment rate raises this probability by 10-20 percent. Yet, a 10 percent fall in home prices raises the probability of a 90-day delinquency by more than half.
Given that modification programs currently focus on getting a struggling borrower’s housing payment down to a specific debt ratio, this may also explain why the likelihood of re-default is exceedingly high.
“We find that the DTI ratio at the time of origination is not a strong predictor of future mortgage default,” the report said. “A simple theoretical model explains this result.” It went on to say, “While a higher monthly payment makes default more likely, other factors, such as the level of house prices, expectations of future house price growth and intertemporal variation in household income, matter as well.”
The economists estimated that a 10 percent decrease in income increases the probability of 90-day delinquency by just seven to 11 percent. A one percent increase in the unemployment rate raises this probability by 10-20 percent. Yet, a 10 percent fall in home prices raises the probability of a 90-day delinquency by more than half.
Given that modification programs currently focus on getting a struggling borrower’s housing payment down to a specific debt ratio, this may also explain why the likelihood of re-default is exceedingly high.
Thursday, April 9, 2009
Obama encourages public to refinance
WASHINGTON — President Obama on Thursday touted his administration's efforts to lower mortgage rates in a round-table discussion with Washington, D.C.-area homeowners who have benefited from refinancing into more affordable loans.
Their stories were intended to serve as testimonials for the masses who have not called a mortgage broker, whether they are in danger of foreclosure or simply looking for extra money.
"The main message we want to send today is that the programs that have been put in place can help responsible folks who have been making their payments, who are not looking for a handout, but this allows them to make some changes that will leave money in their pockets and leave them more secure in their homes," Obama said.
Obama said new housing programs would be presented soon, following last month's plan to provide $275 billion to help distressed homeowners, of which $75 billion would subsidize the mortgage industry to help borrowers avoid foreclosure. But he offered no details Thursday.
Monday, April 6, 2009
California Realtors Offer to Mortgage Payment Guarantee
The California Association of Realtors (CAR) will make your payments if you lose your job after purchasing a new home.
CAR’s new program applies only to first-time homebuyers (or those who haven’t owned a home for three years), who open escrow beginning today and close by the end of the year in the beautiful state of California. To be eligible, the borrower must be under the age of 70 and use a California Realtor in the transaction; self-employed borrowers are ineligible.
If you do qualify, and subsequently lose your job, CAR’s “Mortgage Protection Program” will provide monthly payments of up to $1,500 for six months. The program has a $1 million cap.
Thursday, April 2, 2009
Fannie Mae Offers New Refinancing Option With DU Refi Plus
The “Home Affordable Refinance” program now allows homeowners to refinance their home up to 105% of the value their home. The new program is available for all current Fannie Mae loans through Fannie Mae’s program “DU Refi Plus”.
Some “DU Refi Plus” highlights:
* If the homeowner currently has a second mortgage they will still be able to take advantage of this new program as long as his current first mortgage does not exceed 105% of their homes value.
* If the homeowner currently has mortgage insurance (PMI) on their home, the insurer will allow the current coverage to stay in place regardless of current home value.
* If the current loan does not have mortgage insurance but the value now exceeds 80% of the value of the home, no new mortgage insurance will be required.
* If the computerized underwritng engine determines the property is eligible for a Property Fieldwork Waiver, appraisals may not be .
The primary expectation for Home Affordable Refinance is that refinancing will put responsible borrowers in a better position by reducing their monthly principal and interest payments or moving them from a more risky loan structure (such as interest-only or short-term ARM) to a more stable product (such as a fixed-rate mortgage).
Some “DU Refi Plus” highlights:
* If the homeowner currently has a second mortgage they will still be able to take advantage of this new program as long as his current first mortgage does not exceed 105% of their homes value.
* If the homeowner currently has mortgage insurance (PMI) on their home, the insurer will allow the current coverage to stay in place regardless of current home value.
* If the current loan does not have mortgage insurance but the value now exceeds 80% of the value of the home, no new mortgage insurance will be required.
* If the computerized underwritng engine determines the property is eligible for a Property Fieldwork Waiver, appraisals may not be .
The primary expectation for Home Affordable Refinance is that refinancing will put responsible borrowers in a better position by reducing their monthly principal and interest payments or moving them from a more risky loan structure (such as interest-only or short-term ARM) to a more stable product (such as a fixed-rate mortgage).
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