Mar
31
A North County woman who says she paid too much for her $1.2 million home during the height of the housing boom is taking her case to court.
In 2005, the Ummels moved from Northern California and bought a four-bedroom house in Carlsbad for $1.2 million. The couple claims Little was dishonest about the price of other homes in the neighborhood, and that he rushed them to close the deal before they found out comparable sale prices for neighborhing homes. Read the rest…
Mar
27
Home Prices May Not Rebound till 2010
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Freddie Mac’s top economist said Thursday that he doesn’t expect to see housing rebound from its current downtrend until 2010, according to a report published by McClatchy newspapers.
WASHINGTON — U.S. home prices are unlikely to recover until at least 2010, one of the nation’s top housing economists said Thursday, adding that home building this year is likely to post its worst year in five decades.
Speaking to the National Economists Club, Frank Nothaft, the chief economist for government-sponsored mortgage buyer Freddie Mac, painted a grim picture of today’s housing market.
Through the final three months of 2007, he said, sales of existing homes were down 29 percent from the same period two years earlier. Forty-six states had falling home prices in the fourth quarter, and prices nationwide were down 9.3 percent. In the Pacific region, which saw the steepest drop, prices fell an average of 17.2 percent, followed by mountain states, whose home prices fell an average of 12.9 percent.
“I don’t think we’re going to see any improvement in the national house-price matrix until 2010,” said Nothaft, a respected government economist who’s followed the national housing market for more than two decades.
He projected a 16 percent drop in mortgage originations this year, for new home loans and refinancing. He expects foreclosures, which rose by about 1.5 million in 2007, to increase even more this year
If there was any good news in the stark snapshot of the housing crisis, it came from a bit of really bad news. The Freddie Mac economist thinks that new single-family home starts this year will be the lowest in 50 years, back when Dwight D. Eisenhower was president.
What’s good about that? The plunge in new-home construction means that fewer homes will come onto the market in an environment with few buyers. A fall in home starts helps reduce the supply of unsold new and existing homes. By late this year or early next year, life should be returning to the national housing market, but prices won’t see significant recovery until 2010, Nothaft said.
Across the nation, he said, most markets are seeing homes for sale sitting for longer periods. Miami leads all markets, with homes remaining on the market 65 days longer in September 2007 than they did in September 2005. Boston was close behind at 61 days more, followed by the Washington-Baltimore area at 40 additional days.
North Carolina was the exception. Homes in Raleigh were on the market four fewer days than they were in September 2005, and in Charlotte one day fewer than two years earlier.
Mar
25
March 25 (Bloomberg) — Wall Street banks, brokerages and hedge funds may report $460 billion in credit losses from the collapse of the subprime mortgage market, or almost four times the amount already disclosed, according to Goldman Sachs Group Inc. Profits will continue to wane, other analysts said.
“There is light at the end of the tunnel, but it is still rather dim,” Goldman analysts including New York-based Andrew Tilton said in a note to investors today. They estimated that residential mortgage losses will account for half the total, and commercial mortgages as much as 20 percent.
Earnings and share prices at U.S. financial institutions tumbled in the past year as fallout from the mortgage crisis spread to other markets. Demand for mortgage-backed securities evaporated, leading to the collapse of Bear Stearns Cos., once that market’s largest underwriter, and a Federal Reserve-led bailout by JPMorgan Chase & Co. earlier this month.
Goldman’s own share-price estimate was cut 3.7 percent to $210 at Fox-Pitt Kelton Cochran Caronia Waller. The research firm also reduced its profit estimates for the world’s biggest securities firm for the rest of this year and all of 2009.
Merrill Lynch & Co. had its 2008 profit estimates cut by 45 percent at JPMorgan on concern the third-largest U.S. securities firm by market value may disclose further writedowns on subprime mortgages. Merrill may report a total of $5 billion in additional losses on collateralized debt obligations, so-called Alt-A mortgages and commercial mortgages, New York-based analyst Kenneth Worthington said.
Bank of America
Bank of America Corp., the second-biggest U.S. bank by assets, was downgraded to “sell” from “neutral” at Merrill Lynch. The company, based in Charlotte, North Carolina, also had its earnings-per-share estimate lowered to $3.30 from $3.50 in 2008 and to $4.00 from $4.40 in 2009, analysts including New York-based Edward Najarian wrote in a note to clients today.
Lehman Brothers Holdings Inc., the fourth-largest U.S. securities firm, had its share-price forecast cut 16 percent to $70 at Fox-Pitt. The brokerage’s 2008 and 2009 profit estimates were also reduced.
Goldman said the $460 billion in credit losses it foresees may “result in a substantial tightening in credit conditions as these institutions pull back on lending to preserve their reduced capital and to maintain statutory capital adequacy ratios.”
Credit-card loans, auto loans, commercial and industrial lending and non-financial corporate bonds make up the rest of the $460 billion in credit losses.
Goldman, which has lost 16 percent this year on the New York Stock Exchange, rose 75 cents to $179.63 in composite trading at 4:07 p.m. Merrill fell 53 cents to $47.85, Lehman declined $1.43 to $45.21 and Bank of America dropped $1.48 to $40.97.
Mar
25
Home Prices: Down Record 11%
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The residential real estate market continues to deteriorate in 2008, with 20 key markets reporting steep drops.
NEW YORK (CNNMoney.com) — Residential real estate posted another record decline in January, according to a survey released Tuesday.
The S&P Case/Shiller Home Price index of 20 key markets shows that home prices plunged 10.7% over the last 12 months, their lowest level since the index launched in 2000.
Of those 20 metro areas, 16 reported record annual declines. Ten of those cities posted double digit declines through the 12 months that ended in January.
The survey’s 10-city index fell 11.4% year-over-year, its steepest decline since its inception in 1987.
A national decline. While regional declines in home prices are not uncommon, the current decline is the “first national decline we’ve had,” said Robert Shiller, Yale professor of economics and co-founder of the index.
“In a historical context we’re down substantially, down more than at any other time that we’ve been keeping track,” he added.
Las Vegas and Miami reported the weakest markets in January, with each city posting an annual decline of 19.3%. Phoenix was the second worst with a decline of 18.2%.
Washington and Minneapolis also registered double digit declines in January.
Only one city, Charlotte N.C., posted a modest price increase of 1.8%.
“Unfortunately it does not look like early 2008 is marking any turnaround in the housing market, after the declining year recorded throughout 2007,” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s.
Housing glut. Michael Strauss, chief economist at investment firm Commonfund, says that steep price declines are no surprise, given the number of homes on the market.
“When inventory is so high we’re likely to see a a decline in prices,” he said.
Cities like Las Vegas and Miami, where speculative buyers helped fuel the housing boom, are seeing sharp reversals.
“Some of the cities that soared the most are now retracting the most,” according to Strauss. “Though it may be disappointing to some, from an economic stand point it makes a lot of sense.”
Silver lining. The Case/Shiller data comes one day after a report from the National Association of Realtors that showed a modest increase in sales of existing single-family homes in January, thanks to the plunge in prices.
Mike Schenk, senior economist for the Credit Union National Association, says the decline in home prices is a symptom of serious economic problems, but adds that the environment is improving for home buyers.
“Affordability is actually quite high,” he said. “This is a pretty good market to consider taking the plunge. And it’s going to get better as we go forward.”
Subprime fallout. Across the nation, the market for lower-priced homes has been the most volatile over the last 12 months, a phenomenon Shiller thinks is a result of the ongoing subprime crisis.
“It’s going to take those markets a long time to recover,” Shiller said.
And the housing crisis, in turn, has rocked Wall Street.
The Case/Shiller indexes compare the sale prices of the exact same homes. The industry considers this survey to be among the most accurate snapshots of housing prices.
Mar
19
WASHINGTON (Reuters) – Two U.S. home financing heavyweights won government approval on Wednesday to pump $200 billion more into troubled U.S. mortgage markets, the latest step to stabilize credit markets and avert a deep recession.
Despite intensive efforts to battle rising home foreclosures and calm shaky markets by the Treasury Department and the Fed, which has pledged $400 billion to free up credit, Democratic lawmakers continue to press for bolder action.
“All hands are on deck to try and prevent this U.S. situation from becoming a dire crisis,” said David Watt, a currency strategist with RBC Capital Markets in Toronto. “They’re doing everything they can, making policy on the fly.”
Still, markets were not calmed by the latest move by the regulator that oversees Fannie Mae (FNM.N) and Freddie Mac (FRE.N) to immediately loosen their capital requirements and give them a bigger role in buying up mortgages.
The blue chip Dow Jones industrial average (.DJI) lost almost three-quarters of the 420-point gain notched a day earlier, closing down 293 points, in part on worry brokerage Merrill Lynch & Co may need to write down more bad assets.
More relief, however, is in the works. A separate regulator appeared near a decision to allow the Federal Home Loan Bank System to double some mortgage holdings to around $300 billion — which would be another big shot of market liquidity.
Sources familiar with the proposal said a vote on the measure was likely this week.
PUSHING FOR MORE
There were no signs, however, that Democratic lawmakers were about to let up in a push to have the government step in to play a larger role.
Rep. Barney Frank, chairman of the powerful U.S. House of Representatives’ Financial Services Committee, said the Bush administration was warming to his plan to use the Federal Housing Administration to insure up to $300 billion of shaky home loans for lenders willing to erase some of the debt.
The Treasury, however, said it had “no interest” in the proposal, although it was willing to listen to any new ideas.
Fannie Mae and Freddie Mac’s regulator, the Office of Federal Housing Enterprise Oversight, said its decision to relax capital rules toughened in the wake of accounting scandals in 2003 and 2004 would allow the two companies to buy or guarantee $2 trillion worth of mortgages this year.
The decision reduces to 20 percent from 30 percent the additional amount of capital they must keep on hand against potential losses, giving them $200 billion in buying power. OFHEO said it may lower the capital requirements further.
Efforts to ease financial market stress helped bring down mortgage rates early this year, but they have risen in recent weeks as investors dumped souring loans to meet margin requirements, undercutting the Fed’s attempts to spur the economy by lowering overnight interest rates.
Shares of Fannie Mae and Freddie Mac, which rose sharply on Tuesday in anticipation of the announcement, blasted higher for a second day on Wednesday. Fannie Mae stock rose $2.49 to $30.71 and Freddie Mac shot up $3.88 to $29.90.
The global nature of the credit crisis was underlined as the Bank of England stepped in to dampen rumors that HBOS (HBOS.L), Britain’s biggest home lender, might be in trouble. “No meetings have taken place, or been scheduled, to discuss problems with any institution,” a BoE spokesman said, taking the rare step to comment on a rumor.
DRASTIC TIMES, DRASTIC MEASURES
In a joint statement with OFHEO, Fannie Mae and Freddie Mac promised to raise “significant capital” in return for easing in their reserve requirements, but the two companies gave no indication how and when they would do so.
The Treasury Department has been pushing financial firms to face losses and quickly raise new capital. That is vital for a return to normal lending and business activity and to avert a full-blown financial meltdown.
Treasury Secretary Henry Paulson, a pragmatic veteran of Wall Street, has so far hewed to the Bush administration’s line that it will not countenance a taxpayer “bailout” for people who took excessive risks.
But that argument suffered over the weekend when Treasury helped broker a proposed deal for a takeover of troubled investment bank Bear Stearns.
President George W. Bush said on Tuesday the White House was monitoring financial markets and, if further actions were needed to ease mortgage woes, it would be done “in a way that does not damage the long-term health of our economy.”
Mar
13
Foreclosures Up 60% on Year
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Home foreclosure filings in February edged down from January but were a whopping 60 percent higher than a year earlier, real estate data firm RealtyTrac said on Thursday.
NEW YORK (Reuters) – The surge in foreclosures from a year earlier indicated that the cycle has yet to hit its peak, the firm said.
Home foreclosure filings in February totaled 223,651, down 4 percent from January, RealtyTrac, an online market of foreclosure properties, said in its February U.S. Foreclosure Market Report. The figure is a total of default notices, auction sale notices and bank repossessions,
In January, home foreclosure filings had risen 8 percent from December.
RealtyTrac, based in Irvine, California, said the national foreclosure rate was one foreclosure filing for every 557 U.S. households in February.
“The 4 percent monthly decrease this February was similar to the 6 percent monthly decrease we saw in February 2007,” James Saccacio, chief executive officer of RealtyTrac, said in a statement.
“However, the year-over-year increase of 60 percent this February was significantly higher than the 19 percent year-over-year increase in February 2007, indicating we have still not reached the peak of foreclosure activity in this cycle,” he said.
Nevada had the highest foreclosure rate in the country, with one foreclosure filing for every 165 households, followed by California and Florida.
All three states had been among the hottest U.S. housing markets during the boom years from 2000 to 2005.
Default rates and foreclosures have jumped over the past year as the housing market deteriorated. As interest rates on adjustable rate mortgages reset higher, many homeowners who have been unable to sell their homes or refinance existing home loans amid a drop in home prices have been forced into foreclosure.
Nevada had 6,167 foreclosure filings in February, up 1 percent from January and up 68 percent from February 2007.
Although California’s foreclosure activity fell 6 percent from the previous month, it still ranked second highest in the nation with one filing for every 242 households.
California, the most populous U.S. states, reported 53,629 foreclosure filings, the most of any state and up 131 percent from February 2007.
Florida had one foreclosure filing for every 254 households ranks in February, with 32,447 filings, up more than 7 percent from January and more than 69 percent than a year earlier, RealtyTrac said.
Mar
13
The Next Shoe to Drop in Housing
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Rising foreclosures and big losses at Fannie Mae and Freddie Mac are making it harder for people with good credit backgrounds to get a traditional mortgage.
NEW YORK (CNNMoney.com) — The credit crunch has finally hit the traditional mortgage market.
Investors are now shunning mortgage-backed securities issued by government sponsored enterprises Fannie Mae and Freddie Mac, which have been critical in keeping the real estate market from completely falling apart.
Some fear this development will make it harder for people, even those with strong credit histories, to get a home loan.
“Even if you have good credit, you don’t know if they are going to give you a loan or not,” said Joseph Mason, a senior fellow at the Wharton School of the University of Pennsylvania.
And for those who can still get a loan, the tremors in the mortgage-backed securities market has made loans more expensive for borrowers. As the prices of mortgage-backed securities have fallen, their yields have risen, leading to higher mortgage rates.
The national average rate on a 30-year fixed-rate mortgage was 5.96% Thursday, after jumping to 6.08% earlier this week, according to Bankrate.com. Rates on a 30-year fixed mortgage were about 5.90% a week ago. A borrower looking for a 5-year adjustable-rate mortgage would pay 5.71% today, up from around 5.03% a week ago.
“The cost of mortgage financing has increased dramatically and it couldn’t come at a worse time,” said Tom LaMalfa, managing director of Wholesale Access, a mortgage research firm. “We’re going to see a further diminishment of available mortgage money.”
Not just a subprime problem anymore
Rising defaults and delinquencies effectively shut down the subprime and jumbo mortgage markets last summer, but borrowers with good credit could still get conventional loans that met the agencies’ criteria. That’s because investors continued to buy securities – backed by Fannie (FNM) and Freddie (FRE, Fortune 500) – seen as safe since they carry an implicit federal government guarantee.
But the landscape changed in late February. Investors were spooked after Fannie and Freddie reported a combined $6 billion in losses for the fourth quarter as defaults rose.
A new round of fear washed over Wall Street last week when financial fund Carlyle Capital announced its lenders wanted more money to make up for the depressed value of the agency mortgage-backed securities Carlyle had put up as collateral for loans. An announcement by the Mortgage Bankers Association last Thursday that defaults had reached record levels didn’t help soothe concerns.
This bad news comes as Congress, in an effort to stimulate lending in higher-cost areas, temporarily raised the size of the mortgages Fannie and Freddie can guarantee to as much as $729,750.
The situation has grown so worrisome that the Federal Reserve took several steps this week to inject liquidity into the agency mortgage-backed security market by allowing banks to trade these securities in as collateral for loans.
On top of that, to shore up their finances and regain investors’ trust, Fannie and Freddie have been instituting new fees and stricter underwriting guidelines, making it costlier and harder to qualify for traditional mortgages.
In an investor conference Wednesday, Freddie officials sought to calm jitters by saying the agency has “significantly” increased prices, introducing new fees based on risk levels.
Prepare to pay more for a mortgage
Wholesale Access has estimated that all these changes mean 30% to 40% of borrowers who could have qualified for a conventional mortgage a year ago can no longer do so.
Fannie and Freddie are demanding higher credit scores and charging higher rates for those who don’t have them. Until recently, a borrower with a 620 score might pay the same as one with a 680 score, said Victoria Bingham, chief executive with Pacific Rim Mortgage in Tigard, Ore.
But now that person might have to pay a half percentage point more. With today’s rates, that translates into 6.75% for a 30-year fixed-rate mortgage instead of 6.25%, or $74 more a month on a $225,000 loan, typical for her client base.
Borrowers must also put more money down, especially if they don’t have stellar credit. For instance, those with down payments of less than 5% need a credit score of at least 680, said Steven Plaisance, executive vice president of Arvest Mortgage Co. in Tulsa, Ok. Previously, he could make loans to people without big down payments if they had other strong points, such as stable employment.
Experts said they don’t think traditional mortgages will disappear. But if they are harder to get, it will take longer for the housing market to recover as a glut of unsold houses could lead to even more declines in real estate values.
“Fewer buyers who can come into the market mean more homes on the market,” LaMalfa said. “The absence of an increase in demand will put further pressure on prices.”
Mar
6
Foreclosures Hit All-Time High
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Over 900,000 borrowers are losing their homes, up 71% from a year ago, and a record number of home owners are behind on payments.
NEW YORK (CNNMoney.com) — More home owners than ever are losing the battle to make their monthly mortgage payments.
Over 900,000 households are in the foreclosure process, up 71% from a year ago, according to a survey by the Mortgage Bankers Association. That figure represents 2.04% of all mortgages, the highest rate in the report’s quarterly, 36-year history.
Another 381,000 households, or 0.83% of borrowers, saw the foreclosure process started during the quarter, which was also a record.
Additionally, the number of mortgage borrowers who were over 30 days late on a payment in the last three months of 2007 is at its highest rate since 1985.
“Boy, that was ugly,” said Jared Bernstein, an Economic Policy Institute economist of the data.
“It’s another reminder that anyone who thought we had hit bottom was wrong. This was a huge bubble, and when a bubble of this magnitude breaks, it creates a huge mess,” he said.” It could take a lot longer for the correction to work through the system.”
Housing rescue: What you need to know
One reason it may take so long is that there seems to be no end in sight for falling home prices.
“Declining prices are clearly the driving factor behind foreclosures, but the reasons and magnitude of the declines differ from state to state,” said Doug Duncan, MBA’s Chief Economist said in a prepared statement.
The foreclosure rates for prime and subprime adjustable rate mortgages both more than doubled compared with a year ago, from 0.41% for prime ARMs to 1.06% and from 2.70% for subprime ARMs to 5.29%.
But it was subprime ARMs that contributed most heavily to the nation’s soaring foreclosure rates. Many of these loans come with low introductory rates that reset higher, often to unaffordable levels, in two or three years. Although they represent only 7% of all outstanding mortgage loans, they accounted for 42% of foreclosure starts during the quarter.
Delinquencies stood at 5.82% of outstanding mortgages, up from 5.59% during the three months ended September 30, 2007, according to the MBA. In the last quarter of 2006, the rate was 4.95%.
Home price plunge accelerates
“In states like Ohio and Michigan, declines in the demand for homes due to job losses and out-migration have left those looking to sell their homes with fewer potential buyers, particularly with the much tighter credit restrictions borrowers now face,” said Duncan.
“In states like California, Florida, Nevada and Arizona, overbuilding of new homes created a surplus that will take some time to work through.”
California and Florida are the states hardest hit by foreclosures. They accounted for 30% of all foreclosure starts in the United States last quarter, despite representing only 21% of the mortgage market.
Florida’s foreclosure start rate more than tripled during the last three months of the year compared with a year ago, and they more than doubled in California.
Both states still have a sizable over-supply of inventory, according to Duncan, due to over-building during the speculative boom that lasted through mid-2006. That will continue to depress home prices and add to mortgage delinquencies in those states.
“We expect to see home price declines to last there through the end of 2008,” he said, “after the rest of the country is in recovery.”
As prices plummet — already some California and Florida areas have seen price drops of 25% or more, according to Duncan — defaults will soar.
And falling prices and growing foreclosures create a vicious cycle; the more prices fall the less likely it is that borrowers can use home equity to refinance into more affordable loans, which leads to more defaults. And as foreclosures rise housing inventory increases, further depressing prices.
At the same time, these trends have lead to a contraction the construction industry, hurting overall U.S. economic activity and increasing the chances that the economy will fall into recession.
Mar
3
The verdict is in. The Fed’s emergency rate cuts in January have failed to halt the downward spiral towards a full-blown debt deflation. Much more drastic action will be needed.
Yields on two-year US Treasuries plummeted to 1.63pc on Friday in a flight to safety, foretelling financial winter.
The debt markets are freezing ever deeper, a full eight months into the crunch. Contagion is spreading into the safest pockets of the US credit universe.
It is hard to imagine a more plain-vanilla outfit than the Port Authority of New York and New Jersey, which manages bridges, bus terminals, and airports.
The authority is a public body, backed by the two states. Yet it had to pay 20pc rates in February after the near closure of the $330bn (£166m) “term-auction” market. It had originally expected to pay 4.3pc, but that was aeons ago in financial time.
“I never thought I would see anything like this in my life,” said James Steele, an HSBC economist in New York.
No sane mortal needs to know what term-auction means, except that it too became a tool of the US credit alchemists. Banks briefly used the market as laboratory for conjuring long-term loans at Alan Greenspan’s giveaway short-term rates. It has come unstuck. Next in line is the $45trillion derivatives market for credit default swaps (CDS).
Last week, the spreads on high-yield US bonds vaulted to 718 basis points. The iTraxx Crossover index measuring corporate default risk in Europe smashed the 600 barrier. We are now far beyond the August spike.
Sub-prime debt is plumbing new depths. A-rated securities issued in early 2007 fell to a record 12.72pc of face value on Friday. The BBB tier fetched 10.42pc. The “toxic” tranches are worthless.
Why won’t it end? Because US house prices are in free fall. The Case-Shiller index for the 20 biggest cities dropped 9.1pc year-on-year in December. The annualised rate of fall was 18pc in the fourth quarter, and gathering speed.
As the graph shows below, US households are only halfway through the tsunami of rate resets – 300 basis points upwards – on teaser loans.