The Treasury Department has unveiled a plan to pump billions of dollars into state housing finance agencies so they can increase loans to first-time homebuyers.
In a normal year, the so-called HFAs, or housing finance agencies, finance about $15 billion worth of mortgages, but the credit crisis has made it difficult for them to raise money for the loans.
Basically, the HFAs work like an affordable housing bank, says Steven Spears, acting executive director of the California Housing Finance Agency.
He explains that the agencies issue tax-exempt bonds to Wall Street and then the HFAs use the money to make loans. But investors have become reluctant to put their money into anything related to mortgages, especially in parts of the country, such as California, where home prices have fallen significantly since the market peak in 2006.
"They were just not interested," Spears said, explaining that his agency has been out of lending capital for a year now.
"Two years ago we had record lending, he said. "We had $1.7 billion in mortgages for first-time homebuyers. We're not making any loans at all really right now."
Treasury's plan is for the federal government to buy the bonds from HFAs, who will in turn have the money to lend to first-time homebuyers such as Natasha Henry, who is looking to buy a foreclosure in Boston's Dorchester neighborhood.
Natasha Henry, a single mom with a steady job and good credit, is the kind of first-time homebuyer that stands to benefit from the program. Henry moved back in with her parents to save for a down payment and enough money to fix up the house once she's bought it.
"I paid off all my credit cards — only held on to one, got my debt down," says Henry as she discusses her financing options with a housing counselor.
Henry is exactly the sort of person needed to turn the housing market around, analysts agree. But first, the HFAs need a shot in the arm.
"They have historically performed a critical function in serving first-time homebuyers across the country," explains Michael Barr, assistant treasury secretary for financial institutions. He says the current market has made it "very, very difficult" for the HFAs.
Barr has not said how much the federal government will spend on the housing agency bonds, but it is likely to be in the range of $15 billion to $20 billion.
But he says the government will be getting that money back.
"The expected cost to the federal government is zero. The expected cost is fully covered by the fees that HFAs are being charged for participation in the program," Barr says.
There is some risk, but most economists think the program is worthwhile.
Mark Zandi, chief economist of Moodys Economy.com says the HFAs are a small, but important part of the overall lending picture.
"At the moment, they just can't get credit liquidity and they may not survive if they can't get help," he says.
Others economists disagree. They say the programs for first-time homebuyers are already getting enough help from the federal government.
http://www.npr.org/templates/story/story.php?storyId=113957454
Tuesday, October 20, 2009
Wednesday, October 14, 2009
CNN: Push on to expand $8,000 tax credit
Some want to expand the tax credit for homebuyers. Supporters say it could stem price declines. Critics say it would just be a costly, temporary fix.
By Jeanne Sahadi, CNNMoney.com senior writer
Last Updated: October 14, 2009: 5:58 PM ET
NEW YORK (CNNMoney.com) -- Congress is considering proposals to greatly expand a soon-to-expire $8,000 tax credit for first-time homebuyers -- potentially applying it to all but the wealthiest homebuyers.
Supporters say doing so would further boost home sales, stabilize housing prices and generate jobs. Opponents say extending and expanding the credit would be a waste of money and only temporarily stave off further price declines.
The credit now can be claimed by anyone buying a home who has not owned one for three years and who closes the deal by Nov. 30.
Beyond extending that deadline, some lawmakers want to make the credit available to all homebuyers who meet income eligibility requirements. And some want to increase the amount of the credit from $8,000 to $15,000.
Currently the first-time home buyer credit is available in full to those buying their primary residence who make $75,000 or less ($150,000 for joint filers). A partial credit is available to those making between $75,000 and $95,000 ($150,000 to $170,000 for joint filers).
The case for expanding the credit
Through mid-September, 1.4 million tax returns had qualified for the credit, according to the IRS.
Some portion of those returns, which the IRS couldn't specify, represents buyers who took advantage of an earlier version of the tax credit, which was only worth $7,500 and has to be repaid over time.
By the end of November, the credit will have been used by 1.8 million homebuyers, at least 355,000 of whom would not have bought a house without the tax break, according to estimates by the National Association of Realtors.
Mark Zandi, chief economist of MoodysEconomy.com, favors extending the current credit until June 1, 2010, and making it available to all home buyers regardless of income or at least to everyone except those at the highest end of the income scale. He estimates the cost of doing so wouldn't exceed $30 billion over 10 years.
Zandi's reasoning: Foreclosures are expected to rise next year because of rising unemployment, and that will drag home prices down further. Extending and expanding the credit will help mute that decline. And by June, there's a chance the job market will have stabilized.
"The most fundamental argument for the credit is that nothing works in the economy if housing is falling -- it hurts household wealth and credit becomes tight," Zandi said. "[The credit] is a good insurance policy. It's vital to stem the housing price declines."
To kick start economic activity, Zandi believes lawmakers should set aside an amount of money for an extended credit and tell potential home buyers "first come first served."
The National Association of Home Builders would like the credit extended for all of 2010.
"We estimate that this would increase home purchases by 383,000 in the next year and help mitigate the foreclosure crisis by whittling down inventory," NAHB Chairman Joe Robson said in a statement. "This stimulus alone would create nearly 350,000 jobs over the coming year, which is exactly what the economy needs right now."
A study funded by the industry-supported Fix Housing First Coalition found that the current credit helped stimulate demand for homes at the lower end of the price spectrum.
"An expansion of the tax credit would spur an increase similar to what occurred in the lower end of the market, by motivating buyers in the 'trade-up market' to purchase a higher priced primary home," said Kenneth Rosen in testimony before Congress. Rosen runs the consulting group that conducted the study and is chairman of the Fisher Center for Real Estate and Urban Economics at the University of California in Berkeley.
The case for letting the credit expire
Opponents of extending and expanding the credit worry that such moves offer poor bang for the buck and won't stem housing declines.
"Everything spent on this program will ultimately have to be paid for later through higher, economically harmful taxes," Ted Gayer, co-director of economic studies at the Brookings Institution, wrote in a Brookings blog.
Assuming there are 5.5 million home sales in 2010, Gayer said, expanding the credit to all homeowners "is poorly targeted because it would give a credit to 5.5 million homebuyers who would have bought a home anyway."
The current credit was estimated to cost federal coffers $6.64 billion over 10 years. But Gayer notes that the cost is likely to be much higher since more people than expected took advantage of it but only about 15% of people wouldn't have bought a house otherwise.
It would cost an estimated $16.7 billion if the credit is extended until the end of June 2010 and made available to single filers making up to $150,000 and joint filers making up to $300,000. Those are the parameters that Sen. Johnny Isakson, R-Ga., and Sen. Chris Dodd, D-Conn., are proposing in an amendment they introduced to a bill the Senate is expected to take up this week.
Another argument against an extension: It would only temporarily boost home prices and potentially set up those using it for a fall. That's because home prices are likely to decline once the credit expires and interest rates ultimately trek north, according to Dean Baker, codirector of the Center for Economic and Policy Research.
"Temporarily propping up house prices, so that a new set of homebuyers can incur losses, is a policy of questionable merit," Baker said in a CEPR column.
The sooner the market adjusts the better, Baker said. He did offer one caveat: "We may want to step in to prevent prices from overshooting on the downside in a select group of markets where this is a real possibility."
Zandi said that's already happened in a number of markets, and that an extended credit might help turn around the deflationary psychology in those markets where buyers are worried about catching a falling knife.
- CNNMoney.com's Les Christie contributed to this report.
http://money.cnn.com/2009/10/14/news/economy/home_buyer_tax_credit_extension/index.htm?postversion=2009101403
By Jeanne Sahadi, CNNMoney.com senior writer
Last Updated: October 14, 2009: 5:58 PM ET
NEW YORK (CNNMoney.com) -- Congress is considering proposals to greatly expand a soon-to-expire $8,000 tax credit for first-time homebuyers -- potentially applying it to all but the wealthiest homebuyers.
Supporters say doing so would further boost home sales, stabilize housing prices and generate jobs. Opponents say extending and expanding the credit would be a waste of money and only temporarily stave off further price declines.
The credit now can be claimed by anyone buying a home who has not owned one for three years and who closes the deal by Nov. 30.
Beyond extending that deadline, some lawmakers want to make the credit available to all homebuyers who meet income eligibility requirements. And some want to increase the amount of the credit from $8,000 to $15,000.
Currently the first-time home buyer credit is available in full to those buying their primary residence who make $75,000 or less ($150,000 for joint filers). A partial credit is available to those making between $75,000 and $95,000 ($150,000 to $170,000 for joint filers).
The case for expanding the credit
Through mid-September, 1.4 million tax returns had qualified for the credit, according to the IRS.
Some portion of those returns, which the IRS couldn't specify, represents buyers who took advantage of an earlier version of the tax credit, which was only worth $7,500 and has to be repaid over time.
By the end of November, the credit will have been used by 1.8 million homebuyers, at least 355,000 of whom would not have bought a house without the tax break, according to estimates by the National Association of Realtors.
Mark Zandi, chief economist of MoodysEconomy.com, favors extending the current credit until June 1, 2010, and making it available to all home buyers regardless of income or at least to everyone except those at the highest end of the income scale. He estimates the cost of doing so wouldn't exceed $30 billion over 10 years.
Zandi's reasoning: Foreclosures are expected to rise next year because of rising unemployment, and that will drag home prices down further. Extending and expanding the credit will help mute that decline. And by June, there's a chance the job market will have stabilized.
"The most fundamental argument for the credit is that nothing works in the economy if housing is falling -- it hurts household wealth and credit becomes tight," Zandi said. "[The credit] is a good insurance policy. It's vital to stem the housing price declines."
To kick start economic activity, Zandi believes lawmakers should set aside an amount of money for an extended credit and tell potential home buyers "first come first served."
The National Association of Home Builders would like the credit extended for all of 2010.
"We estimate that this would increase home purchases by 383,000 in the next year and help mitigate the foreclosure crisis by whittling down inventory," NAHB Chairman Joe Robson said in a statement. "This stimulus alone would create nearly 350,000 jobs over the coming year, which is exactly what the economy needs right now."
A study funded by the industry-supported Fix Housing First Coalition found that the current credit helped stimulate demand for homes at the lower end of the price spectrum.
"An expansion of the tax credit would spur an increase similar to what occurred in the lower end of the market, by motivating buyers in the 'trade-up market' to purchase a higher priced primary home," said Kenneth Rosen in testimony before Congress. Rosen runs the consulting group that conducted the study and is chairman of the Fisher Center for Real Estate and Urban Economics at the University of California in Berkeley.
The case for letting the credit expire
Opponents of extending and expanding the credit worry that such moves offer poor bang for the buck and won't stem housing declines.
"Everything spent on this program will ultimately have to be paid for later through higher, economically harmful taxes," Ted Gayer, co-director of economic studies at the Brookings Institution, wrote in a Brookings blog.
Assuming there are 5.5 million home sales in 2010, Gayer said, expanding the credit to all homeowners "is poorly targeted because it would give a credit to 5.5 million homebuyers who would have bought a home anyway."
The current credit was estimated to cost federal coffers $6.64 billion over 10 years. But Gayer notes that the cost is likely to be much higher since more people than expected took advantage of it but only about 15% of people wouldn't have bought a house otherwise.
It would cost an estimated $16.7 billion if the credit is extended until the end of June 2010 and made available to single filers making up to $150,000 and joint filers making up to $300,000. Those are the parameters that Sen. Johnny Isakson, R-Ga., and Sen. Chris Dodd, D-Conn., are proposing in an amendment they introduced to a bill the Senate is expected to take up this week.
Another argument against an extension: It would only temporarily boost home prices and potentially set up those using it for a fall. That's because home prices are likely to decline once the credit expires and interest rates ultimately trek north, according to Dean Baker, codirector of the Center for Economic and Policy Research.
"Temporarily propping up house prices, so that a new set of homebuyers can incur losses, is a policy of questionable merit," Baker said in a CEPR column.
The sooner the market adjusts the better, Baker said. He did offer one caveat: "We may want to step in to prevent prices from overshooting on the downside in a select group of markets where this is a real possibility."
Zandi said that's already happened in a number of markets, and that an extended credit might help turn around the deflationary psychology in those markets where buyers are worried about catching a falling knife.
- CNNMoney.com's Les Christie contributed to this report.
http://money.cnn.com/2009/10/14/news/economy/home_buyer_tax_credit_extension/index.htm?postversion=2009101403
Tuesday, October 13, 2009
Reuters: Home rescue plan delaying, not solving crisis
ALBANY, Ohio/WEST PALM BEACH, Florida (Reuters) - Within weeks of taking office, U.S. President Barack Obama rode to the rescue of homeowners resigned to financial ruin.
Obama, grappling with the worst U.S. housing crisis since the Great Depression, pledged to help as many as 9 million families keep their homes by reworking their mortgages.
Eight months later, the plan is plagued by delays, red tape and, some critics say, a reluctance by banks to do their part. Just 17 percent of eligible borrowers have had their loans modified and monthly payments cut. Hardly any have been given a cut in the amount they owe on homes which are now worth less.
That means many successful applicants are left with loans that they still will not be able to afford in the long run. So instead of resolving the housing crisis that pushed the U.S. economy into recession, America may be prolonging it and, in the process, stunting the global recovery.
"Every single policy we've seen has merely kicked the problem down the road," said Laurie Goodman, a veteran analyst at broker-dealer Amherst Securities Group LP, which specializes in residential mortgage-backed securities.
"But there is no easy solution to the underlying problems."
For homeowners like Jeff Latta, there was no help at all.
Latta, a 53 year-old retiree, pays $1,600 in monthly home payments that eat up 93 percent of his pension and he struggles to make child support payments.
To help pay his mortgage, Latta has slashed his bills by hunting for food in the wooded hills around his town of Albany in southern Ohio, and growing his own vegetables. He has resorted to selling pumpkins and firewood to make cash.
In March, Latta heard about Obama's Home Affordable Modification Program, or HAMP, that allows mortgage payments to be reduced to 31 percent of a homeowner's income.
The plan was launched as a central plank of Washington's efforts to stem foreclosures.
Latta applied for a loan modification but was rejected. His bank said his income from selling pumpkins and firewood -- a net of $906 in 2008 -- was too high.
"Frankly, I'm disappointed," Latta said. "I thought I would qualify as I am at high risk of default."
Foreclosure prevention advocate Bryce Burton at Ohio Housing Finance Agency said Latta's bank miscalculated his income. "Jeff is a shining example of someone doing everything they should be to keep their house," Burton said.
Nonprofit agencies say HAMP helps combat foreclosure but success varies from lender to lender.
Mortgage servicing companies, which service but do not own loans, complain that excessive bureaucracy slows the process.
HOME VALUES DROP $4.7 TRILLION
That banks lent irresponsibly in the U.S. property boom is irrefutable. As San Diego-based realtor Steve Rodgers says: "If you could fog a mirror, they'd give you a mortgage."
But borrowers are facing blame too for using their homes as machines to raise cash and consume on credit. The bubble burst in early 2007 and America went into recession later that year.
From the market's peak in 2005 to the second quarter of 2009, U.S. home equity fell 37 percent, or by $4.7 trillion, according to the Federal Reserve. To put that into context, China's economic output totaled about $4.3 trillion in 2008.
There have been recent signs the housing market may be bottoming. But rising unemployment and "shadow inventory" -- homes that banks have yet to foreclose on -- raise the prospect of further price declines.
Between July 2007 and August 2009 there were more than 7 million foreclosure filings, according to RealtyTrac, out of a total of 111 million households in the United States.
To stem the tide Obama launched HAMP, a $75 billion plan offering cash incentives to servicers to cut payments for distressed borrowers with most of the money coming from the $700 billion bank rescue program Congress approved last year.
But companies like subprime mortgage servicer Ocwen Financial Corp complain they have been inundated with borrowers who simply have no chance of qualifying for HAMP.
"I think there is a sense publicly... (that) everybody will be eligible for this program," said president Ron Faris at Ocwen headquarters in West Palm Beach, Florida.
"What we are finding is probably at this point, unfortunately, less than one in three borrowers that has applied is actually eligible under the government guidelines."
Margery Rotundo, a senior vice president at Ocwen, worried about the consequences of most HAMP applicants being rejected by servicing companies, saying it might produce "a tidal wave of foreclosures."
The U.S. Treasury Department said on October 8 that under HAMP more than 500,000 people so far had their payments cut, slightly under 17 percent of those deemed eligible, ahead of the department's November 1 deadline for reaching that number.
But Treasury officials concede that even if HAMP is a success, millions more foreclosures remain likely.
LAWSUITS PENDING
One of the big obstacles in the government's modification program has been the sheer workload.
"No one, including Treasury, had any concept of how much work this was going to be in getting these documents from borrowers," said Gregory Hebner, head of Irvine, California-based MOS Group Inc which handles loss mitigation for some servicers.
Nonprofit groups also have complaints about the government's program, and others independent of it. Counselors recount tales of lenders losing documents or of difficulty reaching bank staff.
"A client of mine was kept on hold for an hour and a half and transferred 17 times," said Michelle Watts, an OHFA foreclosure prevention advocate. "Some people just give up."
Ohio Attorney General Richard Cordray filed a lawsuit in July against a large mortgage servicing firm, Carrington Mortgage Services, alleging it had failed to make good faith efforts to stem foreclosures, and he warned more could follow.
"We'd rather not sue everyone, but we will if we have to," Cordray said.
Another problem is the number of borrowers who re-default on their modified loans. The U.S. Office of the Comptroller of the Currency says 56.2 percent of loans modified in the second quarter of 2008 re-defaulted after 12 months.
According to Amherst Securities, an even higher 70 percent of homeowners re-default within 12 months of a modification -- but it stresses its data does not include HAMP modifications.
On October 9, a day after the Treasury announced HAMP was ahead of target, the Congressional Oversight Panel issued a scathing report on the program. It found fewer than half of the predicted foreclosures would be avoided under HAMP.
Furthermore, many modifications added to the principle owed by homeowners at the end of their mortgages even as the market value of their homes fell, "a factor that appears to be associated" with higher re-default rates, the report said.
Some nonprofit groups say the high re-default rate is because many homeowners lack counseling on budgeting.
Mark Seifert, head of nonprofit agency Empowering and Strengthening Ohio's People said his group's re-default rate is around 30 percent because counselors help homeowners cut their budgets to keep their homes. This may involve not eating out and cutting all non-essential items.
For all the problems, many nonprofit groups say HAMP has led to more successful loan modification applications.
"HAMP has given us another tool in our toolbox," said Melinda Opperman, vice president of counseling group Springboard in Riverside, California. "Before we could help three to four people out of 10. Now it's five to seven."
http://www.reuters.com/article/domesticNews/idUSTRE59C00620091013?sp=true
LA Times: Schwarzenegger signs seven mortgage laws
The approved bills provide a variety of home loan protections for consumers, including a ban on so-called negative-amortization loans.
By Marc Lifsher
October 13, 2009
Reporting from Sacramento - In a flurry of end-of-session bill signings, Gov. Arnold Schwarzenegger approved seven new laws that provide a range of consumer protections to home-mortgage holders and may allow some to hold on to their houses.
Late Sunday night, the governor signed AB 260 by Assemblyman Ted Lieu (D-Torrance). The measure, which takes effect Jan. 1, tightens restrictions on mortgage brokers so they cannot steer borrowers to riskier, higher-interest loans when they qualify for less-expensive ones.
The new law also bans so-called negative-amortization loans, which offer the option of monthly payments so low that the loan amounts can actually grow over time.
The law also limits prepayment penalties to no more than 2% of the loan balance and allows state regulators to enforce federal lending laws.
The governor vetoed similar legislation last year at the urging of some groups in the mortgage and real estate industries.
The California Assn. of Mortgage Brokers, the California Mortgage Assn. and the California Assn. of Realtors unsuccessfully opposed this year's version of the bill.
Lieu, the bill's author, successfully argued that his proposal was needed more than ever to help California homeowners avoid foreclosure.
Lieu noted that, according to RealtyTrac, a real estate data service, 92,326 homeowners were hit with foreclosure notices during August.
"Look out Wall Street, California is no longer the Wild West," Lieu said in a statement Monday. "Although it took two years, I am pleased to have been able to overcome the powerful interests blocking reform so that future generations won't ever experience this type of crisis.
"Other mortgage-related bills signed by the governor:
* SB 36, by Sen. Ron Calderon (D-Montebello), sets licensing requirements for all residential loan originators.
* SB 239, by Sen. Fran Pavley (D-Agoura Hills), makes it a felony to commit fraud on a mortgage loan application.
* AB 329, by Assemblyman Mike Feuer (D-Los Angeles), requires lenders to give more and clearer information to those interested in reverse mortgages, which let seniors borrow against their homes' equity.
* SB 237, by Calderon, creates a registration program for appraisal management firms.
* AB 957, by Assemblywoman Cathleen Galgiani (D-Stockton), allows buyers of foreclosed homes to choose local escrow officers, rather than being forced to use the escrow company chosen by the seller.
* AB 1160, by Assemblyman Paul Fong (D-Cupertino), requires that mortgage loan documents be written in the same language the verbal negotiations were conducted in.
marc.lifsher@latimes.com
Copyright © 2009, The Los Angeles Times
http://www.latimes.com/business/la-fi-mortgage13-2009oct13,0,6365006.story
Friday, October 9, 2009
Congressional Oversight Panel Releases Assessment of Foreclosure Mitigation Efforts
Treasury's Strategy is 'Inadequate' to Address Coming Wave of Foreclosures; For Many Homeowners, Foreclosure Will Be Delayed, Not Avoided
WASHINGTON, D.C. - The Congressional Oversight Panel today released its October oversight report, "An Assessment of Foreclosure Mitigation Efforts after Six Months." The Panel expresses concern about the limited scope and scale of the Making Home Affordable program and questions whether Treasury's strategy will lead to permanent mortgage modifications for many homeowners.
Rising unemployment, weak home prices, and impending mortgage rate resets still threaten to cast millions of Americans out of their homes, with devastating effects on families, local communities, and the broader economy. One in eight mortgages is currently in foreclosure or default, and this crisis is estimated to produce 10 to 12 million foreclosures. While Treasury is still in the early stages of implementing its centerpiece foreclosure mitigation program, called the Home Affordable Modification Program (HAMP), the Panel has three concerns with the current approach.
The Panel found, "It increasingly appears that HAMP is targeted at the housing crisis as it existed six months ago, rather than as it exists right now." The program is limited to certain mortgage configurations. Many of the coming foreclosures are likely to be payment option adjustable rate mortgage and interest-only loan resets, many of which exceed HAMP eligibility limits. Treasury's strategy also makes no provision for foreclosures due to unemployment, which now appear to be one of the biggest drivers of foreclosure.
Foreclosures continue every day as Treasury ramps up the program, with foreclosure starts outpacing new HAMP trial modifications at a rate of more than two to one. Some homeowners who would have qualified for modifications may have lost their homes before the program could reach them. Even once the program is fully operational, Treasury's own projections indicate, in the best case, fewer than half of the predicted foreclosures would be avoided.
The Panel found, "The result for many homeowners could be that foreclosure is delayed, not avoided." HAMP modifications are often not permanent: For many homeowners, payments will rise after five years, and although the program is still in its early stages, only a very small proportion of trial modifications have converted into longer term modifications. The Panel is also concerned about homeowners who face negative equity or are "underwater" - that is, the value of the loan exceeds the value of their home. For many borrowers, HAMP modifications increase negative equity, a factor that appears to be associated with increased rates of re-default.
The full report can be found at cop.senate.gov. The Panel held a field hearing in Philadelphia with senior executives of Treasury, Fannie Mae, Freddie Mac, representatives for major financial institutions and housing advocates to inform the findings of this report. Testimony from the hearing can be found on the Panel's website.
The Congressional Oversight Panel was created to oversee the expenditure of the Troubled Asset Relief Program (TARP) funds authorized by Congress in the Emergency Economic Stabilization Act of 2008 (EESA) and to provide recommendations on regulatory reform. The Panel members are: former Securities and Exchange Commissioner Paul S. Atkins, Congressman Jeb Hensarling (R-TX), Richard H. Neiman, Superintendent of Banks for the State of New York, Damon Silvers, Associate General Counsel of the AFL-CIO and Elizabeth Warren, Leo Gottlieb Professor of Law at Harvard Law School.
WASHINGTON, D.C. - The Congressional Oversight Panel today released its October oversight report, "An Assessment of Foreclosure Mitigation Efforts after Six Months." The Panel expresses concern about the limited scope and scale of the Making Home Affordable program and questions whether Treasury's strategy will lead to permanent mortgage modifications for many homeowners.
Rising unemployment, weak home prices, and impending mortgage rate resets still threaten to cast millions of Americans out of their homes, with devastating effects on families, local communities, and the broader economy. One in eight mortgages is currently in foreclosure or default, and this crisis is estimated to produce 10 to 12 million foreclosures. While Treasury is still in the early stages of implementing its centerpiece foreclosure mitigation program, called the Home Affordable Modification Program (HAMP), the Panel has three concerns with the current approach.
The Panel found, "It increasingly appears that HAMP is targeted at the housing crisis as it existed six months ago, rather than as it exists right now." The program is limited to certain mortgage configurations. Many of the coming foreclosures are likely to be payment option adjustable rate mortgage and interest-only loan resets, many of which exceed HAMP eligibility limits. Treasury's strategy also makes no provision for foreclosures due to unemployment, which now appear to be one of the biggest drivers of foreclosure.
Foreclosures continue every day as Treasury ramps up the program, with foreclosure starts outpacing new HAMP trial modifications at a rate of more than two to one. Some homeowners who would have qualified for modifications may have lost their homes before the program could reach them. Even once the program is fully operational, Treasury's own projections indicate, in the best case, fewer than half of the predicted foreclosures would be avoided.
The Panel found, "The result for many homeowners could be that foreclosure is delayed, not avoided." HAMP modifications are often not permanent: For many homeowners, payments will rise after five years, and although the program is still in its early stages, only a very small proportion of trial modifications have converted into longer term modifications. The Panel is also concerned about homeowners who face negative equity or are "underwater" - that is, the value of the loan exceeds the value of their home. For many borrowers, HAMP modifications increase negative equity, a factor that appears to be associated with increased rates of re-default.
The full report can be found at cop.senate.gov. The Panel held a field hearing in Philadelphia with senior executives of Treasury, Fannie Mae, Freddie Mac, representatives for major financial institutions and housing advocates to inform the findings of this report. Testimony from the hearing can be found on the Panel's website.
The Congressional Oversight Panel was created to oversee the expenditure of the Troubled Asset Relief Program (TARP) funds authorized by Congress in the Emergency Economic Stabilization Act of 2008 (EESA) and to provide recommendations on regulatory reform. The Panel members are: former Securities and Exchange Commissioner Paul S. Atkins, Congressman Jeb Hensarling (R-TX), Richard H. Neiman, Superintendent of Banks for the State of New York, Damon Silvers, Associate General Counsel of the AFL-CIO and Elizabeth Warren, Leo Gottlieb Professor of Law at Harvard Law School.
State median home price to increase next year
By Melissa Rohlin
Los Angeles Times -October 8, 2009
Sales of foreclosures at the low end will drive the market, although fewer such resales will occur, the California Assn. of Realtors says. Median price is predicted to rise 3.3%, to $280,000.
Home prices in California will increase slightly next year as buyers snap up foreclosures and other properties at the market's low end, the California Assn. of Realtors said Wednesday.
At the same time, the number of purchases will decline slightly because there will be fewer foreclosures available.
In its annual forecast, the Realtors group predicted that the median home price in California would rise 3.3% to $280,000 next year. Sales of houses and condominiums, it said, will decrease 2.3% to about 527,500.
"We forecast that sales would be off a little bit next year because we're scheduled to lose first-time home buyers' tax credit at the end of November," said Leslie Appleton-Young, the group's chief economist.
Her group is calling for an extension of the federal tax credit, which benefited more than 1 million home buyers this year, and to make it available to all buyers.
"Expanding credit through at least part of 2010 would help an economy that's still trying to get back on its feet," Appleton-Young said.
There are two markets, she said.
In the moderate to low-end market, home prices have dropped 50% or more in some places, enabling people to buy homes that they otherwise would not have been able to afford, Appleton-Young said. In the high-end market, however, prices haven't softened, but potential buyers have less money.
The forecast says sales will be driven by distressed properties in the low end of the market, causing a shortage in the number of homes for sale at that level and a moderate home-price appreciation. It will continue to be hard to sell higher-priced houses because values have dropped and financing is hard to get.
http://www.latimes.com/business/la-fi-realtors8-2009oct08,1,6875575.story
Los Angeles Times -October 8, 2009
Sales of foreclosures at the low end will drive the market, although fewer such resales will occur, the California Assn. of Realtors says. Median price is predicted to rise 3.3%, to $280,000.
Home prices in California will increase slightly next year as buyers snap up foreclosures and other properties at the market's low end, the California Assn. of Realtors said Wednesday.
At the same time, the number of purchases will decline slightly because there will be fewer foreclosures available.
In its annual forecast, the Realtors group predicted that the median home price in California would rise 3.3% to $280,000 next year. Sales of houses and condominiums, it said, will decrease 2.3% to about 527,500.
"We forecast that sales would be off a little bit next year because we're scheduled to lose first-time home buyers' tax credit at the end of November," said Leslie Appleton-Young, the group's chief economist.
Her group is calling for an extension of the federal tax credit, which benefited more than 1 million home buyers this year, and to make it available to all buyers.
"Expanding credit through at least part of 2010 would help an economy that's still trying to get back on its feet," Appleton-Young said.
There are two markets, she said.
In the moderate to low-end market, home prices have dropped 50% or more in some places, enabling people to buy homes that they otherwise would not have been able to afford, Appleton-Young said. In the high-end market, however, prices haven't softened, but potential buyers have less money.
The forecast says sales will be driven by distressed properties in the low end of the market, causing a shortage in the number of homes for sale at that level and a moderate home-price appreciation. It will continue to be hard to sell higher-priced houses because values have dropped and financing is hard to get.
http://www.latimes.com/business/la-fi-realtors8-2009oct08,1,6875575.story
Thursday, October 8, 2009
US New: House Votes to Extend First-Time Home Buyer Tax Credit for Service Members
By Luke Mullins
Posted: October 8, 2009
Amid mounting speculation over the future of the $8,000 first-time home buyer tax credit, Congress moved today to give American service members another 12 months to claim the popular incentive. The House of Representatives voted 416 to 0 to pass the Service Members Home Ownership Tax Act of 2009, which pushes the credit's current November 30 deadline back an additional year for members of the military, Foreign Service, and intelligence corps who served at least three months of qualified overseas duty in 2009. "This bill makes sure that the brave men and women who put their lives on the line every day get to enjoy the same benefits as every other American who benefits from their service," said Rep. Charles Rangel, the New York Democrat who introduced the bill. "By extending the first-time homebuyer tax credit for service members overseas, we give these families more time to utilize the benefit, while also helping our economy continue its recovery." Here are five things you need to know about the development:
1. Missing out: The $8,000 first-time home buyer tax credit was part of President Barack Obama's $787 billion economic stimulus package, which he signed into law in February. The incentive has since been popular with home buyers; Mark Zandi, the chief economist at Moody's Economy.com, expects the program to generate as many as 400,000 additional new and existing home sales by the end of November, when the program is set to expire. But since many American service members have been living overseas, it has been difficult for them to take advantage of the program. "If you are in a conflict zone, you don't have time to get together with your spouse and family to go house shopping," says Rep. Ron Kind, a Wisconsin Democrat. Rep. Dave Camp, a Republican from Michigan, expressed similar concerns. "A lot of service members get called overseas at a moment's notice," Camp says. "And because of the time limit on the legislation now, they can't always take advantage of it, not because of anything that they did or didn't do but because of the unique nature of serving in our armed forces." The legislation the House passed today provides American service members with additional latitude to take advantage of the credit.
2. Impact: Robert Dietz, the director of tax issues for the National Association of Home Builders, estimates that the new legislation will result in an additional 10,000 home sales. (Kind projected a similar outcome.) And while these additional sales are unlikely to affect the real estate market at the national level, since service members tend to live in clusters—around Army bases, for example—the extension could end up benefiting some individual housing markets more profoundly, Dietz says. "Ordinarily, I would say 10,000 [additional home sales] is not a big deal," Dietz says. "But in this case, in certain communities—since housing is local—it could be a decent [boost]."
3. Costs: The housing tax credit components of the bill are projected to trigger a $77 million loss of federal revenue over the next 10 years. Other parts of the bill, however, generate enough new income—by raising penalties associated with late filings of certain partnership and corporation documents, for example—to ensure that it will not add to the government's yawning budget deficits. "It's revenue neutral," Camp says. "It was fully paid for.
4. Political outlook: From here, the action now moves to the Senate, which must also pass the measure before it can be signed by the president. "I would expect it is going to receive wide bipartisan support," Kind says. "It's the least that our government can do for our service men and women." Scott Talbott, a top lobbyist for the Financial Services Roundtable, agrees. "It probably has even better odds in the Senate," he says. "Service men and women need it as much as anyone."
5. Extension for all first-time buyers: The development comes as lawmakers step up their efforts to extend the tax credit for all first-time homebuyers. The issue was raised yesterday during a meeting at the White House between congressional leaders and President Obama." We need to continue working toward ensuring that more families can stay in their current homes and continue efforts to strengthen the housing market by extending the homebuyer tax credit," Senate Majority Leader Harry Reid, a Democrat from Nevada, said after the meeting. Senator Johnny Isakson, a Republican from Georgia, has introduced legislation that would extend the credit for an additional year. Reid, meanwhile, has endorsed a bill introduced by Maryland Sen. Ben Cardin, a Democrat, pushing the deadline back for six months. Talbott says the six-month extension is "very likely" to become a reality. "It threads the needles of politics and costs," Talbott says. "The U.S. economy and the housing market desperately need it."
Saturday, October 3, 2009
Strategic defaults gain among homeowners underwater with home value
By Margaret Collins
Bloomberg News
Scott Conroy pays the mortgage every month on his one-bedroom condominium in San Diego, even though it's worth 33 percent less than what he owes and it may take more than a decade to break even.
Homeowners like Conroy who can afford their payments are weighing whether to sell and pay the difference, stick it out until housing prices recover or walk away.
In the U.S., 26 percent of borrowers owe more than their home is worth, said Karen Weaver, global head of securitization research for Deutsche Bank Securities. In parts of California, Florida and Nevada, it's as high as 75 percent.
So-called strategic defaults, in which homeowners stop paying their mortgages while remaining current on other debts, rose 128 percent to 588,000 last year, according to Experian, a credit-checking company, and Oliver Wyman, a New York consulting firm. Two-thirds of those who walked away defaulted on their primary residences.
"You're looking at an extremely long horizon in order to see a return of home values to where they were at their peak," said Stan Humphries, chief economist for Zillow.com, the Seattle real-estate data service. "It could be 15 to 20 years in some markets."
Trickle for now
Strategic defaulters represent about 4 percent of all homeowners underwater. That trickle could become a flood as the likelihood recedes that home prices will soon return to their peak values, said Rick Sharga, senior vice president of Irvine, Calif.-based RealtyTrac, an online seller of real-estate data.
In San Diego, home values are down about 40 percent since March 2006, according to the S&P/Case-Shiller monthly index. Prices have rebounded for three consecutive months, returning to the October 2002 level, before the start of the housing boom.
Nationwide, home values are what they were in September 2003, according to the Case-Shiller index as of July.
"You have to ask yourself: 'Are you just renting the home from the bank?' " said Michael Joe, a foreclosure expert at the Legal Aid Center of Southern Nevada. "Would it be cheaper to walk away and rent across the street?"
Conroy, 32, and his wife purchased their home for $385,000 in March 2006, a month before marrying. The property was reassessed this summer for $250,000.
Conroy said he and his wife are trying to save, knowing they may have to move to a bigger place within 18 months to start a family.
"We've given up on this dream of having equity in our home. We don't expect to walk away with cash in hand; we expect to pay."
More homeowners may opt to take a hit to their credit score rather than come up with cash to cover the loss, especially in California and the nine other U.S. states where the legal repercussions of foreclosures are less than in other parts of the country, said Sharga.
Ten states are so-called non-recourse, prohibiting deficiency judgments after most home foreclosures: Alaska, Arizona, California, Hawaii, Minnesota, Montana, North Dakota, Oklahoma, Oregon and Washington, according to the Boston-based National Consumer Law Center. The bank can repossess your home in those states, not other assets, to settle the debt.
In California, a second-mortgage holder may try to pursue a delinquent borrower to repay through litigation, said Rick Brooks, a financial adviser with the San Diego-based wealth-advisory firm Blankinship & Foster. Banks generally prefer not to sue because it can easily cost $60,000 or more, said Debra Guzov, co-founder of the New York law firm Guzov Ofsink.
Banks may be more willing to accept foreclosure alternatives, such as a short sale or deed-in-lieu of foreclosure, in states where a lender can't sue for personal assets, said Brad Geisen, chief executive officer of Foreclsure.com, based in Boca Raton, Fla.
In a short sale, the borrower finds a buyer for the home at an acceptable price and the bank agrees to forgive the difference, said Greg McBride, senior financial analyst with Bankrate. In a deed-in-lieu of foreclosure, the bank sells the home after a similar debt negotiation.
Tax break
A 2007 law exempts from tax up to $2 million of debt forgiven in a foreclosure or similar proceeding for a primary residence, according to Internal Revenue Service spokesman Eric Smith. The tax break extends to 2012.
The lender's willingness to negotiate varies and depends on the loan balance, condition of the property, location and resale opportunities, said Alberta Hultman, CEO of USFN, an association of mortgage-banking attorneys based in Tustin, Calif.
Short sales or deeds-in-lieu of foreclosures are considered the same as a foreclosure on your credit score, said Craig Watts, spokesman for FICO Corp., owner of the credit-scoring formula most widely used by U.S. lenders.
A foreclosure remains on a credit report for seven years. Credit scores can begin to rebound in as little as two years if bills are paid on time, according to FICO.
"You really want to think through the inability to borrow and higher rates that you'll pay," Christopher Van Slyke, a partner at Trovena, a wealth-management firm in La Jolla, Calif., said of walking away.
"If you don't have the gun to your head, then stay right where you are," said Cheryl Morhauser, a financial adviser based in Nevada City, Calif., whose clients' average net worth is $1.5 million to $3 million.
Not selling
Jennifer Albaugh, 34, plans to keep her Las Vegas home, where prices have dropped 49 percent since she bought it in December 2004, according to the Case-Shiller index.
Albaugh, who owns a fabric store, might have sold her 3,000-square-foot house for as much as $550,000 four years ago, she said. Today she owes more than $300,000 on her mortgage and says her house isn't worth close to that.
She and her husband are still looking to buy a bigger home for their two kids, especially while rates are low, and might turn their current home into a vacation rental.
"Walking out of your house to get a better deal down the street is just not the right thing to do," she said. "It hurts everybody."
Morality and social stigmas play an important role in whether someone who can afford the payments will walk away, said Paola Sapienza, professor of finance at Northwestern University's business school, in a July study on strategic defaults. Eighty-one percent of 1,646 homeowners interviewed said it was morally wrong, the study found.
"If you know someone who's done it, you're way more likely to do it," Sapienza said. "That's the scariest part, is that there might be some contagion part of this."
Albaugh and Conroy, the San Diego homeowner, said they're frustrated by the lack of help for homeowners who keep paying.
"It seems like the banks are more willing to work with people who aren't making their payments rather than people who are," Conroy said
http://seattletimes.nwsource.com/html/realestate/2009989796_realstrategic04.html
Bloomberg News
Scott Conroy pays the mortgage every month on his one-bedroom condominium in San Diego, even though it's worth 33 percent less than what he owes and it may take more than a decade to break even.
Homeowners like Conroy who can afford their payments are weighing whether to sell and pay the difference, stick it out until housing prices recover or walk away.
In the U.S., 26 percent of borrowers owe more than their home is worth, said Karen Weaver, global head of securitization research for Deutsche Bank Securities. In parts of California, Florida and Nevada, it's as high as 75 percent.
So-called strategic defaults, in which homeowners stop paying their mortgages while remaining current on other debts, rose 128 percent to 588,000 last year, according to Experian, a credit-checking company, and Oliver Wyman, a New York consulting firm. Two-thirds of those who walked away defaulted on their primary residences.
"You're looking at an extremely long horizon in order to see a return of home values to where they were at their peak," said Stan Humphries, chief economist for Zillow.com, the Seattle real-estate data service. "It could be 15 to 20 years in some markets."
Trickle for now
Strategic defaulters represent about 4 percent of all homeowners underwater. That trickle could become a flood as the likelihood recedes that home prices will soon return to their peak values, said Rick Sharga, senior vice president of Irvine, Calif.-based RealtyTrac, an online seller of real-estate data.
In San Diego, home values are down about 40 percent since March 2006, according to the S&P/Case-Shiller monthly index. Prices have rebounded for three consecutive months, returning to the October 2002 level, before the start of the housing boom.
Nationwide, home values are what they were in September 2003, according to the Case-Shiller index as of July.
"You have to ask yourself: 'Are you just renting the home from the bank?' " said Michael Joe, a foreclosure expert at the Legal Aid Center of Southern Nevada. "Would it be cheaper to walk away and rent across the street?"
Conroy, 32, and his wife purchased their home for $385,000 in March 2006, a month before marrying. The property was reassessed this summer for $250,000.
Conroy said he and his wife are trying to save, knowing they may have to move to a bigger place within 18 months to start a family.
"We've given up on this dream of having equity in our home. We don't expect to walk away with cash in hand; we expect to pay."
More homeowners may opt to take a hit to their credit score rather than come up with cash to cover the loss, especially in California and the nine other U.S. states where the legal repercussions of foreclosures are less than in other parts of the country, said Sharga.
Ten states are so-called non-recourse, prohibiting deficiency judgments after most home foreclosures: Alaska, Arizona, California, Hawaii, Minnesota, Montana, North Dakota, Oklahoma, Oregon and Washington, according to the Boston-based National Consumer Law Center. The bank can repossess your home in those states, not other assets, to settle the debt.
In California, a second-mortgage holder may try to pursue a delinquent borrower to repay through litigation, said Rick Brooks, a financial adviser with the San Diego-based wealth-advisory firm Blankinship & Foster. Banks generally prefer not to sue because it can easily cost $60,000 or more, said Debra Guzov, co-founder of the New York law firm Guzov Ofsink.
Banks may be more willing to accept foreclosure alternatives, such as a short sale or deed-in-lieu of foreclosure, in states where a lender can't sue for personal assets, said Brad Geisen, chief executive officer of Foreclsure.com, based in Boca Raton, Fla.
In a short sale, the borrower finds a buyer for the home at an acceptable price and the bank agrees to forgive the difference, said Greg McBride, senior financial analyst with Bankrate. In a deed-in-lieu of foreclosure, the bank sells the home after a similar debt negotiation.
Tax break
A 2007 law exempts from tax up to $2 million of debt forgiven in a foreclosure or similar proceeding for a primary residence, according to Internal Revenue Service spokesman Eric Smith. The tax break extends to 2012.
The lender's willingness to negotiate varies and depends on the loan balance, condition of the property, location and resale opportunities, said Alberta Hultman, CEO of USFN, an association of mortgage-banking attorneys based in Tustin, Calif.
Short sales or deeds-in-lieu of foreclosures are considered the same as a foreclosure on your credit score, said Craig Watts, spokesman for FICO Corp., owner of the credit-scoring formula most widely used by U.S. lenders.
A foreclosure remains on a credit report for seven years. Credit scores can begin to rebound in as little as two years if bills are paid on time, according to FICO.
"You really want to think through the inability to borrow and higher rates that you'll pay," Christopher Van Slyke, a partner at Trovena, a wealth-management firm in La Jolla, Calif., said of walking away.
"If you don't have the gun to your head, then stay right where you are," said Cheryl Morhauser, a financial adviser based in Nevada City, Calif., whose clients' average net worth is $1.5 million to $3 million.
Not selling
Jennifer Albaugh, 34, plans to keep her Las Vegas home, where prices have dropped 49 percent since she bought it in December 2004, according to the Case-Shiller index.
Albaugh, who owns a fabric store, might have sold her 3,000-square-foot house for as much as $550,000 four years ago, she said. Today she owes more than $300,000 on her mortgage and says her house isn't worth close to that.
She and her husband are still looking to buy a bigger home for their two kids, especially while rates are low, and might turn their current home into a vacation rental.
"Walking out of your house to get a better deal down the street is just not the right thing to do," she said. "It hurts everybody."
Morality and social stigmas play an important role in whether someone who can afford the payments will walk away, said Paola Sapienza, professor of finance at Northwestern University's business school, in a July study on strategic defaults. Eighty-one percent of 1,646 homeowners interviewed said it was morally wrong, the study found.
"If you know someone who's done it, you're way more likely to do it," Sapienza said. "That's the scariest part, is that there might be some contagion part of this."
Albaugh and Conroy, the San Diego homeowner, said they're frustrated by the lack of help for homeowners who keep paying.
"It seems like the banks are more willing to work with people who aren't making their payments rather than people who are," Conroy said
http://seattletimes.nwsource.com/html/realestate/2009989796_realstrategic04.html
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