In an attempt to help lenders speed the process of getting real estate-owned
properties off their books, the Federal Housing Administration will temporarily
lift a 90-day waiting period for property resales financed by FHA-guaranteed
loans.
The 90-day waiting period -- instituted in 2003 to counter predatory lending
and house flipping -- never applied to properties sold by Fannie Mae, Freddie
Mac, or state- and federally chartered financial institutions.
But it can be hard to determine which lenders are exempt from the rule, and
many who are exempt prefer to transfer title to REO properties over to property
disposition firms that are not exempt, FHA officials say. Because a glut
of foreclosed and abandoned homes harms neighborhoods and delays a community's
recovery, FHA will lift the waiting period for one year.
"The action we take today will allow home buyers to purchase these homes
in much greater numbers and ease the excess supply of unsold homes in neighborhoods
across the country," said Federal Housing Commissioner Brian Montgomery in
a statement announcing the change.
But because FHA also requires that homes purchased with loans it guarantees
to be in "safe, secure and sound" condition, lenders still won't be able
to resell many of the homes they've foreclosed on to FHA-eligible buyers
until they make the repairs needed to bring them up to FHA standards.
"It's not going to have as much an impact as one would assume, because most
of the properties aren't going to meet FHA standards," said Glen Daniels,
director of real estate-owned properties for the distressed and foreclosed
property listings site, Foreclosure.com.
Daniels -- who once managed $243 million in REO properties for Ocwen Financial
Corp. -- said that if the previous owner of the house was unable to make
the mortgage payments, the chances are good that he or she was not keeping
up with maintenance.
Lifting the 90-day waiting period does give lenders more incentive to repair
REO properties, Daniels said. Under the old standard, lenders that chose
to renovate a property would still have to wait 90 days to sell to a buyer
using FHA loan guarantee programs.
With FHA loan programs accounting for a growing share of mortgage lending,
"I assume a lot more lenders will take that option, to rehabilitate a property,
bring it into FHA compliance, and sell to a home buyer" who is eligible for
an FHA-backed loan, Daniels said.
According to the Census bureau, there were 129 million housing units in the
United States, and 18.6 million were vacant during the first quarter. Those
vacancies include 4.1 million rentals, 2.3 million for-sale homes, and 7.5
million "vacant for a variety of other reasons" that include foreclosure.
While Daniels doesn't see FHA's new policy having a big impact in the short
run, it might help stabilize property values in the long run. That's because
if lenders choose to rehab properties before selling them, they won't discount
their asking price as much.
In justifying its waiver of the 90-day waiting period, FHA said it would
reduce the impact foreclosures can have on the value of adjoining and nearby
properties.
When FHA announced the 90-day waiting period in May 2003, it said the most
egregious examples of predatory lending were often seen on "quick flips,"
in which homes sometimes resold within a few days.
The rule, "FR-4615 Prohibition of Property Flipping in HUD's Single Family
Mortgage Insurance Programs," also requires lenders to obtain a second appraisal
on properties resold within 91 and 180 days if the resale price exceeds the
previous sale price by 100 percent or more (see letter to lenders).
FHA officials say the threshold was set relatively high to allow legitimate
rehabilitation efforts while deterring unscrupulous sellers, lenders and
appraisers from defrauding home buyers
But one veteran property rehabber told Inman News that convincing the FHA
that a property wasn't an illegal flip after the 90-day waiting period expired
could be "a nightmare."
"We would take a shell and turn it into a castle," said Duane LeGate, president
of HBN Interactive. "Half of the potential buyers couldn't qualify for my
properties because of the rule. Even when the 90 days expired, you had to
show FHA before-and-after pictures, full documentation of all work done to
'prove' that the property wasn't an illegal flip."
Monday, June 16, 2008
Monday, June 02, 2008
Foreclosures Cost Lenders, Homeowners, the Community, and You Big Bucks
Earlier this month a reader, Pamela Norvell, wrote a suggestion for lessening the foreclosure crisis. She suggested a freeze and/or a rollback of interest rates to their original levels. In making her suggesting Ms. Norvell wondered what it was causing lenders to foreclose on properties rather than do a workout or a restructure. Made us curious too.
The cost of a foreclosure, it turns out, is pretty staggering and we wonder why lenders and the investors they represent aren't jumping at a solution, any solution, that would allow them to avoid going to foreclosure whenever possible.
According the Joint Economic Committee of Congress, the average foreclosure costs $77,935 while preventing a foreclosure runs $3,300.
The cost of preventing a foreclosure is not easily categorized. We assume that it includes the staff costs of talking to the borrower, collecting financial documents (a task we have noted seems unreasonably difficult for the borrower) reviewing the documents, ordering and reviewing the appraisal, the cost of that appraisal (more likely to be a less expensive brokers price opinion or BPO) and the preparation of a justification to decision makers for any workout plan.
We have seen figures from non-profits that the cost of averting a foreclosure through the use of credit counseling from a non-profit agency approved by the Department of Housing and Urban Development can range from a bit under $1,000 to $14,000 and we don't quite know what to do with that large and disparate range. We do know that counseling programs vary greatly and we assume that those on the high side include programs that provide emergency funds to homeowners to bring loans current while those on the low side are primarily advising and educating their clients.
But the $77,934 cost to foreclosure figure seems fairly easy to document and, compared to others that are widely bandied about - from $58,000 to 30 percent of the pre-foreclosure value of the house - seems reasonable.
First of all, the cost does not accrue totally to the lender. The homeowner has a typical loss of $7,200 which includes loss of equity in the property, moving expenses, and perhaps some legal fees.
Those neighbors living in close proximity to the foreclosed house suffer $1,508 in losses from the decrease in the value of their own home as the neighborhood begins to deteriorate.
The local government loses $19,227 through diminished taxes and fees and a shrinking tax base as home prices decrease. This is a hard number to justify. First of all, only a portion of the declining tax base is due to foreclosures. A big chunk of it is based on falling prices community wide. And we'll bet that even as we talk about it local governments are busy adjusting assessments and mill-levies to keep total revenues close to pre-housing crisis levels. This means that the neighbor's share of the costs should be higher as they absorb increased tax levels.
Also, while the cities and towns are permanently losing some income from fees such as trash pick-up and water and sewer charges, if and when the house is sold they will collect back property taxes or, if they remain unpaid, they will become the owners of the property through tax title. (That opens a whole new area of concern, but one for discussion on a different day.)
That leaves us with total costs of $50,000 for the lender under the numbers produced by the Joint Economic Committee of Congress. The Committee does not break out these figures but a new study from Standard & Poor's (S&P) does. While there is not a total match between the two sets of data, they are close enough.
The Committee includes the following in its list of pre-and post-foreclosure expenses:
Loss on property/loan
Property maintenance
Appraisal
Legal fees
Lost revenue
Insurance
Marketing
Clean-up
And S&P breaks them down as follows:
The largest component of the $50,000 is cash loss on the property. S&P pegs this number at $40,000 for a typical loan of $210,000. Investors who buy short sales tell us that the big lenders are unwilling to sell property or take payoffs for more than a 15 to 20 percent discount so these numbers are closely in sync. S&P however includes only the actual decline in property values in that 19 percent loss figure.
S&P assigns a staggering 26 percent of the loan amount for the costs of foreclosure. This category wraps up the remainder of the list above and include paying property taxes (3 percent, although many ignore this obligation, hoping to pass accrued taxes on to the eventual buyer), maintaining hazard insurance, legal fees (1 percent), an appraisal (although most lenders are choosing the far less expensive alternative of a brokers price opinion or windshield appraisal,) lost revenue (an estimated 13.6 percent of the loan amount) 6 percent marketing fees (broker's commission) and 3 percent spent on home maintenance.
There is a figure that is usually not taken into account - cash reserves. Bank regulations require that lenders put aside a percentage of their capital to cover potential losses. That amount, whether $100,000 or $500,000 is that much less that the bank has to loan to others and means more lost revenue.
It is obvious that no one is a winner in the foreclosure game. But we wonder if lenders and their real estate agents are not exacerbating the situation for all involved through their property management and marketing policies. A look at that later in the week.
from mortgagenewsdaily.com
The cost of a foreclosure, it turns out, is pretty staggering and we wonder why lenders and the investors they represent aren't jumping at a solution, any solution, that would allow them to avoid going to foreclosure whenever possible.
According the Joint Economic Committee of Congress, the average foreclosure costs $77,935 while preventing a foreclosure runs $3,300.
The cost of preventing a foreclosure is not easily categorized. We assume that it includes the staff costs of talking to the borrower, collecting financial documents (a task we have noted seems unreasonably difficult for the borrower) reviewing the documents, ordering and reviewing the appraisal, the cost of that appraisal (more likely to be a less expensive brokers price opinion or BPO) and the preparation of a justification to decision makers for any workout plan.
We have seen figures from non-profits that the cost of averting a foreclosure through the use of credit counseling from a non-profit agency approved by the Department of Housing and Urban Development can range from a bit under $1,000 to $14,000 and we don't quite know what to do with that large and disparate range. We do know that counseling programs vary greatly and we assume that those on the high side include programs that provide emergency funds to homeowners to bring loans current while those on the low side are primarily advising and educating their clients.
But the $77,934 cost to foreclosure figure seems fairly easy to document and, compared to others that are widely bandied about - from $58,000 to 30 percent of the pre-foreclosure value of the house - seems reasonable.
First of all, the cost does not accrue totally to the lender. The homeowner has a typical loss of $7,200 which includes loss of equity in the property, moving expenses, and perhaps some legal fees.
Those neighbors living in close proximity to the foreclosed house suffer $1,508 in losses from the decrease in the value of their own home as the neighborhood begins to deteriorate.
The local government loses $19,227 through diminished taxes and fees and a shrinking tax base as home prices decrease. This is a hard number to justify. First of all, only a portion of the declining tax base is due to foreclosures. A big chunk of it is based on falling prices community wide. And we'll bet that even as we talk about it local governments are busy adjusting assessments and mill-levies to keep total revenues close to pre-housing crisis levels. This means that the neighbor's share of the costs should be higher as they absorb increased tax levels.
Also, while the cities and towns are permanently losing some income from fees such as trash pick-up and water and sewer charges, if and when the house is sold they will collect back property taxes or, if they remain unpaid, they will become the owners of the property through tax title. (That opens a whole new area of concern, but one for discussion on a different day.)
That leaves us with total costs of $50,000 for the lender under the numbers produced by the Joint Economic Committee of Congress. The Committee does not break out these figures but a new study from Standard & Poor's (S&P) does. While there is not a total match between the two sets of data, they are close enough.
The Committee includes the following in its list of pre-and post-foreclosure expenses:
Loss on property/loan
Property maintenance
Appraisal
Legal fees
Lost revenue
Insurance
Marketing
Clean-up
And S&P breaks them down as follows:
The largest component of the $50,000 is cash loss on the property. S&P pegs this number at $40,000 for a typical loan of $210,000. Investors who buy short sales tell us that the big lenders are unwilling to sell property or take payoffs for more than a 15 to 20 percent discount so these numbers are closely in sync. S&P however includes only the actual decline in property values in that 19 percent loss figure.
S&P assigns a staggering 26 percent of the loan amount for the costs of foreclosure. This category wraps up the remainder of the list above and include paying property taxes (3 percent, although many ignore this obligation, hoping to pass accrued taxes on to the eventual buyer), maintaining hazard insurance, legal fees (1 percent), an appraisal (although most lenders are choosing the far less expensive alternative of a brokers price opinion or windshield appraisal,) lost revenue (an estimated 13.6 percent of the loan amount) 6 percent marketing fees (broker's commission) and 3 percent spent on home maintenance.
There is a figure that is usually not taken into account - cash reserves. Bank regulations require that lenders put aside a percentage of their capital to cover potential losses. That amount, whether $100,000 or $500,000 is that much less that the bank has to loan to others and means more lost revenue.
It is obvious that no one is a winner in the foreclosure game. But we wonder if lenders and their real estate agents are not exacerbating the situation for all involved through their property management and marketing policies. A look at that later in the week.
from mortgagenewsdaily.com
Wednesday, May 28, 2008
'Top Ten Tips' Buyers Need to Know
To help the first-time home buyer, the California Housing Finance Agency — known as CalHFA — has developed a list of "Top Ten Tips" prospective home buyers need to know before buying a home
1. Before starting to look for a home, get pre-qualified for a loan. Lenders will take an application, process the loan documents, and see the loan through to the funding stage.
2. Marginal or Bad credit — consult your lender. Buyers may still be able to qualify for a loan depending on how long ago and why the buyer’s credit was affected.
3. Buyers may need a down payment. CalHFA loans are all 100% financed Requirements do vary depending on the type of loan; however CalHFA offers many down-payment assistance programs which could include loans or grants depending on the down payment required. Talk with a lender about programs available.
4. Funds for closing costs. Closing costs are fees charged for services related to the closing of a real estate transaction. These fees could include, but are not limited to: escrow fees, title policy insurance fees charged by the title insurance company, mortgage insurance, fire, flood and homeowners insurance, county recorder fees, loan origination fees. Speak with a lender for an estimate of these costs.
5. Some loans have points and some do not. Points are fees charged by a lender equivalent to 1 percent of the loan amount. Some lenders may charge points in exchange for a lower interest rate. A CalHFA loan does not have points and limits the fees a lender can charge you.
6. Mortgage rates can be fixed or adjustable. This choice can be made based on whether mortgage rates are high or low, and how long the buyer plans on living in the home.
7. There are two main types of loan categories: Conventional mortgage loans are available with fixed or adjustable rate loans; Government loans include Federal Housing Administration, fixed- and adjustable-rate mortgage loans and Veterans Administration fixed-rate mortgage loans.
8. Low and moderate income home buyer. There are special programs designed to help. These loans are available through private lenders, as well as local and state housing agencies.
9. Mortgage insurance. Mortgage insurance protects the lender from loss if the buyer should default on the payment. Conventional loans usually require larger down payments and do not require this insurance. Mortgage insurance is required on FHA mortgage loans.
10. First-time home buyer counseling. There are multiple organizations that provide classes for the first-time home buyer. These classes will cover home selection, Realtor services, lenders, loan programs, home ownership responsibility, saving for a down payment and other important information.
1. Before starting to look for a home, get pre-qualified for a loan. Lenders will take an application, process the loan documents, and see the loan through to the funding stage.
2. Marginal or Bad credit — consult your lender. Buyers may still be able to qualify for a loan depending on how long ago and why the buyer’s credit was affected.
3. Buyers may need a down payment. CalHFA loans are all 100% financed Requirements do vary depending on the type of loan; however CalHFA offers many down-payment assistance programs which could include loans or grants depending on the down payment required. Talk with a lender about programs available.
4. Funds for closing costs. Closing costs are fees charged for services related to the closing of a real estate transaction. These fees could include, but are not limited to: escrow fees, title policy insurance fees charged by the title insurance company, mortgage insurance, fire, flood and homeowners insurance, county recorder fees, loan origination fees. Speak with a lender for an estimate of these costs.
5. Some loans have points and some do not. Points are fees charged by a lender equivalent to 1 percent of the loan amount. Some lenders may charge points in exchange for a lower interest rate. A CalHFA loan does not have points and limits the fees a lender can charge you.
6. Mortgage rates can be fixed or adjustable. This choice can be made based on whether mortgage rates are high or low, and how long the buyer plans on living in the home.
7. There are two main types of loan categories: Conventional mortgage loans are available with fixed or adjustable rate loans; Government loans include Federal Housing Administration, fixed- and adjustable-rate mortgage loans and Veterans Administration fixed-rate mortgage loans.
8. Low and moderate income home buyer. There are special programs designed to help. These loans are available through private lenders, as well as local and state housing agencies.
9. Mortgage insurance. Mortgage insurance protects the lender from loss if the buyer should default on the payment. Conventional loans usually require larger down payments and do not require this insurance. Mortgage insurance is required on FHA mortgage loans.
10. First-time home buyer counseling. There are multiple organizations that provide classes for the first-time home buyer. These classes will cover home selection, Realtor services, lenders, loan programs, home ownership responsibility, saving for a down payment and other important information.
Thursday, May 22, 2008
Countrywide CEO Mozilo's "Disgusting" Email Reply: OOPS!
Wednesday, 21 May 2008
Countrywide CEO Mozilo's "Disgusting" Email Reply: OOPS!
Posted By:Diana Olick
cnbc.com
The very idea of blogging this story makes my stomach churn, but there are some things I am simply morally required to do. So here goes.
You’ve done it, and I’ve done it, and now Countrywide Countrywide Financial CEO Angelo Mozilo has done it. He hit “reply” instead of “forward” on the computer. For most of us, the mistake usually results in a “DOH!” and perhaps and explanation and/or apology, but Mozilo’s is now resulting in an online slam-fest.
Why? Because Mozilo proved what so many were thinking, that he doesn’t have a whole lot of compassion for a whole lot of his customers, especially the ones in trouble.
According to the L.A. Times, one of those customers, Daniel Bailey Jr., wrote an email to Countrywide asking that the terms of his loan be modified. Like so many others, his adjustable rate loan reset, and now he can’t make the payments.
Countrywide has been publicly begging for troubled borrowers to contact them. In fact, I’ve sat through several press conferences at the Treasury Department (touting the Hope Now alliance), where some Countrywide rep says the biggest problem they have is that they can’t reach all the troubled borrowers in order to help them.
Okay, so Mr. Bailey sends the email, but he uses a form letter that you can get from a website called LoanSafe.org. He says he needed help with the wording. Anyway, the email goes out to about 20 Countrywide addresses, including Mozilo’s.
Mozilo, who has gotten tons and tons of these, writes, “This is unbelievable. Most of these letters now have the same wording. Obviously they are being counseled by some other person or by the Internet. Disgusting.”
He meant to send it to someone else, but oops, that darned “reply” button. Mr. Bailey, of course outraged at the reply, then posts it on LoanSafe.org.
Scandal! Now the web is awash with all kinds of criticisms being hurled here and there (and not all of it against Mozilo). Countrywide ends up issuing a statement: “Countrywide and Mr. Mozilo regret any misunderstanding caused by his inadvertent response to an e-mail by Mr. Bailey. Countrywide is actively working to help borrowers, like Mr. Bailey, keep their homes.”
Now I get all kinds of news releases from Countrywide spammed at me ad nauseum. I didn’t get that one.
Countrywide CEO Mozilo's "Disgusting" Email Reply: OOPS!
Posted By:Diana Olick
cnbc.com
The very idea of blogging this story makes my stomach churn, but there are some things I am simply morally required to do. So here goes.
You’ve done it, and I’ve done it, and now Countrywide Countrywide Financial CEO Angelo Mozilo has done it. He hit “reply” instead of “forward” on the computer. For most of us, the mistake usually results in a “DOH!” and perhaps and explanation and/or apology, but Mozilo’s is now resulting in an online slam-fest.
Why? Because Mozilo proved what so many were thinking, that he doesn’t have a whole lot of compassion for a whole lot of his customers, especially the ones in trouble.
According to the L.A. Times, one of those customers, Daniel Bailey Jr., wrote an email to Countrywide asking that the terms of his loan be modified. Like so many others, his adjustable rate loan reset, and now he can’t make the payments.
Countrywide has been publicly begging for troubled borrowers to contact them. In fact, I’ve sat through several press conferences at the Treasury Department (touting the Hope Now alliance), where some Countrywide rep says the biggest problem they have is that they can’t reach all the troubled borrowers in order to help them.
Okay, so Mr. Bailey sends the email, but he uses a form letter that you can get from a website called LoanSafe.org. He says he needed help with the wording. Anyway, the email goes out to about 20 Countrywide addresses, including Mozilo’s.
Mozilo, who has gotten tons and tons of these, writes, “This is unbelievable. Most of these letters now have the same wording. Obviously they are being counseled by some other person or by the Internet. Disgusting.”
He meant to send it to someone else, but oops, that darned “reply” button. Mr. Bailey, of course outraged at the reply, then posts it on LoanSafe.org.
Scandal! Now the web is awash with all kinds of criticisms being hurled here and there (and not all of it against Mozilo). Countrywide ends up issuing a statement: “Countrywide and Mr. Mozilo regret any misunderstanding caused by his inadvertent response to an e-mail by Mr. Bailey. Countrywide is actively working to help borrowers, like Mr. Bailey, keep their homes.”
Now I get all kinds of news releases from Countrywide spammed at me ad nauseum. I didn’t get that one.
Tuesday, May 06, 2008
Is the Housing Crisis Over?
[The following article is making waves on CNBC this morning. It follows my own announcement at the Friday MLS meeting in early April that 'the housing market has reached a bottom'. I got a lot of comments after that, but I can take it. That is not to say that prices will now rise (I don't think they will0, or that individual homes, neighborhoods, and cities may continue to have price declines that will show up. But I do think that we have reached an inflection point in market activity that is a real change from the 'free fall' in prices that we have been experiencing. What do you think?]
The Housing Crisis Is Over
By CYRIL MOULLE-BERTEAUX
Wall Street Journal Opinion Article
May 6, 2008; Page A23
The dire headlines coming fast and furious in the financial and popular press suggest that the housing crisis is intensifying. Yet it is very likely that April 2008 will mark the bottom of the U.S. housing market. Yes, the housing market is bottoming right now.
How can this be? For starters, a bottom does not mean that prices are about to return to the heady days of 2005. That probably won't happen for another 15 years. It just means that the trend is no longer getting worse, which is the critical factor.
Most people forget that the current housing bust is nearly three years old. Home sales peaked in July 2005. New home sales are down a staggering 63% from peak levels of 1.4 million. Housing starts have fallen more than 50% and, adjusted for population growth, are back to the trough levels of 1982.
Furthermore, residential construction is close to 15-year lows at 3.8% of GDP; by the fourth quarter of this year, it will probably hit the lowest level ever. So what's going to stop the housing decline? Very simply, the same thing that caused the bust: affordability.
The boom made housing unaffordable for many American families, especially first-time home buyers. During the 1990s and early 2000s, it took 19% of average monthly income to service a conforming mortgage on the average home purchased. By 2005 and 2006, it was absorbing 25% of monthly income. For first time buyers, it went from 29% of income to 37%. That just proved to be too much.
Prices got so high that people who intended to actually live in the houses they purchased (as opposed to speculators) stopped buying. This caused the bubble to burst.
Since then, house prices have fallen 10%-15%, while incomes have kept growing (albeit more slowly recently) and mortgage rates have come down 70 basis points from their highs. As a result, it now takes 19% of monthly income for the average home buyer, and 31% of monthly income for the first-time home buyer, to purchase a house. In other words, homes on average are back to being as affordable as during the best of times in the 1990s. Numerous households that had been priced out of the market can now afford to get in.
The next question is: Even if home sales pick up, how can home prices stop falling with so many houses vacant and unsold? The flip but true answer: because they always do.
In the past five major housing market corrections (and there were some big ones, such as in the early 1980s when home sales also fell by 50%-60% and prices fell 12%-15% in real terms), every time home sales bottomed, the pace of house-price declines halved within one or two months.
The explanation is that by the time home sales stop declining, inventories of unsold homes have usually already started falling in absolute terms and begin to peak out in "months of supply" terms. That's the case right now: New home inventories peaked at 598,000 homes in July 2006, and stand at 482,000 homes as of the end of March. This inventory is equivalent to 11 months of supply, a 25-year high – but it is similar to 1974, 1982 and 1991 levels, which saw a subsequent slowing in home-price declines within the next six months.
Inventories are declining because construction activity has been falling for such a long time that home completions are now just about undershooting new home sales. In a few months, completions of new homes for sale could be undershooting new home sales by 50,000-100,000 annually.
Inventories will drop even faster to 400,000 – or seven months of supply – by the end of 2008. This shift in inventories will have a significant impact on prices, although house prices won't stop falling entirely until inventories reach five months of supply sometime in 2009. A five-month supply has historically signaled tightness in the housing market.
Many pundits claim that house prices need to fall another 30% to bring them back in line with where they've been historically. This is usually based on an analysis of house prices adjusted for inflation: Real house prices are 30% above their 40-year, inflation-adjusted average, so they must fall 30%. This simplistic analysis is appealing on the surface, but is flawed for a variety of reasons.
Most importantly, it neglects the fact that a great majority of Americans buy their houses with mortgages. And if one buys a house with a mortgage, the most important factor in deciding what to pay for the house is how much of one's income is required to be able to make the mortgage payments on the house. Today the rate on a 30-year, fixed-rate mortgage is 5.7%. Back in 1981, the rate hit 18.5%. Comparing today's house prices to the 1970s or 1980s, when mortgage rates were stratospheric, is misguided and misleading.
This is all good news for the broader economy. The housing bust has been subtracting a full percentage point from GDP for almost two years now, which is very large for a sector that represents less than 5% of economic activity.
When the rate of house-price declines halves, there will be a wholesale shift in markets' perceptions. All of a sudden, the expected value of the collateral (i.e. houses) for much of the lending that went on for the past decade will change. Right now, when valuing the collateral, market participants including banks are extrapolating the current pace of house price declines for another two to three years; this has a significant impact on the amount of delinquencies, foreclosures and credit losses that lenders are expected to face.
More home sales and smaller price declines means fewer homeowners will be underwater on their mortgages. They will thus have less incentive to walk away and opt for foreclosure.
A milder house-price decline scenario could lead to increases in the market value of a lot of the securitized mortgages that have been responsible for $300 billion of write-downs in the past year. Even if write-backs do not occur, stabilizing collateral values will have a huge impact on the markets' perception of risk related to housing, the financial system, and the economy.
We are of course experiencing a serious housing bust, with serious economic consequences that are still unfolding. The odds are that the reverberations will lead to subtrend growth for a couple of years. Nonetheless, housing led us into this credit crisis and this recession. It is likely to lead us out. And that process is underway, right now.
Mr. Moulle-Berteaux is managing partner of Traxis Partners LP, a hedge fund firm based in New York.
The Housing Crisis Is Over
By CYRIL MOULLE-BERTEAUX
Wall Street Journal Opinion Article
May 6, 2008; Page A23
The dire headlines coming fast and furious in the financial and popular press suggest that the housing crisis is intensifying. Yet it is very likely that April 2008 will mark the bottom of the U.S. housing market. Yes, the housing market is bottoming right now.
How can this be? For starters, a bottom does not mean that prices are about to return to the heady days of 2005. That probably won't happen for another 15 years. It just means that the trend is no longer getting worse, which is the critical factor.
Most people forget that the current housing bust is nearly three years old. Home sales peaked in July 2005. New home sales are down a staggering 63% from peak levels of 1.4 million. Housing starts have fallen more than 50% and, adjusted for population growth, are back to the trough levels of 1982.
Furthermore, residential construction is close to 15-year lows at 3.8% of GDP; by the fourth quarter of this year, it will probably hit the lowest level ever. So what's going to stop the housing decline? Very simply, the same thing that caused the bust: affordability.
The boom made housing unaffordable for many American families, especially first-time home buyers. During the 1990s and early 2000s, it took 19% of average monthly income to service a conforming mortgage on the average home purchased. By 2005 and 2006, it was absorbing 25% of monthly income. For first time buyers, it went from 29% of income to 37%. That just proved to be too much.
Prices got so high that people who intended to actually live in the houses they purchased (as opposed to speculators) stopped buying. This caused the bubble to burst.
Since then, house prices have fallen 10%-15%, while incomes have kept growing (albeit more slowly recently) and mortgage rates have come down 70 basis points from their highs. As a result, it now takes 19% of monthly income for the average home buyer, and 31% of monthly income for the first-time home buyer, to purchase a house. In other words, homes on average are back to being as affordable as during the best of times in the 1990s. Numerous households that had been priced out of the market can now afford to get in.
The next question is: Even if home sales pick up, how can home prices stop falling with so many houses vacant and unsold? The flip but true answer: because they always do.
In the past five major housing market corrections (and there were some big ones, such as in the early 1980s when home sales also fell by 50%-60% and prices fell 12%-15% in real terms), every time home sales bottomed, the pace of house-price declines halved within one or two months.
The explanation is that by the time home sales stop declining, inventories of unsold homes have usually already started falling in absolute terms and begin to peak out in "months of supply" terms. That's the case right now: New home inventories peaked at 598,000 homes in July 2006, and stand at 482,000 homes as of the end of March. This inventory is equivalent to 11 months of supply, a 25-year high – but it is similar to 1974, 1982 and 1991 levels, which saw a subsequent slowing in home-price declines within the next six months.
Inventories are declining because construction activity has been falling for such a long time that home completions are now just about undershooting new home sales. In a few months, completions of new homes for sale could be undershooting new home sales by 50,000-100,000 annually.
Inventories will drop even faster to 400,000 – or seven months of supply – by the end of 2008. This shift in inventories will have a significant impact on prices, although house prices won't stop falling entirely until inventories reach five months of supply sometime in 2009. A five-month supply has historically signaled tightness in the housing market.
Many pundits claim that house prices need to fall another 30% to bring them back in line with where they've been historically. This is usually based on an analysis of house prices adjusted for inflation: Real house prices are 30% above their 40-year, inflation-adjusted average, so they must fall 30%. This simplistic analysis is appealing on the surface, but is flawed for a variety of reasons.
Most importantly, it neglects the fact that a great majority of Americans buy their houses with mortgages. And if one buys a house with a mortgage, the most important factor in deciding what to pay for the house is how much of one's income is required to be able to make the mortgage payments on the house. Today the rate on a 30-year, fixed-rate mortgage is 5.7%. Back in 1981, the rate hit 18.5%. Comparing today's house prices to the 1970s or 1980s, when mortgage rates were stratospheric, is misguided and misleading.
This is all good news for the broader economy. The housing bust has been subtracting a full percentage point from GDP for almost two years now, which is very large for a sector that represents less than 5% of economic activity.
When the rate of house-price declines halves, there will be a wholesale shift in markets' perceptions. All of a sudden, the expected value of the collateral (i.e. houses) for much of the lending that went on for the past decade will change. Right now, when valuing the collateral, market participants including banks are extrapolating the current pace of house price declines for another two to three years; this has a significant impact on the amount of delinquencies, foreclosures and credit losses that lenders are expected to face.
More home sales and smaller price declines means fewer homeowners will be underwater on their mortgages. They will thus have less incentive to walk away and opt for foreclosure.
A milder house-price decline scenario could lead to increases in the market value of a lot of the securitized mortgages that have been responsible for $300 billion of write-downs in the past year. Even if write-backs do not occur, stabilizing collateral values will have a huge impact on the markets' perception of risk related to housing, the financial system, and the economy.
We are of course experiencing a serious housing bust, with serious economic consequences that are still unfolding. The odds are that the reverberations will lead to subtrend growth for a couple of years. Nonetheless, housing led us into this credit crisis and this recession. It is likely to lead us out. And that process is underway, right now.
Mr. Moulle-Berteaux is managing partner of Traxis Partners LP, a hedge fund firm based in New York.
Not Many Positives Coming Out of Jumbo Mortgage Changes
With the House and Senate working to hammer out differences in their respective approaches to solving the housing/credit crisis, problems are already emerging with other solutions proposed or enacted tackle pieces of the problem.
The New York Times reported on Wednesday that there are real problems with the jumbo mortgage aspect of housing rescue.
Several months ago Congress, in an attempt to loosen up credit in costly markets, raised the loan limit on loans which could be backed by government-sponsored housing finance agencies such as the Federal Housing Administration from $417,000 to amounts up to $730,000, depending on location. The change was intended to reduce rates for more borrowers (jumbo loans have always carried a higher rate than conventional loans, i.e., those below the loan ceiling) and to stimulate lending. The goal was not aimed at helping subprime borrowers but was aimed at credit-worthy borrowers with acceptable down payments who wanted to refinance or purchase a home in expensive housing markets like San Francisco or New York. It was thought that helping thousands of borrowers access billions in new loans would stimulate the housing market, spur consumer spending and possibly avoid or at least reduce the effects of a recession.
Instead, Matt Richtel, reporting in the Times says the effort to make it easier to get jumbo mortgages has yielded frustration and disillusionment. Since the rules took effect April 1, many borrowers and their mortgage brokers say the new loans are either not available or the rates are far higher than they expected.
Richtel quotes the president of one mortgage corporation as saying that the program "is so much of a failure that it's really unbelievable. Like coming up with a vaccine to a terrible disease, and then not giving it to people, or making it too expensive."
But, Richtel said, rates have not dropped, at least not to the degree that many borrowers and mortgage brokers had expected. In some cases, "conforming" loans, so designated because they conform to the old government-sponsored rules, are a full percentage point below the newly conforming jumbo loans intended to be covered by the new law.
One reason that the loans are not competitive has to do with that now familiar word, securitization. Lenders can package and sell conforming loans as mortgage-backed securities either on the open market or to Fannie Mae or Freddie Mac. The private sector is open to these securities because they know that they can resell them later to housing finance agencies. Thus the conforming loans can offer a lower interest rate to borrowers.
Freddie Mac recently announced it would buy up to $15 billion of the newly defined loans. That could lead to more loans and lowered interest rates, but there is not a lot of time. At the end of the year the system is supposed to revert to the old loan limits and lenders as well as secondary investors are hesitant about changing rules and operations for a short time.
Two other major initiatives, a program run by the Federal Housing Administration and proposed Federal Reserve rules on lending which are about to emerge from the comment period, are also under attack. We will take a look at these as well as attempt to catch up on the status of the very different housing bills passed by the House and Senate which are being worked out in compromise committee.
[I can attest to the continued sluggish activity with those properties priced for sale and needing financing above the conventional $417,900 loan limit. We expected a boost and more normalization in sales in our local area as a result of the increase in the 'super conforming' limit, but it just has not happened so far. ~~ Ray]
The New York Times reported on Wednesday that there are real problems with the jumbo mortgage aspect of housing rescue.
Several months ago Congress, in an attempt to loosen up credit in costly markets, raised the loan limit on loans which could be backed by government-sponsored housing finance agencies such as the Federal Housing Administration from $417,000 to amounts up to $730,000, depending on location. The change was intended to reduce rates for more borrowers (jumbo loans have always carried a higher rate than conventional loans, i.e., those below the loan ceiling) and to stimulate lending. The goal was not aimed at helping subprime borrowers but was aimed at credit-worthy borrowers with acceptable down payments who wanted to refinance or purchase a home in expensive housing markets like San Francisco or New York. It was thought that helping thousands of borrowers access billions in new loans would stimulate the housing market, spur consumer spending and possibly avoid or at least reduce the effects of a recession.
Instead, Matt Richtel, reporting in the Times says the effort to make it easier to get jumbo mortgages has yielded frustration and disillusionment. Since the rules took effect April 1, many borrowers and their mortgage brokers say the new loans are either not available or the rates are far higher than they expected.
Richtel quotes the president of one mortgage corporation as saying that the program "is so much of a failure that it's really unbelievable. Like coming up with a vaccine to a terrible disease, and then not giving it to people, or making it too expensive."
But, Richtel said, rates have not dropped, at least not to the degree that many borrowers and mortgage brokers had expected. In some cases, "conforming" loans, so designated because they conform to the old government-sponsored rules, are a full percentage point below the newly conforming jumbo loans intended to be covered by the new law.
One reason that the loans are not competitive has to do with that now familiar word, securitization. Lenders can package and sell conforming loans as mortgage-backed securities either on the open market or to Fannie Mae or Freddie Mac. The private sector is open to these securities because they know that they can resell them later to housing finance agencies. Thus the conforming loans can offer a lower interest rate to borrowers.
Freddie Mac recently announced it would buy up to $15 billion of the newly defined loans. That could lead to more loans and lowered interest rates, but there is not a lot of time. At the end of the year the system is supposed to revert to the old loan limits and lenders as well as secondary investors are hesitant about changing rules and operations for a short time.
Two other major initiatives, a program run by the Federal Housing Administration and proposed Federal Reserve rules on lending which are about to emerge from the comment period, are also under attack. We will take a look at these as well as attempt to catch up on the status of the very different housing bills passed by the House and Senate which are being worked out in compromise committee.
[I can attest to the continued sluggish activity with those properties priced for sale and needing financing above the conventional $417,900 loan limit. We expected a boost and more normalization in sales in our local area as a result of the increase in the 'super conforming' limit, but it just has not happened so far. ~~ Ray]
Foreclosures Must Be Averted for Sake of the Economy
Fed Chairman Ben Bernanke said accelerating rates of foreclosures and delinquencies can have a significant impact on the economy and called for more to be done in order to prevent them.
Speaking Monday night at the Columbia Business School's 32nd annual dinner, Bernanke said the rate of foreclosures will likely increase in 2008 and that traditional anti-foreclosure steps may not be working to prevent them. He also said sharp declines in home prices can have a negative impact on the overall economy.
"High rates of delinquency and foreclosure can have substantial spillover effects on the housing market, the financial markets, and the broader economy," he said. "Therefore, doing what we can to avoid preventable foreclosures is not just in the interest of lenders and borrowers. It's in everybody's interest."
He said government-sponsored enterprises Fannie Mae and Freddie Mac should raise more capital and "could do more" to help ease the crisis. He also called for clear disclosures of home-loan modifications.
"Additional government policies can help address problems in the mortgage markets," he said. "The Congress can take an important step by moving quickly to reconcile and enact legislation permitting the Federal Housing Administration (FHA) to increase its scale and improve its management of risks."
Bernanke also said the best solution is sometimes a mortgage writedown.
Bernanke did not comment on the outlook for interest rates.
By Stephen Huebl and edited by Nancy Girgis
[No kidding, Ben.]
Speaking Monday night at the Columbia Business School's 32nd annual dinner, Bernanke said the rate of foreclosures will likely increase in 2008 and that traditional anti-foreclosure steps may not be working to prevent them. He also said sharp declines in home prices can have a negative impact on the overall economy.
"High rates of delinquency and foreclosure can have substantial spillover effects on the housing market, the financial markets, and the broader economy," he said. "Therefore, doing what we can to avoid preventable foreclosures is not just in the interest of lenders and borrowers. It's in everybody's interest."
He said government-sponsored enterprises Fannie Mae and Freddie Mac should raise more capital and "could do more" to help ease the crisis. He also called for clear disclosures of home-loan modifications.
"Additional government policies can help address problems in the mortgage markets," he said. "The Congress can take an important step by moving quickly to reconcile and enact legislation permitting the Federal Housing Administration (FHA) to increase its scale and improve its management of risks."
Bernanke also said the best solution is sometimes a mortgage writedown.
Bernanke did not comment on the outlook for interest rates.
By Stephen Huebl and edited by Nancy Girgis
[No kidding, Ben.]
Saturday, April 26, 2008
If You Are in a Hole, Stop Digging
I often listen to CNBC when I am working on the computer (if I am not on the phone). I am amazed how often I hear (or read) about the bottom of the housing market. Often we hear that the stock market is predicting the bottom. I wonder if any of these cheerleaders actually looks at the relevant statistics. Again, let's do some basic arithmetic so that even a Realtor can understand.
Yesterday we found out that new home sales are running at an annual rate of 526,000, the lowest number in almost two decades. The supply of new homes, in terms of the amount of time it would take to work through the inventory available for sale was 8.4 months last October. It is now an even 11 months. (source for data: www.weldononline.com)
How many homes did the home building industry start building last month? Housing starts were running at an annual rate of 947,000. Permits for new homes was 927,000. That means the industry is building over 400,000 more homes than they are selling. Add in a million or so foreclosures. Kill the subprime market. Really make it hard to get a loan securitized for anything but government backed mortgages.
Home construction is going to drop precipitously before the inventory of new homes is worked through. Those who are predicting a rebound this quarter are simply not paying attention to the basic math. New home prices are down 13.3% year over year. They are going much lower. Margins are going to get squeezed. Now maybe the market is pricing all this in. But I think there are better places to gamble than the home builders.
Are you paying attention, Lennar?
Yesterday we found out that new home sales are running at an annual rate of 526,000, the lowest number in almost two decades. The supply of new homes, in terms of the amount of time it would take to work through the inventory available for sale was 8.4 months last October. It is now an even 11 months. (source for data: www.weldononline.com)
How many homes did the home building industry start building last month? Housing starts were running at an annual rate of 947,000. Permits for new homes was 927,000. That means the industry is building over 400,000 more homes than they are selling. Add in a million or so foreclosures. Kill the subprime market. Really make it hard to get a loan securitized for anything but government backed mortgages.
Home construction is going to drop precipitously before the inventory of new homes is worked through. Those who are predicting a rebound this quarter are simply not paying attention to the basic math. New home prices are down 13.3% year over year. They are going much lower. Margins are going to get squeezed. Now maybe the market is pricing all this in. But I think there are better places to gamble than the home builders.
Are you paying attention, Lennar?
Monday, April 21, 2008
Interest Rates Edge Up... Take Action Now!
"THERE IS NOTHING WRONG WITH CHANGE, AS LONG AS IT IS IN THE RIGHT DIRECTION." ~ Winston Churchill.
And there were some big changes indeed for Bonds and home loan rates last week - but not necessarily all in the "right direction". For most of the week, Bond prices were pummeled lower, causing home loan rates to rise - and even after a Friday afternoon rally, home loan rates worsened by about .25% for the week overall.
One silver lining...some of the abuse that Bonds took was at the hands of somewhat positive economic news. Remember that positive or strong economic news tends to benefit Stocks, which in turn can pull money out of Bonds - which causes Bond prices to worsen and home loan rates to rise. So when news hit of a far better than forecast Retail Sales Report and much better than expected earnings reports from giants like Google, the financial markets responded by flowing money over into Stocks, and right out of Bonds, causing home loan rates to rise.
Also hurting Bonds was inflation chatter during speeches made by several Federal Reserve Presidents, who vocalized their concerns over the persistence of inflation in the current economy. Additionally, the Producer Price Index showed wholesale inflation to be climbing higher, thanks to record high oil prices and a seventeen-year high on food prices. Because inflation erodes the value of the fixed return provided by a Bond, the scent of inflation in the air always causes Bond prices to decline, and as a result, home loan rates will rise.
Even though Bond prices ended the week lower than they began, it is still a good time to take advantage of historically lower home loan rates before rising inflation continues to push rates higher. If you, or a friend, family member, neighbor or coworker needs advice on the latest changes in the market, please feel free to get in touch.
And there were some big changes indeed for Bonds and home loan rates last week - but not necessarily all in the "right direction". For most of the week, Bond prices were pummeled lower, causing home loan rates to rise - and even after a Friday afternoon rally, home loan rates worsened by about .25% for the week overall.
One silver lining...some of the abuse that Bonds took was at the hands of somewhat positive economic news. Remember that positive or strong economic news tends to benefit Stocks, which in turn can pull money out of Bonds - which causes Bond prices to worsen and home loan rates to rise. So when news hit of a far better than forecast Retail Sales Report and much better than expected earnings reports from giants like Google, the financial markets responded by flowing money over into Stocks, and right out of Bonds, causing home loan rates to rise.
Also hurting Bonds was inflation chatter during speeches made by several Federal Reserve Presidents, who vocalized their concerns over the persistence of inflation in the current economy. Additionally, the Producer Price Index showed wholesale inflation to be climbing higher, thanks to record high oil prices and a seventeen-year high on food prices. Because inflation erodes the value of the fixed return provided by a Bond, the scent of inflation in the air always causes Bond prices to decline, and as a result, home loan rates will rise.
Even though Bond prices ended the week lower than they began, it is still a good time to take advantage of historically lower home loan rates before rising inflation continues to push rates higher. If you, or a friend, family member, neighbor or coworker needs advice on the latest changes in the market, please feel free to get in touch.
Saturday, April 19, 2008
Readers Ask: "How Does a Short Sale Affect My Credit?"
I get this question all the time. My answer is a hedge, but it can be a useful hedge.
A short sale can have serious legal, financial, and tax consequences for you which depends on your particular situation. I do not fully know all of your circumstances, and in any case, am not legally qualified to give you an answer that may be appropriate for you.
You need to consult with the appropriate professionals to determine for yourself if the consequences of a short sale are right for you. These may include an attorney specializing in consumer and bankruptcy law, your financial or tax advisor and/or a CPA. If you don't know of or have these trusted advisors, I can refer people to you.
While a 'short sale', which is an agreement by your mortgage lender(s) to accept a payoff of the loan(s) for an amount less than the note amount, seems like an easy answer for a seller who owes more than a home is worth in today's market, it is not that easy to find a buyer for these types of situations. The main reason is that less than 10% of offers from potential buyers who go through a short sale process result in closed escrows. Why? First, banks don't like to lose money, and to generate offers the seller will likely have to heavily discount a listing price, which the potential buyer will likely further heavily discount. Second, the bank requires extensive information that is packaged properly in order to be considered. Most lenders are overwhelmed with applications, and proper presentation will get a timely review. Others just get tossed on the pile.
Once a seller and a potential buyer have reached an agreement 'subject to the lender's approval', the process begins with getting the short sale approved through the lender. This is not easy (remember the less than 10% get approved?), and it takes a lot of time. Many buyers will not go the distance, and if the sellers have other assets, the lenders will want them. Also, many Realtors will not show short sale listings to their clients given alternatives, since the low probability of a successful close of escrow means that there is a lot of wasted time and effort, with no payday.
The hit on your credit is severe and lasts a long time. Many professionals that I have talked with say it is as severe as a foreclosure on your credit. If you have to find a rental to live in afterward, the hit on the credit is so severe that you may find it very difficult for landlords to approve you. You may have to pay the difference between negotiated payoff and the note as taxable income if it is non-owner occupied. You might be tempted to listen to lots of advice and information by uncertified professionals or the media, much of which is misleading or just wrong. You really need to talk with certified professionals about your situation, and not heed advice of well-meaning family, friends, or even a Realtor. The consensus view is that short sales are better than foreclosures, but only if the short sale is approved by the lender(s).
As a responsible Realtor, I would not consider taking a short sale listing until my potential client had consulted these professionals. If a potential client will not take that basic advice in their own best interest, then they will likely not take my advice through the listing period. If we don't have that kind of relationship, then what is the point? They need to find someone for better or worse that they will be able to work with.
As a potential seller in a tough financial situation, you really need to get solid and professional information on how a short sale will affect you and your particular situation. It may be that another option, such as leasing it out either long-term or short term, a lease option to purchase, or deed in lieu of foreclosure may be a better alternative for you. Letting the home go to foreclosure may be what eventually happens if you don't follow your professionals' advice.
There is of course lots of commentary on short sales in the media and on the web for you to consider:
http://www.trulia.com/voices/Foreclosure/Does_the_short_sale_go_on_your_credit_report_-12935--
http://activerain.com/blogsview/452160/Short-sale-does-affect
Just Google whatever combination of 'short sale', foreclosure and credit that you want.
A short sale can have serious legal, financial, and tax consequences for you which depends on your particular situation. I do not fully know all of your circumstances, and in any case, am not legally qualified to give you an answer that may be appropriate for you.
You need to consult with the appropriate professionals to determine for yourself if the consequences of a short sale are right for you. These may include an attorney specializing in consumer and bankruptcy law, your financial or tax advisor and/or a CPA. If you don't know of or have these trusted advisors, I can refer people to you.
While a 'short sale', which is an agreement by your mortgage lender(s) to accept a payoff of the loan(s) for an amount less than the note amount, seems like an easy answer for a seller who owes more than a home is worth in today's market, it is not that easy to find a buyer for these types of situations. The main reason is that less than 10% of offers from potential buyers who go through a short sale process result in closed escrows. Why? First, banks don't like to lose money, and to generate offers the seller will likely have to heavily discount a listing price, which the potential buyer will likely further heavily discount. Second, the bank requires extensive information that is packaged properly in order to be considered. Most lenders are overwhelmed with applications, and proper presentation will get a timely review. Others just get tossed on the pile.
Once a seller and a potential buyer have reached an agreement 'subject to the lender's approval', the process begins with getting the short sale approved through the lender. This is not easy (remember the less than 10% get approved?), and it takes a lot of time. Many buyers will not go the distance, and if the sellers have other assets, the lenders will want them. Also, many Realtors will not show short sale listings to their clients given alternatives, since the low probability of a successful close of escrow means that there is a lot of wasted time and effort, with no payday.
The hit on your credit is severe and lasts a long time. Many professionals that I have talked with say it is as severe as a foreclosure on your credit. If you have to find a rental to live in afterward, the hit on the credit is so severe that you may find it very difficult for landlords to approve you. You may have to pay the difference between negotiated payoff and the note as taxable income if it is non-owner occupied. You might be tempted to listen to lots of advice and information by uncertified professionals or the media, much of which is misleading or just wrong. You really need to talk with certified professionals about your situation, and not heed advice of well-meaning family, friends, or even a Realtor. The consensus view is that short sales are better than foreclosures, but only if the short sale is approved by the lender(s).
As a responsible Realtor, I would not consider taking a short sale listing until my potential client had consulted these professionals. If a potential client will not take that basic advice in their own best interest, then they will likely not take my advice through the listing period. If we don't have that kind of relationship, then what is the point? They need to find someone for better or worse that they will be able to work with.
As a potential seller in a tough financial situation, you really need to get solid and professional information on how a short sale will affect you and your particular situation. It may be that another option, such as leasing it out either long-term or short term, a lease option to purchase, or deed in lieu of foreclosure may be a better alternative for you. Letting the home go to foreclosure may be what eventually happens if you don't follow your professionals' advice.
There is of course lots of commentary on short sales in the media and on the web for you to consider:
http://www.trulia.com/voices/Foreclosure/Does_the_short_sale_go_on_your_credit_report_-12935--
http://activerain.com/blogsview/452160/Short-sale-does-affect
Just Google whatever combination of 'short sale', foreclosure and credit that you want.
Friday, April 18, 2008
Bigger Fall After a Bigger Gain
by Lawrence Yun, Chief Economist, NAR Research
The stream of stories about housing's downturn continue in the media. But I can't stress the reality enough: not all housing markets have suffered to the same extent. We are all well aware of the current weak housing market regions: California, Florida, Arizona, Nevada, and the D.C. region. We should also be aware that these areas were also the places where prices increased the most during the housing boom. Current price declines of 5% to 20% are not as frightening for those who bought a home for the long-term.
Long-term Housing Equity
For example, based on NAR price data, a typical homeowner who bought a property in 2000 would be have accumulated $123,000 in Phoenix, $150,100 in Orlando, $242,800 in Riverside-San Bernardino, and $252,000 in the Washington, D.C. metro region. That does not even include any additional equity that homeowner acquired from paying down mortgage debt from his/her normal amortizing monthly payments. The equity position would be less for those homeowners who took out home equity loans and who took cash-out refinances. (I would personally advise against tapping into housing equity unless it is for investment reasons - like paying for tuition or to open a business).
Data from the Federal Reserve further affirms the long-term housing equity accumulation for homeowners even with recent declines in home prices. Homeowners' net housing equity (home value minus mortgage debt) rose from $6.2 trillion to $9.6 trillion from 2000 to 2007.
No Price Decline in Many Parts of the Country
And as I say, in many parts of the country, there has not been a price decline. NAR data indicate that essentially half of the 150 metro markets studied in the U.S. experienced a price increase throughout the past seven years. Data from the Office of Federal Housing Enterprise Oversight (OFHEO) also show that close to 70 percent of the 287 markets the agency tracks had price increases throughout those same seven years. In rural America, the price declines are even more rare.
Because of different price measurements, the gain could also be different depending on how the price statistics are calculated. Only when the homeowner him or herself sells their home - i.e., has a actual price against which to measure - would they know for sure how much equity was accumulated or lost. The Case-Shiller home price index, by contrast, which looks at a very narrow 20 markets, finds most markets experienced price declines in 2007. Interestingly though, if one uses the Case-Shiller national aggregate price index, the housing equity gains are much higher than under other price data. From 2000 to 2007, a typical U.S. homeowner would have accumulated $103,400 according to Case-Shiller rather than the $75,400 equity gain as is implied by the NAR data.
The Case-Shiller price gain appears outsized and not necessarily what most people would be saying. Perhaps, the methodology of the Case-Shiller price index brings volatile swings that distort underlying trends. So the recent decline in the Case-Shiller price measurement may not be due completely to a decline in home prices but rather to a downward adjustment after illusory high price gains it showed during the market boom. These illusory price gains also fooled Wall Street and global capital providers into believing that the underlying housing collateral was worth more than it actually was. Ask Bear Stearns if it would have made a similar bet if it knew that home values were not as high as indicated by Case-Shiller.
Sure, home prices have fallen measurably in some Florida and California markets - as reflected in both Case-Shiller and NAR data. But broadly speaking the decline in the Case-Shiller price measurement may be just a downward adjustment to compensate for unrealistically strong price gains it recorded during the housing market boom.
[Call Ray and the SCV Home Team at 661-287-9164 or post your comments here.]
The stream of stories about housing's downturn continue in the media. But I can't stress the reality enough: not all housing markets have suffered to the same extent. We are all well aware of the current weak housing market regions: California, Florida, Arizona, Nevada, and the D.C. region. We should also be aware that these areas were also the places where prices increased the most during the housing boom. Current price declines of 5% to 20% are not as frightening for those who bought a home for the long-term.
Long-term Housing Equity
For example, based on NAR price data, a typical homeowner who bought a property in 2000 would be have accumulated $123,000 in Phoenix, $150,100 in Orlando, $242,800 in Riverside-San Bernardino, and $252,000 in the Washington, D.C. metro region. That does not even include any additional equity that homeowner acquired from paying down mortgage debt from his/her normal amortizing monthly payments. The equity position would be less for those homeowners who took out home equity loans and who took cash-out refinances. (I would personally advise against tapping into housing equity unless it is for investment reasons - like paying for tuition or to open a business).
Data from the Federal Reserve further affirms the long-term housing equity accumulation for homeowners even with recent declines in home prices. Homeowners' net housing equity (home value minus mortgage debt) rose from $6.2 trillion to $9.6 trillion from 2000 to 2007.
No Price Decline in Many Parts of the Country
And as I say, in many parts of the country, there has not been a price decline. NAR data indicate that essentially half of the 150 metro markets studied in the U.S. experienced a price increase throughout the past seven years. Data from the Office of Federal Housing Enterprise Oversight (OFHEO) also show that close to 70 percent of the 287 markets the agency tracks had price increases throughout those same seven years. In rural America, the price declines are even more rare.
Because of different price measurements, the gain could also be different depending on how the price statistics are calculated. Only when the homeowner him or herself sells their home - i.e., has a actual price against which to measure - would they know for sure how much equity was accumulated or lost. The Case-Shiller home price index, by contrast, which looks at a very narrow 20 markets, finds most markets experienced price declines in 2007. Interestingly though, if one uses the Case-Shiller national aggregate price index, the housing equity gains are much higher than under other price data. From 2000 to 2007, a typical U.S. homeowner would have accumulated $103,400 according to Case-Shiller rather than the $75,400 equity gain as is implied by the NAR data.
The Case-Shiller price gain appears outsized and not necessarily what most people would be saying. Perhaps, the methodology of the Case-Shiller price index brings volatile swings that distort underlying trends. So the recent decline in the Case-Shiller price measurement may not be due completely to a decline in home prices but rather to a downward adjustment after illusory high price gains it showed during the market boom. These illusory price gains also fooled Wall Street and global capital providers into believing that the underlying housing collateral was worth more than it actually was. Ask Bear Stearns if it would have made a similar bet if it knew that home values were not as high as indicated by Case-Shiller.
Sure, home prices have fallen measurably in some Florida and California markets - as reflected in both Case-Shiller and NAR data. But broadly speaking the decline in the Case-Shiller price measurement may be just a downward adjustment to compensate for unrealistically strong price gains it recorded during the housing market boom.
[Call Ray and the SCV Home Team at 661-287-9164 or post your comments here.]
California Sales Improve to Pre-Credit Crunch Levels
The California housing market continued to reel from the joint effects of tighter underwriting standards, the ongoing credit or liquidity crunch, and a softening economy. However, home sales have improved in recent months and are now within range of pre-credit crunch levels according to C.A.R. Sales of existing detached single family homes exceeded 300,000 for the second month in a row with seasonally adjusted and annualized sales of 343,220 homes in February. Sales rose 9.5 percent compared to January when 313,580 homes were sold, but declined steeply from 480,170 sales in February 2007, equivalent to a 28.5 percent year-to-year decrease.
Sales have now increased four months in a row from a low point of 265,030 sales in October of last year, and are just shy of sales in the 350,000-range that prevailed in the summer of 2007 just before the credit crunch drove sales down. Based on C.A.R. research, the background or ‘baseline' amount of activity that occurs regardless of whether the market is in a slow or active mode is thought to be roughly 350,000 sales, given the state's demographics and stock of homes. During the worst of the credit crunch, activity fell below that range because of difficulty in securing funding for loans among buyers who otherwise could and would buy a home at this time. As time has passed, adjustments by both borrowers and lenders have enabled the market to move forward at a somewhat improved pace.
The median price, however, continued to decline by record margins in February. The median price in California was $409,240, down 4.8 percent from the January median of $429,790 and down by a record-setting 26.2 percent from the February 2007 median price of $554,280. The median price in February was 31.5 percent below the record median of $597,640 that was set in April of last year. The statewide median was last in the low $400,000 range during late 2003 and early 2004.
The credit crunch, tighter underwriting standards, and significantly higher jumbo loan rates all contributed to a steep decrease in sales of homes above $500,000 as a share of the statewide market. This affected the mix of statewide sales and gave rise to the record-setting 26.2 percent decrease in the median. -- By comparison, the average year-to-year change in median prices across the regions of California was a somewhat smaller 19.8 percent decline in February.
Even if monthly sales for the state have shown improvement in recent months, sales for all of 2008 are still expected to decrease 6 percent annually compared to 2007. Moreover, home prices face stiff headwinds because of the large number of distressed sales that are expected throughout the year. On the bright side, lower prices and mortgage rates help affordability, while higher loan limits in 2008 should provide some welcome relief from the credit crunch.
from Southland Regional Association of Realtors
Sales have now increased four months in a row from a low point of 265,030 sales in October of last year, and are just shy of sales in the 350,000-range that prevailed in the summer of 2007 just before the credit crunch drove sales down. Based on C.A.R. research, the background or ‘baseline' amount of activity that occurs regardless of whether the market is in a slow or active mode is thought to be roughly 350,000 sales, given the state's demographics and stock of homes. During the worst of the credit crunch, activity fell below that range because of difficulty in securing funding for loans among buyers who otherwise could and would buy a home at this time. As time has passed, adjustments by both borrowers and lenders have enabled the market to move forward at a somewhat improved pace.
The median price, however, continued to decline by record margins in February. The median price in California was $409,240, down 4.8 percent from the January median of $429,790 and down by a record-setting 26.2 percent from the February 2007 median price of $554,280. The median price in February was 31.5 percent below the record median of $597,640 that was set in April of last year. The statewide median was last in the low $400,000 range during late 2003 and early 2004.
The credit crunch, tighter underwriting standards, and significantly higher jumbo loan rates all contributed to a steep decrease in sales of homes above $500,000 as a share of the statewide market. This affected the mix of statewide sales and gave rise to the record-setting 26.2 percent decrease in the median. -- By comparison, the average year-to-year change in median prices across the regions of California was a somewhat smaller 19.8 percent decline in February.
Even if monthly sales for the state have shown improvement in recent months, sales for all of 2008 are still expected to decrease 6 percent annually compared to 2007. Moreover, home prices face stiff headwinds because of the large number of distressed sales that are expected throughout the year. On the bright side, lower prices and mortgage rates help affordability, while higher loan limits in 2008 should provide some welcome relief from the credit crunch.
from Southland Regional Association of Realtors
Thursday, April 17, 2008
The Worst May Be Over, but...
By David Wessel
Wall Street Journal
April 17, 2008; Page A2
Watching the housing-mortgage-banking-credit crisis is like watching the goriest parts of a scary movie. You put your hands over your eyes, spread your fingers a bit, peek through the cracks and ask: "Is it over yet?"
Here's where the story stands right now: Barring any unanticipated collapse of a pillar of Wall Street or a European bank, the risk of financial catastrophe has receded, even though markets remain so far from normal that they're exceptionally hard to read. But the wave of economic pain -- the foreclosures, bankruptcies, pay cuts and layoffs -- has yet to crest.
The plot began with sinking U.S. housing prices triggering a massive disturbance in global financial markets last summer, a disturbance that continues. Yet some key measures suggest things are moving in the right direction. In markets where speculators can bet on the collapse of a big bank or company, the odds placed on a big bank going bust have fallen from implausibly high levels. The odds the markets put on a wave of defaults by nonfinancial corporations also are down. And yields on short-term U.S. Treasury bills, which plunged as money rushed into the ultimate in safe securities, have inched up, even on days when bad news about the U.S. economy ordinarily would have pushed those yields down in anticipation of further interest-rate cuts by the Federal Reserve.
The Fed's aggressive actions -- cutting short-term rates by three percentage points since September and devising new ways to lubricate money markets -- have helped. Equally important is the ability and willingness of big financial companies -- Citigroup, Wachovia, Washington Mutual and (if they keep their promises to regulators) mortgage giants Fannie Mae and Freddie Mac -- to raise billions of dollars to rebuild their diminished capital cushions. This capital-raising is essential if banks are to keep lending, instead of contracting and strangling the economy in a prolonged credit crunch. It's also a hopeful hint that some big-money players think it's time to invest in U.S. banks, albeit at bargain-basement prices.
But all is not yet well. Persistent strains in the market where banks lend to one another overnight, or for just a few days, are baffling, even to smart observers inside the Fed and on Wall Street. Banks understandably continue to be cautious about making mortgages and other loans, given how many bad loans they've made. But cautious about lending to other banks? That's unnerving to say the least.
"The fragility of short-term credit markets," Fed governor Kevin Warsh said in a speech this week, "is a powerful manifestation of...loss of confidence" in the entire architecture of the financial system. (That, too, is a bit unnerving coming from a Fed governor.) "There are some encouraging, early signs of repair, but regaining the confidence that markets require will take time, and perhaps uncomfortably to some, patience," he said.
So much for the markets. What about the rest of the economy? Employment is falling. So are housing prices. The bulk of forecasters in the latest Wall Street Journal survey foresee home prices declining into 2009; nearly one in eight say they won't touch bottom until 2010.
Prices of food and energy are rising. And a credit crunch is sure to make it tougher than usual for American consumers to borrow to keep spending. (President Bush is probably relieved he isn't up for re-election.) Macroeconomic Advisers, the St. Louis forecaster that makes a monthly guess about gross domestic product, estimates the U.S. economy contracted at a 13% annual rate in February, the sharpest monthly decline in its data since September 2001.
Offsetting that drag on the economy is the vigor of U.S. exports. And, of course, the impact of the interest-rate cuts the Fed already has made and the checks Mr. Bush and Congress decided to send to most American families this spring has yet to be fully felt. "The fiscal stimulus is in the mail," says Richard Berner, a Morgan Stanley economist. "The monetary stimulus is in the pipeline."
Nevertheless, the economy where most Americans live and work -- that is, off Wall Street -- looks likely to get worse before it gets better. Maybe credit markets already are so pessimistic that they won't turn lower on any further bad economic news.
But stocks? Predicting their direction is treacherous. If this is truly the worst financial crisis in a generation, is it plausible that the Dow Jones Industrial Average -- now down more than 11% from its October peak -- has fallen as far as it is going to fall? And if banks are groaning under the weight of bad loans now, further deterioration of the job market and consumer finances can only make matters worse and discourage them from lending.
The scariest scenes of the movie may be past, but the good guys haven't won yet.
Write to David Wessel at capital@wsj.com
Wall Street Journal
April 17, 2008; Page A2
Watching the housing-mortgage-banking-credit crisis is like watching the goriest parts of a scary movie. You put your hands over your eyes, spread your fingers a bit, peek through the cracks and ask: "Is it over yet?"
Here's where the story stands right now: Barring any unanticipated collapse of a pillar of Wall Street or a European bank, the risk of financial catastrophe has receded, even though markets remain so far from normal that they're exceptionally hard to read. But the wave of economic pain -- the foreclosures, bankruptcies, pay cuts and layoffs -- has yet to crest.
The plot began with sinking U.S. housing prices triggering a massive disturbance in global financial markets last summer, a disturbance that continues. Yet some key measures suggest things are moving in the right direction. In markets where speculators can bet on the collapse of a big bank or company, the odds placed on a big bank going bust have fallen from implausibly high levels. The odds the markets put on a wave of defaults by nonfinancial corporations also are down. And yields on short-term U.S. Treasury bills, which plunged as money rushed into the ultimate in safe securities, have inched up, even on days when bad news about the U.S. economy ordinarily would have pushed those yields down in anticipation of further interest-rate cuts by the Federal Reserve.
The Fed's aggressive actions -- cutting short-term rates by three percentage points since September and devising new ways to lubricate money markets -- have helped. Equally important is the ability and willingness of big financial companies -- Citigroup, Wachovia, Washington Mutual and (if they keep their promises to regulators) mortgage giants Fannie Mae and Freddie Mac -- to raise billions of dollars to rebuild their diminished capital cushions. This capital-raising is essential if banks are to keep lending, instead of contracting and strangling the economy in a prolonged credit crunch. It's also a hopeful hint that some big-money players think it's time to invest in U.S. banks, albeit at bargain-basement prices.
But all is not yet well. Persistent strains in the market where banks lend to one another overnight, or for just a few days, are baffling, even to smart observers inside the Fed and on Wall Street. Banks understandably continue to be cautious about making mortgages and other loans, given how many bad loans they've made. But cautious about lending to other banks? That's unnerving to say the least.
"The fragility of short-term credit markets," Fed governor Kevin Warsh said in a speech this week, "is a powerful manifestation of...loss of confidence" in the entire architecture of the financial system. (That, too, is a bit unnerving coming from a Fed governor.) "There are some encouraging, early signs of repair, but regaining the confidence that markets require will take time, and perhaps uncomfortably to some, patience," he said.
So much for the markets. What about the rest of the economy? Employment is falling. So are housing prices. The bulk of forecasters in the latest Wall Street Journal survey foresee home prices declining into 2009; nearly one in eight say they won't touch bottom until 2010.
Prices of food and energy are rising. And a credit crunch is sure to make it tougher than usual for American consumers to borrow to keep spending. (President Bush is probably relieved he isn't up for re-election.) Macroeconomic Advisers, the St. Louis forecaster that makes a monthly guess about gross domestic product, estimates the U.S. economy contracted at a 13% annual rate in February, the sharpest monthly decline in its data since September 2001.
Offsetting that drag on the economy is the vigor of U.S. exports. And, of course, the impact of the interest-rate cuts the Fed already has made and the checks Mr. Bush and Congress decided to send to most American families this spring has yet to be fully felt. "The fiscal stimulus is in the mail," says Richard Berner, a Morgan Stanley economist. "The monetary stimulus is in the pipeline."
Nevertheless, the economy where most Americans live and work -- that is, off Wall Street -- looks likely to get worse before it gets better. Maybe credit markets already are so pessimistic that they won't turn lower on any further bad economic news.
But stocks? Predicting their direction is treacherous. If this is truly the worst financial crisis in a generation, is it plausible that the Dow Jones Industrial Average -- now down more than 11% from its October peak -- has fallen as far as it is going to fall? And if banks are groaning under the weight of bad loans now, further deterioration of the job market and consumer finances can only make matters worse and discourage them from lending.
The scariest scenes of the movie may be past, but the good guys haven't won yet.
Write to David Wessel at capital@wsj.com
Monday, April 14, 2008
Consequences for 'Walk-Away' Borrowers
Daily Real Estate News | April 14, 2008
The government and the lending industry are taking aim at “walk-away” home owners who stop making payments and months later send the house keys back to their lender.
Such borrowers will not be able to get another mortgage through Fannie Mae for five years, unless there are “documented extenuating circumstances.” In that case, the prohibition is three years. Even after the prescribed time has elapsed, a borrower with a foreclosure in his file will have to make at least a 10 percent down payment and have a FICO credit score of at least 680 to qualify for a Fannie Mae loan.
Freddie Mac, which counts foreclosures as major credit black mark for seven years, is now aggressively pursuing walk-away borrowers where permitted under state law, a senior official said.
Federal legislation enacted last year allows home owners who negotiate loan modifications with lenders and have portions of their principal debt eliminated to escape income tax liability for the amount forgiven.
Walk-away borrowers, by contrast, have nothing forgiven, and the Internal Revenue Service may demand taxes on the balance they never paid, the IRS says.
Source: Washington Post Writers Group, Kenneth R. Harney (04/12/2008)
The government and the lending industry are taking aim at “walk-away” home owners who stop making payments and months later send the house keys back to their lender.
Such borrowers will not be able to get another mortgage through Fannie Mae for five years, unless there are “documented extenuating circumstances.” In that case, the prohibition is three years. Even after the prescribed time has elapsed, a borrower with a foreclosure in his file will have to make at least a 10 percent down payment and have a FICO credit score of at least 680 to qualify for a Fannie Mae loan.
Freddie Mac, which counts foreclosures as major credit black mark for seven years, is now aggressively pursuing walk-away borrowers where permitted under state law, a senior official said.
Federal legislation enacted last year allows home owners who negotiate loan modifications with lenders and have portions of their principal debt eliminated to escape income tax liability for the amount forgiven.
Walk-away borrowers, by contrast, have nothing forgiven, and the Internal Revenue Service may demand taxes on the balance they never paid, the IRS says.
Source: Washington Post Writers Group, Kenneth R. Harney (04/12/2008)
Tuesday, April 08, 2008
Bush Backs More Support for Homeowners
By DAMIAN PALETTA and JOHN D. MCKINNON
Wall Street Journal
April 8, 2008 6:19 p.m.
WASHINGTON -- The Bush administration appears set to support a significant expansion of its assistance for struggling homeowners, a move that could also forestall more aggressive action currently being contemplated by Democrats in Congress.
In a draft of testimony for a congressional hearing, Brian Montgomery, the commissioner of the Federal Housing Administration, is expected to say that a federal program that offers government insurance for mortgages created last summer "can and should be extended in a responsible way."
Many of the details about the expansion are not clear, but it seems likely that the program could become the administration's most aggressive response to the housing crisis, which has prompted Washington to reverse years of laissez-faire attitudes toward the economy.
The expansion would be focused on helping struggling homeowners who owe more than their house is worth.
Under the expanded program, lenders could get FHA insurance for problem loans in exchange for "voluntarily writing down the outstanding mortgage principal," according to the testimony. That would entail the government being responsible for an increasing number of risky loans.
Mr. Montgomery emphasizes in the testimony that "while considering any changes to FHA, we must ensure that the financial solvency of the [FHA] must not be compromised." FHA is a division of the U.S. Department of Housing and Urban Development, which didn't return calls seeking comment.
Under the original program created last year, known as FHASecure, homeowners with high-interest, adjustable-rate mortgages currently can refinance into an FHA-insured mortgage and lower their monthly payments. To date, the administration says it's served 145,000 homeowners in need, and projections show that it will likely reach more than 400,000 by year's end. A temporary expansion of the program would be expected to add significantly to that total.
The moves highlighted the deep political fault lines emerging in Washington over the housing market. Both the Republican Bush administration and Democrats in charge of Congress are eager to be seen addressing the problem. But both have ideological objections to the other side's approach so far, and both see potential advantage in casting the other side as intransigent and out of touch.
The administration proposal appeared calculated to put a conservative White House imprimatur on a basic concept that Democrats also have been weighing – using the government's power to induce lenders to reduce payments for struggling homeowners, while also providing some government guarantee that the loan, or most of it anyway, will be repaid. The administration's approach is likely to be narrower in terms of the number of homeowners who could qualify.
Write to Damian Paletta at damian.paletta@wsj.com and John D. McKinnon at john.mckinnon@wsj.com
Wall Street Journal
April 8, 2008 6:19 p.m.
WASHINGTON -- The Bush administration appears set to support a significant expansion of its assistance for struggling homeowners, a move that could also forestall more aggressive action currently being contemplated by Democrats in Congress.
In a draft of testimony for a congressional hearing, Brian Montgomery, the commissioner of the Federal Housing Administration, is expected to say that a federal program that offers government insurance for mortgages created last summer "can and should be extended in a responsible way."
Many of the details about the expansion are not clear, but it seems likely that the program could become the administration's most aggressive response to the housing crisis, which has prompted Washington to reverse years of laissez-faire attitudes toward the economy.
The expansion would be focused on helping struggling homeowners who owe more than their house is worth.
Under the expanded program, lenders could get FHA insurance for problem loans in exchange for "voluntarily writing down the outstanding mortgage principal," according to the testimony. That would entail the government being responsible for an increasing number of risky loans.
Mr. Montgomery emphasizes in the testimony that "while considering any changes to FHA, we must ensure that the financial solvency of the [FHA] must not be compromised." FHA is a division of the U.S. Department of Housing and Urban Development, which didn't return calls seeking comment.
Under the original program created last year, known as FHASecure, homeowners with high-interest, adjustable-rate mortgages currently can refinance into an FHA-insured mortgage and lower their monthly payments. To date, the administration says it's served 145,000 homeowners in need, and projections show that it will likely reach more than 400,000 by year's end. A temporary expansion of the program would be expected to add significantly to that total.
The moves highlighted the deep political fault lines emerging in Washington over the housing market. Both the Republican Bush administration and Democrats in charge of Congress are eager to be seen addressing the problem. But both have ideological objections to the other side's approach so far, and both see potential advantage in casting the other side as intransigent and out of touch.
The administration proposal appeared calculated to put a conservative White House imprimatur on a basic concept that Democrats also have been weighing – using the government's power to induce lenders to reduce payments for struggling homeowners, while also providing some government guarantee that the loan, or most of it anyway, will be repaid. The administration's approach is likely to be narrower in terms of the number of homeowners who could qualify.
Write to Damian Paletta at damian.paletta@wsj.com and John D. McKinnon at john.mckinnon@wsj.com
Sunday, April 06, 2008
Breaking News!! Association of Realtors reports sales and price decline
Home sales decreased 28.5 percent in February in California compared with the same period a year ago, while the median price of an existing home fell 26.2 percent, the California Association of Realtors® (C.A.R.) reported.
"Although sales rose for the fourth straight month in February by 9.5 percent compared to the previous month, they continued to be dragged down by the ongoing effects of both the credit/liquidity crunch and tighter underwriting standards that have reduced the pool of qualified buyers who can obtain a loan," said C.A.R. President William E. Brown.
"It is crucial that FHA reform legislation currently under consideration by congress include higher loan limits for high-cost states like California," he said. "The proposed legislation also includes a reduction in the down payment requirement for FHA loans and will include condominiums in the FHA single-family program, which will make it easier for buyers in the condominium market to qualify for loans."
Closed escrow sales of existing, single-family detached homes in California totaled 343,220 in February at a seasonably adjusted annualized rate, according to information collected by C.A.R. from more than 90 local Realtor® Associations statewide. Statewide home resale activity decreased 28.5 percent from the revised 480,170 sales pace recorded in February 2007.
The statewide sales figure represents what the total number of homes sold during 2008 would be if sales maintained the February pace throughout the year. It is adjusted to account for seasonal factors that typically influence home sales.
The median price of an existing, single-family detached home in California during February 2008 was $409,240 a 26.2 percent decrease from the revised $554,280 median for February 2007, C.A.R. reported. The February 2008 median price fell 4.8 percent compared with January's revised $429,790 median price.
"The Federal Reserve Bank's recent action to reduce the federal funds rate will have little near-term direct effect on the housing market," said C.A.R. Vice President and Chief Economist Leslie Appleton-Young. "However, Fed rate cuts should result in more favorable real estate finance rates as we move though the year."
Highlights of C.A.R.'s resale housing figures for February 2008:
C.A.R.'s Unsold Inventory Index for existing, single-family detached homes in February 2008 was 14.3 months, compared with 8.2 months for the same period a year ago. The index indicates the number of months needed to deplete the supply of homes on the market at the current sales rate.
Thirty-year fixed-mortgage interest rates averaged 5.92 percent during February 2008, compared with 6.29 percent in February 2007, according to Freddie Mac. Adjustable-mortgage interest rates averaged 5.03 percent in February 2008, compared with 5.51 percent in February 2007.
The median number of days it took to sell a single-family home was 68.6 days in February 2008, compared with 66.1 for the same period a year ago.
"Although sales rose for the fourth straight month in February by 9.5 percent compared to the previous month, they continued to be dragged down by the ongoing effects of both the credit/liquidity crunch and tighter underwriting standards that have reduced the pool of qualified buyers who can obtain a loan," said C.A.R. President William E. Brown.
"It is crucial that FHA reform legislation currently under consideration by congress include higher loan limits for high-cost states like California," he said. "The proposed legislation also includes a reduction in the down payment requirement for FHA loans and will include condominiums in the FHA single-family program, which will make it easier for buyers in the condominium market to qualify for loans."
Closed escrow sales of existing, single-family detached homes in California totaled 343,220 in February at a seasonably adjusted annualized rate, according to information collected by C.A.R. from more than 90 local Realtor® Associations statewide. Statewide home resale activity decreased 28.5 percent from the revised 480,170 sales pace recorded in February 2007.
The statewide sales figure represents what the total number of homes sold during 2008 would be if sales maintained the February pace throughout the year. It is adjusted to account for seasonal factors that typically influence home sales.
The median price of an existing, single-family detached home in California during February 2008 was $409,240 a 26.2 percent decrease from the revised $554,280 median for February 2007, C.A.R. reported. The February 2008 median price fell 4.8 percent compared with January's revised $429,790 median price.
"The Federal Reserve Bank's recent action to reduce the federal funds rate will have little near-term direct effect on the housing market," said C.A.R. Vice President and Chief Economist Leslie Appleton-Young. "However, Fed rate cuts should result in more favorable real estate finance rates as we move though the year."
Highlights of C.A.R.'s resale housing figures for February 2008:
C.A.R.'s Unsold Inventory Index for existing, single-family detached homes in February 2008 was 14.3 months, compared with 8.2 months for the same period a year ago. The index indicates the number of months needed to deplete the supply of homes on the market at the current sales rate.
Thirty-year fixed-mortgage interest rates averaged 5.92 percent during February 2008, compared with 6.29 percent in February 2007, according to Freddie Mac. Adjustable-mortgage interest rates averaged 5.03 percent in February 2008, compared with 5.51 percent in February 2007.
The median number of days it took to sell a single-family home was 68.6 days in February 2008, compared with 66.1 for the same period a year ago.
Thursday, April 03, 2008
Housing Relief Comes at a Cost: No More Easy Money
Fannie Mae Tightens Loan Criteria for Credit Scores
Fannie Mae's Managing Director, Brian Faith, released a statement on Wednesday that gave notice that at least one of the two government sponsored enterprises (GSEs) that play a major role in the nation's mortgage industry has decided it would be wise to protect its own interests.
Government lawmakers have increasingly focused on Fannie Mae and the other GSE, Freddie Mac, as a big part of efforts to ease the credit crunch. The Office of Federal Housing Enterprise Oversight (OFHEO) recently lifted the loan limit to make it possible for the GSEs to buy what are generally termed jumbo mortgages and reduced capital requirements to enable Freddie and Fannie to purchase more mortgages for their own portfolios.
The public statement by Faith was very general, saying in part:
"As Fannie Mae has expanded its mortgage guaranty business to serve the market's urgent need for stability, liquidity and affordability, the company has undertaken a series of steps to protect borrowers, manage the increased credit risk in the market, and fortify the company's capital position. Among these steps, our company is continually assessing and establishing new pricing, eligibility and underwriting criteria for our business that more accurately reflects the current risks in the housing market and guards against the potential for foreclosure. These changes are incorporated into our underwriting system and include adjustments to credit score criteria, loan-to-value ratios, down payment requirements, accurate valuation practices, and consideration of markets where home prices may be falling."
"Given the current state of the mortgage and housing markets, it is critical for our company to conservatively manage our business and risks through prudent pricing and underwriting, while providing sustainable liquidity to our lender customers and stability to the markets as part of our core mission. We will continue striving to responsibly strike that balance."
However, in a memo to its business partners, Fannie Mae got a bit more specific. Fannie Mae will now require a minimum credit score of 580 for most loans that it buys although it says it will still acquire loans with lower score under certain very limited circumstances. This is not a major change as 94 percent of Fannie's business last year was in loans with scores over 620. It also announced some changes in the maximum loan-to-value of loans it would purchase.
Fannie also said it would lengthen the period needed for borrowers to re-establish their credit history after a foreclosure to five years from four years with, again, some exceptions for extenuating circumstances.
What is most interesting about all of this is that it sounds as though Fannie Mae is prepared to stand its ground and protect itself and its shareholders in the face of demands that it be all things to all forces in the current crisis.
from Mortgage News Daily, April 3, 2008
Fannie Mae's Managing Director, Brian Faith, released a statement on Wednesday that gave notice that at least one of the two government sponsored enterprises (GSEs) that play a major role in the nation's mortgage industry has decided it would be wise to protect its own interests.
Government lawmakers have increasingly focused on Fannie Mae and the other GSE, Freddie Mac, as a big part of efforts to ease the credit crunch. The Office of Federal Housing Enterprise Oversight (OFHEO) recently lifted the loan limit to make it possible for the GSEs to buy what are generally termed jumbo mortgages and reduced capital requirements to enable Freddie and Fannie to purchase more mortgages for their own portfolios.
The public statement by Faith was very general, saying in part:
"As Fannie Mae has expanded its mortgage guaranty business to serve the market's urgent need for stability, liquidity and affordability, the company has undertaken a series of steps to protect borrowers, manage the increased credit risk in the market, and fortify the company's capital position. Among these steps, our company is continually assessing and establishing new pricing, eligibility and underwriting criteria for our business that more accurately reflects the current risks in the housing market and guards against the potential for foreclosure. These changes are incorporated into our underwriting system and include adjustments to credit score criteria, loan-to-value ratios, down payment requirements, accurate valuation practices, and consideration of markets where home prices may be falling."
"Given the current state of the mortgage and housing markets, it is critical for our company to conservatively manage our business and risks through prudent pricing and underwriting, while providing sustainable liquidity to our lender customers and stability to the markets as part of our core mission. We will continue striving to responsibly strike that balance."
However, in a memo to its business partners, Fannie Mae got a bit more specific. Fannie Mae will now require a minimum credit score of 580 for most loans that it buys although it says it will still acquire loans with lower score under certain very limited circumstances. This is not a major change as 94 percent of Fannie's business last year was in loans with scores over 620. It also announced some changes in the maximum loan-to-value of loans it would purchase.
Fannie also said it would lengthen the period needed for borrowers to re-establish their credit history after a foreclosure to five years from four years with, again, some exceptions for extenuating circumstances.
What is most interesting about all of this is that it sounds as though Fannie Mae is prepared to stand its ground and protect itself and its shareholders in the face of demands that it be all things to all forces in the current crisis.
from Mortgage News Daily, April 3, 2008
Uncle Subprime
April 3, 2008
Mortgage foreclosures haven't yet hit their peak, it's an election year, and Congress is back in session. Hold onto your wallets because a housing bailout is moving forward unless the White House says no.
Senators from both parties agreed late yesterday to throw about $11 billion more at the housing market, and we'll have more to say about that later. But think of Uncle Sam as the subprime lender of last resort and you are getting close to what the Beltway is contemplating. In the name of preventing foreclosures, House Financial Services Chairman Barney Frank wants to transfer the risk of further declines in home prices to taxpayers from lenders and borrowers.
Mr. Frank's idea is that, for mortgages originated between the start of 2005 and mid-2007, a lender and borrower would be able to agree on a federal refinancing plan. Lenders would have to write down their loan to no more than 85% of the current appraised value of the property – which means the banks will use this opportunity to unload the biggest stinkers in their loan portfolios.
For the borrower, the deal is even sweeter: a low fixed monthly payment and a reduction in the principal to market value. The Federal Housing Administration would then guarantee the loan, up to a total of $300 billion in total Frank Refis. The deal is so sweet that even Mr. Frank is concerned that otherwise reliable borrowers may "purposely default" to be eligible for assistance. His solution is to require borrowers to "certify" that they really, truly aren't doing this simply to get on the taxpayer gravy train.
The pols also understand, but won't admit, that you can't bail out borrowers without bailing out lenders. And on both counts, we're not talking about the most deserving recipients in the history of welfare: Those receiving bailouts will be lenders who chased high returns despite the risks, and borrowers challenging historic rates of delinquency even before rate resets. Many will also be fraudsters, given that mortgage fraud has increased more than 1,200% since 2000.
A new study from the Boston Federal Reserve destroys the myth of the victimized subprime borrower. Boston Fed economists examined 1.5 million homeownerships over nearly 20 years and found that the overwhelming reason for subprime foreclosures is not unsustainable debt foisted on ignorant borrowers or even financial setbacks. People walk out on subprime mortgages when the value of their home declines.
Homeowners who've suffered a 20% decline in home prices are 14 times as likely to default as those who have enjoyed a 20% gain. "Subprime lending played a role but that role was in creating a class of homeowners who were particularly sensitive to declining house price appreciation, rather than, as is commonly believed, by placing people in inherently problematic mortgages," says the Boston Fed study. In other words, even if the government moves these borrowers into FHA-guaranteed mortgages with fixed rates, but home prices keep falling, lots of borrowers will stiff the taxpayers like they've been stiffing private lenders.
Traditionally, lenders making a commitment to finance your home have demanded that you make a commitment as well: a down payment. But during the credit boom, the shrinking market share of FHA-insured loans demonstrated how much the world was changing. FHA was intended to help moderate-income borrowers afford homes by requiring merely a 3% down payment. When subprime lenders started offering loans with zero down, FHA asked Congress to let their lenders do the same. Fortunately for taxpayers, Congress resisted. In the fourth quarter of 2007, FHA loans were one mortgage category that actually enjoyed a decline in foreclosures.
That trend may not last, because Mr. Frank's bill waters down FHA underwriting standards. Today, the FHA tells lenders that a borrower should not have debt payments amounting to more than 43% of monthly income, but Mr. Frank's bill allows this figure to rise as high as 55%.
Under current FHA guidelines, lenders must also closely examine a borrower's credit history. Yet under the "flexible underwriting standards" in Mr. Frank's draft, borrowers can't be denied FHA insurance due to a low credit score. Delinquency on existing mortgages also can't be the sole reason to deny FHA insurance. Mr. Frank's bill authorizes the Secretary of Housing and Urban Development to contract out for a new underwriting system, and it should be entertaining to see what HUD's political minds can devise to appease pressure groups.
In sum, Mr. Frank is volunteering U.S. taxpayers to insure $300 billion in mortgages with underwriting standards to be named later. Connecticut Senator Chris Dodd thinks $400 billion is more like it. Quavering Republicans should do the political math. The Mortgage Bankers Association tracks 46 million mortgage borrowers, and 42 million are paying on time. More than 20 million households own their homes outright and, having worked for years to pay for them, probably don't want to pay for someone else's. Neither do 35 million renters who didn't take a flyer on nicer digs.
The good news is that a taxpayer champion is emerging from, of all places, Florida. His state is ground zero in the housing downturn, but House Republican Tom Feeney says, "My constituents are not terribly sympathetic with borrowers who made bad decisions." We're told the White House will oppose the Frank-Dodd bailout, but if there's any doubt, Mr. Bush should have Mr. Feeney in for a chat.
The lead editorial column in today's Wall Street JournalSee all of today's editorials and op-eds, plus video commentary, on Opinion Journal.
[As always, Ray Kutylo and the SCV Home Team view macro-economic decisions as well outside of our authority to influence. However, we are all influenced by these decisions in both our personal and business environments. Public policy, either good or bad, will have far-reaching effects. We pay attention to these currents and changes in directions of public policy in order to better advise our clients.]
Mortgage foreclosures haven't yet hit their peak, it's an election year, and Congress is back in session. Hold onto your wallets because a housing bailout is moving forward unless the White House says no.
Senators from both parties agreed late yesterday to throw about $11 billion more at the housing market, and we'll have more to say about that later. But think of Uncle Sam as the subprime lender of last resort and you are getting close to what the Beltway is contemplating. In the name of preventing foreclosures, House Financial Services Chairman Barney Frank wants to transfer the risk of further declines in home prices to taxpayers from lenders and borrowers.
Mr. Frank's idea is that, for mortgages originated between the start of 2005 and mid-2007, a lender and borrower would be able to agree on a federal refinancing plan. Lenders would have to write down their loan to no more than 85% of the current appraised value of the property – which means the banks will use this opportunity to unload the biggest stinkers in their loan portfolios.
For the borrower, the deal is even sweeter: a low fixed monthly payment and a reduction in the principal to market value. The Federal Housing Administration would then guarantee the loan, up to a total of $300 billion in total Frank Refis. The deal is so sweet that even Mr. Frank is concerned that otherwise reliable borrowers may "purposely default" to be eligible for assistance. His solution is to require borrowers to "certify" that they really, truly aren't doing this simply to get on the taxpayer gravy train.
The pols also understand, but won't admit, that you can't bail out borrowers without bailing out lenders. And on both counts, we're not talking about the most deserving recipients in the history of welfare: Those receiving bailouts will be lenders who chased high returns despite the risks, and borrowers challenging historic rates of delinquency even before rate resets. Many will also be fraudsters, given that mortgage fraud has increased more than 1,200% since 2000.
A new study from the Boston Federal Reserve destroys the myth of the victimized subprime borrower. Boston Fed economists examined 1.5 million homeownerships over nearly 20 years and found that the overwhelming reason for subprime foreclosures is not unsustainable debt foisted on ignorant borrowers or even financial setbacks. People walk out on subprime mortgages when the value of their home declines.
Homeowners who've suffered a 20% decline in home prices are 14 times as likely to default as those who have enjoyed a 20% gain. "Subprime lending played a role but that role was in creating a class of homeowners who were particularly sensitive to declining house price appreciation, rather than, as is commonly believed, by placing people in inherently problematic mortgages," says the Boston Fed study. In other words, even if the government moves these borrowers into FHA-guaranteed mortgages with fixed rates, but home prices keep falling, lots of borrowers will stiff the taxpayers like they've been stiffing private lenders.
Traditionally, lenders making a commitment to finance your home have demanded that you make a commitment as well: a down payment. But during the credit boom, the shrinking market share of FHA-insured loans demonstrated how much the world was changing. FHA was intended to help moderate-income borrowers afford homes by requiring merely a 3% down payment. When subprime lenders started offering loans with zero down, FHA asked Congress to let their lenders do the same. Fortunately for taxpayers, Congress resisted. In the fourth quarter of 2007, FHA loans were one mortgage category that actually enjoyed a decline in foreclosures.
That trend may not last, because Mr. Frank's bill waters down FHA underwriting standards. Today, the FHA tells lenders that a borrower should not have debt payments amounting to more than 43% of monthly income, but Mr. Frank's bill allows this figure to rise as high as 55%.
Under current FHA guidelines, lenders must also closely examine a borrower's credit history. Yet under the "flexible underwriting standards" in Mr. Frank's draft, borrowers can't be denied FHA insurance due to a low credit score. Delinquency on existing mortgages also can't be the sole reason to deny FHA insurance. Mr. Frank's bill authorizes the Secretary of Housing and Urban Development to contract out for a new underwriting system, and it should be entertaining to see what HUD's political minds can devise to appease pressure groups.
In sum, Mr. Frank is volunteering U.S. taxpayers to insure $300 billion in mortgages with underwriting standards to be named later. Connecticut Senator Chris Dodd thinks $400 billion is more like it. Quavering Republicans should do the political math. The Mortgage Bankers Association tracks 46 million mortgage borrowers, and 42 million are paying on time. More than 20 million households own their homes outright and, having worked for years to pay for them, probably don't want to pay for someone else's. Neither do 35 million renters who didn't take a flyer on nicer digs.
The good news is that a taxpayer champion is emerging from, of all places, Florida. His state is ground zero in the housing downturn, but House Republican Tom Feeney says, "My constituents are not terribly sympathetic with borrowers who made bad decisions." We're told the White House will oppose the Frank-Dodd bailout, but if there's any doubt, Mr. Bush should have Mr. Feeney in for a chat.
The lead editorial column in today's Wall Street JournalSee all of today's editorials and op-eds, plus video commentary, on Opinion Journal.
[As always, Ray Kutylo and the SCV Home Team view macro-economic decisions as well outside of our authority to influence. However, we are all influenced by these decisions in both our personal and business environments. Public policy, either good or bad, will have far-reaching effects. We pay attention to these currents and changes in directions of public policy in order to better advise our clients.]
Top 10 Seller Short Sale Questions..Answered
Most Common Questions A Seller Will Ask
by Tim and Julie Harris
Number 10
I can't make my house payments, but I do have an ability to pay back all or part of the negative equity. Also, I want to preserve my credit score...is a short sale right for me?
Probably, not. In cases where the seller can pay back all or part of the negative equity (usually to the 2nd lien holder), it makes sense for them to work out a repayment plan. The lender will then release the lien and allow the home to close.
Number 9
If I pay mortgage insurance and default on my loan, why wouldn't that cover the deficiency amount?
The mortgage insurance is not there for your protection, just the mortgage lender's.
Number 8
Do I have to have my home "Approved" by the lender prior to offering it for sale as a short sale?
No. Technically speaking there is no such thing as being "Short Sale Approved." The actual approval only happens with an accepted offer.
Number 7
I just missed a payment and I know I will miss more...how long does the foreclosure process take and is there time to do a short sale?
The foreclosure process takes differing times depending on your state. In the Midwest a foreclosure can take over a year. In California its taking 6+ months. Generally speaking a well priced short sale being processed by an educated short sale listing agent will sell and close in less than 120 days.
Number 6
Will I still have to pay property taxes if I do a short sale?
Property taxes will always have to be paid as part of any accepted short sale. Whether it's you or the lender, it depends on their policies and the specific agreement you reach while negotiating the short sale.
Number 5
I owe more than my home is worth and I can't make the payment. Do I have to somehow qualify for a short sale?
The simple answer is NO. If someone can't make their payment and they are otherwise insolvent, they qualify for a short sale. Note: insolvent simply means their total debts are great than their assets.
Number 4
Do I have to pay income taxes...I have heard that I will get a 1099. Will the loss the bank takes be treated as a taxable gain to me...the seller...is this true?
It WAS true, now it's not. Consult your Tax Attorney or Qualified CPA. Very recently the tax law was modified and now most people who do a short sale will have no taxes due.
Number 3
How do you, my listing agent get paid...who pays your commission?
The bank will pay the commission along with all the other usual closing costs.
Number 2
Do I have to miss a payment to do a Short Sale?
No. Late last year most major lenders started accepting short sale offers from sellers who have never missed a payment.
Number 1
I want to do a short sale and have a 2nd mortgage, does this make me ineligible?
No. Both of your lenders will need to be satisfied in some way to complete the short sale. If your first lender will be paid off by the sale, then you just negotiate the terms with the second lender. Most short sales do involve 1st and 2nd lien holders.
by Tim and Julie Harris
Number 10
I can't make my house payments, but I do have an ability to pay back all or part of the negative equity. Also, I want to preserve my credit score...is a short sale right for me?
Probably, not. In cases where the seller can pay back all or part of the negative equity (usually to the 2nd lien holder), it makes sense for them to work out a repayment plan. The lender will then release the lien and allow the home to close.
Number 9
If I pay mortgage insurance and default on my loan, why wouldn't that cover the deficiency amount?
The mortgage insurance is not there for your protection, just the mortgage lender's.
Number 8
Do I have to have my home "Approved" by the lender prior to offering it for sale as a short sale?
No. Technically speaking there is no such thing as being "Short Sale Approved." The actual approval only happens with an accepted offer.
Number 7
I just missed a payment and I know I will miss more...how long does the foreclosure process take and is there time to do a short sale?
The foreclosure process takes differing times depending on your state. In the Midwest a foreclosure can take over a year. In California its taking 6+ months. Generally speaking a well priced short sale being processed by an educated short sale listing agent will sell and close in less than 120 days.
Number 6
Will I still have to pay property taxes if I do a short sale?
Property taxes will always have to be paid as part of any accepted short sale. Whether it's you or the lender, it depends on their policies and the specific agreement you reach while negotiating the short sale.
Number 5
I owe more than my home is worth and I can't make the payment. Do I have to somehow qualify for a short sale?
The simple answer is NO. If someone can't make their payment and they are otherwise insolvent, they qualify for a short sale. Note: insolvent simply means their total debts are great than their assets.
Number 4
Do I have to pay income taxes...I have heard that I will get a 1099. Will the loss the bank takes be treated as a taxable gain to me...the seller...is this true?
It WAS true, now it's not. Consult your Tax Attorney or Qualified CPA. Very recently the tax law was modified and now most people who do a short sale will have no taxes due.
Number 3
How do you, my listing agent get paid...who pays your commission?
The bank will pay the commission along with all the other usual closing costs.
Number 2
Do I have to miss a payment to do a Short Sale?
No. Late last year most major lenders started accepting short sale offers from sellers who have never missed a payment.
Number 1
I want to do a short sale and have a 2nd mortgage, does this make me ineligible?
No. Both of your lenders will need to be satisfied in some way to complete the short sale. If your first lender will be paid off by the sale, then you just negotiate the terms with the second lender. Most short sales do involve 1st and 2nd lien holders.
Friday, March 28, 2008
How to Help the Kids Buy First Home
Helping the kids buy a first home is a time-honored tradition that has become even more significant as home prices rise and incomes flatten.
Here are three ways parents can help their children:
Cash. For parents with the means, cash is clean and easy. An individual can give $12,000 a year to a recipient without having to pay a tax on the gift. Therefore, a couple could give an adult child and the child's spouse a total of $48,000 in one year. To keep things simple, the gift is best given well in advance of the mortgage application.
Cosigning or otherwise jointly investing in the property. This can work for parents of more limited means or those who want to be paid back. The biggest risk is that the offspring will be unable to meet their obligations and it will affect the parent’s credit rating.
Knowledge and hard work are worth gold. Parents who can’t afford to help financially may be able to provide experience and even some sweat equity to help the kids make a smart housing choice.
Source: Market Watch (03/21/08)
Here are three ways parents can help their children:
Cash. For parents with the means, cash is clean and easy. An individual can give $12,000 a year to a recipient without having to pay a tax on the gift. Therefore, a couple could give an adult child and the child's spouse a total of $48,000 in one year. To keep things simple, the gift is best given well in advance of the mortgage application.
Cosigning or otherwise jointly investing in the property. This can work for parents of more limited means or those who want to be paid back. The biggest risk is that the offspring will be unable to meet their obligations and it will affect the parent’s credit rating.
Knowledge and hard work are worth gold. Parents who can’t afford to help financially may be able to provide experience and even some sweat equity to help the kids make a smart housing choice.
Source: Market Watch (03/21/08)
Thursday, March 27, 2008
40 Tips for an Exceptional, Superb & Powerful Life
Frank, a valued member of the SCV Home Team, just sent me this list. What do you think? Do you have anything to add?
1. Take a 10-30 minute walk every day. And while you walk, smile. It is the ultimate anti-depressant.
2. Sit in silence for at least 10 minutes each day. Buy a lock if you have to.
3. Buy a Tivo (DVR), tape your late night shows and get more sleep.
4. When you wake up in the morning complete the following statement, 'My purpose is to________ today.'
5. Live with the 3 E's -- Energy, Enthusiasm, and Empathy.
6. Watch more movies, play more games and read more books than you did last year.
7. Always pray and make time to exercise.
8. Spend more time with people over the age of 70 and under the age of six.
9. Dream more while you are awake.
10. Eat more foods that grow on trees and plants and eat fewer foods that are manufactured in plants.
11. Drink green tea and plenty of water. Eat blueberries, wild Alaskan salmon, broccoli, almonds & walnuts.
12. Try to make at least three people smile each day.
13. Clear your clutter from your house, your car, your desk and let new and flowing energy into your life.
14. Don't waste your precious energy on gossip, energy vampires, issues of the past, negative thoughts or things you cannot control. Instead, invest your energy in the positive present moment.
15. Realize that life is a school and you are here to learn. Problems are simply part of the curriculum that appear and fade away like algebra class .....but the lessons you learn will last a lifetime.
16. Eat breakfast like a king, lunch like a prince and dinner like a college kid with a maxed out charge card.
17. Smile and laugh more. It will keep the energy vampires away.
18. Life isn't fair, but it's still good.
19. Life is too short to waste time hating anyone.
20. Don't take yourself so seriously. No one else does.
21. You don't have to win every argument. Agree to disagree.
22. Make peace with your past so it won't screw up the present.
23. Don't compare your life to others'. You have no idea what their journey is all about.
24. Ladies - Go on and burn those 'special' scented candles, use the 600 thread count sheets, the good china and wear our fancy lingerie now. Stop waiting for a special occasion. Everyday is special.
25. Guys: Go out and golf or fish or putter around the house or whatever it is that makes you happy. No one is in charge of your happiness except you.
26. Frame every so-called disaster with these words: 'In five years, will this matter?'
27. Forgive everyone for everything.
28. What other people think of you is none of your business. And if you knew how infrequently they thought of you, you certainly wouldn't care what they thought.
29. Time heals almost everything. Give time, time!
30. However good or bad a situation is it will change.
31. Your job won't take care of you when you are sick. Your friends will. Stay in touch with them.
32. Get rid of anything that isn't useful, beautiful or joyful.
33. Envy is a waste of time. You already have all you need. God provides, remember?!
34. The best is yet to come. (In Heaven)
35. No matter how you feel, get up, dress up and show up.
36. Do the right thing!
37. Call your family often.
38. Each night before you go to bed complete the Following statements:
'I am thankful for __________. Today I accomplished _________.'
39. Remember that you are too blessed to be stressed.
40. Enjoy the ride. Remember that this is not Disney World and you certainly don't want a fast pass. You only have one ride through life so make the most of it and enjoy the ride.
LIVE, LOVE, LAUGH. LIFE'S A GIFT ... UNWRAP IT!
Have a great day.
1. Take a 10-30 minute walk every day. And while you walk, smile. It is the ultimate anti-depressant.
2. Sit in silence for at least 10 minutes each day. Buy a lock if you have to.
3. Buy a Tivo (DVR), tape your late night shows and get more sleep.
4. When you wake up in the morning complete the following statement, 'My purpose is to________ today.'
5. Live with the 3 E's -- Energy, Enthusiasm, and Empathy.
6. Watch more movies, play more games and read more books than you did last year.
7. Always pray and make time to exercise.
8. Spend more time with people over the age of 70 and under the age of six.
9. Dream more while you are awake.
10. Eat more foods that grow on trees and plants and eat fewer foods that are manufactured in plants.
11. Drink green tea and plenty of water. Eat blueberries, wild Alaskan salmon, broccoli, almonds & walnuts.
12. Try to make at least three people smile each day.
13. Clear your clutter from your house, your car, your desk and let new and flowing energy into your life.
14. Don't waste your precious energy on gossip, energy vampires, issues of the past, negative thoughts or things you cannot control. Instead, invest your energy in the positive present moment.
15. Realize that life is a school and you are here to learn. Problems are simply part of the curriculum that appear and fade away like algebra class .....but the lessons you learn will last a lifetime.
16. Eat breakfast like a king, lunch like a prince and dinner like a college kid with a maxed out charge card.
17. Smile and laugh more. It will keep the energy vampires away.
18. Life isn't fair, but it's still good.
19. Life is too short to waste time hating anyone.
20. Don't take yourself so seriously. No one else does.
21. You don't have to win every argument. Agree to disagree.
22. Make peace with your past so it won't screw up the present.
23. Don't compare your life to others'. You have no idea what their journey is all about.
24. Ladies - Go on and burn those 'special' scented candles, use the 600 thread count sheets, the good china and wear our fancy lingerie now. Stop waiting for a special occasion. Everyday is special.
25. Guys: Go out and golf or fish or putter around the house or whatever it is that makes you happy. No one is in charge of your happiness except you.
26. Frame every so-called disaster with these words: 'In five years, will this matter?'
27. Forgive everyone for everything.
28. What other people think of you is none of your business. And if you knew how infrequently they thought of you, you certainly wouldn't care what they thought.
29. Time heals almost everything. Give time, time!
30. However good or bad a situation is it will change.
31. Your job won't take care of you when you are sick. Your friends will. Stay in touch with them.
32. Get rid of anything that isn't useful, beautiful or joyful.
33. Envy is a waste of time. You already have all you need. God provides, remember?!
34. The best is yet to come. (In Heaven)
35. No matter how you feel, get up, dress up and show up.
36. Do the right thing!
37. Call your family often.
38. Each night before you go to bed complete the Following statements:
'I am thankful for __________. Today I accomplished _________.'
39. Remember that you are too blessed to be stressed.
40. Enjoy the ride. Remember that this is not Disney World and you certainly don't want a fast pass. You only have one ride through life so make the most of it and enjoy the ride.
LIVE, LOVE, LAUGH. LIFE'S A GIFT ... UNWRAP IT!
Have a great day.
Lower Long Term Mortgage Rates Spur More Loan Applications
Long term mortgage rates fell dramatically during the week ended March 20 according to the Primary Mortgage Market Survey released by Freddie Mac. Short term rates remained relatively unchanged although fees and points bumped up to the highest levels we have seen in the three years we have been tracking the Freddie Mac report.
The 30-year fixed-rate mortgage (FRM) had an average rate of 5.87 percent with 0.5 point for the week compared to the previous week when it averaged 6.13 percent with 0.5 point. Last year at this time the 30-year averaged 6.16 percent.
The 15-year FRM dropped 33 basis points to 5.27 percent. Fees and points were unchanged at 0.5. One year ago the average rate for the 15-year was 5.90 percent.
Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) carried a mean rate of 5.56 percent, down from the previous week when rates averaged 5.58 percent. Fees and points, however, rose to an average of 0.9 point from 0.6 point. One year ago the 5-year ARM averaged 5.91 percent.
One-year Treasury-indexed ARMS averaged 5.15 percent, an increase of one basis point from the previous week and points increased from 0.7 to 0.8. This same week in 2007 the one-year ARM averaged 5.40 percent.
"Mortgage rates fell this week as various actions were taken to improve market liquidity," said Frank Nothaft, Freddie Mac vice president and chief economist. "In addition, the inflation report from the Consumer Price Index (CPI) reflected weaker price increases than consensus expectations. Unchanged in February both including and excluding food and energy costs, it is the first time the core CPI did not report a monthly increase since November 2006.
from Mortgage News Daily March 27, 2008
The 30-year fixed-rate mortgage (FRM) had an average rate of 5.87 percent with 0.5 point for the week compared to the previous week when it averaged 6.13 percent with 0.5 point. Last year at this time the 30-year averaged 6.16 percent.
The 15-year FRM dropped 33 basis points to 5.27 percent. Fees and points were unchanged at 0.5. One year ago the average rate for the 15-year was 5.90 percent.
Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) carried a mean rate of 5.56 percent, down from the previous week when rates averaged 5.58 percent. Fees and points, however, rose to an average of 0.9 point from 0.6 point. One year ago the 5-year ARM averaged 5.91 percent.
One-year Treasury-indexed ARMS averaged 5.15 percent, an increase of one basis point from the previous week and points increased from 0.7 to 0.8. This same week in 2007 the one-year ARM averaged 5.40 percent.
"Mortgage rates fell this week as various actions were taken to improve market liquidity," said Frank Nothaft, Freddie Mac vice president and chief economist. "In addition, the inflation report from the Consumer Price Index (CPI) reflected weaker price increases than consensus expectations. Unchanged in February both including and excluding food and energy costs, it is the first time the core CPI did not report a monthly increase since November 2006.
from Mortgage News Daily March 27, 2008
Tuesday, March 25, 2008
U.S. Officials Warn of Scams Targeting Homeowners
By EVAN PEREZ
March 25, 2008; Page A3
Wall Street Journal
Federal officials say a wave of opportunistic scams are targeting homeowners trying to avoid foreclosure in the current housing downturn.
Monday, prosecutors in California unsealed twin cases against 19 people who, according to agents from the Federal Bureau of Investigation and the Internal Revenue Service, skimmed nearly $13 million in equity from 115 homeowners coast to coast under the guise of a mortgage rescue.
Real-estate scammers "took advantage of the elevated market that peaked in 2005, and here now the vultures are waiting as the market goes down," said U.S. Attorney McGregor Scott of Sacramento.
Click for Full article
March 25, 2008; Page A3
Wall Street Journal
Federal officials say a wave of opportunistic scams are targeting homeowners trying to avoid foreclosure in the current housing downturn.
Monday, prosecutors in California unsealed twin cases against 19 people who, according to agents from the Federal Bureau of Investigation and the Internal Revenue Service, skimmed nearly $13 million in equity from 115 homeowners coast to coast under the guise of a mortgage rescue.
Real-estate scammers "took advantage of the elevated market that peaked in 2005, and here now the vultures are waiting as the market goes down," said U.S. Attorney McGregor Scott of Sacramento.
Click for Full article
Wednesday, March 19, 2008
Stratfor's take on Fed Rate Cut Decision
The U.S. Federal Reserve reduced its headline interest rates from 3 percent to 2.25 percent on Tuesday afternoon. The cut, which was a quarter point less than the consensus expectation of 1 percent, followed the Fed’s March 16 redefinition of the rules of borrowing. Nevertheless, the U.S. markets did not plummet in disappointment.
It is always difficult to understand the Fed’s reasoning. A guess would be that this actually was an attempt to instill confidence in markets. A full point cut might have been perceived as ongoing panic, while a smaller cut might have been seen as too much concern about inflation — not a trivial fear, but not good for the markets. A three-quarter point cut may have been an attempt to cut interest rates while still showing some confidence.
For the most part, the Federal Reserve prefers to ignore the financial markets along with all of the noise that is a regular feature in the world of Wall Street. It is not that there is no money or discussions of economic import occurring there — far from it — but that the Fed sees the financial markets as simply one aspect of the entire economy, and a rather erratic aspect at that. Better, goes the Fed’s thinking, to focus on the nuts and bolts of the “real” economy so that the entire thing can be kept on an even keel.
The Fed in this case is worried about the equity markets. The decline in housing prices already has taken a cut out of the net worth of individuals while hurting institutions holding mortgages of various sorts. A full-blown bear market on top of the decline in home values might have concerned the Fed more than a usual downturn would have. The double whammy of housing price declines and stock market crashes could have been devastating, even to an economy as large as the United States’. Therefore, the Fed appears to be exceedingly concerned about keeping the U.S. equity markets from tanking and is paying attention to its psychology as well as the fundamentals.
In reality, the housing correction is rather mild by historical standards, and the stock markets — only down by roughly 15-20 percent since the start of the subprime problems — are not exactly terrifying compared to previous stock crashes. But tell that to the people on Wall Street who live and breathe on the day-to-day deltas in both worlds. Their panic — and the place they occupy between the Fed, the housing market and the stock markets — is forcing the Fed to take actions that it would prefer not to.
The last time the Federal Reserve felt it necessary to enact sharp cuts when the danger to the real economy was this nebulous was during the Alan Greenspan era in the early weeks after the 9/11 attacks. Then, a cascade of rate cuts — one for a full percentage point — pared rates to the bone. In retrospect, the Federal Reserve probably overreacted. The benefit of hindsight tells us that the American recovery — not recession — began in October 2001. But the perception at the time was that the system itself might have been in danger, so there was no reason to spare the horses.
Now, as in 2001, the actual threat probably is not as bad as it seems. Now, as in 2001, the Fed’s goal is to assuage panic. But now, unlike in 2001, the panic is largely constrained to Wall Street.
That distinction provides the Federal Reserve with the opportunity to draw a line between Wall Street’s expectations and reality. The Street was expecting a rate cut of 1 percent or even more. The Fed ultimately gave up “only” three-quarters of a percent. The subtext is that the Fed is not as concerned as the Street about what is going on out there. It is a subtle difference, but one that is required to prevent the likes of Enron from being more than a footnote in American corporate history.
Click Here to Send Stratfor Your Comments
It is always difficult to understand the Fed’s reasoning. A guess would be that this actually was an attempt to instill confidence in markets. A full point cut might have been perceived as ongoing panic, while a smaller cut might have been seen as too much concern about inflation — not a trivial fear, but not good for the markets. A three-quarter point cut may have been an attempt to cut interest rates while still showing some confidence.
For the most part, the Federal Reserve prefers to ignore the financial markets along with all of the noise that is a regular feature in the world of Wall Street. It is not that there is no money or discussions of economic import occurring there — far from it — but that the Fed sees the financial markets as simply one aspect of the entire economy, and a rather erratic aspect at that. Better, goes the Fed’s thinking, to focus on the nuts and bolts of the “real” economy so that the entire thing can be kept on an even keel.
The Fed in this case is worried about the equity markets. The decline in housing prices already has taken a cut out of the net worth of individuals while hurting institutions holding mortgages of various sorts. A full-blown bear market on top of the decline in home values might have concerned the Fed more than a usual downturn would have. The double whammy of housing price declines and stock market crashes could have been devastating, even to an economy as large as the United States’. Therefore, the Fed appears to be exceedingly concerned about keeping the U.S. equity markets from tanking and is paying attention to its psychology as well as the fundamentals.
In reality, the housing correction is rather mild by historical standards, and the stock markets — only down by roughly 15-20 percent since the start of the subprime problems — are not exactly terrifying compared to previous stock crashes. But tell that to the people on Wall Street who live and breathe on the day-to-day deltas in both worlds. Their panic — and the place they occupy between the Fed, the housing market and the stock markets — is forcing the Fed to take actions that it would prefer not to.
The last time the Federal Reserve felt it necessary to enact sharp cuts when the danger to the real economy was this nebulous was during the Alan Greenspan era in the early weeks after the 9/11 attacks. Then, a cascade of rate cuts — one for a full percentage point — pared rates to the bone. In retrospect, the Federal Reserve probably overreacted. The benefit of hindsight tells us that the American recovery — not recession — began in October 2001. But the perception at the time was that the system itself might have been in danger, so there was no reason to spare the horses.
Now, as in 2001, the actual threat probably is not as bad as it seems. Now, as in 2001, the Fed’s goal is to assuage panic. But now, unlike in 2001, the panic is largely constrained to Wall Street.
That distinction provides the Federal Reserve with the opportunity to draw a line between Wall Street’s expectations and reality. The Street was expecting a rate cut of 1 percent or even more. The Fed ultimately gave up “only” three-quarters of a percent. The subtext is that the Fed is not as concerned as the Street about what is going on out there. It is a subtle difference, but one that is required to prevent the likes of Enron from being more than a footnote in American corporate history.
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Why do mortgage rates go up when the Federal Reserve cuts rates?
from Brian Woolley
Countryridge Financial, a subsidiary of Metrocities Mortgage
The Federal Open Market Committee lowered the Fed Funds Rate to 2.250 percent yesterday while leaving the door open for future rate cuts.
Stock markets cheered the Fed's move; the Dow Jones Industrial Average rallied 400 points in the wake of the announcement.
Meanwhile, the cash that fueled the stock gains had to come from somewhere and one of those places was the bond market. It's no surprise, therefore, that following the FOMC's press release, 30-year fixed rate mortgages spiked by 0.250%.
Stated more clearly: The Fed cut the Fed Funds Rate and mortgage rates went up.
Every time that the Federal Reserve cuts the Fed Funds Rate, it's an explicit signal the economy needs a trickle-down jumpstart.
When the Fed Funds Rate is lower, doing business is cheaper for banks, who in turn make it cheaper for businesses to do business, who in turn make it cheaper for consumers to live life.
This process can take up to a year for each rate cut or rate hike.
Meanwhile, as the changes to the Fed Funds Rate trickle their way through the economy, carrying on ordinary, day-to-day activities gets "cheaper" for everyone in the country. There's more money left for discretionary items, or investment in capital items, or whatever.
For example, the Federal Reserve has cut the Fed Funds Rate by 3.000 percent since September.
American consumers borrow $2.5 trillion on their credit cards so the 3-point reduction equates to $75,000,000,000 in interest payment savings.
You can only imagine what the reduction can do for businesses because businesses borrow far more money than consumers.
So, when the Fed cuts rates, its hope is that most of these "savings" get pumped back into the economy somehow. This is how rate cuts can lead to economic growth .
Sometimes, though, the growth is uncontrolled.
The fancy word for this situation is "inflation" and inflation is the enemy of mortgage bonds; it erodes the value of U.S. dollars and that's the currency in which mortgage bond payments are made.
So, it makes sense that mortgage rates rise when the Fed cuts the Fed Funds Rate. By stimulating the economy, the Federal Reserve is making long-term inflation much more likely.
Some people think the Federal Reserve is foolish right now but the FOMC voters don't seem to care. They are more concerned with relieving short-term pressures on the economy and will deal with what comes later, later.
Even if it's runaway inflation.
Brian Woolley is one of our favorite lenders
Knowledgeable, Experienced, Trusted
661-290-3700
Countryridge Financial is associated with Keller Williams VIP Properties in Santa Clarita
Countryridge Financial, a subsidiary of Metrocities Mortgage
The Federal Open Market Committee lowered the Fed Funds Rate to 2.250 percent yesterday while leaving the door open for future rate cuts.
Stock markets cheered the Fed's move; the Dow Jones Industrial Average rallied 400 points in the wake of the announcement.
Meanwhile, the cash that fueled the stock gains had to come from somewhere and one of those places was the bond market. It's no surprise, therefore, that following the FOMC's press release, 30-year fixed rate mortgages spiked by 0.250%.
Stated more clearly: The Fed cut the Fed Funds Rate and mortgage rates went up.
Every time that the Federal Reserve cuts the Fed Funds Rate, it's an explicit signal the economy needs a trickle-down jumpstart.
When the Fed Funds Rate is lower, doing business is cheaper for banks, who in turn make it cheaper for businesses to do business, who in turn make it cheaper for consumers to live life.
This process can take up to a year for each rate cut or rate hike.
Meanwhile, as the changes to the Fed Funds Rate trickle their way through the economy, carrying on ordinary, day-to-day activities gets "cheaper" for everyone in the country. There's more money left for discretionary items, or investment in capital items, or whatever.
For example, the Federal Reserve has cut the Fed Funds Rate by 3.000 percent since September.
American consumers borrow $2.5 trillion on their credit cards so the 3-point reduction equates to $75,000,000,000 in interest payment savings.
You can only imagine what the reduction can do for businesses because businesses borrow far more money than consumers.
So, when the Fed cuts rates, its hope is that most of these "savings" get pumped back into the economy somehow. This is how rate cuts can lead to economic growth .
Sometimes, though, the growth is uncontrolled.
The fancy word for this situation is "inflation" and inflation is the enemy of mortgage bonds; it erodes the value of U.S. dollars and that's the currency in which mortgage bond payments are made.
So, it makes sense that mortgage rates rise when the Fed cuts the Fed Funds Rate. By stimulating the economy, the Federal Reserve is making long-term inflation much more likely.
Some people think the Federal Reserve is foolish right now but the FOMC voters don't seem to care. They are more concerned with relieving short-term pressures on the economy and will deal with what comes later, later.
Even if it's runaway inflation.
Brian Woolley is one of our favorite lenders
Knowledgeable, Experienced, Trusted
661-290-3700
Countryridge Financial is associated with Keller Williams VIP Properties in Santa Clarita
OFHEO opens floodgates of liquidity for Fannie and Freddie
Fannie and Freddie's regulator unveiled a reduction of the capital the firms must hold to 20% from 30% previously. Ofheo said the move could provide up to $200 billion in immediate liquidity to the troubled mortgage-backed securities market. "We believe they can play an even more positive role in providing the stability and liquidity the markets need right now," Ofheo Director James Lockhart said in a statement.
This reduction combined with the increase of the portfolio caps announced last month should allow Freddie and Fannie to purchase or guarantee about $2 trillion in mortgages this year. This capacity should allow them to assist in subprime refinancing and loan modifications and do more in the jumbo mortgage market which they have been granted temporary permission to enter.
Treasury Secretary Paulson lauded the move. "Additional capital will enable the companies to help more homeowners and will strengthen the underlying fundamentals of the mortgage market," he said.
For more information see: http://online.wsj.com/article/SB120593069669648325.html?mod=djemalertNEWS
This reduction combined with the increase of the portfolio caps announced last month should allow Freddie and Fannie to purchase or guarantee about $2 trillion in mortgages this year. This capacity should allow them to assist in subprime refinancing and loan modifications and do more in the jumbo mortgage market which they have been granted temporary permission to enter.
Treasury Secretary Paulson lauded the move. "Additional capital will enable the companies to help more homeowners and will strengthen the underlying fundamentals of the mortgage market," he said.
For more information see: http://online.wsj.com/article/SB120593069669648325.html?mod=djemalertNEWS
No Good Options, but Better than Doing Nothing
We live in interesting times!
The week has been historic in the financial and housing markets with all of the moves by the Federal Reserve, the Treasury, and the regulatory agencies to soften the decline in housing prices and the increase in the foreclosure rate.
Excesses in housing with cheap money and lax lending standards, as well as enough fingers of blame for all parties to make it look like a circular firing squad, has led to where we are. As I have recently written in a column titled "I'm from the Government, and I'm here to help you", all of the policy options are pretty bad, and usually when the government gets involved in markets, the pain goes deeper and lasts longer. Time will tell as to whether this will hold true. After all, Congress has not made any impact on the situation yet, other than the usual hot air of promises and more promises. They still have plenty of time during this election year to make really bad policy decisions in legislation. Given the anti-mania in the housing market, some of it will actually get passed in all likelihood. Lenders will have money to lend, and the interest rates are attractive for right now.
The brief take-away is: all of the mucky-mucks will ensure that housing and the financial markets do not collapse right before the election.
For now 'le crisis de jour' has been averted, there's lots of activity and adjustments, panic has abated, and it's OK to buy and sell property.
Give me a call at 661-287-9164 if you want to buy or sell residential real estate in our market area.
The week has been historic in the financial and housing markets with all of the moves by the Federal Reserve, the Treasury, and the regulatory agencies to soften the decline in housing prices and the increase in the foreclosure rate.
Excesses in housing with cheap money and lax lending standards, as well as enough fingers of blame for all parties to make it look like a circular firing squad, has led to where we are. As I have recently written in a column titled "I'm from the Government, and I'm here to help you", all of the policy options are pretty bad, and usually when the government gets involved in markets, the pain goes deeper and lasts longer. Time will tell as to whether this will hold true. After all, Congress has not made any impact on the situation yet, other than the usual hot air of promises and more promises. They still have plenty of time during this election year to make really bad policy decisions in legislation. Given the anti-mania in the housing market, some of it will actually get passed in all likelihood. Lenders will have money to lend, and the interest rates are attractive for right now.
The brief take-away is: all of the mucky-mucks will ensure that housing and the financial markets do not collapse right before the election.
For now 'le crisis de jour' has been averted, there's lots of activity and adjustments, panic has abated, and it's OK to buy and sell property.
Give me a call at 661-287-9164 if you want to buy or sell residential real estate in our market area.
Sunday, March 16, 2008
Seminar on how to avoid your own Mortgage Meltdown
Residents are invited to a free informational session at City Hall.
On Monday, March 17th, whether your house is in foreclosure or not, you can come down to City Hall and get some advice on how to avoid a mortgage meltdown. At the seminar, which will begin at 6 p.m., you will get a chance to talk with credit counselors, learn about your rights, and get tips on how to avoid fraud and scams.
There will be no sales pitches or come-ons, only information from experts so you can make informed decisions and avoid foreclosure. U.S. Congressman Howard “Buck” McKeon said that he hopes the session will help residents get answers to their questions. “We encourage anyone that has any questions at all about their mortgage or other things that might put them in jeopardy of foreclosure, to come down to City Hall on Monday the 17th, and hopefully they will find help there.”
Space is limited, so to reserve your spot, call (661) 298-1220.
On Monday, March 17th, whether your house is in foreclosure or not, you can come down to City Hall and get some advice on how to avoid a mortgage meltdown. At the seminar, which will begin at 6 p.m., you will get a chance to talk with credit counselors, learn about your rights, and get tips on how to avoid fraud and scams.
There will be no sales pitches or come-ons, only information from experts so you can make informed decisions and avoid foreclosure. U.S. Congressman Howard “Buck” McKeon said that he hopes the session will help residents get answers to their questions. “We encourage anyone that has any questions at all about their mortgage or other things that might put them in jeopardy of foreclosure, to come down to City Hall on Monday the 17th, and hopefully they will find help there.”
Space is limited, so to reserve your spot, call (661) 298-1220.
Thursday, March 13, 2008
U.S. to Revamp Credit Rules
from The Wall Street Journal
March 12, 2008
Top economic policy makers plan to release Thursday their broadest plan yet for avoiding a recurrence of the current credit crunch. Treasury Secretary Paulson said that recommendations, which extend to nearly every niche in the credit markets, include strengthening oversight of mortgage lenders and brokers and requiring more disclosure by ratings firms.
http://online.wsj.com/article/SB120535743939031491.html?mod=djemalertNEWS
March 12, 2008
Top economic policy makers plan to release Thursday their broadest plan yet for avoiding a recurrence of the current credit crunch. Treasury Secretary Paulson said that recommendations, which extend to nearly every niche in the credit markets, include strengthening oversight of mortgage lenders and brokers and requiring more disclosure by ratings firms.
http://online.wsj.com/article/SB120535743939031491.html?mod=djemalertNEWS
Monday, March 10, 2008
Neither a Borrower nor a Lender Be?
Ever have a friend or family member ask for a loan? It can be awkward, and for many the knee-jerk reaction is to just pull out the checkbook. But having the funds available to extend a loan is often not the point when it comes to lending money... it's knowing when or if you will ever receive your hard earned funds back.
According to a Federal Reserve survey, over 8% of Americans have loans that have been extended to friends and family. By some estimates, these loans total a whopping $89 billion and an eyebrow-raising default rate of 14%, versus just 1% for those who borrow from a bank. So before you decide to play banker with your friends and family, consider these steps to help avoid a potentially ugly situation.
Don't Commit Right Away. When asked for a personal loan, don't say yes right away, especially if the sum of money is large. It has been said that "quick to borrow is always slow to pay." So while you want to show compassion for the friend or family member and tell them you would like to help, explain that you need a few days to review your financial situation and make a decision. Perhaps another solution will come to them in the meantime.
Just Say No. If possible, try to avoid lending the money. Statistics suggest that the risk of not getting repaid is very high, which could be damaging to your relationship. HOWEVER... before you blurt out a blunt "NO," consider the amount requested, provide an explanation that will not hurt your relationship, and offer to help in a non-financial way. Or consider giving a smaller amount as a gift, with no expectations of repayment. This allows you to be generous on your own terms, and removes the potentially heated issue of non-repayment.
Be Specific. If you do decide to extend a loan, sit down with your friend or family member and set expectations. And don't beat around the bush... be very specific about the term of the loan, interest rate, payment plan, even the penalty that will be incurred should a payment be missed.
Get It In Writing. Always put the terms in writing. Seven out of ten personal loans are not put in writing... but again, consider the markedly higher default rate of non-documented loans. A written agreement reinforces that you are serious about the repayment terms discussed, and it prevents any potential misunderstandings. Promissory notes can be purchased online at www.nolo.com for a reasonable price. If the loan is large or complex it may be most beneficial to have an attorney draw up an agreement. Make sure the loan papers are filed away in a safe location, and then keep good records.
One important note, if the loan is in excess of $10,000 or the money will finance income-producing activities, the IRS expects you to charge a certain amount of interest...and claim it as taxable income, of course. To find the current rates, visit www.irs.gov and search for AFR (Applicable Federal Rates). You can also contact your trusted CPA for advice--or if you don't have one, ask me--I may be able to provide a referral.
According to a Federal Reserve survey, over 8% of Americans have loans that have been extended to friends and family. By some estimates, these loans total a whopping $89 billion and an eyebrow-raising default rate of 14%, versus just 1% for those who borrow from a bank. So before you decide to play banker with your friends and family, consider these steps to help avoid a potentially ugly situation.
Don't Commit Right Away. When asked for a personal loan, don't say yes right away, especially if the sum of money is large. It has been said that "quick to borrow is always slow to pay." So while you want to show compassion for the friend or family member and tell them you would like to help, explain that you need a few days to review your financial situation and make a decision. Perhaps another solution will come to them in the meantime.
Just Say No. If possible, try to avoid lending the money. Statistics suggest that the risk of not getting repaid is very high, which could be damaging to your relationship. HOWEVER... before you blurt out a blunt "NO," consider the amount requested, provide an explanation that will not hurt your relationship, and offer to help in a non-financial way. Or consider giving a smaller amount as a gift, with no expectations of repayment. This allows you to be generous on your own terms, and removes the potentially heated issue of non-repayment.
Be Specific. If you do decide to extend a loan, sit down with your friend or family member and set expectations. And don't beat around the bush... be very specific about the term of the loan, interest rate, payment plan, even the penalty that will be incurred should a payment be missed.
Get It In Writing. Always put the terms in writing. Seven out of ten personal loans are not put in writing... but again, consider the markedly higher default rate of non-documented loans. A written agreement reinforces that you are serious about the repayment terms discussed, and it prevents any potential misunderstandings. Promissory notes can be purchased online at www.nolo.com for a reasonable price. If the loan is large or complex it may be most beneficial to have an attorney draw up an agreement. Make sure the loan papers are filed away in a safe location, and then keep good records.
One important note, if the loan is in excess of $10,000 or the money will finance income-producing activities, the IRS expects you to charge a certain amount of interest...and claim it as taxable income, of course. To find the current rates, visit www.irs.gov and search for AFR (Applicable Federal Rates). You can also contact your trusted CPA for advice--or if you don't have one, ask me--I may be able to provide a referral.
Thursday, March 06, 2008
Home Equity in U.S. Hits New Low
from Mortgage News Daily March 6, 2008
The Federal Reserve on Thursday announced that, in 2007, American ownership in their homes as measured by equity fell below 50 percent for the first time since records were first kept in 1945.
During the 2nd quarter of 2007 the central bank reported that homeowners' equity slipped to a downwardly revised 49.6 percent and slipped further to 47.9 percent in the fourth quarter. This was the third straight quarter that equity was under 50 percent.
Home equity is a measure of the market value of the home minus the mortgage-related debt. Because Americans have repeatedly cashed out the equity in their homes through cash out refinancing, home equity loans and high loan to value mortgages, equity has steadily declined even in the midst of the surging prices of the housing bubble.
The total value of equity also fell for the third straight quarter to $9.65 trillion from a downwardly revised $9.93 trillion in the third quarter.
In related news, the Mortgage Bankers Association released its fourth quarter delinquency report which showed the home foreclosures and the number of homes entering the foreclosure process both rose to record highs.
Most of the foreclosures and delinquencies could be tied to subprime loans where the delinquency rate (usually loan payments 60 or more days late) was up 1 percent from the third quarter to 17.31 percent of all outstanding loans. The delinquency rate for all loans was 5.82 percent, up from 4.95 percent one year earlier and the highest since 1985. In addition, 0.83 percent of loans entered the foreclosure process during the fourth quarter. This surpassed the previous record of 0.78 percent during the third quarter. One year earlier the rate was 0.54 percent.
Late payments, those 30 or more days overdue, also set a new record of 20.02 percent of all loans in the fourth quarter. The previous record was set in the third quarter at 18.81 percent.
The Federal Reserve on Thursday announced that, in 2007, American ownership in their homes as measured by equity fell below 50 percent for the first time since records were first kept in 1945.
During the 2nd quarter of 2007 the central bank reported that homeowners' equity slipped to a downwardly revised 49.6 percent and slipped further to 47.9 percent in the fourth quarter. This was the third straight quarter that equity was under 50 percent.
Home equity is a measure of the market value of the home minus the mortgage-related debt. Because Americans have repeatedly cashed out the equity in their homes through cash out refinancing, home equity loans and high loan to value mortgages, equity has steadily declined even in the midst of the surging prices of the housing bubble.
The total value of equity also fell for the third straight quarter to $9.65 trillion from a downwardly revised $9.93 trillion in the third quarter.
In related news, the Mortgage Bankers Association released its fourth quarter delinquency report which showed the home foreclosures and the number of homes entering the foreclosure process both rose to record highs.
Most of the foreclosures and delinquencies could be tied to subprime loans where the delinquency rate (usually loan payments 60 or more days late) was up 1 percent from the third quarter to 17.31 percent of all outstanding loans. The delinquency rate for all loans was 5.82 percent, up from 4.95 percent one year earlier and the highest since 1985. In addition, 0.83 percent of loans entered the foreclosure process during the fourth quarter. This surpassed the previous record of 0.78 percent during the third quarter. One year earlier the rate was 0.54 percent.
Late payments, those 30 or more days overdue, also set a new record of 20.02 percent of all loans in the fourth quarter. The previous record was set in the third quarter at 18.81 percent.
New loan limits are $729,750 for both FHA and Conforming loans!
This is good news for our housing market!!
New loan limits are $729,750 for both FHA and Conforming loans!
As expected, the Department of Housing and Urban Development (HUD), announced higher loan limits yesterday for both FHA and Conventional loans. Loan limits are calculated County-by-County, based on median housing prices. These new limits are applicable to loans Los Angeles, Ventura and Orange Counties. The jump in FHA and Conventional loan limits is quite large as they were previously $362,790 and $417,000 respectively. This should mean lower interest rates for loan amounts that previously fell into the Jumbo category!
New loan limits are $729,750 for both FHA and Conforming loans!
As expected, the Department of Housing and Urban Development (HUD), announced higher loan limits yesterday for both FHA and Conventional loans. Loan limits are calculated County-by-County, based on median housing prices. These new limits are applicable to loans Los Angeles, Ventura and Orange Counties. The jump in FHA and Conventional loan limits is quite large as they were previously $362,790 and $417,000 respectively. This should mean lower interest rates for loan amounts that previously fell into the Jumbo category!
The Death Of The HELOC...Millions Of Homeowners Feeling Fear And Panic
by Tim and Julie Harris
Most major lenders are freezing access to Home Equity Lines of Credit (HELOCs) . Millions of Americans use their HELOCs as their families security blanket to weather any unplanned financial storms. If you were planning on using your HELOC for spring home improvements, medical bills or college tuition, chances are the money has been, or will be shut off.
Most major lenders have been working together in collusion. Behind closed doors, these lenders have created a secret plan to cut off access to your home equity lines of credit.
You must be aware that the lender retains the right to cut off or reduce your line of credit at their sole discretion. Lenders are now arbitrarily reassessing properties and then locking out access for homeowners when the lenders believe the property has negative equity.
What can you do about this when you are affected?
Nothing.
From Countrywide, (this is part of a letter sent to home owners):
'Important message about your loan: At Countrywide Home Loans we are committed to helping customers sustain homeownership. As part of the commitment, and in keeping with its sound risk-management and responsible lending practices, Countrywide Home Loan is reviewing and analyzing home equity lines of credit in its servicing portfolio.
As you know, home values in many areas of the country have declined. We believe that the decline in the value of your property, from its original appraised value at the time your loan was made is significant. In accordance with the terms of your Home Equity Credit Line Agreement and Disclosure Statement (Agreement), we have elected to suspend further draws against your account as of the Effective Date above.'
More Than 122,000 Have Already Lost The Right To Borrow From Their Credit Lines And We Are Just Getting Started.
On Friday, the Los Angeles Times reported that Countrywide notified many homeowners they've lost their right to borrow against their credit lines:
'Tens of thousands of homeowners with home equity lines of credit are getting a rude surprise: They've been told by their lender that they can no longer take money out on their credit lines because sinking home prices have left them with little or no equity.
Among the lenders taking such action is Countrywide Financial Corp., which sent 122,000 letters to customers last week telling them they could no longer borrow against their credit lines. In some cases, according to the company, the borrowers are now "upside down"—the total debt on the home exceeds the market value of the property.
Calabasas-based Countrywide, the nation's largest mortgage lender, says it uses computer modeling that factors in changes in home prices to determine which customers will have their money tap shut off.'
Countrywide is not alone. This is a partial list of the Mortgage Lenders who are sending HELOC freeze letters now.
Bank of America - HELOC Freeze
Countrywide - HELOC Freeze
Chase - HELOC Freezes
CitiGroup - HELOC Freeze under review
National City - HELOC Freeze
Suntrust - HELOC Freeze
USAA Federal Savings - HELOC Feeeze
Washington Mutual - HELOC Freeze
If there was any question that consumers were feeling the financial pinch before...just wait until they are told that their homes are worth LESS than what they owe. In the words of Countrywide..."Significantly Less." What effect will this have on the economy...think this will make consumers feel more confident about housing?
Most major lenders are freezing access to Home Equity Lines of Credit (HELOCs) . Millions of Americans use their HELOCs as their families security blanket to weather any unplanned financial storms. If you were planning on using your HELOC for spring home improvements, medical bills or college tuition, chances are the money has been, or will be shut off.
Most major lenders have been working together in collusion. Behind closed doors, these lenders have created a secret plan to cut off access to your home equity lines of credit.
You must be aware that the lender retains the right to cut off or reduce your line of credit at their sole discretion. Lenders are now arbitrarily reassessing properties and then locking out access for homeowners when the lenders believe the property has negative equity.
What can you do about this when you are affected?
Nothing.
From Countrywide, (this is part of a letter sent to home owners):
'Important message about your loan: At Countrywide Home Loans we are committed to helping customers sustain homeownership. As part of the commitment, and in keeping with its sound risk-management and responsible lending practices, Countrywide Home Loan is reviewing and analyzing home equity lines of credit in its servicing portfolio.
As you know, home values in many areas of the country have declined. We believe that the decline in the value of your property, from its original appraised value at the time your loan was made is significant. In accordance with the terms of your Home Equity Credit Line Agreement and Disclosure Statement (Agreement), we have elected to suspend further draws against your account as of the Effective Date above.'
More Than 122,000 Have Already Lost The Right To Borrow From Their Credit Lines And We Are Just Getting Started.
On Friday, the Los Angeles Times reported that Countrywide notified many homeowners they've lost their right to borrow against their credit lines:
'Tens of thousands of homeowners with home equity lines of credit are getting a rude surprise: They've been told by their lender that they can no longer take money out on their credit lines because sinking home prices have left them with little or no equity.
Among the lenders taking such action is Countrywide Financial Corp., which sent 122,000 letters to customers last week telling them they could no longer borrow against their credit lines. In some cases, according to the company, the borrowers are now "upside down"—the total debt on the home exceeds the market value of the property.
Calabasas-based Countrywide, the nation's largest mortgage lender, says it uses computer modeling that factors in changes in home prices to determine which customers will have their money tap shut off.'
Countrywide is not alone. This is a partial list of the Mortgage Lenders who are sending HELOC freeze letters now.
Bank of America - HELOC Freeze
Countrywide - HELOC Freeze
Chase - HELOC Freezes
CitiGroup - HELOC Freeze under review
National City - HELOC Freeze
Suntrust - HELOC Freeze
USAA Federal Savings - HELOC Feeeze
Washington Mutual - HELOC Freeze
If there was any question that consumers were feeling the financial pinch before...just wait until they are told that their homes are worth LESS than what they owe. In the words of Countrywide..."Significantly Less." What effect will this have on the economy...think this will make consumers feel more confident about housing?
Wednesday, March 05, 2008
Bernanke's Call: Aid Homeowners
Fed Chief Asks Lenders To Take Aggressive Steps To Address Housing Crisis
By GREG IP
March 5, 2008; Page A3
from the Wall Street Journal
Federal Reserve Chairman Ben Bernanke, raising the level of urgency in dealing with the nation's housing crisis, called on lenders to aid struggling homeowners by reducing their principal -- the sum of money they borrowed -- to lessen the likelihood of foreclosure, and endorsed a bigger role for the federal government in backing such mortgages.
Mr. Bernanke's call, in a speech to bankers, is an acknowledgement the current focus on reducing homeowner's monthly payments by modifying their mortgage rates doesn't solve the underlying problem: the increasing number of American homes now worth less than their mortgages. It also suggests Mr. Bernanke is willing to advocate more aggressive measures to address the deepening housing crisis than the Bush administration has endorsed.
"The current housing difficulties differ from those in the past, largely because of the pervasiveness of negative equity positions," Mr. Bernanke told the Independent Community Bankers of America in Orlando yesterday. With negative equity, which means a home is worth less than its mortgage, "a stressed borrower has less ability...and less financial incentive to try to remain in the home.
"In this environment, principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure" than reducing the interest rate," he said.
A "potentially important step" to make this happen, he said, is to expand the ability of the Federal Housing Administration to guarantee larger mortgages and mortgages on which the borrower is, or is about to be, delinquent, in effect having the federal government backstop many loans that would otherwise go into default.
Mr. Bernanke has taken an increasingly activist stance on multiple fronts in battling the housing crisis. He has slashed interest rates, backed fiscal stimulus and has positioned himself between congressional Democrats, who want more government resources committed to preventing foreclosures, and the Treasury, which has focused on voluntary steps by lenders such as modifying interest rates on mortgages.
House Financial Services Committee Chairman Barney Frank (D., Mass.) called the speech an endorsement of his own proposal. "It begins with [lenders] recognizing they've lost money," he said. "Once they've done that we think the FHA should facilitate the refinancing."
During the housing boom, many homes were bought with little or no money down because both buyers and lenders bet on additional home-price appreciation to create equity.
Home prices have been declining nationwide for the last year. At the end of 2006, 7% of mortgage borrowers had negative equity, according to First American CoreLogic, a research firm. A report by economists from Goldman Sachs Group Inc. and Morgan Stanley and two academics estimates that proportion will rise to 21%, or 10.5 million households, if home prices fall 15%, as they expect. Assuming an average mortgage balance of $250,000, that would put $2.6 trillion of mortgage debt "under water," the report said.
The centerpiece of the Bush administration's efforts to stem foreclosures is Hope Now, a program under which mortgage servicers and lenders voluntarily reduce or freeze the interest rates of certain subprime borrowers. Mr. Bernanke said as a result, "workouts" of subprime mortgages rose from about 250,000 in the third quarter of 2007 to 300,000 in the fourth quarter, while workouts of prime mortgages rose from 150,000 to 175,000 in the same period. That pace picked up in January, he said.
Robert Steel, Treasury under secretary for domestic finance, declined to specifically endorse Mr. Bernanke's proposal but said it is "one of the tools" for trying to reduce foreclosures. In an interview with The Wall Street Journal, Mr. Steel said the problems posed by the housing crisis are "hard, new things" with no single, obvious solution.
He noted since the Hope Now initiative was announced last fall, the scale of the rate-reset problem has been diminished by Fed rate cuts, which means many mortgages will reset to lower rates than had previously been assumed.
Many outside experts also believe the focus on resets has been misplaced, given that most subprime defaults occurred even before lower teaser rates reset to higher levels.
Reducing the principal rather than the interest rate is a "very different framework for thinking about the problem," said Andy Laperriere, an analyst at ISI Group, a brokerage firm. He said with so many borrowers under water, "any proposal that helps them will be very expensive for either the financial institution or the taxpayer," and a large program would potentially sweep in millions of borrowers who weren't going to default anyway.
Industry reacted coolly to Mr. Bernanke's proposal. The American Securitization Forum, which represents participants in the market for mortgage-backed securities -- pools of mortgages originated and sold by banks and other lenders -- said it had already developed procedures for modifying loans, including through principal reduction. To reduce principal, firms that service MBS pools on behalf of the end investors need "a clear basis for concluding that the related borrower is unable...rather than simply being unwilling" to repay.
Steve O'Connor, senior vice-president of government affairs at the Mortgage Bankers Association, said lenders should consider principal reduction as one way of helping borrowers as long as it is "consistent with obligations" to MBS investors.
Mr. Bernanke said a principal reduction on a mortgage that's greater than the home's underlying value may make the mortgage's actual value greater by "reducing the risk of default and foreclosure."
J.P. Morgan Chase & Co. said in a statement it has "begun to review the feasibility of principal reductions for pooled loans." Any such reduction "must balance the interests of investors...and the borrowers' needs," it said.
--Damian Paletta and Robin Sidel contributed to this article
By GREG IP
March 5, 2008; Page A3
from the Wall Street Journal
Federal Reserve Chairman Ben Bernanke, raising the level of urgency in dealing with the nation's housing crisis, called on lenders to aid struggling homeowners by reducing their principal -- the sum of money they borrowed -- to lessen the likelihood of foreclosure, and endorsed a bigger role for the federal government in backing such mortgages.
Mr. Bernanke's call, in a speech to bankers, is an acknowledgement the current focus on reducing homeowner's monthly payments by modifying their mortgage rates doesn't solve the underlying problem: the increasing number of American homes now worth less than their mortgages. It also suggests Mr. Bernanke is willing to advocate more aggressive measures to address the deepening housing crisis than the Bush administration has endorsed.
"The current housing difficulties differ from those in the past, largely because of the pervasiveness of negative equity positions," Mr. Bernanke told the Independent Community Bankers of America in Orlando yesterday. With negative equity, which means a home is worth less than its mortgage, "a stressed borrower has less ability...and less financial incentive to try to remain in the home.
"In this environment, principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure" than reducing the interest rate," he said.
A "potentially important step" to make this happen, he said, is to expand the ability of the Federal Housing Administration to guarantee larger mortgages and mortgages on which the borrower is, or is about to be, delinquent, in effect having the federal government backstop many loans that would otherwise go into default.
Mr. Bernanke has taken an increasingly activist stance on multiple fronts in battling the housing crisis. He has slashed interest rates, backed fiscal stimulus and has positioned himself between congressional Democrats, who want more government resources committed to preventing foreclosures, and the Treasury, which has focused on voluntary steps by lenders such as modifying interest rates on mortgages.
House Financial Services Committee Chairman Barney Frank (D., Mass.) called the speech an endorsement of his own proposal. "It begins with [lenders] recognizing they've lost money," he said. "Once they've done that we think the FHA should facilitate the refinancing."
During the housing boom, many homes were bought with little or no money down because both buyers and lenders bet on additional home-price appreciation to create equity.
Home prices have been declining nationwide for the last year. At the end of 2006, 7% of mortgage borrowers had negative equity, according to First American CoreLogic, a research firm. A report by economists from Goldman Sachs Group Inc. and Morgan Stanley and two academics estimates that proportion will rise to 21%, or 10.5 million households, if home prices fall 15%, as they expect. Assuming an average mortgage balance of $250,000, that would put $2.6 trillion of mortgage debt "under water," the report said.
The centerpiece of the Bush administration's efforts to stem foreclosures is Hope Now, a program under which mortgage servicers and lenders voluntarily reduce or freeze the interest rates of certain subprime borrowers. Mr. Bernanke said as a result, "workouts" of subprime mortgages rose from about 250,000 in the third quarter of 2007 to 300,000 in the fourth quarter, while workouts of prime mortgages rose from 150,000 to 175,000 in the same period. That pace picked up in January, he said.
Robert Steel, Treasury under secretary for domestic finance, declined to specifically endorse Mr. Bernanke's proposal but said it is "one of the tools" for trying to reduce foreclosures. In an interview with The Wall Street Journal, Mr. Steel said the problems posed by the housing crisis are "hard, new things" with no single, obvious solution.
He noted since the Hope Now initiative was announced last fall, the scale of the rate-reset problem has been diminished by Fed rate cuts, which means many mortgages will reset to lower rates than had previously been assumed.
Many outside experts also believe the focus on resets has been misplaced, given that most subprime defaults occurred even before lower teaser rates reset to higher levels.
Reducing the principal rather than the interest rate is a "very different framework for thinking about the problem," said Andy Laperriere, an analyst at ISI Group, a brokerage firm. He said with so many borrowers under water, "any proposal that helps them will be very expensive for either the financial institution or the taxpayer," and a large program would potentially sweep in millions of borrowers who weren't going to default anyway.
Industry reacted coolly to Mr. Bernanke's proposal. The American Securitization Forum, which represents participants in the market for mortgage-backed securities -- pools of mortgages originated and sold by banks and other lenders -- said it had already developed procedures for modifying loans, including through principal reduction. To reduce principal, firms that service MBS pools on behalf of the end investors need "a clear basis for concluding that the related borrower is unable...rather than simply being unwilling" to repay.
Steve O'Connor, senior vice-president of government affairs at the Mortgage Bankers Association, said lenders should consider principal reduction as one way of helping borrowers as long as it is "consistent with obligations" to MBS investors.
Mr. Bernanke said a principal reduction on a mortgage that's greater than the home's underlying value may make the mortgage's actual value greater by "reducing the risk of default and foreclosure."
J.P. Morgan Chase & Co. said in a statement it has "begun to review the feasibility of principal reductions for pooled loans." Any such reduction "must balance the interests of investors...and the borrowers' needs," it said.
--Damian Paletta and Robin Sidel contributed to this article
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