OREGON REAL ESTATE ROUND TABLE

Tag: Freddie Mac

  • Low FICOs Bar One-Third of Prospective Borrowers , Nationalmortgagenews.com


    Approximately one-third of Americans are unlikely to qualify for a mortgage because their credit scores are too low, an analysis of 25,000 loan quotes during the first half of September on Zillow Mortgage Marketplace found.

    The lead generation website found that those consumers with a credit score under 620 who entered data on the site were unlikely to have even one quote returned, even if they were willing to make a down payment in the 15% to 25% range.

    Zillow cited statistics from MyFICO.com that found over 29% of Americans have a score under 620.

    The study also found that for every 20-point increase in one’s credit score, the average low annual percentage rate offered to these consumers fell by 0.12%.

    Those consumers who had a credit score over 720 had an average low APR of 4.3% on a conventional 30-year fixed-rate mortgage. For borrowers whose score was between 620 and 639, the average low APR was 4.9%.

    Zillow chief economist Stan Humphries said homes are more affordable than in years, plus mortgage interest rates are at record lows. “But the irony here is that so many Americans can’t qualify for these low rates, or can’t qualify for a mortgage at all.”

  • Low FICOs Bar One-Third of Prospective Borrowers , Nationalmortgagenews.com


    Approximately one-third of Americans are unlikely to qualify for a mortgage because their credit scores are too low, an analysis of 25,000 loan quotes during the first half of September on Zillow Mortgage Marketplace found.

    The lead generation website found that those consumers with a credit score under 620 who entered data on the site were unlikely to have even one quote returned, even if they were willing to make a down payment in the 15% to 25% range.

    Zillow cited statistics from MyFICO.com that found over 29% of Americans have a score under 620.

    The study also found that for every 20-point increase in one’s credit score, the average low annual percentage rate offered to these consumers fell by 0.12%.

    Those consumers who had a credit score over 720 had an average low APR of 4.3% on a conventional 30-year fixed-rate mortgage. For borrowers whose score was between 620 and 639, the average low APR was 4.9%.

    Zillow chief economist Stan Humphries said homes are more affordable than in years, plus mortgage interest rates are at record lows. “But the irony here is that so many Americans can’t qualify for these low rates, or can’t qualify for a mortgage at all.”

  • Wealthbridge Mortgage Corp. – Retail – Agency, FHA/VA


    The Portland Business Journalyesterday reported thatWealthbridge Mortgage Corp.(view snapshot) had let go of 16 workers and would “lay off the remainder of its 109-member staff” as of 2010-10-15 based on a recent filing with Oregon under the Worker Adjustment and Retraining Notification Act.

    “Wealthbridge Mortgage Corp. intends to close its business and permanently lay off employees due to unforeseen circumstances outside of the company’s control and its inability to obtain the necessary capital to remain in business,” President Scott Everett said in a letter to local and state officials.

    Based in Beaverton, OR, the company had changed its name to Wealthbridge Mortgage from Gateway Financial Services at the beginning of 2008. Information given to us at the time implied the company had been hit with a lot of repurchases due to first payment defaults, although we did not see any evidence to support the allegation. An inside source reported a large number of LO’s and telemarketing staff were let go in the early months of 2008 as a result of the alleged buybacks, along with a handful of managers.

    The company originated an average of $16.62 million per month in residential mortgage loans during 2008, down from the previous year’s average volume of nearly $20 million per month.

    Cited most recently as the reason for the company’s “collapse” was the failure by Delaware investment firm Venn Capital Group Holdings LLC to close a deal to purchase the company on 2010-09-20. Branch offices in MN and NV will also be closed.

    If you have additional information to add, please post your comments below or send us an email.

    http://www.bizjournals.com/portland/stories/2010/09/20/daily45.html

  • GMAC Halts Evictions Related to Foreclosures in 23 States When News of Forged and Robo-Signed Documents Comes Out, by Mandelman


    I’m sorry, but is GMAC… no, wait… Ally Financial… I keep forgetting they’re my “ally” now… run by a 40 Mule Team of morons?  Don’t answer that, it was clearly rhetorical.

    Okay, so here’s the story… some attorneys representing homeowners in foreclosure noticed that GAMC was saying things that weren’t true, which is sometimes referred to as “lying,” and then in a deposition it came out that a middle manager at GMAC was actually signing 10,000 foreclosures a month without reading the paperwork like he was supposed to… or, one might consider… like any normal human being would do given they had a job signing 10,000 of anything each month.  I mean… what the… can you even imagine?

    Well, here’s your job.  We’ll need you to sit here and sign your name roughly 10,000 times a month.  So, if there are 21.67 work days per month, which there are, according to Amswers.com, then that would mean signing your name about 462 times per day, or 58 per hour, assuming one were to work eight hours a day without breaks of any kind.  That’s one per minute, and it assumes there’s some sort of catheter involved.

    No problem you say.  Except how will I be able to read what I’m signing? “Oh, no need for that, silly rabbit,” your boss says… “kicks are for trids.”  What in the world was going on here, pray tell?  Why, it’s time to play “Fraudulent Foreclosure Mill,” of course.  It’s the game where laws don’t matter and all the houses go back to the bank no matter what!  I’m not sure, but it sounds like something that might have been developed by Saddam Hussein, no?  Or, maybe Vikram Pandit and Jamie Dimon, I suppose.

    NPR reported: “The company recently halted evictions in dozens of states, after news of the robo-signer came to light.”

    Oh come on… I HATE it when people treat me like I’m six.  Is this “news” to GMAC, or any of the other banksters?  That’s what I’m to believe?  Really?  Well I don’t usually say what I’m about to say but this is my blog and I don’t work for anyone but me, so… GMAC… F#@k you.

    I worked in corporate America for some 20 years, and quite a few of those years I even worked for banksters, including JPMorgan, and there’s absolutely NO CHANCE whatsoever that this is “news” to anyone there.  I absolutely guarantee you that there are secretaries at GMAC that know about this practice… they’ve been having meetings about it for years.  There are enough CYA memos floating about at GMAC that if you stacked them on top of each other they’d be taller than Shaquille O’Neal standing on Lord Blankcheck’s throat in a pair of 4” stilettos while on the roof of a Yukon, an image that I’d go pay-per-view to see, I don’t know about you.

    No, it’s not “news,” although I guess I have to be happy that the lamebrain media has finally caught on that something might be amiss in Foreclosure Land.  And it’s about damn time.  As I recently said to a producer at American Public Television: “Thanks for coming, media people, you’re a little late, but come on in, there’s still plenty of food.”

    No, even though NPR, the Washington Post, the New York Times, and just about every news site, publication and blog on the planet reported on the story, it’s not “news,” except that perhaps because it’s us the taxpayers that actually own most of GMAC, it is.  Yep, it’s “us” that are paying that robo-signer to sign his name a gazillion times a month, thus creating fraudulent documents that are then used by lawyers with fewer ethics than pond scum to throw “US” our of our homes illegally.

    We, the taxpayers, have given GMAC $17.2 billion in TARP funds, none of which have been repaid, by the way.  And I love the way the media reports that the “Treasury invested” in GMAC.  The U.S. Treasury doesn’t have any money, folks.  That’s U.S. citizen paid or borrowed tax payer money they’re “investing”.  And if we the tax payers are going to invest in companies, why do we have to invest in all the shitty ones?  (I apologize for my language in this article, but it’s just not a good day for me to play nice.)

    NPR also reported that:

    “The case — which could allow thousands of homeowners to challenge their evictions — has triggered other reports this week of sloppy foreclosure practices.”

    Now I happen to like NPR, I’ve been listening to them on the radio for years.  But, “sloppy foreclosure practices?”  “SLOPPY?”  “SLOPPY?”  What the hell, have we all forgotten how to use the English?

    Fraudulent, forged, bogus, fake, illegal, spurious, sham, false, phony, suppositious, illicit, unlawful, criminal, immoral, sinful, vicious, evil, iniquitous, peccant, wicked, wrong, vile, in violation of the law… damn it, don’t make me go find my thesaurus.

    It reminds me of when that Senator was molesting that 16 year-old boy… the White House page, by at the very least, sending him repulsive, repugnant emails, and Newt Gingrich referred to them as “naughty emails”.  I mean… OH MY GOD!  “Naughty,” Newt?

    Even the venerable Financial Times chimed in a couple of days ago saying:

    “An official at JPMorganChase said in a deposition earlier this year that she signed off on thousands of foreclosures without verifying the details.”

    Wow, really?  Who could have possibly known about that?  Oh wait… ME, among God-only-knows-how-many-others.  Here’s my story on the JPMorganChase robo-signer from LAST JUNE 4th, 2010.  Yepsiree… they call me “Scoop Mandelman,” yes they do… Oh, please.

    And the Washington Post had their two cents to add:

    “And an employee of a Georgia document processing company falsely claimed to work for dozens of different lenders while signing off on tens of thousands of foreclosure documents over the course of several years.”

    Here’s what GMAC… oh, that’s right they’re my “ally,” had to say:

    “Ally says that its review of the GMAC Finance issue has ‘revealed no evidence of any factual misstatements or inaccuracies’ in the documents that weren’t properly reviewed. And the company says it has fixed its process for reviewing foreclosure documents.”

    Pardon me?  Did you just… I mean, what the… I can’t believe I just heard you say… what the… somebody oughta give you such a…  And what about the other 27 states?  Are they all fine and dandy?  People have lost homes here… God damn it…

    Alright… STOP.

    Look, there’s more to this story and you can bet your boots that I’m going to write about it all weekend… in great detail.  I’m going to tell you WHY they’re having to forge documents in order to foreclose on homes all over the country.  And you’re going to hate this even more than the forgeries themselves.

    (Attorney Max Gardner and attorney April Charney, of Jacksonville Legal Aid, are the country’s leading experts on this and related injustices, and they’ve been gracious enough to give me enough information to write a book covering this topic on a scale of Gone With the Wind, the Next Ten Years.  I’m going to run my next piece by them before I post, but it’ll be up this weekend if it kills me.  Don’t miss it.)

    But not right now, because right now I’m going to head down to my local watering hole to toss back a couple of pints.  Then I’m going to ask a friend of mine to back over me with his car to make the pain go away.

    Oh, and what follows is GMAC’s “CONFIDENTIAL” memorandum… they labeled it “privileged & confidential,” but anyone want to guess how much I care about that?  Read it and weep… I know I did.

    Mandelman out.

    Urgent: GMAC Preferred Agents

    Privileged & Confidential 9/17/10

    Attorney/Client Privilege

    Dear GMAC Preferred Agents:

    GMAC Mortgage has determined that it may need to take corrective action in connection with some foreclosures in the following states:

    Connecticut
    Florida
    Hawaii
    Illinois
    Indiana
    Iowa
    Kansas
    Kentucky
    Louisiana
    Maine
    Nebraska
    New Jersey
    New Mexico
    New York
    North Carolina
    North Dakota
    Ohio
    Oklahoma
    Pennsylvania
    South Carolina
    South Dakota
    Vermont
    Wisconsin

    As a result of the above, effective immediately and until further notice, please take the following actions only in the states identified above:

    Evictions:

    Do not proceed with evictions, cash for keys transactions, or lockouts. All files should be placed on hold, regardless of occupant type.

    REO Closings:

    Do not proceed with REO sale closings. GMAC Mortgage will communicate instructions to the assigned agent regarding the management of the properties in Pending status. If the contract has already been executed by both parties, the Asset Manager will request an

    amendment to extend the closing date by 30 days or as otherwise designated by the Asset Manager. Please provide appropriate notice to the REO purchaser that, pursuant to Section

    1 of the GMAC Mortgage Addendum to Standard Purchase Contract, GMAC Mortgage is exercising its sole discretion to extend the Expiration Date of the Agreement by 30 days at this time. If the REO purchaser wishes to cancel the contract, GMAC Mortgage will terminate the Agreement and return the earnest money deposit.

    You will receive further instructions regarding the status and handling of these assets from your asset manager. There could be asset level exceptions and you will receive direct communication from GMAC on the handling of those exceptions. Please send any questions or concerns regarding these matters to your asset manager.

    Please ensure your staff is aware of these requirements immediately.

    GMAC Mortgage

    GMAC Mortgage LLC 2711 N. Haskell Ave, Suite 900, Dallas, TX 75204

    http://mandelman.ml-implode.com/

  • The Art of the ReFi, by Jason Hillard, Home Loan Ninjas Blog


    I was asked by Portland Realtor Fred Stewart recently if I wanted to write an article on refinancing for his blog, Oregon Real Estate Round Table. This became a challenge that I was not expecting.

    I set out to see what the competition is “blogging” about the topic of refinancing. What I found is more of the same: advertisements disguising themselves as blog posts. I guess I should keep in mind that my blood pressure usually skyrockets when I read other mortgage blogs.

    So let me walk you through how/why to refinance in the current mortgage environment. The first step is admission, and is perhaps the hardest thing to come to grips with:

    You do not own your home.

    If you have a home loan, then the bank owns your home. You own the equity. You may not have equity. You may just own a mortgage. This idea may sound counter-intuitive, but once you accept it and move on, your view on refinancing may change. You should now be thinking, “how can I leverage the portion of my home’s worth that I actually own?”

    If you’re still having trouble, consider this. You are thinking about your “home”. I am talking about your “house”, and the debt instrument against it, which is owned by a bank. Separate your emotions from this exercise.

    Now, I am a firm believer in the concept of Mortgage Planning, which has at its core a very simple concept:

    Untapped equity does you no good.

    Let me give you an example. If you own $60,000 in home equity, well then let’s start by saying that you are in much better shape than most. However, if you choose to leave that equity in the “untapped ether”, it is nothing more than the theoretical result of a process that you may or may not engage in. In other words, if you are not selling your home in the next 3 years, who cares how much equity you have? Who knows what your home will be worth in 3 years?

    Now let’s take it one step further: what if you lose your job? What if you could really use that $60,000 while you look for a new job? Well, good luck qualifying for a refinance without any income. It won’t happen. So, having $60,000 in untapped equity, which is the percentage of the house you ACTUALLY own, is completely useless. Had you taken that equity out when it was readily available, you would have a $60,000 slush fund for a rainy day.

    This method of managing equity requires restraint and discipline, but you can see that it illustrates the outdated concept of homeownership. We are all for people “owning” homes, but you have to understand that while you may be a home “owner”, the bank actually owns the lion’s share of the four walls that comprise your house.

    So, when I hear some mortgage agent saying “rates are at historic lows” and “now is a great opportunity”, my stomach does a backflip. We agree, rates are low. But that is an awfully generic statement. And yes, now is a great opportunity, but for who? The fact is that when it comes to refinancing, the circumstances which need to be considered are highly individualized. What if you can’t get the “lowest rate” because of credit score?

    Well, maybe you shouldn’t be so hung up on the rate.

    Well, now what in the world would I say that for? Let’s break it down. Say you have a rate of 5.5% on your current mortgage and $40,000 in equity available (“equity available” in this case refers to the portion of your equity which you could actually pull out by refinancing, not the total amount of equity). You also happen to have about $800 a month in credit card payments.

    You call up a mortgage professional to inquire about a refinance. Your credit score and LTV (loan-to-value) conspire against you though. The rate you would qualify for is less than .375 lower than your current rate. You ask yourself, “why would I pay $6000 in closing costs for what is essentially the same rate I have now?”

    The answer is that by doing so, you have leveraged your available equity to save something like $600 a month on your total monthly “out-go”. This is the equivalent of getting a $600/mo raise in your salary. Also, you have transferred all of the interest from your credit cards to your mortgage, which is tax deductible. This saves you more money. The lesson: don’t get so hung up on the rate. Focus on the outcome.

    Time for disclosure: I have avoided using “exact numbers” and precise monthly payments because that requires all kinds of math and figures, which people hate reading and would only serve to muddy the point. You can get exact numbers for your situation by contacting us, or any other mortgage professional.

    Let’s review one more situation; one which is much more common for the current market. You have a pretty good rate from a couple years ago, but don’t want to miss out on this “historic opportunity” because it’s all you have heard on the radio for the last 2 years. Of course, since your last refinance was a couple of years ago, you probably don’t have a lot of available equity. So you aren’t looking for any cash out, just a simple rate & term refinance.

    Let’s say that your loan amount is such that lowering your rate about .75% on a new refinance only saves you about $120 a month. The old school mentality says “why pay $6275 in closing costs to only save $120 a month?”

    After all, that would mean that it would take 52.29 months to pay off your refinancing costs. ($6275/$120 = 52.29)

    You’re probably thinking you are losing $6275 in future earnings, which seems like a lot to trade for $120 a month now. However, what if you don’t sell your home? What if the value drops further, and that $6275 isn’t there in the future? What if your salary gets cut at your job? The $6275 is theoretical. The $120 a month savings is tangible. You need to frame the question this way:

    Which is more valuable to me? The tangible savings now, or the possibility of return in the future?

    We are not recommending you tap yourself out just to save a few bucks every month. That’s the point. The answer to this question should be as unique as the person asking it.

    However, you do need to start thinking about your mortgage in this way. It’s a brave new world, and it is likely here to stay.

    http://www.homeloanninjas.com/2010/09/23/mortgageblog-the-art-of-the-refi/

  • Banks Say Big Benefit to those Refinancing a Jumbo Conforming “High Balance” Mortgage, by Rosemary Rugnetta, Freerateupdate.com


    (FreeRateUpdate.com) – Prior to the financial crisis that occurred several years ago, any mortgage above the Fannie Mae and Freddie Mac conforming loan limit was considered a non-conforming jumbo loan. With the Housing and Economic Recovery Act of 2008, the conforming loan limit was raised to $729,750 or 125% of the median home value within a metropolitan area, whichever is less. This rule has been extended through the end of 2010. Due to this change in conforming loan limit, banks are saying that there is a big benefit to those refinancing a jumbo conforming “high balance” mortgage at today’s rates. Many of these homeowners are seeing the potential benefits and are refinancing their non-conforming high interest jumbo loans to lower conforming interest rates.

    In the past, many homeowners purchased homes that required a high balance jumbo mortgage which carried higher interest rates for the term of the loan. In order to avoid the higher interest rates of jumbo loans, many homeowners chose to take on 2 loans. Today, numerous borrowers are able to refinance to a conventional conforming jumbo loan depending on the area in which they live. These borrowers must still qualify under the current guidelines. Conforming conventional loans are those that are underwritten by banks and follow Fannie Mae and Freddie Mac guidelines and do not exceed the loan limits. Due to the increase of loan limits, over 6% of homeowners fall into this category in 197 designated high cost areas in the United States. Even though today’s underwriting standards are stricter, these jumbo conforming conventional loans are still easier to obtain than non-conforming jumbo loans which are considered riskier for a lender.

    A top national branch manager of Homes Savings of America has stated that they are having a lot of success with the high balance jumbo conforming loan which has turned out to be a tremendous benefit to borrowers in this category. Many of these homeowners are carrying jumbo mortgages with interest rates in the mid to high 6’s. Today’s jumbo conforming 30 year fixed-rate of 4.375% is available to well-qualified homeowners who pay the standard .07 to 1 point origination fee. If these same borrowers had to refinance to a true jumbo loan of the past, they would be doing so at fixed rates in the low 5’s or about a full percentage point higher than conforming rates. Even those who originally took on 2 loans to avoid jumbo mortgage rates would benefit from refinancing both loans to today’s jumbo conforming fixed rate loan.

    As banks continue to see their refinance business increase with homeowners who were originally locked into true jumbo loans, the deadline is drawing near unless it is extended during this last quarter of 2010. The savings benefit to those refinancing to a jumbo conforming high balance mortgage can have a double effect. These refinances result in lower monthly mortgage payments for homeowners and aid the economic recovery by putting more cash into the hands of consumers.

  • Refinance Boom or Bust: The Scoop from Melissa Stashin of Pacific Residential Mortgage LLC


    Melissa Stashin, Pacific Residential MortgageMelissa Stashing

    Pacific Residential Mortgage, LLC
    4949 Meadows Road, Suite 150
    Lake Oswego, OR  97035

    (503) 699-LOAN (5626)
    (503) 905-4999    Fax

    Over the last few months refinancing has seen what could be deemed a “boom” in our current lending climate; yet, according to the Bloomberg report, the refinance index decreased 3.1 % in the beginning of September, so why the recent slow? When I turn on the radio, open a paper or see a pop-up in my email, I am bombarded with phrases like; “Lowest Levels on Record! Historic Lows! Lower Your Payment! Rates as Low As.”  Mortgage companies are using confidence boosting words to create hype in their marketing strategies, and this is important, but more crucial is providing information and education to consumers so they understand their options.  In a time when we have some of the best rates in history, getting the word out about refinancing options is fundamental.

    One of the best things you can do is dig through your file cabinet, find your mortgage statement and check your current interest rate. If it’s anything over 4.5% it’s worth a phone call. Just like your mom said, “you won’t know until you ask” and really, there are a lot of options. Many consumers who refinanced two years ago may have an incentive to refinance again and this is a good thing. From a local perspective, when consumers seek a lower monthly payment it increases disposable income which creates consumer spending and helps Oregon’s economy as a whole.

    So here’s the scoop, there are programs that allow you to refinance without equity in your property or very little. There are options for large loan amounts and those for small. Each program has its own set of guidelines which we, the mortgage banker, will walk you through. Credit issues may not disqualify you if they can be resolved; it’s just a matter of looking at everything carefully. It’s our job to determine the best program for your situation and your ability to repay. The magic recipe for low rate bliss requires four basic ingredients from you: assets, income, credit and property. Although this may seem daunting, if you tell us what your situation is and we can verify it, you may be able to save a significant amount of money. The reality is that rates still are historically low and there is a lot of opportunity for consumers to improve their interest rates. Choosing a local company like Pacific Residential Mortgage helps make for a smart consumer because we have the skills and local expertise to educate our borrowers. In this new mortgage market, the difficulty isn’t in qualifying our consumers it’s simply a matter of gathering information, stirring the ingredients together, and you may be the one that takes the cake!

    ~ Melissa Stashin

    Sr. Mortgage Banker/Branch Manager

    NMLS# 40033

  • Mortgage Bond Rally Centers on Least Likely to Refinance: Credit Markets, by Jody Shenn and Alan Goldstein, Bloomberg.com


    Investors in U.S.-backed mortgage bonds are shifting into securities tied to debt from homeowners who are the least willing or able to refinance as the Federal Reserve helps keep interest rates near record lows.

    Fannie Mae-guaranteed securities with 5.5 percent coupons that are backed by 30-year mortgages with average balances of less than $85,000 have jumped to 2.4 cents on the dollar more than similar generic debt, according to FTN Financial. The gap has more than doubled from 1.1 cents in late July.

    Homeowners with smaller loans don’t benefit as much from a drop in monthly payments as borrowers with bigger mortgages, while facing similar closing costs, and are thus less likely to refinance. Premiums for debt tied to mortgages with low balances have generally soared to the highest since at least 2004 after refinancing applications climbed to the most in 16 months.

    “Prepayment protection is worth a lot more than what you’ve seen historically,” said Bill Bemis, a portfolio manager who oversees about $7 billion of securitized debt at Aviva Investors in Des Moines, Iowa. “Payups” for mortgage bonds filled with smaller loans “have gone a little bit too far” because it may take investors as long as two years to recoup such premiums through the extra interest payments by borrowers keeping their loans outstanding, he said.

    Willing Fed

    The Fed, which said yesterday it’s willing to ease monetary policy further to spur growth, has helped drive down borrowing costs by purchasing government and mortgage bonds, increasing its assets to $2.3 trillion from about $906 billion at the beginning of September 2008. U.S. two-year yields fell to a record low after the central bank’s statement.

    Elsewhere in credit markets, the extra yield investors demand to own company bonds instead of similar maturity government debt was unchanged at 171 basis points, or 1.71 percentage point, the lowest since May, according to Bank of America Merrill Lynch’s Global Broad Market Corporate Index. Yields averaged 3.512 percent, down from 3.566 percent.

    The spread is narrowing at the same time as the number of U.S. companies at greatest risk of default dropped to the lowest level in two years, in part due to Federal Reserve efforts to bolster the economy, according to Moody’s Investors Service.

    Companies rated B3, or six steps below investment grade, with a negative outlook or below that level declined to 195 as of Sept. 1 from a high of 288 in June 2009, Moody’s said. Clear Channel Communications Inc. and Energy Future Holdings Corp., formerly named TXU Corp., were among the biggest companies on the list.

    IStar Debt

    IStar Financial Inc., the commercial real estate lender seeking to restructure some of its $8.6 billion of debt, may seek bankruptcy protection after creditors blocked it from amending loans. IStar expects to begin meeting with creditors in coming weeks to discuss potential terms of a so-called pre- packaged bankruptcy, which wouldn’t occur until sometime next year, according to people familiar with the matter who asked not to be identified because the plan isn’t public.

    Outside of bankruptcy, the company is weighing a proposal to extend maturities on its debt as well as a potential exchange offer, according to two people familiar with the situation. Andrew Backman, a spokesman for iStar, didn’t return a phone call or an e-mail message seeking comment.

    IStar’s $501.7 million of 8.625 percent bonds due in 2013 fell 5.6 cents to 78 cents on the dollar, the lowest since March, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

    Chrysler Financial Corp. plans to issue $2 billion of bonds backed by auto loans this week in its first asset-backed securities sale since March, according to a person familiar with the transaction who declined to be identified because terms aren’t public. Toyota Motor Corp. is marketing $1.29 billion of similar debt, also slated to sell this week, a person familiar with that deal said.

    Auto Loan Delinquencies

    While delinquencies are down 23 percent from a year ago, late payments on auto loans rose to 2.1 percent in August, a 4.7 percent increase from the prior month, Standard and Poor’s said in a report.

    Debt tied to auto lending accounts for a majority of asset- backed securities issued this year, or 53 percent of the $85.2 billion in sales, according to Bank of America Merrill Lynch data.

    Bonds from DuPont Co. were the most actively traded U.S. corporate securities by dealers, with 167 trades of $1 million or more, Trace data show. The Wilmington, Delaware-based company’s $1 billion of 3.625 percent notes due in January 2021 rose 1.2 cent from its issue price on Sept. 20 to $101.04 cents on the dollar.

    Bondholder Protection

    Credit-default swaps on the Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, climbed 2 basis points to a mid-price of 108.7 basis points as of 5:23 p.m. in New York. Yesterday was the first full day of trading after index administrator Markit Group Ltd.’s semi- annual adjustment of companies included in the measure.

    The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan increased 1.5 basis points to 122.5 basis points as of 8:22 a.m. in Hong Kong, Royal Bank of Scotland Group Plc prices show.

    In emerging markets, the extra yield investors demand to hold corporate bonds rather than government debentures rose 22 basis points to 292 basis points, the highest since Aug. 31, according to JPMorgan Chase & Co. index data.

    Leveraged loan prices rose for a 10th straight trading day, climbing 0.15 cent to 90.21 cents on the dollar, the highest since May 19, according to the S&P/LSTA U.S. Leveraged Loan 100 index.

    Mortgage Refinancing

    Mortgage refinancing can hurt bondholders by returning their money more quickly than anticipated. That’s particularly punitive if investors paid more than face value for their securities because of their relatively high coupons and instead receive their principal back at par.

    The average rate on a 30-year mortgage fell to 4.37 percent last week, from this year’s high of 5.21 percent in April, according to McLean, Virginia-based Freddie Mac. The rate touched 4.32 percent earlier this month. Rates on loans in Fannie Mae’s 5.5 percent bonds average about 6 percent.

    The Fed has held its target rate for overnight loans between banks at zero to 0.25 percent since December 2008. The 2-year Treasury note yield dropped 4 basis points to 0.43 percent after touching a record low 0.4155 percent.

    Fannie Mae

    Washington-based Fannie Mae’s 5.5 percent, 30-year securities fetch 106.44 cents on the dollar in the so-called To Be Announced market, where orders to buy debt can be filled with bonds with a range of characteristics through a type of futures contract, Bloomberg data show. That’s down from the record of almost 108 cents on July 27, though up from 104.72 cents on Dec. 31.

    Mortgage-refinancing applications rose to the highest levels since May 2009 last month, according to data from the Washington-based Mortgage Bankers Association. While applications have declined, last week’s pace was more than double the level at the end of 2009.

    “Right now, we have some pretty dramatic concerns about prepayments, so we’re looking at the specified pool market as an area where you can generate excess returns,” said Paul Colonna, who oversees $58 billion as chief investment officer for fixed income at GE Asset Management in Stamford, Connecticut.

    ‘Seasoned’ Debt

    General Electric Co.’s investment arm likes mortgage bonds backed by lower-balance loans, and “seasoned” debt, which also offers protection against homeowners falling out of the pools after turning delinquent, Colonna said.

    Aviva’s Bemis said he’s willing to pay for bonds backed by loans made in recent months, whose borrowers “are much less likely to want to go in anytime soon and refinance again.”

    He also favors debt tied to property investors and homeowners owing the most relative to their properties’ values who will find it more difficult or expensive to qualify for new loans. While the latter debt may not prepay as slowly as smaller loans, it may cost only 0.5 cent on the dollar more than generic securities, he said.

    Some types of mortgage bonds are in “bubble territory” in relation to the TBA market, according to Tae Park, a money manager in New York who oversees mortgage-bond investments at Societe Generale SA, France’s second largest bank.

    “This bubble will last as long as the refi uncertainty continues,” he said. “It’s like when people are willing to pay-up for bottled water, when the tap water is from an unknown source.”

    Hubbard, Mayer

    In a New York Times op-ed this month, Columbia University’s Glenn Hubbard and Chris Mayerproposed a new program through which the government would direct Fannie Mae, Freddie Mac and federal agencies such as Ginnie Mae to streamline refinancing. Hubbard, who served as chairman of the Council of Economic Advisers under President George W. Bush, is dean of the Columbia Business School, where Mayer is a senior vice dean.

    Higher payups “certainly illustrate the anxiety mortgage investors are feeling about government policy,” said Julian Mann, who helps oversee $5.8 billion in bonds as a vice president at First Pacific Advisors LLC in Los Angeles.

    Changes in the mortgage market amid the worst U.S. housing slump since the Great Depression are eroding the value of some typical characteristics investors seek for “prepayment protection,” Mann said. Bonds of older 15-year mortgages with low balances, for example, are refinancing faster than First Pacific Advisors expected, he said.

    Mortgage bankers and brokers pursuing “slam dunk approvals,” rather than spending as much time on potentially more lucrative larger loans, are responsible, Mann said. The 15- year debt tends to be taken out by borrowers with better means to pay it off than 30-year loans, and pays down more quickly, giving homeowners lower loan-to-value ratios when they seek to qualify for a refinancing, he said.

    To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net.

    To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net.

  • Fixed rate home loans are history, by Sarbajeet K Sen


    The fight may be intense among the top housing finance lenders to woo customers with special offers and teaser rates even as festive season is round the corner. But, if you are someone looking for a home loan that bears a fixed rate of interest for its entire tenure, you may not be as welcome.

    While the State Bank of India and LIC Housing Finance do not offer products with interest rate remaining fixed for its entire tenure, HDFC and ICICI Bank are pricing their offering at a level that would discourage consumers to opt for it, prompting housing finance experts to say the offers are virtually not on the shelf.

    While HDFC’s fixed rate loan comes at 14 per cent rate of interest, against its teaser rate home loan offering that starts at 8.5 per cent up to March 31, 2011, ICICI Bank has priced its offering a shade higher at 14.5 per cent, while its teaser rate begins at 8.25 per cent for the first year.

    “The rate that the lenders are offering on their fixed rate product for the entire tenure essentially means that there is no such product available. The pricing appears to be aimed at discouraging borrowers to opt for the offer,” RV Verma, executive director of National Housing Bank, said.

    Out of the total home loan providers including all banks and housing finance companies, the four largest players — HDFC, SBI, ICICI Bank and LIC Housing Finance, between them accounted for nearly 53 per cent of the market at the end of 2009, according to Icra report on the mortgage loan market in the country.

    According to data available on the NHB website for interest rates on housing finance as on September 1, Axis Bank and DFHL Vysya Housing Finance have similar high rates of 14 per cent and 13.75 per cent, respectively on their fixed rate products, while the likes of Punjab National Bank and IDBI Bank have comparatively lower rates. IDBI Bank’s offer comes at 11 per cent, PNB has the lowest rate of 10.50 per cent among the 15 primary lenders.

    The remaining eight lenders in the list do not have such fixed rate offers.

    A senior official of SBI felt that the fact that providers are actively discouraging fixed rate products is a sign of the market coming of age. “It is a sign of the market maturing. When most housing loan providers were offering fixed rates for the entire tenure some years ago, many of them were new to the whole concept of retail banking and did not know of its intricacies. The competition for drawing in fresh borrowers was making them offer such products,” the official said.

    So, what is it that is forcing the major lenders to discourage borrowers from taking a fixed offer or deciding to not offer such a product at all? Lenders say that the sole reason is their inability to raise long-term funds to match such lending.

    “Cost of funds keeps varying over the longer term. Hence, it is rather risky to take a long-term call on the lending rate and deciding to keep it fixed for the entire tenure,” the SBI official said.

    Srinivas Acharya, managing director of Sundaram BNP Paribas Home Finance, said inability to raise long-term funds makes designing of long-term fixed rate products difficult. “We don’t offer a fixed interest rate product over the entire tenure because it is risky proposition. It is difficult to pattern fixed rate products over a 20-year period, since there is no matching funding available in the market,” he said.

    Verma says besides the difficulty of raising long-term funds, such funds often come at a higher cost, if available. “It is difficult for lenders to take a call because of uncertainties. Long-term fund raising has become difficult or comes at a price that is not attractive,” Verma said.

    ICICI Bank and HDFC did not want to comment on the issue. “Yes we do offer fixed interest for the entire tenure of the home loan,” was all that an ICICI Bank spokesperson said, without willing to discuss the subject when probed further.

    sarbajeetsen

    @mydigitalfc.com

  • Reverse Mortgage Applications Rise to Highest Level Since September 2009, Reversemortgagedaily.com


    The number of reverse mortgage applications increased 8.1% to 9,686 in August according to the latest report from the Federal Housing Administration.

    While down 12.4% from the same period last year, the application totals for August are the highest since September 2009.
    The run up in applications before the end of FHA’s fiscal year is normal and is likely to increase as reverse mortgage borrowers rush to complete the process before the Department of Housing and Urban Development lowers the principal limit factors in October.

    The total amount of FHA applications for the month was 200,907 with a significant rise in prior FHA refinance cases. This included 86,569 purchase transactions, 104,652 refinance cases and 9,686 reverse mortgage cases. Included in the refinance count were 55,103 prior FHA’s (46.9% over last month), and 49,549 conventional conversions. In addition, 39 H4H cases were included in the refinance total.

    There were also 6,645 HECM’s insured in August and 6,175 were the traditional reverse mortgage type.

    As of the end of August, FHA has 558,316 mortgages in a serious delinquency category, yielding a seriously default rate of 8.5 percent. This includes all mortgages in bankruptcy, in foreclosure and 90 days or more delinquencies.

    So far this fiscal year 270,964 claims have been paid. The bulk of these were for loss mitigation retention (164,744) and property conveyance (87,807).

  • Multnomahforeclosures.com: Updated Notice of Default Lists and Books for the Week of September 17th, 2010


    Multnomahforeclosures.com was updated today with the largest list of Notice Defaults to date. With Notice of Default records dating back nearly 2 years. Multnomahforeclosures.com idocuments the fall of the great real estate bust of the 21st century.

    All listings are in PDF and Excel Spread Sheet format.

    Multnomah County Foreclosures
    http://multnomahforeclosures.com

  • Ally’s GMAC Mortgage Halts Home Foreclosures in 23 States, Bloomberg.com


    Ally Financial Inc.’s GMAC Mortgage unit told brokers and agents to halt foreclosures on homeowners in 23 states including Florida, Connecticut and New York.

    GMAC Mortgage may “need to take corrective action in connection with some foreclosures” in the affected states, according to a two-page memo dated Sept. 17 and obtained by Bloomberg News. Ally Financial spokesman James Oleckiconfirmed the contents of the memo. Brokers were told to stop evictions, cash-for-key transactions and lockouts, regardless of occupant type, with immediate effect, according to the document, addressed to GMAC preferred agents.

    The company will also suspend sales of properties on which it has already foreclosed. The letter tells brokers to notify buyers that the company will extend the closing date on all sales by 30 days. Buyers will be able to cancel their agreement to purchase and get their deposit back, according to the letter.

    GMAC Mortgage ranked fourth among U.S. home-loan originators in the first six months of this year, with $26 billion of mortgages, according to industry newsletter Inside Mortgage Finance. Wells Fargo & Co. ranked first, with $160 billion, and Citigroup Inc. was fifth, with $25 billion.

    GMAC was created in 1919 to provide financing for buyers of General Motors Co.’s vehicles. GMAC converted into a bank holding company in 2008 as it received more than $17 billion of government funds during the financial crisis. It rebranded itself Ally Financial last year, and continues to offer auto loans and mortgages.

    Following is a table of the affected states.

    Connecticut
Florida
Hawaii
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Nebraska
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Pennsylvania
South Carolina
South Dakota
Vermont
Wisconsin

    To contact the reporter on this story: Denise Pellegrini in New York atdpellegrini@bloomberg.net.

     

  • The Problem In 2010 Is Underwriting, by The Mortgage Professor


    Borrowers today are paying for the excesses of yesterday. During the go-go years leading to the crisis, underwriting rules became incredibly lax, and now they have become excessively restrictive.

    My mailbox today is stuffed with letters from borrowers who are being barred from the conventional (non-FHA) market by mortgage underwriting rules that have become increasingly detailed and rigid. In many cases the rules leave no room for discretion by the loan originator, and where there is discretion, originators are often too frightened to use it because of the heightened risk of having to buy back the mortgage or incur other penalties.

    Fannie Mae and Freddie Mac are the major source of the problems, but the large wholesale lenders who acquire loans from thousands of small mortgage lenders and mortgage brokers have their own rules which in many cases are even more restrictive than those of the agencies. Before the financial crisis, compliance with underwriting rules was subject to casual spot checks. Today, every loan is carefully scrutinized, and those that don’t past muster must be repurchased by the seller. The loss on a buyback wipes out the profit on about 8 loans of the same size.

     The Affordability Requirement Is a Curse

     

    The most important of the underwriting problems involve income documentation. The abuses that arose during the go-go years before 2007 had such a major impact on the mindsets of lawmakers, regulators and Fannie/Freddie that an affordability requirement has become the law of the land; all loans must be demonstrably affordable to the borrower. I have already written about the absurdity of this requirement, which makes ineligible many perfectly good loans to good people – such as the lady with a lot of equity and perfect credit who wants to borrow the money she needs to stay in her home for a few years before she sells it.

    The affordability requirement imposes an especially heavy burden on self-employed borrowers, who face the greatest difficulty in proving that they have enough income to qualify. Prior to the crisis, a variety of alternatives to full documentation of income were available, including “stated income,” where the lender accepted the borrower’s statement subject to a reasonableness test and verification of employment.

    The Self-Employed Are Back to Square One 

     

    Stated income documentation was designed originally for self-employed borrowers, and it worked very well for years. Then, during the go-go period preceding the crisis, the option was abused. Instead of curbing the abuses we eliminated the option, which is akin to outlawing knives after an outbreak of hari kari. Rejection of loan applications by self-employed borrowers with high credit scores and ample equity are now commonplace. This letter is typical.

    “We were pre-approved, found a home for less than the amount approved, paid for appraisal, inspection, earnest money, title company, then a few days before closing the lender told us they cannot honor the approval because our business income was 40% lower in 2009 than 2008…can they do this?”

    In this case, I have not been able to determine whether there was a rule change — from using the average of the two years to using the lower of the two years — or whether it was the interpretation that changed, but the result is the same: rejection. Before the crisis, this home purchase would have been saved by using stated income documentation.

    Note that in this particular case, the cost of rejection to the buyer was raised by the incompetence of the lender. Allowing the buyer to proceed almost all the way to a closing before checking their tax statements is inexcusable. Any home buyer whose income is business-related should be sure to get their income approved before putting down earnest money and incurring other mortgage expenses.

     The Robotization of Underwriting

     

    Loan underwriting, the process of deciding whether a loan application should be approved or rejected, used to be a profession that demanded a high level of discretion and judgment. That is no longer the case, as illustrated by this letter.

    “My wife recently applied in her name only for a mortgage to purchase a single family home which will be our residence. She earns a $70,000 salary that is more than enough to cover the mortgage and has a credit score of 800. We have no debt.

     

    I work from home trading stocks. In the market crash 08/09 I sustained losses in my trading account of $90,000. We file our taxes jointly. Today my wife’s application was refused citing Fannie/Freddie guidelines that state that tax losses must be deducted from her income…We are stunned…”
    This case is typical of many that used to involve a judgment call by the underwriter. The issue is whether the husband’s capital loss actually indicated a potential threat to the ability of his wife to service the mortgage. If the husband had $400,000 in his trading account, for example, the plausible judgment would be that such a threat was remote and the loan should be approved. But in this case, the underwriter did not explore the circumstances — the rejection was automatic based on the rule. With no alternative types of documentation available, the loan was not made.

    Why didn’t the underwriter use the judgment for which he is presumably being paid? He acted like a robot instead of an underwriter because his employer had instructed him to stay within the letter of the rules. The risk from making a judgment call that turns out to be mistaken has become so high that lenders find it more prudent to avoid such calls altogether.

    The Lowest Rates Are Available to Few 

     

    In addition to curtailing unduly the number of potential borrowers who qualify for loans, the current policies of Fannie and Freddie have shrunk the number of acceptable borrowers who qualify for the best prices to a very small group. To get the lowest rate possible on a mortgage sold to Fannie Mae, the borrower must have a credit score of 740 and a ratio of loan to property value of no more than 60%. The property must be single family but not manufactured, and in an area not subject to an “adverse market delivery charge.” The mortgage cannot have an interest-only provision, and any second mortgage has to be included in the 60% limit noted above.

    Fannie and Freddie are working at cross purposes to the Federal Reserve. The Fed is trying to counter economic weakness by forcing down long-term interest rates, including those on prime mortgages, to all-time lows. Fannie and Freddie have made it increasingly difficult for potential borrowers to qualify, and cut the number who qualify for the very best rates to a trickle.

    Thanks to Jack Pritchard for helpful comments.

    http://www.mtgprofessor.com

  • Refinancing: Whom Can You Trust?, by M.P. MCQUEEN, Wsj.com


    From Conflicts of Interest to Simplistic Formulas, the Web Is Awash With Dubious Mortgage Information. Here’s What You Need to Know

     

    With mortgage rates falling to record lows this summer and the housing market showing signs of a pulse, refinancing activity is perking up.  It’s too bad that so many people are relying on oversimplified advice and bad numbers to decide when to pull the trigger.

    The refinancing equation has never been more complicated. While some borrowers are desperate to reduce their monthly payments, others are looking to build equity. Some are even treating their mortgage as an investment vehicle, sinking excess cash into their homes in order to secure a lower rate and cut future payments.

    Yet most personal-finance resources these days don’t account for situations like these. Even essential factors like tax rates and inflation expectations are often ignored in favor of simplistic calculations.

    Many popular Web resources, in fact, are financed by lenders, mortgage brokers or “lead generators” that connect borrowers with banks. At times, their advice can be downright harmful.

    That’s because of the risk involved. Refinancing generally costs 3% to as much as 6% of the outstanding principal of the loan, with banks levying fees on everything from application fees and title searches to appraisal costs and legal expenses. (Mortgage “points” can add to the total, though they typically help reduce the interest rate and lower overall costs.)

    Fees are often murky, too, making comparison shopping difficult. The best way to compare deals, says Melinda Opperman of Riverside, Calif.-based Springboard Nonprofit Consumer Credit Management Inc., is to consult with a housing-counseling agency approved by the U.S. Department of Housing and Urban Development.

    Given such costs, you don’t want to refinance often. Yet the advice coming from the mortgage world suggests you should be doing it regularly.

    One particularly dubious idea gaining prominence is the “1% rule,” which used to be the 2% rule when rates were higher. The gist: Refinance when you can knock a full percentage point off your rate.

    A lead-generation site called Supermortgages.com says the following in a piece called “When to Refinance a Mortgage”: “Are the current mortgage interest rates at least 1 point less than your existing mortgage interest? If so, refinancing your home mortgage might make sense.”

    Wells Fargo & Co.’s website goes further. In an advice article titled “Deciding to Refinance,” it writes: “If interest rates are 1/2% to 5/8% lower than your current interest rate, it may be a good time to consider a refinance.”

    Yet people who followed the one-point rule could have refinanced five or six times in the last 15 years, paying so much in fees that the savings would likely be wiped out.

    Supermortgage.com’s content largely comes from mortgage brokers, lenders and other industry sources, says Andy Shane, a spokesman for parent company SuperMedia Inc. In this case, he says, the author is a freelance writer with a law degree and a background in real estate who used a mortgage calculator and determined that a one- to two-point cut in rates “made a pretty significant difference in monthly payments” compared with closing costs.

    Wells Fargo spokesman Jason Menke says the bank’s website has a wide range of information available to help borrowers. “The rate difference cited is just a point where a borrower may want to consider looking into a refinance,” he says.

    The 1% rule could translate into big business if it catches on. About 71% of outstanding fixed-rate mortgages guaranteed by Fannie Mae or other government-sponsored entities are at least a point above current rates, according to Walter Schmidt, senior vice president at FTN Financial Capital Markets in Chicago.

    Bills.com is another lead-generation site that offers personal-finance advice. Its new refinance calculator is among the most basic around: It asks users for some data and their reason for wanting to refinance and then spits out a yes/no answer.

    The answer, however, is usually “yes.” And sometimes it comes with a suggestion for a risky interest-only loan. It also provides a way for users to sign up for a quote.

    Ethan Ewing, president of Bills.com, says the calculator’s simplicity and ease are virtues. Most users say they are looking for a fixed-rate loan or a lower monthly payment, he says. “If [users] can save more than $100 a month on the payment with a new mortgage, the calculator says ‘yes.’ ”

    Another flawed concept is the standard break-even test. Many mortgage sites suggest that borrowers should calculate how many months it would take to save enough on mortgage interest charges to break even on the closing costs, and then to pull the trigger when the payoff goes below three to five years.

    But such analyses often ignore important factors, such as how long the borrower plans to stay in the house or the borrower’s tax rate, which determines a loan’s after-tax cost.

    Consider LendingTree.com, a lead generator, broker and lender. In an article called “When Does It Pay to Refinance a Mortgage?” it warns: “There are other things to consider when you refinance, too, including taxes and private mortgage insurance. For a break-even estimate that takes many of these factors into account, use the LendingTree refinancing calculator.”

    The problem: The refinance calculator doesn’t take taxes into account. It merely calculates your break-even point based on your current payment, the hypothetical new-loan payment, and the closing costs. Right below the results is a button to “start request”—meaning it will start to hook you up with a lender.

    “This is a simple calculator that gives you a straightforward break-even equation,” says Nicole Hall, a spokeswoman for LendingTree. “You should speak to a loan officer to thoroughly evaluate your options…. Generally, if you can lower your interest rate by 1%, you are saving enough to justify the refinance if you are staying in the home a certain number of years.”

    Versions of the same calculator appear on the sites of mortgage brokers or lead generators such as Domania.com and Calculators4Mortgages.com.

    There are, to be sure, plenty of websites whose advice is unbiased and sound. The Federal Reserve, for example, offers a refinance resource page on its website that includes a better break-even calculator with tax-rate considerations.

    A more-sophisticated calculation of the merits of refinancing would include other factors: the borrower’s tax rate, inflation expectations, how long the borrower plans to live in the house, the opportunity cost of paying closing costs rather than investing in stocks or bonds, and so on.

    One obscure calculator comes close. Instead of plugging in today’s mortgage rates and determining how long it would take to pay back the closing costs, it uses “optimization theory” to conjure up a person’s ideal refinance rate regardless of where rates are now. If you can find a rate that is equal to that rate or lower, it’s time to refinance.

    The bad news: Its results tend to flash the green light much less often than other calculators.

    The calculator, posted on the National Bureau of Economic Research’s website athttp://zwicke.nber.org/refinance/index.py, is based on a 2008 paper by two economists at the Federal Reserve and one from Harvard University. Using stochastic calculus, they devised a formula based on the loan size, the homeowner’s marginal tax rate, the expected inflation rate over the life of a loan, how long the borrower plans to remain in the house and other factors.

    “These ideas are really old hat among economists; our contribution is deriving a simple formula that anyone can plug into their calculator or computer,” says Harvard professor David Laibson, one of the authors.

    The Optimal Refinance Calculator spits out tougher numbers than many other calculators in part because it factors in the benefit of waiting beyond the break-even for the chance that rates could fall further. Refinance now and you reduce your ability to refinance later.

    According to the calculator, a borrower in the 35% tax bracket who has 20 years left on a $400,000 mortgage at 5.88% isn’t advised to refinance until rates hit 3.92% (assuming low closing costs of 3%). By contrast, a three-year break-even analysis of those parameters would suggest that today’s 4.5% rate is the time to make a deal.

    “Some people mistakenly think [the break-even] is a recommendation to refinance,” Prof. Laibson says. “You want to wait until things get better than the break-even point. Refinancing is irreversible and really costly.”

    Another way to benefit from falling rates in the future is via an adjustable-rate mortgage, the norm in places such as the United Kingdom and Australia. People with a strong conviction that deflation will unfold over the next several years can take out an ARM now and refinance later if rates start to head upward, though the transaction costs could add up.

    Be warned: The Optimal Refinance Calculator doesn’t account for refinancing into shorter-term loans, such as 15- or 20-year mortgages. It also doesn’t work for “cash in” refinance deals, which investors increasingly are viewing as investments unto themselves. The bet: With stocks in a 10-year slump and bonds looking bubbly, the best investment they can make is to cut their future mortgage payments.

    A new cash-in mortgage refinance tool, launched on Aug. 25 at www.mtgprofessor.com, calculates the “internal rate of return” on the cash a borrower puts into an underwater home loan to pay off the balance and cover closing costs. The money saved each month and the balance reduction is treated as a return on the cash invested. Compare that with your expected returns on stocks or bonds to see if a refinance makes sense.

    Jon Krieger, 34 years old, and wife April, 32, of Blairsville, Ga., didn’t need to invest extra cash—they simply wanted to cut their mortgage payment. Mr. Krieger says he tried several times last year to refinance but couldn’t because bank lending standards were too tight.

    It’s a good thing they didn’t refinance last year. Rates have since fallen even lower—precisely the possibility the Optimal Refinance Calculator considers.

    In August the couple refinanced their $416,000, 6.75% loan they took out in May 2007 with a new loan at 4.75%. It lowered their monthly payment by more than $500. The total closing costs were about $5,500, says Mr. Krieger.

    The deal easily satisfies the 1% rule and the three-year break-even. It also survives the Optimal Refinance Calculator, which put the Kriegers’ ideal rate at 5.63% or below.

    “We just kept plugging away and finally this came along, and it worked out real well,” says Mr. Krieger. “I was very pleased.”

    Write to M.P. McQueen at mp.mcqueen@wsj.com

  • Bill sets 45-day deadline on lender short sale decisions, by Ken Curry, Reoi.com


    Real estate brokers who have long complained about the time it takes to complete a short sale now have two U.S. congressmen in their corner who are sponsoring a bill that would require lenders to respond to consumer short sale requests within 45 days.

    Real estate brokers — and homeowners – have long complained about the length of time it takes to get a short sale done.

    Lenders have been pushing more short sales as the industry recognizes them as a viable alternative to foreclosure. Short sales in the U.S. have tripled since 2008, according to data analyzer CoreLogic.

    At the government-sponsored enterprises (GSEs), short sale volume in the second quarter was up more than 150% from volume in 2Q09, according to the Federal Housing Finance Agency’s “Foreclosure Prevention & Refinance Report.”

    This summer, Bank of America began testing a new short sale program that targets 2,000 pre-screened homeowners to short sell their homes. The participants are borrowers who have been considered for a modification under the Home Affordable Modification Program (HAMP) and a short sale under the Home Affordable Foreclosure Alternatives (HAFA) program, but have fallen out of either program or failed to qualify.

    The National Association of Realtors (NAR) is supporting the bill, H.R. 6133, “Prompt Decision for Qualification of Short Sale Act of 2010.” It was filed Sept. 15 by U.S. Reps. Robert Andrews (D-N.J.) and Tom Rooney (R-Fla.). The bill was referred to the House Committee on Financial Services on Wednesday.

    Immediate comment was not available to the bill from the Mortgage Bankers Association.

    “The short sale, which requires lender approval, is an important instrument for homeowners who owe more than their home is worth,” said NAR President Vicki Cox Golder, owner of Vicki L. Cox & Associates in Tucson, Ariz., said in a news release. “While the lending community has worked to improve the size and training of their short sales staffs, they still have a long way to go on improving response times.”

    In the second quarter, Nevada, California, Florida and Arizona had significant shares of all properties on the market are potential short sales: 32%, 28%, 27% and 24%, respectively, according to NAR data.

    “Unfortunately, homeowners who need to execute a short sale are severely hampered because lenders (loan servicers) are unable to decide whether to approve a short sale within a reasonable amount of time,” she said. “Potential homebuyers are walking away from purchasing short sale property because the lender has taken many months and still not responded to their request for an approval of a proposed short sale price,” Golder said.

    REO Insider is currently running a survey asking readers about the longest time that it has taken to complete a short sale. So far, 81% of respondents have said it takes more than 91 days, with 44% of those saying it takes 91-180 days.

    Write to Kerry Curry.

  • CoreLogic Home Price Index Spells Top Five Trouble for the Greater Northwest Real Estate Market, by Portland Housing Blog


    We all know by now that the Northwest region of the country was late to the housing bubble. CoreLogic’s latest report shows that NW states such as Idaho, Oregon, and Washington are showing up late to the bust, and we are now leading the way when it comes to declining prices.

    “CoreLogic (NYSE: CLGX), a leading provider of information, analytics and business services, today released its Home Price Index (HPI) that showed that home prices in the U.S. remained flat in July as transaction volumes continue to decline. This was the first time in five months that no year-over-year gains were reported. According to the CoreLogic HPI, national home prices, including distressed sales showed no change in July 2010 compared to July 2009.

    June 2010 HPI showed a 2.4 percent* year-over-year gain compared to June 2009. 36 states experienced price declines in July, twice the number in May and the highest number since last November when prices nationally were still declining.”

     

    “The top five states with the greatest depreciation, including distressed sales, were Idaho (-12.6 percent), Alabama (-9.7 percent), Utah (-5.6 percent), Oregon (-4.8 percent) and Washington (-4.3 percent).”

     

    “Excluding distressed sales, the top five states with the greatest depreciation were: Idaho (-9.9 percent), Michigan (-6.7 percent), Arizona (-5.6 percent), Nevada (-4.8 percent) and Oregon (-3.8 percent).”

     

    Whether your sale is distressed or you are holding out for bubble era pricing, it’s become obvious that if you are going to sell a property, you’re going to end up settling for an ever lower price the longer you wait to pull the trigger. Plan accordingly if you are trying to sell a home these days in the great Northwest. Sell now or be priced in forever!

    If you’re a potential buyer? My best advice is that you keep your powder dry, pay off any existing debts, stop borrowing money, and save as much as you can. Real home prices in OR, WA, ID have nowhere to go but downward as the pool of greater fools has all but evaporated at this juncture. Prudence takes immense patience in today’s real estate game.

    The days of EZ bank loans are long gone. All that matters now are savings and real wages when it comes to buying real estate. When the cost of capital funds are cheap, the capital asset appreciates in value. When the cost of capital funds become expensive, the capital asset declines in value. We are in the midst of a generational shift in that equation.

    Equity’s a cold hard bitch when it turns negative…

     

    http://www.portlandhousing.blogspot.com/

     

  • Fewer mortgages are in default, by Home Savers Real Estate Blog


    Fewer mortgage borrowers are delinquent on their loan payments, according to the latest data from the Mortgage Bankers Association.
    The nation’s overall delinquency rate dropped to 9.85% in the second quarter, down from 10.06% of all loans outstanding three months earlier.

    Even better, the percentage of seriously delinquent loans — ones 90+ days late or already repossessed by lenders — dropped to 9.11% from 9.54% in the first quarter.

    The drop in loans 90 days or more late was the biggest the MBA has ever recorded, according to the MBA’s chief economist, Jay Brinkmann. “That shows we’re making headway,” he said.

    He cited three reasons for the improvement:

    •Fewer loans are coming into the default process;
    •The homebuyers tax credit, which increased demand for homes, generated many pre-foreclosure sales, removing the attached delinquent loans from the statistics;
    •The government- and lender-led mortgage modifications “cured” some payment problems.
    However, even with those bright spots, there was one troubling finding: First-time delinquencies increased after four quarters of decline. It inched up to 3.51% in the second quarter from 3.45% in the first quarter. According to Brinkmann, the reversal reflects the weakness in both the housing market and the overall economy.

    “It’s a question of jobs,” he said. “It takes a paycheck to make a mortgage payment.”

    Underscoring the trend is the foreclosure trend among borrowers with conventional loans, like 30-year, fixed rate mortgages. They accounted for nearly 36% of foreclosure starts during the quarter. And these safe loans rarely get into trouble unless they lose employment or income.

    The four worst hit states — California, Florida, Arizona and Nevada — still account for nearly 60% of national delinquencies, but California’s numbers dropped dramatically this year. At the end of 2009, California foreclosure starts made up nearly 20% of the nation’s total. That dropped to 14.7% during the second quarter.

    Another positive trend is the gradual downturn in the number of borrowers who are underwater on their mortgages, owing more than their homes are worth.

    CoreLogic reported today that the rate of borrowers underwater dropped to 23% in the second quarter from 24% in the first.

    When borrowers fall underwater, it increases the chance that they’ll lose the homes. Brinkmann calls it one of the two “triggers” that lead to foreclosure.

    If homeowners have positive equity, they can use it as a source of cash to pay bills, including mortgages. But if their cash reserves are gone and they can’t afford to make payments because their income has dropped, foreclosure is almost inevitable.

    CoreLogic found that negative equity is worst in five states: Nevada (68%), Arizona (50%), Florida (46%), Michigan (38%) and California (33%).

  • Surprisingly, Underwater Borrowers Say Owning Beats Renting, by Nick Timiraos, Wsj.com


    A new survey shows that Americans are generally taking a dimmer view of homeownership, even as a rising number say they believe it’s a good time to buy a home.

    The survey from Fannie Mae reveals lots of interesting insights like this one: homeowners who are underwater, or owe more than their homes are worth, are more likely to view housing as a safe investment than renters. Almost three out of four mortgage borrowers, and nearly seven in ten underwater homeowners, say that housing is safe, compared to just 57% of delinquent borrowers and 54% of renters.

    Overall, the number of Americans who say that homeownership is a safe investment has declined—to 67% in July, from 70% in January and 83% in 2003.

    While more people believe that it’s a good time to buy and a bad time to sell, the number of Americans who say they’re likely to rent, rather than buy, their next house has increased slightly since January, to one third of those surveyed. (Columnist Brett Arends offers his list of 10 reasons to buy.) Respondents also expect rents to grow much faster than home prices over the next year.

    The report shows some worrying trends for banks and mortgage investors. While three-quarters of borrowers consider their mortgage payment to be their most important debt obligation (that hasn’t changed since January), the number of delinquent borrowers that count their mortgage payment as their most important has fallen, to 50% in July from 57% in January.

    The vast majority of Americans still disapprove of borrowers stopping their mortgage payments. But the number who say it’s acceptable to default if a borrower is underwater has increased slightly, to 10% from 8% in January.

    A few other findings from Fannie’s survey (view the full results, in pdf):

    • Nearly half of all borrowers, and more than half of underwater borrowers, think their lender is likely to pursue other assets in addition to their homes if they were to stop paying their mortgage. [The ability of the lender to do this actually varies from state to state.]
    • Underwater and delinquent borrowers are also slightly more optimistic about the amount of time it will take for their credit scores to recover after a mortgage default. Around one in five of those borrowers say that it would take one to three years to wipe a mortgage default from their credit report, compared to one in seven for the general population.
    • A majority of Americans also believe that borrowers are more at fault than mortgage companies for having unaffordable loans. Nearly 56% of borrowers—and 60% of underwater borrowers—say that borrowers, not banks, have greater culpability for being in over their heads with respect to affordability.

    A separate survey from the Pew Research Center found that 19% of those polled said it was acceptable to walk away from a mortgage, while 59% said it was unacceptable and 17% said it depended on the situation.

    Democrats were twice as likely to say that it was acceptable to walk away from a mortgage (23%) than Republicans (11%), according to the Pew report.

    Follow Nick on Twitter for more housing and mortgage news: @NickTimiraos

  • INSIDE CHASE and the Perfect Foreclosure, by Mandelman Matters Blog


    JPMorgan CHASE is in the foreclosure business, not the modification business’.”  That, according to Jerad Bausch, who until quite recently was an employee of CHASE’s mortgage servicing division working in the foreclosure department in Rancho Bernardo, California.

    I was recently introduced to Jerad and he agreed to an interview.  (Christmas came early this year.)  His answers to my questions provided me with a window into how servicers think and operate.  And some of the things he said confirmed my fears about mortgage servicers… their interests and ours are anything but aligned.

    Today, Jerad Bausch is 25 years old, but with a wife and two young children, he communicates like someone ten years older.  He had been selling cars for about three and a half years and was just 22 years old when he applied for a job at JPMorgan CHASE.  He ended up working in the mega-bank’s mortgage servicing area… the foreclosure department, to be precise.  He had absolutely no prior experience with mortgages or in real estate, but then… why would that be important?

    “The car business is great in terms of bring home a good size paycheck, but to make the money you have to work all the time, 60-70 hours a week.  When our second child arrived, that schedule just wasn’t going to work.  I thought CHASE would be kind of a cushy office job that would offer some stability,” Jerad explained.

    That didn’t exactly turn out to be the case.  Eighteen months after CHASE hired Jared, with numerous investors having filed for bankruptcy protection as a result of the housing meltdown, he was laid off.  The “investors” in this case are the entities that own the loans that Chase services.  When an investor files bankruptcy the loan files go to CHASE’S bankruptcy department, presumably to be liquidated by the trustee in order to satisfy the claims of creditors.

    The interview process included a “panel” of CHASE executives asking Jared a variety of questions primarily in two areas.  They asked if he was the type of person that could handle working with people that were emotional and in foreclosure, and if his computer skills were up to snuff.  They asked him nothing about real estate or mortgages, or car sales for that matter.

    The training program at CHASE turned out to be almost exclusively about the critical importance of documenting the files that he would be pushing through the foreclosure process and ultimately to the REO department, where they would be put back on the market and hopefully sold.  Documenting the files with everything that transpired was the single most important aspect of Jared’s job at CHASE, in fact, it was what his bonus was based on, along with the pace at which the foreclosures he processed were completed.

    “A perfect foreclosure was supposed to take 120 days,” Jared explains, “and the closer you came to that benchmark, the better your numbers looked and higher your bonus would be.”

    CHASE started Jared at an annual salary of $30,000, but he very quickly became a “Tier One” employee, so he earned a monthly bonus of $1,000 because he documented everything accurately and because he always processed foreclosures at as close to a “perfect” pace as possible.

    “Bonuses were based on accurate and complete documentation, and on how quickly you were able to foreclosure on someone,” Jerad says.  “They rate you as Tier One, Two or Three… and if you’re Tier One, which is the top tier, then you’d get a thousand dollars a month bonus.  So, from $30,000 you went to $42,000.  Of course, if your documentation was off, or you took too long to foreclose, you wouldn’t get the bonus.”

    Day-to-day, Jerad’s job was primarily to contact paralegals at the law firms used by CHASE to file foreclosures, publish sale dates, and myriad other tasks required to effectuate a foreclosure in a given state.

    “It was our responsibility to stay on top of and when necessary push the lawyers to make sure things done in a timely fashion, so that foreclosures would move along in compliance with Fannie’s guidelines,” Jerad explained.  “And we documented what went on with each file so that if the investor came in to audit the files, everything would be accurate in terms of what had transpired and in what time frame.  It was all about being able to show that foreclosures were being processed as efficiently as possible.”

    When a homeowner applies for a loan modification, Jerad would receive an email from the modification team telling him to put a file on hold awaiting decision on modification.  This wouldn’t count against his bonus, because Fannie Mae guidelines allow for modifications to be considered, but investors would see what was done as related to the modification, so everything had to be thoroughly documented.

    “Seemed like more than 95% of the time, the instruction came back ‘proceed with foreclosure,’ according to Jerad.  “Files would be on hold pending modification, but still accruing fees and interest.  Any time a servicer does anything to a file, they’re charging people for it,” Jerad says.

    I was fascinated to learn that investors do actually visit servicers and audit files to make sure things are being handled properly and homes are being foreclosed on efficiently, or modified, should that be in their best interest.  As Jerad explained, “Investors know that Polling & Servicing Agreements (“PSAs”) don’t protect them, they protect servicers, so they want to come in and audit files themselves.”

    “Foreclosures are a no lose proposition for a servicer,” Jerad told me during the interview.  “The servicer gets paid more to service a delinquent loan, but they also get to tack on a whole bunch of extra fees and charges.  If the borrower reinstates the loan, which is rare, then the borrower pays those extra fees.  If the borrower loses the house, then the investor pays them.  Either way, the servicer gets their money.”

    Jerad went on to say: “Our attitude at CHASE was to process everything as quickly as possible, so we can foreclose and take the house to sale.  That’s how we made our money.”

    “Servicers want to show investors that they did their due diligence on a loan modification, but that in the end they just couldn’t find a way to modify.  They’re whole focus is to foreclose, not to modify.  They put the borrower through every hoop and obstacle they can, so that when something fails to get done on time, or whatever, they can deny it and proceed with the foreclosure.  Like, ‘Hey we tried, but the borrower didn’t get this one document in on time.’  That sure is what it seemed like to me, anyway.”

    According to Jerad, JPMorgan CHASE in Rancho Bernardo, services foreclosures in all 50 states.  During the 18 months that he worked there, his foreclosure department of 15 people would receive 30-40 borrower files a day just from California, so each person would get two to three foreclosure a day to process just from California alone.  He also said that in Rancho Bernardo, there were no more than 5-7 people in the loan modification department, but in loss mitigation there were 30 people who processed forbearances, short sales, and other alternatives to foreclosure.  The REO department was made up of fewer than five people.

    Jerad often took a smoke break with some of the guys handing loan modifications.  “They were always complaining that their supervisors weren’t approving modifications,” Jerad said.  “There was always something else they wanted that prevented the modification from being approved.  They got their bonus based on modifying loans, along with accurate documentation just like us, but it seemed like the supervisors got penalized for modifying loans, because they were all about finding a way to turn them down.”

    “There’s no question about it,” Jerad said in closing, “CHASE is in the foreclosure business, not the modification business.”

    Well, now… that certainly was satisfying for me.   Was it good for you too? I mean, since, as a taxpayer who bailed out CHASE and so many others, to know that they couldn’t care less about what it says in the HAMP guidelines, or what the President of the United States has said, or about our nation’s economy, or our communities… … or… well, about anything but “the perfect foreclosure,” I feel like I’ve been royally screwed, so it seemed like the appropriate question to ask.

    Now I understand why servicers want foreclosures.  It’s the extra fees they can charge either the borrower or the investor related to foreclosure… it’s sort of license to steal, isn’t it?  I mean, no one questions those fees and charges, so I’m sure they’re not designed to be low margin fees and charges.  They’re certainly not subject to the forces of competition.  I wonder if they’re even regulated in any way… in fact, I’d bet they’re not.

    And I also now understand why so many times it seems like they’re trying to come up with a reason to NOT modify, as opposed to modify and therefore stop a foreclosure. In fact, many of the modifications I’ve heard from homeowners about have requirements that sound like they’re straight off of “The Amazing Race” reality television show.

    “You have exactly 11 hours to sign this form, have it notarized, and then deliver three copies of the document by hand to this address in one of three major U.S. cities.  The catch is you can’t drive or take a cab to get there… you must arrive by elephant.  When you arrive a small Asian man wearing one red shoe will give you your next clue.  You have exactly $265 to complete this leg of THE AMAZING CHASE!”

    And, now we know why.  They’re not trying to figure out how to modify, they’re looking for a reason to foreclose and sell the house.

    But, although I’m just learning how all this works, Treasury Secretary Geithner had to have known in advance what would go on inside a mortgage servicer.  And so must FDIC Chair Sheila Bair have known.  And so must a whole lot of others in Washington D.C. too, right?  After all, Jerad is a bright young man, to be sure, but if he came to understand how things worked inside a servicver in just 18 months, then I have to believe that many thousands of others know these things as well.

    So, why do so many of our elected representatives continue to stand around looking surprised and even dumbfounded at HAMP not working as it was supposed to… as the president said it would?

    Oh, wait a minute… that’s right… they don’t actually do that, do they?  In fact, our elected representatives don’t look surprised at all, come to think of it.  They’re not surprised because they knew about the problems.  It’s not often “in the news,” because it’s not “news” to them.

    I think I’ve uncovered something, but really they already know, and they’re just having a little laugh at our collective expense… is that about right?  Is this funny to someone in Washington, or anyone anywhere for that matter?

    Well, at least we found out before the elections in November.  There’s still time to send more than a few incumbents home for at least the next couple of years.

    I’m not kidding about that.  Someone needs to be punished for this.  We need to send a message.

  • Home Prices Drop in 36 States; Beazer Warns on Orders; 8 Million Foreclosure-Bound Homes to Hit the Market; Prices to Stagnate for a Decade, by Mike Shedlock,


    The small upward correction in home prices from multiple tax credit offerings died in July. Worse yet, inventory of homes for sale as well as shadow inventory both soared. 8 million foreclosure-bound homes have yet to hit the market according to Morgan Stanley.

    Home Prices Drop in 36 States

    CoreLogic reports Growing Number of Declining Markets Underscore Weakness in the Housing Market without Tax-Credit Support

    CoreLogic Home Price Index Remained Flat in July

    SANTA ANA, Calif., September 15, 2010 – CoreLogic (NYSE: CLGX), a leading provider of information, analytics and business services, today released its Home Price Index (HPI) that showed that home prices in the U.S. remained flat in July as transaction volumes continue to decline. This was the first time in five months that no year-over-year gains were reported. According to the CoreLogic HPI, national home prices, including distressed sales showed no change in July 2010 compared to July 2009. June 2010 HPI showed a 2.4 percent* year-over-year gain compared to June 2009.

    “Although home prices were flat nationally, the majority of states experienced price declines and price declines are spreading across more geographies relative to a few months ago. Home prices fell in 36 states in July, nearly twice the number in May and the highest since last November when national home prices were declining,” said Mark Fleming, chief economist for CoreLogic.

    Methodology

    The CoreLogic HPI incorporates more than 30 years worth of repeat sales transactions, representing more than 55 million observations sourced from CoreLogic industry-leading property information and its securities and servicing databases. The CoreLogic HPI provides a multi-tier market evaluation based on price, time between sales, property type, loan type (conforming vs. nonconforming), and distressed sales. The CoreLogic HPI is a repeat-sales index that tracks increases and decreases in sales prices for the same homes over time, which provides a more accurate “constant-quality” view of pricing trends than basing analysis on all home sales. The CoreLogic HPI provides the most comprehensive set of monthly home price indices and median sales prices available covering 6,208 ZIP codes (58 percent of total U.S. population), 572 Core Based Statistical Areas (85 percent of total U.S. population) and 1,027 counties (82 percent of total U.S. population) located in all 50 states and the District of Columbia.

     

     

    See the above article for additional charts

    Beazer Homes Warns on Orders

    The Wall Street Journal reports Beazer Homes Warns of Order Miss

    Beazer Homes USA Inc. said Wednesday it might miss order expectations for its fiscal-fourth quarter, as it also cut estimates for the year’s land and development spending, reflecting the sector’s weakness following the expiration of home-buyer tax credits.

    Last month, Beazer reported that its fiscal third-quarter loss was little changed because of a prior-year gain, while it reported a 73% surge in closings as buyers raced to qualify for the tax credit. Orders fell 33%.

    Inventory Soars

    Bloomberg reports U.S. Home Prices Face Three-Year Drop as Supply Gains

    The slide in U.S. home prices may have another three years to go as sellers add as many as 12 million more properties to the market.

    Shadow inventory — the supply of homes in default or foreclosure that may be offered for sale — is preventing prices from bottoming after a 28 percent plunge from 2006, according to analysts from Moody’s Analytics Inc., Fannie Mae, Morgan Stanley and Barclays Plc. Those properties are in addition to houses that are vacant or that may soon be put on the market by owners.

    “Whether it’s the sidelined, shadow or current inventory, the issue is there’s more supply than demand,” said Oliver Chang, a U.S. housing strategist with Morgan Stanley in San Francisco. “Once you reach a bottom, it will take three or four years for prices to begin to rise 1 or 2 percent a year.”

    Sales of new and existing homes fell to the lowest levels on record in July as a federal tax credit for buyers expired and U.S.

    Rising supply threatens to undermine government efforts to boost the housing market as homebuyers wait for better deals. Further price declines are necessary for a sustainable rebound as a stimulus-driven recovery falters, said Joshua Shapiro, chief U.S. economist of Maria Fiorini Ramirez Inc., a New York economic forecasting firm

    There were 4 million homes listed with brokers for sale as of July. It would take a record 12.5 months for those properties to be sold at that month’s sales pace, according to the Chicago-based Realtors group [National Association of Realtors].

    “The best thing that could happen is for prices to get to a level that clears the market,” said Shapiro, who predicts prices may fall another 10 percent to 15 percent. “Right now, buyers know it hasn’t hit bottom, so they’re sitting on the sidelines.”

    About 2 million houses will be seized by lenders by the end of next year, according to Mark Zandi, chief economist of Moody’s Analytics in West Chester, Pennsylvania. He estimates prices will drop 5 percent by 2013.

    Douglas Duncan, chief economist for Washington-based Fannie Mae, said in a Bloomberg Radio interview last week that 7 million U.S. homes are vacant or in the foreclosure process. Morgan Stanley’s Chang said the number of bank-owned and foreclosure-bound homes that have yet to hit the market is closer to 8 million.

    Defaulted mortgages as of July took an average 469 days to reach foreclosure, up from 319 days in January 2009. That’s an indication lenders — with the help of the government loan modification programs — are delaying resolutions and preventing the market from flooding with distressed properties, said Herb Blecher, senior vice president for analytics at LPS.“The efforts to date have been worthwhile,” Blecher said in a telephone interview from Denver. “They both helped borrowers stay in their homes and kept that supply of distressed properties on the market somewhat limited.”

    I disagree with Herb Blecher. I see little advantage stretching this mess out for a decade, and that is what the government seems hell-bent on doing. Everyone wants the government to “do something”. Unfortunately tax credits stimulated the production of new homes, ultimately adding to inventory. Prices need to fall to levels where there is genuine demand.

    The short-term rise in the Case-Shiller home price index and the CoreLogic HPI was a mirage that will soon vanish in the reality of an inventory of 8 million homes that must eventually hit the market.

    Lost Decade

    About 2 million houses will be seized by lenders by the end of next year, according to Mark Zandi, chief economist of Moody’s Analytics in West Chester, Pennsylvania. He estimates prices will drop 5 percent by 2013.

    After reaching bottom, prices will gain at the historic annual pace of 3 percent, requiring more than 10 years to return to their peak, he said.

    Home Price Pressures

    Last Bubble Not Reblown

    After the bottom is found, remember the axiom: the last bubble is not reblown for decades. Look at the Nasdaq, still off more than 50% from a decade ago.

    The odds home prices return to their peak in 10 years is close to zero. Houses in bubble areas may never return to peak levels in existing owner’s lifetimes. Zandi is way overoptimistic in his assessment of 3% annual appreciation after the bottom is found.

    Price Stagnation 

    I expect small nominal increases after housing bottoms, but negative appreciation in real terms as inflation picks up in the second half of the decade. Yes, deflation will eventually end. Alternatively the US goes in and out of deflation for a decade (depending on how much the Fed and Congress acts to prevent a much needed bottom). Either way, look for price stagnation in one form or another.

    Thus, if you have come to the conclusion there is no good reason to hold on to a deeply underwater home, nor any reason to rush into a home purchase at this time, you have reached the right conclusions.

    Hyperinflation? Please be serious.

    When Will Housing Bottom?

    Flashback October 25, 2007: When Will Housing Bottom?

    On the basis of mortgage rate resets and a consumer led recession I mentioned a possible bottom in the 2011-2012 timeframe. See Housing – The Worst Is Yet To Come for more details.

    Let’s take a look at housing from another perspective: new home sales historic averages and housing from 1963 to present.

    New Home Sales 1963 – Present

    New home sales reached a cyclical high in 2004-2005 approximately 50-60% higher than previous peaks.This happened in spite of a slowdown in population growth and household formation as compared to the 1960-1980 timeframe.

    From 1997-1998 and 2001-2002 to the recent peak, the average sales level was 1.1 million units, or 45-50% higher than the 40 year average. This translates to an average of 300,000-400,000 excess homes for nearly a decade, and arguably as many as 3-4 million excess homes.

    Such excess inventory may require as many as 5-7 years at recessionary average sales to absorb this inventory.

    Cycle Excesses Greatest In History

    The excesses of the current cycle have never been greater in history. The odds are strong that we have seen secular as opposed to cyclical peaks in housing starts and new single family home construction. With that in mind it is highly unlikely we merely return to the trend. If history repeats, and there is every reason it will, we are going to undercut those long term trendlines.

    There will be additional pressures a few years down the road when empty nesters and retired boomers start looking to downsize. Who will be buying those McMansions? Immigration also comes into play. If immigration policies and protectionism get excessively restrictive, that can also lengthen the decline.

    Finally, note that the current boom has lasted well over twice as long as any other. If the bust lasts twice as long as any other, 2012 just might be a rather optimist target for a bottom.

    When I wrote that in 2007, most thought I was off my rocker. Now, based on inventory, I may have been far too optimistic.

    Mike “Mish” Shedlock
    http://globaleconomicanalysis.blogspot.com See the above article for additional charts

    Beazer Homes Warns on Orders

    The Wall Street Journal reports Beazer Homes Warns of Order Miss

    Beazer Homes USA Inc. said Wednesday it might miss order expectations for its fiscal-fourth quarter, as it also cut estimates for the year’s land and development spending, reflecting the sector’s weakness following the expiration of home-buyer tax credits.

    Last month, Beazer reported that its fiscal third-quarter loss was little changed because of a prior-year gain, while it reported a 73% surge in closings as buyers raced to qualify for the tax credit. Orders fell 33%.

    Inventory Soars

    Bloomberg reports U.S. Home Prices Face Three-Year Drop as Supply Gains

    The slide in U.S. home prices may have another three years to go as sellers add as many as 12 million more properties to the market.

    Shadow inventory — the supply of homes in default or foreclosure that may be offered for sale — is preventing prices from bottoming after a 28 percent plunge from 2006, according to analysts from Moody’s Analytics Inc., Fannie Mae, Morgan Stanley and Barclays Plc. Those properties are in addition to houses that are vacant or that may soon be put on the market by owners.

    “Whether it’s the sidelined, shadow or current inventory, the issue is there’s more supply than demand,” said Oliver Chang, a U.S. housing strategist with Morgan Stanley in San Francisco. “Once you reach a bottom, it will take three or four years for prices to begin to rise 1 or 2 percent a year.”

    Sales of new and existing homes fell to the lowest levels on record in July as a federal tax credit for buyers expired and U.S.

    Rising supply threatens to undermine government efforts to boost the housing market as homebuyers wait for better deals. Further price declines are necessary for a sustainable rebound as a stimulus-driven recovery falters, said Joshua Shapiro, chief U.S. economist of Maria Fiorini Ramirez Inc., a New York economic forecasting firm

    There were 4 million homes listed with brokers for sale as of July. It would take a record 12.5 months for those properties to be sold at that month’s sales pace, according to the Chicago-based Realtors group [National Association of Realtors].

    “The best thing that could happen is for prices to get to a level that clears the market,” said Shapiro, who predicts prices may fall another 10 percent to 15 percent. “Right now, buyers know it hasn’t hit bottom, so they’re sitting on the sidelines.”

    About 2 million houses will be seized by lenders by the end of next year, according to Mark Zandi, chief economist of Moody’s Analytics in West Chester, Pennsylvania. He estimates prices will drop 5 percent by 2013.

    Douglas Duncan, chief economist for Washington-based Fannie Mae, said in a Bloomberg Radio interview last week that 7 million U.S. homes are vacant or in the foreclosure process. Morgan Stanley’s Chang said the number of bank-owned and foreclosure-bound homes that have yet to hit the market is closer to 8 million.

    Defaulted mortgages as of July took an average 469 days to reach foreclosure, up from 319 days in January 2009. That’s an indication lenders — with the help of the government loan modification programs — are delaying resolutions and preventing the market from flooding with distressed properties, said Herb Blecher, senior vice president for analytics at LPS.

    “The efforts to date have been worthwhile,” Blecher said in a telephone interview from Denver. “They both helped borrowers stay in their homes and kept that supply of distressed properties on the market somewhat limited.”

    I disagree with Herb Blecher. I see little advantage stretching this mess out for a decade, and that is what the government seems hell-bent on doing. Everyone wants the government to “do something”. Unfortunately tax credits stimulated the production of new homes, ultimately adding to inventory. Prices need to fall to levels where there is genuine demand.

    The short-term rise in the Case-Shiller home price index and the CoreLogic HPI was a mirage that will soon vanish in the reality of an inventory of 8 million homes that must eventually hit the market.

    Lost Decade

    About 2 million houses will be seized by lenders by the end of next year, according to Mark Zandi, chief economist of Moody’s Analytics in West Chester, Pennsylvania. He estimates prices will drop 5 percent by 2013.

    After reaching bottom, prices will gain at the historic annual pace of 3 percent, requiring more than 10 years to return to their peak, he said.

     Home Price Pressures

    Last Bubble Not Reblown

    After the bottom is found, remember the axiom: the last bubble is not reblown for decades. Look at the Nasdaq, still off more than 50% from a decade ago.

    The odds home prices return to their peak in 10 years is close to zero. Houses in bubble areas may never return to peak levels in existing owner’s lifetimes. Zandi is way overoptimistic in his assessment of 3% annual appreciation after the bottom is found.

    Price Stagnation 

    I expect small nominal increases after housing bottoms, but negative appreciation in real terms as inflation picks up in the second half of the decade. Yes, deflation will eventually end. Alternatively the US goes in and out of deflation for a decade (depending on how much the Fed and Congress acts to prevent a much needed bottom). Either way, look for price stagnation in one form or another.

    Thus, if you have come to the conclusion there is no good reason to hold on to a deeply underwater home, nor any reason to rush into a home purchase at this time, you have reached the right conclusions.

    Hyperinflation? Please be serious.

    When Will Housing Bottom?

    Flashback October 25, 2007: When Will Housing Bottom?

    On the basis of mortgage rate resets and a consumer led recession I mentioned a possible bottom in the 2011-2012 timeframe. See Housing – The Worst Is Yet To Come for more details.

    Let’s take a look at housing from another perspective: new home sales historic averages and housing from 1963 to present.

    New Home Sales 1963 – Present

    New home sales reached a cyclical high in 2004-2005 approximately 50-60% higher than previous peaks.This happened in spite of a slowdown in population growth and household formation as compared to the 1960-1980 timeframe.

    From 1997-1998 and 2001-2002 to the recent peak, the average sales level was 1.1 million units, or 45-50% higher than the 40 year average. This translates to an average of 300,000-400,000 excess homes for nearly a decade, and arguably as many as 3-4 million excess homes.

    Such excess inventory may require as many as 5-7 years at recessionary average sales to absorb this inventory.

    Cycle Excesses Greatest In History

    The excesses of the current cycle have never been greater in history. The odds are strong that we have seen secular as opposed to cyclical peaks in housing starts and new single family home construction. With that in mind it is highly unlikely we merely return to the trend. If history repeats, and there is every reason it will, we are going to undercut those long term trendlines.

    There will be additional pressures a few years down the road when empty nesters and retired boomers start looking to downsize. Who will be buying those McMansions? Immigration also comes into play. If immigration policies and protectionism get excessively restrictive, that can also lengthen the decline.

    Finally, note that the current boom has lasted well over twice as long as any other. If the bust lasts twice as long as any other, 2012 just might be a rather optimist target for a bottom.

    When I wrote that in 2007, most thought I was off my rocker. Now, based on inventory, I may have been far too optimistic.

    Mike “Mish” Shedlock
    http://globaleconomicanalysis.blogspot.com