Nov
30
(Bloomberg) The U.S. Treasury Dept. will begin taking action against lenders that aren’t doing enough to ease mortgage payments for troubled homeowners as part of the Obama Administration’s $75 billion pledge to curb foreclosures.
Lenders face “consequences” that may include sanctions and monetary penalties if they fail to perform under the Home Affordable Modification Program, the Treasury said on Nov. 30 in a statement, without being specific. The program requires banks that took federal aid to help homeowners at “imminent risk” of default by lengthening repayment terms, lowering interest rates, and making other changes to the mortgages to avert foreclosure.
The Treasury is also requiring some mortgage servicers to speed the process for changing loan terms and to submit regular status updates. Bank of America (BAC) is among the worst performers in the program, based upon a Treasury Dept. measure of trial modifications as of October. Morgan Stanley (MS), Citigroup (C), and JPMorgan Chase (JPM) are among the best-rated.
The Obama Administration, which set out in February to modify as many as four million loans, finds itself having to pressure lenders to convert more than 650,000 trial revisions made so far into permanent mortgage modifications. About 375,000 of those loans are scheduled to convert into permanent repayment plans by the end of the year, the Treasury said.
“We must now refocus our efforts on the conversion phase to ensure that borrowers and services know what their responsibilities are in converting trial modifications to permanent ones,” said Phyllis Caldwell, who runs the Treasury Dept.’s Homeownership Preservation Office.
SERIOUSLY DELINQUENT LOANS AT 8.85%
The Treasury plans to begin releasing data in December on how banks rank in making trial modifications permanent. The modification program was announced in February as a way to combat a surge in foreclosures that has depressed property values and curtailed economic growth. The program has been hampered partly by a rising unemployment rate, which reached a 26-year high of 10.2% in October.
The foreclosure rate, as a result, jumped to a record 4.47% in the third quarter, from 3.3% at the end of last year, according to Mortgage Bankers Assn. data. Seriously delinquent loans—those at least 90 days late on payments—reached 8.85%, from 6.3% at the end of 2008.
Eligible loans under the program must be at least 60 days past due, in foreclosure or bankruptcy, and have originated before 2009. The underlying property must be owner-occupied and conform to Fannie Mae (FNM) and Freddie Mac (FRE) loan limits, which can be as high as $729,750 in some areas. The data excludes Federal Housing Administration and Veterans Affairs loans. A borrower’s mortgage payment must be 31% or more of gross monthly income.
Mortgage servicers and lenders have said they are struggling to gather the necessary paperwork from borrowers.
The Mortgage Bankers Assn., the industry’s largest trade group, has said foreclosures won’t peak until unemployment rates crest at some time in the second half of next year.
A $1,000 CASH INCENTIVE FOR SERVICERS
Robert Davis, executive vice-president of the American Bankers Assn. in Washington, said yesterday that unemployment is “the primary driver of defaults right now.” He said he was “puzzled” by the stepped-up pressure.
One purpose of the trial period “is to protect the taxpayer by making sure these loan modifications will work before anything is paid out to the lender,” Davis said. “Suddenly, for that to become a measure of bad performance when institutions are doing everything they can, is just baffling.”
The Administration’s initiative provides a cash incentive of $1,000 to the mortgage servicer once a loan is converted from a trial to a permanent modification, plus annual payments of $1,000 for as long as three years, provided the loan remains in good standing.
Bank of America has started trial modifications on 14% of its eligible loans as of October, according to the Treasury. The Charlotte-based bank, the largest in the U.S. and the biggest mortgage servicer, has 990,628 eligible loans, a greater total than any other company on the Treasury list. A spokesman for Bank of America, Dan Frahm, has said the eligibility data may be overstated.
“As many as one in three of those borrowers listed as eligible for the program will not actually qualify for HAMP because the home is vacant, the customer has a debt-to-income ratio below 31%, or is unemployed,” Frahm said in a Nov. 10 interview.
The Administration’s program requires banks that received federal aid from the Treasury’s Troubled Asset Relief Program, or TARP, as well as mortgage-finance companies Fannie Mae and Freddie Mac to lower monthly payments for borrowers at “imminent risk” of default.
Nov
23
WASHINGTON (Reuters) – Sales of previously owned U.S. homes rose in October at a faster-than-expected pace to the highest in more than 2-1/2 years as buyers rushed to take advantage of a popular tax credit, a survey showed on Monday.
The National Association of Realtors said sales surged a record 10.1 percent month-over-month to an annual rate of 6.10 million units, the highest since February 2007, from a downwardly revised 5.54 million-unit pace in September.
Analysts polled by Reuters had expected October sales to jump to a 5.70 million-unit pace from the previously reported 5.57 million units in September. Compared to October last year, home sales were up by a record 23.5 percent.
U.S. stock indexes extended gains on the data, while Treasury debt prices were little changed.
“Many buyers have been rushing to beat the deadline for first-time buyer credit that was scheduled to expire at the end of this month, and similarly robust sales may be occurring in November,” said Lawrence Yun, NAR’s chief economist.
Distressed transactions accounted for 30 percent of sales last month and continued to weigh on house prices. First-time buyers made up a third of sales in October.
The national median home price fell 7.1 percent from October last year, the smallest decline in over a year, to $173,100. Homes in foreclosure typically sell for 15 to 20 percent less than traditional homes.
“Existing home sales have already bottomed. Home prices are almost there. We are seeing a less of a decline in house values,” said Yun.
The housing market is slowly mending after a three-year decline, which contributed to tipping the U.S. economy into its worst recession in seven decades. Housing construction contributed to economic growth in the third quarter for the first time since 2005.
Recovery is being supported by the $8,000 tax credit for first-time buyers, low mortgage rates and falling house prices. The government this month extended the incentive into next year and added a $6,500 credit for home owners buying a new residence. It had been due to expire on November 30.
“The tax benefits going into the housing market are working, and that’s a relief,” said William Larkin, portfolio manager at Cabot Money Management in Boston. “Everything is about housing and jobs right now.”
The improvement in October sales was broad-based, with sales of single-family homes, the biggest segment of the market, rising 9.7 percent to an annual rate of 5.33 million units, while condominium and co-ops increased 13.2 percent to a 770,000-unit rate.
Sales were up in all four regions of the country. Prices rose 1.1 percent in the Midwest, which didn’t see the same boom as the rest of the country, while declining in the other three. The rise in the Midwest was the first price increase in any region since November 2008.
Analysts are cautiously hoping a sustained housing market recovery will help to improve the psychology of households, which has been shaken by rising unemployment.
While the economy resumed growing in the July-September period after four quarters of decline, sluggish consumer spending is seen slowing the momentum.
The inventory of existing homes for sale in October fell 3.7 percent to 3.57 million units from the previous month, NAR said. At October’s sales pace, that represented a supply of 7.0 months, the lowest in 2-1/2 years, from September’s revised 8.0 months.
(Additional reporting by Corbett B. Daly; Editing by Padraic Cassidy)
Nov
19
Delinquencies Continue to Climb in Latest MBA National Delinquency Survey
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WASHINGTON, D.C. (November 19, 2009) — The delinquency rate for mortgage loans on one-to-four-unit residential properties rose to a seasonally adjusted rate of 9.64 percent of all loans outstanding as of the end of the third quarter of 2009, up 40 basis points from the second quarter of 2009, and up 265 basis points from one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey. The non-seasonally adjusted delinquency rate increased 108 basis points from 8.86 percent in the second quarter of 2009 to 9.94 percent this quarter.
Top Line Results
The delinquency rate breaks the record set last quarter. The records are based on MBA data dating back to 1972.
The delinquency rate includes loans that are at least one payment past due but does not include loans somewhere in the process of foreclosure. The percentage of loans in the foreclosure process at the end of the third quarter was 4.47 percent, an increase of 17 basis points from the second quarter of 2009 and 150 basis points from one year ago. The combined percentage of loans in foreclosure or at least one payment past due was 14.41 percent on a non-seasonally adjusted basis, the highest ever recorded in the MBA delinquency survey.
The percentage of loans on which foreclosure actions were started during the third quarter was 1.42 percent, up six basis points from last quarter and up 35 basis points from one year ago.
The percentages of loans 90 days or more past due, loans in foreclosure, and foreclosures started all set new record highs. The percentage of loans 30 days past due is still below the record set in the second quarter of 1985.
Increases Driven by Prime and FHA Loans
“Despite the recession ending in mid-summer, the decline in mortgage performance continues. Job losses continue to increase and drive up delinquencies and foreclosures because mortgages are paid with paychecks, not percentage point increases in GDP. Over the last year, we have seen the ranks of the unemployed increase by about 5.5 million people, increasing the number of seriously delinquent loans by almost 2 million loans and increasing the rate of new foreclosures from 1.07 percent to 1.42 percent,” said Jay Brinkmann, MBA’s Chief Economist. Read the rest…
Nov
19
NEW YORK (Reuters) – Sooner or later, office buildings and other commercial real estate financed during the credit bubble will generate hurricane-scale losses for banks.
Banks in recent years have been hammered by losses on home mortgages, buyouts and corporate defaults. Now, lenders face big losses from loans backed by commercial real estate, where a stagnant economy will eventually take its toll, financial services executives told the Reuters Global Finance Summit.
“The commercial real estate business still has not been marked down. It’s not been marked to market,” Cantor Fitzgerald LP Chief Executive Howard Lutnick said. “The economy can’t, in my opinion, grow fast enough that the tenants are going to go out and start hiring and growing and building and take up all these rents at $60 a foot. It’s nonsense.”
U.S. banks held $1.65 trillion of commercial real estate loans on their balance sheets as of November 4, according to the Federal Reserve. Total assets were $11.8 trillion.
Yet banks have postponed their day of reckoning, extending loans in hopes the economy will improve and demand for space will rebound. Banks have resisted selling assets, or taking them away from underwater borrowers, in fear of setting a new and lower market price.
It is a strategy neatly summarized as “a rolling loan gathers no loss,” Lutnick quipped.
Lutnick, whose firm is now building out a real estate restructuring business, noted the equity invested in almost every transaction during the peak bubble years of 2005 through early 2007 has been wiped out. Lenders are under deep stress, because the value of their collateral has fallen.
Nov
18
Washington, November 18 – October housing starts unexpectedly plunged by 10.6% to an annualized rate of 529,000 units, well below the 600,000 unit pace economists were expecting. October’s decline followed a 1.9% rise in September to an upwardly revised 592,000 annual units (was 590k).
The October decline was due largely to a 33.3% drop in multi-family homes (5 or more units) to a new record low 48,000 annual units. Single family housing starts, seen as a more reliable indicator of the housing sector, fell 6.8% in October to 476,000 units. Single family starts fell in all regions of the country: by 9.6% in the Northeast, by 4.8% in the Midwest, 7.3% in the South and 5.9% in the West. Read the rest…
Nov
18
NEW YORK, Nov 18 (Reuters) – U.S. mortgage applications fell last week, with demand for home purchase loans dropping to a 12-year low even as interest rates on 30-year loans fell to their lowest level in six months, data from an industry group showed on Wednesday.
Home purchase loan demand fell for a sixth straight week, a trend that does not bode well for the U.S. housing market, which has been showing signs of stabilization after a three-year slump.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications USMGM=ECI, which includes both purchase and refinance loans, decreased 2.5 percent to 611.7 for the week ended Nov. 13.
The hard-hit housing market, a primary driver of the worst U.S. recession since the 1930s, remains highly vulnerable and many are hopeful that the federal government’s intervention will prevent any setbacks.
Ned Redpath, owner/president of Coldwell Banker – Redpath & Co., Realtors in Hanover, New Hampshire, said the recent extension and expansion of the home buyer tax credit is a positive development, but believes it expires too early.
“The cut-off happens too soon and really does not give enough time and space to truly get the market moving, but at least it is something instead of shutting it down now,” he said.
The Obama administration recently extended an $8,000 first-time buyer credit that had been due to expire at the end of this month, added a $6,500 credit for home owners buying a new residence, and increased income limits. Eligible borrowers must sign contracts by April 30 and close loans by June 30.
“I believe we will see an increase in normal sales due to the tax credit and a few more first-time home buyers as well,” Redpath said.
The MBA said borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 4.83 percent, down 0.07 percentage point from the previous week, the lowest since mid-May. The rate remained above the all-time low of 4.61 percent set in the week ended March 27. The survey has been conducted weekly since 1990.
Low interest rates, however, did not impact applications to buy homes, a tentative early indicator of sales. The MBA’s seasonally adjusted purchase index USMGPI=ECI fell 4.7 percent to 210.6, the lowest since November 1997.
The four-week moving average of mortgage applications, which smooths out the volatile weekly figures, was down 1.2 percent.
REFINANCING SLUMPS
The low rates also failed to spark home loan refinancing activity. The Mortgage Bankers seasonally adjusted index of refinancing applications USMGR=ECI decreased 1.4 percent to 2,955.4.
The 30-year fixed-rate mortgage is the most widely used loan and the 5 percent rate level is something of a psychological tipping point, typically sparking home loan refinancing activity.
Fixed 15-year mortgage rates averaged 4.32 percent, down from 4.33 percent the previous week. Rates on one-year ARMs decreased to 6.82 percent from 6.85 percent.
Nov
16
Across the Nation: New REOs Jump 22 Percent in California
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After three months of consecutive declines, the number of foreclosed homes in California taken back by banks rose by 22.24 percent from September to October, according to ForeclosureRadar, a local property information site that tracks every foreclosure in the Golden State and provides daily auction updates.
The company’s tally of new REOs is a 20.95 percent increase compared to October 2008, but despite the seemingly dramatic mushrooming, the latest numbers are still well below record levels. The number of foreclosures repossessed by banks in California last month remains 42.56 percent below the peak reached in July 2008, ForeclosureRadar’s data shows.
As banks took back nearly a quarter more homes in the October period, REO resales declined, the company said, leading to a slight jump in overall REO inventory of 5.65 percent. According to ForeclosureRadar, the decline in
REO resales is not unexpected as bank-owned inventories have declined to a point that is insufficient to meet market demand.
Based on the company’s latest California Foreclosure Report, the number of foreclosures sold at auction to investors continues to grow significantly. These third-party sales jumped 16.42 percent in October compared to the previous month, and are up a staggering 381.33 percent compared to the same time last year.
Given that this increase in sales to third parties occurred in conjunction with a decline in the average discount to market value received by these investors, ForeclosureRadar says it is clear that sales at the courthouse steps are becoming increasingly competitive. Confidence is growing among investors that they can turn a profit reselling homes purchased at foreclosure auctions.
The discounts received by third-party investors at the courthouse declined in October to just 17.9 percent below ForeclosureRadar’s estimated market value, down from the previous month’s average discount of 20.5 percent. The company also noted that the discount from the outstanding loan balance fell to 48.5 percent from 50.4 percent in September.
Overall, California’s foreclosure filings in October remained relatively flat month-over-month, ForeclosureRadar said in its study. The majority of loans foreclosed on in October 2009 were originally made between January 2005 and December 2007, the company reported.
Nov
13
WASHINGTON (Reuters) – Capital reserves of the Federal Housing Administration have fallen well below legally required levels, due to significant losses on home loans made before this year, Housing and Urban Development Secretary Shaun Donovan said on Thursday.
The FHA has capital reserves equal to just 0.53 percent of the value of the thousands of outstanding U.S. home mortgages it insures, well below the 2 percent required by law and down sharply from last year’s 3 percent, Donovan said, citing an independent actuarial study released on Thursday.
He warned that reserve levels could dip into negative territory if the U.S. economy turns sharply worse.
The capital reserve fund is a secondary, surplus fund set up by Congress in 1990 to provide an extra cushion for the FHA in times of economic distress. The fund contained $3.6 billion as of September 30.
The FHA also maintains a separate financing account, which is used to pay for expected losses. The two accounts total $31 billion, or about 4.5 percent of outstanding loans. Last year, the two funds represented 6.4 percent of outstanding loans.
If the capital reserve fund falls below zero, FHA has the authority to get funded directly from the Treasury without having to ask Congress for more money.
“We haven’t used the bailout word today because … even if we were to go below zero, there is no extraordinary action that Congress or anyone else needs to take,” said Donovan.
Donovan added that it was only in the most extreme forecast, such as 12.5 percent unemployment and severe home price declines, that FHA capital reserves could fall below zero.
He noted that private economists place about 1 percent odds that the U.S. economy would actually see such a severe downturn.
The FHA has guaranteed about a quarter of all U.S. home loans made this year and needs reserves as a cushion in the event of losses.
Donovan was careful to stress that all is not well with the
FHA.
“I don’t want to leave the impression that the reserves are adequate,” he said, adding that he and FHA Commissioner David Stevens are committed to changing the way the agency does business to bring it to fiscal health.
“There are real risks to the FHA and we are aggressively addressing those real risks with real reforms,” Stevens said in a statement.
The announcement was met with skepticism on Capitol Hill.
Rep. Scott Garrett, a New Jersey Republican and frequent critic of U.S. housing policy, pressed for the FHA to strengthen its fiscal health by raising the minimum down payment for borrowers from the current 3.5 percent.
“Americans should not continue to foot the bill for their government’s failings,” Garrett said in a prepared statement.
Donovan said the FHA was “actively looking” at raising the mortgage insurance premium borrowers pay on every loan, which would bolster reserves but could also cause a slowdown in the housing market as it would raise borrowing costs; he said no decision had been made.
The news comes on the heels of the third straight monthly decline in U.S. home foreclosures. RealtyTrac said foreclosures fell 3 percent in October to 332,292 U.S. properties, though that’s still 19 percent higher than a year earlier.
The FHA last month announced a series of credit policy changes to help rebuild reserves.
Since about 80 percent of the FHA’s business is with first-time home buyers, who typically make smaller down payments, the FHA’s role in the housing market is widely seen as vital.
Nov
10
Real Estate Rehab Loans Up
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More investors are applying for real estate rehab loans, or loans made to investors and collateralized against the quick-sale value of the property for which the loan is made, according to ZINC Financial.
ZINC Financial provides investment rehab loans that help investors leverage their capital to acquire and rehabilitate properties.
Also known as a hard money loan, lenders often structure a rehab loan based on a 60 to 70% loan-to-value (LTV) ratio — an amount the lender could expect to get from the sale of a property within one to four months of default, according to ZINC’s Website.
In anticipation of increased demand of rehab loans throughout 2009 and into 2010, ZINC launched its Investor Rehab Program, which provides investors with a possible seven-day submission process.
Investors should have no shortage of inventory as analysts at RealtyTrac, a real-estate data provider, anticipate a peak of foreclosures in 2010.
Nov
2
Foreclosures Growing in Suburbs and Secondary, says RealtyTrac
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Foreclosures are beginning to flare up in suburban and secondary metro markets for Q309, according to a report from RealtyTrac.
Dramatic increases in foreclosures from a year ago came in suburban areas previously believed to be more stable, such as Boise, Idaho, up nearly 22% from Q209. Another area, Provo, Utah, is located a distance of 45 miles outside Salt Lake City and rose nearly 11% in the same period. RealtyTrac provides an online marketplace for foreclosure properties with more than 1.5m default, auction and REO listings.
In several states, foreclosure activities drifted toward new focal points, such as smaller towns with previously self-sustaining industries. Chico, California in Sacramento Valley, and agricultural hub, had a 98% increase in foreclosures from Q308, according to the report.
The Las Vegas metro area had the highest percentage of foreclosures among its housing units with 5.13% in Q309. Merced, Calif. – west of San Jose – had a 3.72% foreclosure rate, and Cape Coral – Fort Meyers, Fla. came in third with 3.67% of homes sliding into foreclosures, according to the report.
“You’re moving from Phoenix to Prescott, you’re moving from Las Vegas to Reno,” Rick Sharga, the vice president of marketing at RealtyTrac, told HousingWire. “You are seeing that migration into secondary markets. You’re also seeing a migration into formerly stable areas and areas that have been wracked by unemployment.”
Cities in California, Florida and Nevada accounted for the 10 highest foreclosure rates in Q309 among metro areas with more than 200,000 people. However, five of those cities reported decreasing foreclosure activity from Q308, offset by many other markets reporting spikes in foreclosures, according to the report.
Sharga sees the foreclosure crisis coming in three waves, and with this new data, the market is showing signs of the second one.