Federal regulators’ new proposed mortgage guidelines, created in response to the financial industry meltdown of 2008, could have the unintended consequence of restricting homeownership to the wealthy according to a coalition of mortgage lenders, consumer advocates, housing industry officials and lawmakers.
"Qualified Residential Mortgages” (QRM,) would require a 20 percent down payment and limit a borrower's debt payments to no more than about one-third of income. Critics fear that the new down payment standards could sideline millions of potential buyers, including the 11 million current homeowners who as result of falling home prices have lost equity in their home and owe more than their home is worth.
The new rules are being proposed jointly by six federal regulators: the Federal Reserve, the Department of Housing and Urban Development, the FDIC, the Federal Housing Finance Authority, the Office of the Controller of the Currency, and the Securities and Exchange Commission. With the intention of reducing risky lending practices, the proposed rules would require lenders to hold onto 5 percent of any loans that do not qualify for QRM standards. Loans that meet the QRM standards could be sold fully into the secondary market, which is normal practice for most mortgage lenders.
Opponents, which include the Mortgage Bankers Association, the Center for Responsible Lending and the National Community Reinvestment Coalition, argue that the new rules have gone too far and could have the effect of clamping down credit so severely that lower-income and younger borrowers would be shut out of the mortgage market just as the housing market is struggling to regain its footing.
Additionally critics say the QRM rules will create a two-tiered mortgage market in which borrowers who can afford a bigger down payment would pay less, compared with equally creditworthy borrowers who have smaller savings. The estimated gap could be as much as 3 percentage points, according to a recent report by J.P. Morgan, which could mean the difference between renting and an affordable monthly mortgage payment.
"If this rule goes through as it stands, the demographic of borrowers who get favorable rates will be white and wealthy," said David Stevens, chief executive officer of the Mortgage Bankers Association and former commissioner of the Federal Housing Administration. "African-American, Latino and first-time home buyers will be charged higher prices."
High-cost housing markets would be hardest hit. Based on current average prices, for example, buyers in the Northeast would have to come up with $53,000 for a 20 percent down payment on a typical existing home, compared with $33,000 for a typical home in the Midwest.
After all but disappearing after the housing bust, adjustable-rate mortgage activity is on the rise. The number of borrowers taking adjustable-rate mortgages, which typically carry a low fixed rate for one to 10 years and then adjust annually based on current rates, has jumped 75% since last year.
It’s no wonder with five year ARM rates a mere 3.69 percent vs. 4.99 percent for a 30-year fixed rate loan. Getting that ARM could save you $230 on monthly mortgage payments and more than $19,000 in interest during the first five years on a $300,000 loan.
According to the most recent Mortgage Bankers Association (MBA) Weekly Mortgage Applications Survey, although the number of refinance applications decreased 5.7 percent from the previous week, the adjustable-rate mortgage (ARM) share of the market increased to 6.2 percent from 5.8 percent from the previous week.
Consumers looking to reduce their monthly mortgage payments to pay down their personal debt or to increase their disposable income through refinancing can be a real plus for the economy. But even with current low buying and refinancing rates, consumers are still advised to carefully weigh out the pros and cons of an adjustable-rate mortgage to determine if it’s right for them.
If you've been temporarily relocated by your employer and know for certain you will moving in the short term, a three or five-year ARM makes sense. Or if you're in a starter home and think you're going to move to a larger home but aren't sure of the timing – a seven-year ARM could work for you.
But people tend to stay in their homes longer than they think they will. According to the National Association of Realtors, home sellers typically live in their homes for eight years, partly because it can take a while to sell a home now.
No one wants to get stuck with a payment they can't afford after the rate adjusts, so taking on a 5 year adjustable-rate mortgage with the thought you will refinance later at a fixed rate may cost you more money in the long run.
For example if you took a 5/1 ARM at 3.69% on a $300,000 loan and refinanced to a 6% fixed loan in five years, you'd pay $86,300 more in interest over the full term of the loan than if you took the 4.99% 30-year fixed loan today.
With the 30-year fixed rate at its lowest since November 2010, and the Mortgage Bankers Association predicting 30-year fixed rates will hit 6 percent by the fourth quarter of 2012 and climb higher the year after, locking in at a low fixed rate now may be your best option.
During the first quarter of 2011, U. S. home prices fell 5.5 percent from a year earlier, the biggest decline in almost two years, as sales of discounted foreclosures continue to undermine real estate values.
According to the National Association of Realtors (NAR), the U.S. median home price has slumped 30% from its 2006 high of $227,100 to $158,700 for a single family house.
The NAR blamed much of the latest price drop on sales of "distressed" property, in which banks have agreed to let properties sell for less than their loan balances. Foreclosures and short sales have accounted for about 39 percent of transactions this year, up from 36 percent from a year earlier.
Home mortgage loans backed by Fannie Mae or Freddie Mac, have fallen for 15 straight quarters according to the FHFA, as lenders seize homes and sell them at cut-rate prices that drag down overall values. “Dumping foreclosures on the market and selling them at distressed prices affects the whole real estate market,” said Richard DeKaser, an economist at Parthenon Group “It puts downward pressure on prices, even for homes that aren’t in foreclosure.”
"We're seeing prices dropping faster than they did in 2010," said Pat Newport, an analyst with IHS Global Insight. "That's troubling. Falling home prices precipitated the recession and are slowing the recovery.”
Falling home prices are resulting in more homeowners owing more on their mortgage balances than their homes are worth, increasing the potential that more homeowners will default on their loans.
"That's a key problem," said Newport. "There are a lot of bad loans in the foreclosure pipeline and we don't know how many strategic defaults [people walking away from their mortgages] will result."
About 6.4 million mortgages were either delinquent or in foreclosure in April, according to Florida-based mortgage-transaction and data firm Lender Processing Services Inc. Foreclosures typically sell at a 28 percent discount to non-distressed properties.
Nearly five years into the housing bust and home prices are still dropping in most of the country. It’s clear, home sellers have to be more creative if they want to sell their home in this market.
In February existing-home sales tumbled 9.6% from the previous month, and the median price of a single-family home dropped to $157,000 from $163,900 the previous year, according to the National Association of Realtors.
Don’t count on things turning around anytime soon, at the current pace of sales it will take more than eight months to clear the 3.5 million existing homes listed today.
Houses often linger a full six months -- even a year -- without any bites. Part of the blame can be put on stiff competition: Foreclosures and short sales, which accounted for 39% of sales in February, sell for about 15% less than conventional homes.
"It's dreadful out there for sellers," says Patrick Newport, a U.S. economist at forecasting firm IHS Global Insight.
The good news is that most consumers think it’s a good time to buy a home, but translating that interest into an actual sale can require some extreme measures.
Most sellers are still reluctant to accept the extent of the toll the housing bust has taken on their homes' value, but it can be a big mistake to give in to the temptation to list the property above fair market value to see what happens. During the past year, even in cities that have held up well, 25% of sellers have had to resort to at least one price cut, and often two.
"The first 30 days on the market are the most important," says Norwalk, Conn., realtor Elizabeth Kamar. That's why pricing your property right to start can make a big difference, it’s when your place attracts the most attention and gets the most showings.
Today there's a big gap between what sellers want and what buyers are willing to pay. To determine a more realistic sale price for your home, not only look at what houses similar to yours have sold for in the past three to six months, but also take into consideration what distressed
homes, in move-in condition, sold at. Some realtors recommend listing your home a bit under your determined sale price because undercutting by much even a small amount can generate more initial interest. Perhaps enough to attract more than one bidder, which could push the final price up to where it should be.
If you don’t get any bites within the first 30 days, it may be time for a big move. To stimulate interest, make a giant cut -- as much as 10% of the asking price, and even more in an area where prices are still falling. That should be enough to warrant a second look from buyers who passed the first time, and to bring in a new pool of potentials who are hunting in the lower price range.
It's okay to reject low-ball offers if a buyer won't budge, but if a buyer is willing to negotiate, push aside feelings of anger or insult and start counteroffering, says Mabel Guzman, president of the Chicago Association of Realtors.
Ideally you'll be able to negotiate within $10,000 to $20,000 of an acceptable offer. Then, "using incentives as carrots and sticks can make it easier to reach an agreement," says Guzman. For example, if your buyer refuses to dicker, you might offer to leave behind the appliances. Or maybe you'd rather take the reduced price but have the buyer agree that you take 60 days, not 30, to move out.
According to Matt Brown, director of business development at ForSaleByOwner.com, incentives can perk buyers' interest just as much as price cuts. In fact many buyers will agree to a higher price if their upfront costs are lowered. If you can afford it, offer to cover the home buyer's closing costs or pay the first year's property taxes or condo or homeowner association dues. If you can swing it, you can even offer to pay upfront points so that they can get a lower mortgage rate.
Unfortunately in areas rife with distressed properties, those incentives may be practically standard. In that case, says realtor Guzman, you might be able to bring buyers to the door by tossing in an unusual bonus, such as a gift card or something they mentioned loving, such as the pool table or plasma TV. But be aware that you must disclose any such gifts or payments when the offer is agreed on, and some lenders will not approve them. If so, you might have to find another incentive that the bank doesn't object to.
These days it's going to take far more than a FOR SALE sign in the front yard and a spot on the multiple-listing service to get potential buyers in the door. "The more eyeballs that get on the listing, the better," says Katie Curnutte of the real estate information website Zillow.com.
That means getting the word out in a creative fashion -- and finding a realtor who is willing to do the same.
Approximately 90% of home buyers begin their search on the Internet, according to the National Association of Realtors. Make sure your home's online presence has lots of photos. According to Zillow.com, having 20 instead of five photos will almost double the number of hits you'll get.
Also in addition to having your home listed on a major website like Realtor.com, many realtors will create a website just for your home. You can also get your listing on alternative sites like Craigslist or even Facebook.
Staging, increasingly popular with homeowners trying to sell mid-range houses, can extend from simply rearranging existing furniture to repainting, replacing fixtures, and bringing in new furnishings. The goal is to highlight the home's best features while making it as easy as possible for buyers to imagine themselves living there. Proper staging can speed the sale of your home and often increase the price too. You can get the names of reputable stagers from your real estate agent or at realestatestagingassociation.com. Fees range from $150 to $400 to walk through your home and give recommendations for each room and you can then execute the recommendations yourself or hire the stager to do it for an hourly fee, usually $100 or so, plus the cost of any new paint or furnishings.
In better times you may not feel obliged to drop everything to accommodate prospective buyers' schedules, but today, if buyers can't get in on their time, they'll skip it, says Summer Greene, who manages realtors in the Fort Lauderdale area. So be prepared to show a perfectly clean home at a moment's notice, and disappear (along with your dog, if possible) for all showings and open houses. Prospective buyers need to imagine themselves living in your house and that’s an impossible task when your family is watching TV in the family room.top of page
Some new studies from Fair Isaac Corp., creator of the FICO credit score and VantageScores are trying to shed light on the issue of "strategic defaults" in America. Their studies on strategic defaults adds to a growing body of research that aims to help banks and other lenders predict which consumers are most likely to walk away from homes that are underwater.
About 25% of U.S. homeowners are currently underwater – meaning they owe more on their homes than the properties are worth. A strategic default occurs when a homeowner decides to stop paying their mortgage, even while they continue to keep up with other payments, such as credit card bills or an auto loan.
According to a December 2010 RealtyTrac survey, nearly half of all homeowners polled (48%) said they would consider walking away if their mortgage was underwater, the figure suggests that a growing number of Americans think it would be acceptable, at least under certain circumstances, to abandon their mortgages.
"We're all aware of a great deterioration in credit quality. Default levels are increasing across the board in all industries, but what we're also seeing are shifts in the way consumers are thinking about their debts," said Sarah Davies, VantageScore Solutions Senior Vice President Analytics, Product Management & Research. "Historically, we've known that mortgage payments were the most important payment for the average consumer, but with the recent phenomenon of strategic defaults, we're seeing people prioritize their debts in different ways."
Whether by choice or by economic circumstance, defaulting on a mortgage obviously has several negative ramifications. Beyond the toll on a person's credit score, a strategic default can lock a person out of the mortgage market for several years.
Findings from VantageScore’s research and Fair Isaac's study called Predicting Strategic Default s has found that some of the key characteristics of strategic defaulters include:
The Fair Isaac study states: "Where the key driver for the behavior of traditional defaulters is affordability, the key driver for strategic defaulters is incentive. Strategic defaulters can afford to continue making mortgage payments, but they believe that it is not in their financial best interest, generally because they are 'underwater,' owing more on their mortgage than their house is currently worth."
But questions have been raised about the researchers’ assumption that strategic defaulters definitely have the ability to repay their home loans, but simply opt not to. While these research agencies can make guesstimates about a consumer's income, neither FICO or VantageScores track or calculate a person's income. They really don't know if there has been a decline in a homeowner's economic standing or if the homeowner has other liabilities impacting the their ability to repay a mortgage such as education expenses, high medical bills, divorce, job loss, or caring for aging parents. On paper, it might appear that strategic defaulters can "afford" their existing mortgages, but in reality many truly can’t.
Additionally scores of these struggling homeowners sought out help with their mortgages and were rejected for forbearances, loan modifications, and loan refinancing options before making the decision to walk away from their home.
In short, despite the threat of a damaged credit rating and diminished access to home loans in the future, it's clear that defaulting on a mortgage is nonetheless gaining ground with U.S. homeowners as a viable option for dealing with their financial predicaments.top of page
Las Vegas, which has the unwelcome distinction of having the highest foreclosure rate among large U.S. cities, is now seeing a growing number of defaults from up-scale Las Vegas homeowners who see no point of staying even if they can afford to.
At the end of 2010 almost 70 percent of Las Vegas-area homeowners owed more than the value of their home and about 20 percent of Las Vegas homeowners now seeking short sales owe at least $750,000, according to industry experts.
The Nevada Association of Realtors reported that 23 percent of delinquent borrowers said they "strategically defaulted," or walked away from their homes by choice rather than necessity. At the current sales pace, there is a five-year supply of homes listed for $3 million or more.
According to the 2010 Census, almost 15 percent of homes in Clark County, home of Las Vegas, were vacant. Las Vegas home values plunged 58 percent from their 2006 high, the biggest drop of the 20 metropolitan areas tracked by the S&P/Case-Shiller index.
While high-end homes fall in price, total residential-property sales have gone up 8.2 percent in March from a year earlier, reported the Las Vegas Realtors. More than half of this year';s Las Vegas home purchases were all-cash transactions, a sign that investors are finding bargains at the low end of the market, said Robert Lang, professor of sociology at the University of Nevada. âPrices are below the cost of materials and labor,â said Lang.
Las Vegas Mayor Oscar Goodman said Las Vegas's affordable housing and warm weather will be the theme of a promotional campaign the city plans to use to attract out-of-town investors and potential new residents.
"We're going to make lemonade out of this 'crisis' by promoting our foreclosures here," Goodman, The city, he said, will be "showing the opportunities to people who are freezing to death in the middle of the country in the worst winter imaginable -- that they can come out here and buy a home at one-third what it cost five years ago and have a wonderful quality of life."top of page
While sales of existing homes were up 3.7% from February, home prices fell 5.7% as the volume of distressed properties continue to undermine home prices and supply continues to far outweigh demand.
According to the National Association of Realtors (NAR), the share of foreclosure or short sale homes sold in March rose to 40 percent from 39 percent in February. All-cash sales were at a record high in March, accounting for 35% of existing home sales.
With more than 1 million unsold foreclosures currently on the banks' books and another 1.4 million properties likely to become short sales and foreclosures over the next 12 months, industry experts predict that at the current pace of sales, the drag of distressed homes on home prices will continue for at least 2 more years.
The March median home price slipped 5.9% to $159,600, compared to a year earlier. A third of homes sold were to first-time buyers, down from 44% in March 2010.
"With rising jobs and excellent affordability conditions, we project moderate improvements into 2012, but not every month will show a gain -- primarily because some buyers are finding it too difficult to obtain a mortgage," said Lawrence Yun, NAR's chief economist.
The average credit score to get a conventional mortgage has risen to 760 from 720 in 2007.
"Although home sales are coming back without a federal stimulus, sales would be notably stronger if mortgage lending would return to the normal, safe standards that were in place a decade ago -- before the loose lending practices that created the unprecedented boom and bust cycle," he said.top of page
A debt consolidation program is usually just a big loan that pays off other smaller loans. Consolidation can be very beneficial to borrowers, but these programs also have their pitfalls.
Debt consolidation programs are something to consider if you are paying several different loans off. If you consolidate everything into one loan, you’ll only need to make one monthly payment. Also, if you use a debt consolidation program that stretches your payments out over a longer period of time, you may find that your monthly debt payments decrease. Which can mean having more money in your pocket each month
You might have numerous credit card balances with high interest rates. Credit cards generally have higher interest rates than secured loans, such as home equity loans. You may be able to manage your debt and lower the interest rate that you’re paying with a debt consolidation program.
Using debt consolidation programs can be a help, if handled properly, but you should be very aware of what you are signing on for. The main point to remember is that all a debt consolidation program does is shift your debt – a debt consolidation program does not eliminate your debt. You owe the money and will have to pay it back sooner or later.
Another concern of a debt consolidation program is that you may feel like you have less outstanding debt. For example, you’ll notice that your credit cards once again have generous amounts of available credit. Using this available credit will only put you in deeper debt.
You should also be aware of what you’re risking by using one of these programs. Often, you’ll use a home equity loan or a home equity line of credit to consolidate your debt. Credit card companies can’t take your home. The consequences of pledging your home as collateral in a debt consolidation program and then not keeping up with the payment schedule can be severe.
Another consideration is that if you stretch out your payments over a longer period of time, it is possible that your total interest cost will be higher. Of course, it may be worth it to you if you can more easily manage your cash flow today.
There are a variety of choices, and you should shop around to find a debt consolidation program that fits your needs. By managing your credit wisely, you can ensure that you get the best deal.top of page
The excess housing supply of both apartments and single family homes may be getting absorbed by renters. Rental vacancy rates dropped to 6.2% in the first three months of the year, the steepest fall since 1999, and almost double the number from a year earlier, according to commercial real estate research firm Reis Inc.
Real estate experts are hoping as the vacancy rate falls, rents will rise and this will help support house prices.
Tom Lawler, Housing economist and founder of Lawler Economic & Housing Consulting predicted: 'Rising rents combined with a substantial reduction in the “excess supply” of housing (single family as well) will also help stem the recent “renewed” downturn in US home prices well before the end of this year.'
About 6,000 units came to market during the first quarter, the fewest since Reis began compiling data in 1999. Reis’s research is based on large cities, but this decline in vacancy rates is happening just about everywhere.top of page
It once took a rare combination of poor judgment and extreme bad fortune for a homeowner to end up “under water” on their home mortgage. Now nearly one out of four homeowners, approximately 23% of homeowners, owe more on their house than their house is worth. As a result banks and the government are introducing new programs to help homeowners, specifically homeowners who qualify.
Just a year ago home prices were rising and it seemed like the number of underwater homeowners was declining. But according to housing analysts that trend is now reversing.
With upside down mortgages near an all-time high, banks that initially resisted loan modifications and refinancing options are now supporting programs designed to help struggling home owners.
Lenders are more eager to avoid foreclosures which can cost the bank far more than a reduced payment plan or loan modification ever would. Lenders are also hoping to keep discouraged homeowners from intentionally walking away from their home: Half of homeowners who owe 50% or more on their home than it's worth and who default do so strictly because of negative equity, according to a 2010 Federal Reserve Board study.
"All of a sudden, everyone is aware of this growing problem," says Stu Feldstein, president at SMR Research, which tracks the mortgage market. Both GMAC Mortgage and Wells Fargo have started either reducing some mortgage balances, deferring payments or offering subsidized refinancing. Chase says it will open more "help centers" this year where homeowners can apply for loan modifications. This month the government started extending the period for upside down borrowers to refinance their mortgages at lower rates, which was not possible through standard refinance programs.
To qualify, homeowners often have to provide documentation to prove there’s a good reason they're having trouble making their payments. If approved, they could be offered a lower interest rate – by up to 2% when a bank is participating in the government's Home Affordable Modification Program. The homeowner may also get a longer repayment period – extending a mortgage by up to 40 years from the date of origination to reduce the monthly payments.
For some underwater borrowers government refinance programs are among the very few options available for them. Homeowners who have a mortgage that's guaranteed by Fannie Mae or Freddie Mac and owe up 125% of their home's current market value should contact their lender or mortgage servicer to find out if they're participating in the government's Home Affordable Refinance Program (HARP.) Borrowers must be current on their payments, and not be more than a month late making a payment over the past year to qualify for this program.top of page
The housing market is still mired in a deep slump with falling prices and sluggish sales activity according to two high-profile home sales reports released this week. But if that news isn’t bad enough, economists say the figures from the existing-home sales activity reports may be overstated by up to 20 percent, meaning the housing market may be in much worse shape than even those numbers suggest.
Among the most closely watched indicators on the housing market are the figures from the National Association of Realtors, a trade group of licensed real estate agents and brokers, and it’s the NAR report figures that are being questioned. Economists say the issue is more than just an academic dispute, because without a working barometer, it's hard to see the next storm coming.
According to the Realtors, after three months of gains, the sales of existing home sales nearly 10 percent last month. February new home sales, which are tracked by the government, dropped again for the third month in a row, and hit its lowest level in nearly 50 years.
One of the groups that is challenging the Realtors' data is the Mortgage Bankers Association (MBA). "Folks at the Fed and at the Treasury and anyone involved in economic policy throughout government are very concerned about the health of the housing market. So if your primary indicator is giving you an overly optimistic reading, that's cause for concern,” said Head of research at the MBA, Mike Fratantoni.
The Realtors say the group's data provides valuable insight into sales trends by accurately tracks the monthly ups and downs of home sales, but concedes that there has probably been some "upward drift" in its numbers since the unprecedented collapse of the housing market in 2006. "In terms of broad market characterizations, it's really not that big of a deal," said Realtors spokesman Walter Molony.
To generate its Existing Home Sales Report, the National Association of Realtors polls about 40 percent of its members and logs sales based on the Multiple Listing Service. Up until 2010, the NAR periodically "benchmarked" its sales data based on the more complete count conducted by the U.S. Census. As with most economic statistics, the home sales reports are only estimates based on data samples that are designed to stand in for a more complete reporting that would take months or years. Unfortunately, the Census dropped several key questions about housing in the 2010 Census, which left the NAR without that data set to recalibrate its own data series.
But if the data is as badly flawed as critics fear, it could be a big deal for home buyers and sellers. It could mean home prices are more likely to head even lower. That's because an unrealistically optimistic assessment of the pace of home sales could be artificially buoying home prices.
When forecasters assess the outlook for future home sales they rely heavily on the inventory of homes on the market, which is generally expressed in number of "months' supply." That number is derived by comparing the number of unsold homes and the current pace of sales. When the market has about six to eight months' worth of unsold homes, home prices tend to be fairly stable. When there is a smaller inventory of homes on the market, prices push higher; high inventory depress home prices.
The number of unsold homes in February, according to NAR's latest monthly data, represents an 8.6-month supply at the current sales pace, based on an annual sales rate of 4.88 million.
Other industry measures such as the mortgage data tracked by mortgage bankers, show a much lower sales pace. According to data collected from private research firm CoreLogic, which counts closings filed in more than 2,000 counties, the pace of home sales in February was just 3.6 million units on an annual basis. If that data is true, the inventory of unsold houses is roughly double the level reported by the NAR, more like a 17 months' supply, according to Mark Fleming, chief economist at CoreLogic.
According to housing economists, one theory for the substantial overcounting of home sales is that the consolidation of the housing industry also brought a consolidation among real estate agencies that the NAR's model hasn't kept up with. An agency used in the NARs sample, for example, may have increased sales because it acquired smaller agencies, not because sales in that market rose.
To get its monthly sales data back on track NAR is working with the Federal Reserve, Fannie Mae, the Federal Housing Finance Agency, the MBA, Corelogic and academic economists. "It's a normal process, but now we have to obtain a consensus with a lot of parties," said Molony.
That could be a big challenge given the thousands of businesses that depend heavily on the volume of home sales. One of the most critical pieces of data relied on is the National Association of Realtors’ monthly number.top of page
All-cash sales accounted for a record 33 percent of existing home sales in February, up from 32 percent in January, according to information released in The National Association of Realtors (NAR) February 2011 Existing Home Sales report.
Additional data shows the national median existing-home price for all housing types fell 5.2 percent from a year ago to $156,100 in February 2011. The median existing single-family home price was $157,000 in February, which is 4.2 percent below a year ago. The median existing condo price was $150,400 in February, down 11.1 percent from February 2010.
Shopping for bargains, investors with cold, hard cash are taking advantage of the high amount of distressed inventory available. 39 percent of all home sales in February were for distressed homes that were sold at discounted prices, up from 37 percent in January and 35 percent in February 2010.
The decline in price corresponds to the record level of all-cash purchases where buyers -- largely investors -- are snapping up homes at bargain prices," said The National Association of Realtors chief economist, Lawrence Yun, "We'd be seeing greater numbers of traditional home buyers if mortgage credit conditions return to normal."
Mr Yun expects a gradual but uneven recovery in home sales. "Housing affordability conditions have been at record levels and the economy has been improving, but home sales are being constrained by the twin problems of unnecessarily tight credit, and a measurable level of contract cancellations from some appraisals not supporting prices negotiated between buyers and sellers," Yun explained. "This tug and pull is causing a gradual but uneven recovery. Existing-home sales remain 26.4 percent above the cyclical low last July."top of page
After three straight months of gains, the sales of existing homes across the U.S. fell sharply in February and home prices fell to their lowest level in nearly nine years, according to industry experts.
Compared with February home sales a year ago, home sales were down 2.8 percent and the median home price dropped 5.2 percent to $156,100, the lowest since April 2002.
The Sales of previously owned U.S. homes fell 9.6 percent month over month to an annual rate of 4.88 million units, the largest percentage decline since July 2010. The sharp decline was unexpected according to information from the National Association of Realtors (NAR). The NAR said Economists polled by Reuters had expected February sales to fall 4.0 percent to a 5.15 million-unit pace from the previously reported 5.36 million unit rate in January.
"This is a frustrating number," said David Carter, chief investment office at Lenox Advisors. "The U.S. residential real estate market doesn't seem to want to turn around despite better affordability. Government rebates may have distorted the market, and we need to work through inventory. I think recovery can be anticipated given affordability, though employment must improve."
"Housing remains weak with a soft employment backdrop and difficult credit," said Tom Porcelli, chief U.S. economist for RBC Capital Markets. "Other details in the report were equally sobering, with home prices falling and supply jumping. At the risk of sounding like a broken record, we should not expect much from housing this year due to the ongoing imbalance in supply and demand. We expect another 5-10 percent drop in home prices over the next year and housing will remain a drag on overall growth."top of page
Elizabeth Warren, the Harvard Law School professor President Obama appointed to set up The Bureau of Consumer Financial Protection (CFPB) met before the House Financial Services Committee to answer questions about her role at the emerging agency and the scope of its powers.
As mandated under the Doddâ€“Frank Wall Street Reform and Consumer Protection Act, the CFPB will be an independent bureau within the Federal Reserve System, designed to protect consumers from predatory financial practices.
The Consumer Financial Protection Bureau's aim is to set and enforce clear, consistent rules that allow banks and other consumer financial services providers to compete on a level playing field give consumers the ability to see clearly the costs and features of products and services.
"What this agency is about is making the prices clear, making the risks clear, making it easy to compare one product to another. The point is to get an informed consumer, because I believe that American families are good at making decisions when they have good information upfront," said Warren.
Warren told the financial institutions subcommittee "If there had been a consumer agency in place, the problems in mortgage servicing would have been exposed early and fixed while they were still small, long before they became a national scandal."
Warren defended the Consumer Financial Protection Bureau's mission of consumer protection against heated objections from House Republican committee members regarding the Bureau's scope and authority.
Warren responded that the Dodd-Frank Act was designed so Congress could maintain "meaningful oversight and accountability of the CFPB." The legislation requires the bureau to submit annual reports to Congress and have the Government Accountability Office conduct an annual audit of its expenditures on behalf of Congress. Additionally the CFPB director is required to testify before Congress twice a year.
"One of the consumer bureau's chief responsibilities will be to supervise certain nonbank financial companies that provide consumer financial products and services," said Warren. "These include mortgage brokers, mortgage lenders, mortgage servicers, payday lenders and private student loan providers. This will be the first time that many of these nonbank financial services companies will be subject to federal compliance examinations. We intend our examinations to be conducted efficiently and in a fair and transparent manner. We will strive to enforce the federal consumer financial laws appropriately while remaining cognizant of increasing compliance costs and burdens for regulated entities."top of page
Homeowner refinance applications are up and at their highest levels since December 2010 according to data from The Mortgage Bankers Association (MBA) Weekly Mortgage Applications Survey for the week ending March 11, 2011.
Applications to refinance existing mortgages have increased an average of 6.6 percent a week over the past four weeks. MBAâ€™s latest weekly Refinance Index reported an increase of 0.9 percent for refinance applications from the previous week and the highest Refinance Index recorded in the survey since December 2010.
According to the MBA survey average interest rates fell by 14 basis points over the week with interest rates for a 30-year home loan at its lowest rates in two months and 15-year mortgage rates at its lowest rates since early December.
The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.79 percent from 4.93 percent. The average contract interest rate for 15-year fixed-rate mortgages decreased to 4.03 percent from 4.17 percent.
Despite a significant drop in mortgage rates, The Market Composite Index, a measure of mortgage loan application volume, revealed that mortgage applications decreased 0.7 percent from one week earlier.
The Mortgage Bankers Association (MBA) Weekly Mortgage Applications Survey covers over 50% of all U.S. residential mortgage loan applications taken by mortgage bankers, commercial banks, and thrifts.
All figures are for 80-percent loan-to-value mortgages for the week ending Friday, March 11.top of page
Bank of America, the nation's biggest mortgage servicer, while meeting with investors and analysts in New York this week, asserted that the government push to write off billions in mortgage debt to help troubled homeowners is unfair to home owners who have managed to stay current on their home loans.
There's a core problem that if you start to help certain people and don't help other people, it's going to be very hard to explain the difference, said the bank's chief executive, Brian T. Moynihan, Our duty is to have a fair modification process.
All state attorney generals, as well as a host of federal agencies, are pressuring for a settlement over investigations into foreclosure abuses by major mortgage servicers that could cost the industry $20 billion or more. A 27-page proposal was presented to the nation's five biggest mortgage servicers late last week that would drastically alter how mortgage servicers deal with homeowners facing foreclosure. Government officials say they want to combine any overhaul of the foreclosure process with a monetary settlement that could help finance more loan modifications for troubled homeowners.
But the problematic question facing government regulators and the banks is figuring out which homeowners to help. Tom Miller of Iowa, the most outspoken attorney general on the issue, even acknowledged that too generous a program might encourage under-water homeowners to walk away from their homes. Industry experts estimate that nearly a trillion dollars worth of mortgage debt is underwater.
The comments from the Bank of America meeting are just a preview of the arguments the industry is poised to make more forcefully in the weeks ahead according to industry experts.top of page
Created to speed up and streamline the home loan process, MERS is looking to be yet another mess for the mortgage industry to clean up. MERS, an obscure privately held company that most consumers have never heard of, is the owner of record for about half of America's home mortgages, 60 million home loans, and their legitimacy is now under scrutiny.
MERS, which stands for Mortgage Electronic Registration Systems, is a private database corporation run by closely held Merscorp Inc. out of Reston, VA. MERS tracks servicing rights and the ownership of mortgage loans in the United States.
According to the MERS website, MERS was created by the mortgage banking industry to streamline the mortgage process by using electronic commerce to eliminate paper.
Founded in 1995 by Fannie Mae, Freddie Mac, and banks such as Bank of America, JPMorgan and PNC, MERS intent was to speed up the loan processing service by essentially replacing the nation's centuries-old handwritten system of land records. County offices couldn't record mortgages fast enough for the volume and pace of the 1990s mortgage industry. Industry experts looked to MERS to bring mortgage record keeping into the Internet age and consequently by steam lining the loan process make mortgages more affordable.
At the same time the MERS mortgage registry privatized home mortgage record keeping and has almost replaced all the country's public land ownership records. A privatized, streamlined system made securitization, a process banks used to bundle and sell their mortgage loan debt to financial investors, easier and cheaper.
MERS became the owner of record for millions of homes and continued to be owner of record no matter how many times the loans were transferred. The MERS system has allowed banks to buy and sell home loans without having to record transfers with the county. Some lenders have named MERS as their agent to bring foreclosures.
As a result there have been questions regarding the accuracy of MERS records. Another question is if MERS has not invested a single dollar in any of the mortgage loans they claim title to how can they foreclose on the home loan?
As asked by the New York Times, “Given the evidence that many banks have cut corners and made colossal foreclosure mistakes, does anyone know who owns what or owes what to whom anymore?"
We would never rely on it to find ownership, says Janis Smith, a Fannie Mae spokeswoman, noting it has its own records.
The fall out to all these important questions have particular interest to homeowners struggling to save their homes from foreclosure. Investigators have challenged the use of the MERS mortgage database instead of original documents to justify foreclosures. But with ownership harder to ascertain, critics of the MERS system say it far more difficult for homeowners to contest foreclosures.
The company itself has not been accused of wrongdoing. But with attorneys, judges, housing regulators, and the U.S. Department of Justice all stepping in to question the MERS mortgage record keeping system, the legal challenges to MERS are mounting.
According to Christopher L. Peterson, a law professor at the University of Utah who has written articles on MERS, They're recognizing the writing on the wall, that there are serious problems associated with the basic business model and legal theories of the MERS system. top of page
House hunters may consider putting home purchases on hold to wait for better price deals in the future. According to some industry experts home prices are about to take a double dip, meaning they fell after the housing bust, rose a bit during recovery and are now heading back down.
"There's a substantial risk of home prices falling another 15%, 20% or 25%," said Robert Shiller, Yale economist and co-founder of the S&P/Case-Shiller home price indexes.
According to Dean Baker, co-director of the Center for Economic and Policy Research the home price drop will be closer to 10% or 15%. "There will be differences by market, but generally, you may get a big discount by waiting a year [to buy]," he said.
To judge whether markets are overvalued, Baker looks at the ratio between local home prices and annual rents. If the median-priced home sells for more than 15 times the median annual rent, there's a good chance prices may come down.
According to Anthony Sanders, a director of Real Estate Entrepreneurship at George Mason University, home prices would have to drop another 15%, just to get that back to a normal ratio. Said Mason, "Even after the bubble burst, the ratio of income to home prices is still way too high."
On a national level, Shiller and other economists compare home price changes with income growth over the years. Before the bust, home prices had been outpacing earnings since the late 1990s.
But some disagree with these assessments. Karl Case, who co-founded the home price index with Shiller, believes that the market will "bounce along the bottom all year." If that happens, home buyers who buy now should not expect big profits if they sell their home in the next few years, but they shouldn't take a major hit in their home value either.
For families planning to stay put for a while, their motivation to purchase a home now is more than for a potential investment, it is for the pleasure of living in their own home, "People should base their decision on affordability, lifestyle choices and home preferences, not on investment," said Lawrence Yun, the National Association of Realtors' chief economist.
Some home markets, such as Texas and the Midwest have been more stable and will probably not experience any significant price drop. But the housing markets, such as Seattle, Portland and inland California, could still fall substantially, according to Baker.
Even for the housing markets most likely to rebound the projected returns are minimal. According to Fiserv, a company that provides financial information and analysis, Tacoma, Wash. is projected to be the best performing market over the next two years and it will only record a 12% price increase. That means average housing markets can only hope for single-digit returns.
With home-price gains so modest, it doesn't pay to buy a home now unless you plan to stay put for five years or more. "With high transaction costs, buying and selling, it probably will not work out financially," said Nicolas Retsinas, of the Harvard Joint Center for Housing Studies.
Some experts believe home prices could stagnate well into the middle of the decade, but despite the gloomy forecast, many Americans remain confident about home buying. The findings from the Fannie Mae survey released Monday revealed that 65% of people believe it's a good time to buy a home, with 78% expecting prices will rise or remain the same over the next year.
But there also have been some positive recent indicators for home buyers, such as an increase in the sales of existing homes in January and a drop in vacant rental homes. Also many wealthy buyers are investing in real estate and buying up properties. There has been an upswing in the number of high-end $750,000 plus homes being sold. According to economist Yun, "The smart money is making their move."top of page
With the rising number of foreclosures, short sales, late payments and personal bankruptcies, it's no surprise there has been an increase in the amount of people with damaged credit. Unfortunately the scores generated by the credit bureaus do not differentiate between borrowers who chronically have trouble with money and those that are temporarily struggling.
Credit Repair - Step One:
Get a copy of your credit report. Here are the top ways to get a copy of your report:
If youv'e been turned down by a lender, ask them for a copy of your report. They are technically not supposed to share your own report with you, they can advise you of your credit score and the reasons for you were declined but they are not supposed to give you a complete copy of the report. That said, it doesn't hurt to ask and you will usually get a copy from the lender - they want you to improve the score so you'll do business with them in the future.
The only truly free way to obtain your credit report online is through the website: www.annualcreditreport.com. You can get one free copy per year. The report is available online so this is a good place to start.
A site we really like for online credit reports is www.smartcredit.com.. It has a free 5 day trial and after that you'll pay $29 for online access to your score and for credit monitoring. The coolest part about using this service is that you can dispute negative credit issues right online. With most other credit reports, online or offline, once you find a mistake on your report you'll have to make a written request to have it removed from your creditor. This can take weeks and has a good chance of geting lost in the shuffle. You can also make offers to pay down your balance on credit cards or request a lower interest rate, all online with the click of a mouse.
Last but not least, MyFico.com offers one time copies of your credit report. Many times the scores you receive are usually not the “real” credit score used by lenders, but an approximation based on a separate formula. These imitation scores can vary by 100 points from the FICO score used by about roughly 8 out of 10 lenders. That means their real value is suspect.
Most lenders base their lending decisions on Equifax, Experian, and Trans Union bureaus' reports and FICO scores. FICO scores are the primary measure most frequently used to determine creditworthiness. The formula for the information that is used to generate the FICO score was created by Fair Issac Corporation in the 1960s and has been in wide use for decades. The FICO scale runs from 300 points to 850 points; the higher the score, the better your credit standing.
According to scoring expert John Ulzheimer, a short sale or foreclosure can turn a FICO 790 into a FICO 590 overnight. Pay multiple bills late and you can expect to lose anywhere from 80 to 150 points from your FICO score.
What to Do
Each of the major credit bureaus generate their own FICO scores based on the data they collect. So it's important to you get a copy of your credit report from each of the credit reporting bureaus to assess your credit damage.
The first step in rehabilitating your credit is to consistently pay your bills on time and not do any more harm. Work to clean up the credit report one black mark at a time by disputing inaccuracies and paying off past-due balances. If the credit reporting bureaus cannot verify the accuracy of a black mark, they are required to remove it. Not only does it have to be correct, but it has to be verifiable.
Paying off credit cards loans will help give your credit score the most lift. If keeping up with your credit card bills is still an issue, then call the issuer, explain your situation and try to negotiate payments you can afford. If they agreed to work with you make sure you get the terms of your agreement in writing.
One of the factors that the FICO formula considers is the total amount of debt on your credit cards compared with your total available credit, your so-called debt utilization rate. People with FICO credit scores above 760 typically don't have debts that exceed 7 percent of their available credit. If you are at 50 percent and can get the rate down to 30 percent, that will certainly help.
All three major credit bureaus allow you to add a brief statement explaining your hardship, through their Web sites. FICO doesn't consider these statements when formulating scores, but because prospective employers may pull a copy of your credit report, you may want to consider posting a statement.
Obviously having poor credit makes qualifying for a traditional credit card difficult. Used strategically, a secured card can help reestablish good credit.
Your recent payment paterns will have a bigger impact on your credit score, so the sooner your start to pay your bills on time the faster your credit will improve. If you add a secured card and you pay it religiously and the balance is low, it will help your score a lot more quickly than if you do nothing.
A secured credit card can help you nurse your credit back to health more quickly. Secured credit cards require a set amount of money in a bank account, say $250 or $500, as collateral. The amount of available credit is usually equivalent to the amount on deposit. Before deciding your secured card issuer be sure to read all the terms and see if the issuer reports your payment information to the big three credit bureaus.top of page
Foreclosed properties continue to weigh down home values across the nation, according to the latest report from the FNC Residential Price Index. Of the 30 U.S. metropolitan areas surveyed, home prices fell 2.2% in December for 23 metropolitan areas, reflecting the largest one-month drop for fiscal 2010.
Home values continued to fall for the seventh straight month in December. Between January of 2010 and December, home prices dropped more than 3.4%, according to the report.
Significant home price declines are reflective of a burgeoning foreclosure market where distressed properties represented 26.8% of total home sales in the fourth quarter of 2010.
The biggest losers with double-digit declines in December 2010 were Atlanta, Chicago, Las Vegas, Orlando and Phoenix. Of the seven metropolitan areas that showed increased home values, west coast areas San Diego, Los Angeles and San Francisco were the big gainers. Home values in these areas have experienced price jumps of at least 5% on a year-over-year basis in 2010.
The Residential Price Index, which tracks home price levels across the United States is published by FNC, a mortgage technology company.
FNC says there's a silver lining when considering the fact that more foreclosure sales are expected this year. "There is an upside: this trend will reduce the surplus of distressed properties and eventually bring the supply to levels in line with weak housing demand, paving ways for a more sustainable housing recovery later," FNC said.top of page
Wells Fargo, Bank of America and Chase originated 56 percent of last year's mortgage business, according to the Fourth Quarter 2010 Mortgage Lender Ranking from MortgageDaily.com.
U.S. lenders 2010 home loan closings totaled around $1.530 trillion, down from 2009's roughly $1.970 trillion. A closing occurs when a borrower signs new loan documents.
The percentage of government-insured loans share rose higher. FHA's 2010 share was around 19.8%, edging up from 19.1% a year earlier.
Wells Fargo was the biggest lender with $387 billion in 2010 fundings.
Lenders tracked by Mortgage Daily saw fourth-quarter production climb 22% from the third quarter and 30% from the fourth-quarter 2009.top of page
Applications for home purchases have declined according to MBA's (The Mortgage Bankers Association) Weekly Mortgage Applications Survey for the week ending February 11th, 2011.
The Market Composite Index, a measure of mortgage loan application volume, decreased 9.5 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 7.9 percent compared with the previous week.
"Mortgage rates remained above 5 percent last week, up almost a full percentage point from their October lows, and refinance volume continued to drop," said Michael Fratantoni, MBA's Vice President of Research and Economics. "Applications for home purchases also declined on a seasonally adjusted basis. Buyers have not returned to the market as rising rates have reduced affordability, to some extent."
With over 50% of all U.S. residential mortgage loan applications included in the survey, the data gives a snapshot view of consumer demand for mortgage loans. Survey respondents include mortgage bankers, commercial banks and thrifts.top of page
Some typical causes are:
2) Drop in Income without Drop in Expenses
3) Loss of job
4) Overspending (shopping, gambling, living beyond means)
5) Medical Expenses
Debt Management Plans vs Debt Consolidation
Debt Management Plans require you to make regular, monthly payments over a 2 year period or longer, directly to the Consumer Credit Counseling service that you have chosen to work with. They will take your deposit and pay down your unsecured debt (including: credit card debt, student loans, and medical bills) according to whatever payment schedule has been arranged between you and your creditors. The consumer credit counseling service may also be able to negotiate lower interest rates or get certain fees waived for you if your situation warrants those kinds of concessions. The main thing to remember is that if a debt management plan is the right course for you, finding a good consumer credit counseling service will help you learn how to stick to a budget and develop long term money management skills.
Debt Consolidation is typically an option to combine your unsecured debt (debt not linked to any assets) into one single monthly payment. Basically, it means combining several loans (or credit card debt) into one larger loan. This is done to secure a lower interest rate and simplify the repayment terms. Be mindful of the fact that you need to have a good/high credit rating to get a worthwhile promotional interest rate to warrant debt consolidation. Essentially you are opening a new line of credit. If you own your own home, refinancing to use potential equity to open a new line of credit and to pay down your credit card debt may seem like the best way to go. However, look at this option carefully. Is your home worth more than you owe on it? Will you end up paying more interest over time if you choose debt consolidation? Talking with a consumer credit counseling service should provide you with a personalized plan that will help you make these important decisions.
Mortgage delinquencies fell by nearly 18 percent in 2010, pushed by a decline in new delinquencies, even as the number of homes going into foreclosure increased as well. Mortgage data firm Lender Processing Services (LPS) reports that nearly 260,000 homes went into foreclosure in December, a nearly 11 percent annual increase over the 235,000 reported for December 2009. All told, 4.15 percent of all mortgages were in foreclosure at the end of 2010, up from 3.80 percent one year before.
The increase in homes in the foreclosure process was due in part to a slowdown in bank repossessions, as several lenders halted foreclosure proceedings late in the year to review foreclosure proceedings. Bank repossessions, which ranged between about 100,000-120,000 a month through the first nine months of 2010, fell by half from September to November, dropping to around 60,000 before increasing slightly in December.
Past-due loans made up 8.83 percent of all mortgages in December, down from 10.76 percent one year before. Seriously delinquent mortgages, those past due by 90 days or more, represented 4.00 percent of all loans, down from 5.49 percent in December 2009.
All told, the year ended with nearly 6.9 million mortgages in delinquent status, with 2.2 million of those in foreclosure, out of a total of nearly 53 million active mortgages in the U.S. market. About 1.2 million homes were repossessed by banks in 2010, according to LPS figures.
Meanwhile, refinance activity remained strong, with total mortgage originations in November approaching 750,000 loans, their highest level since July 2009. Mortgage originations have been trending upward throughout 2010 since bottoming out around 420,000 loans in February.
Government-backed mortgages currently account for about 95 percent of all home loans originated, with close to 70 percent being mortgages backed by Fannie Mae or Freddie Mac, and about a quarter of them Ginnie Mae loans, which include FHA and VA mortgages.top of page
The U.S. government should get completely out of the business of supporting residential mortgages, the new chair of the House subcommittee overseeing Fannie Mae and Freddie Mac has declared. “Let me stress and be very clear that, going forward, I am firmly committed to a purely private U.S. mortgage market over time – free of government guarantees and subsidies,” said Rep. Scott Garrett (R-N.J.), addressing an economic conference in Florida Monday. “I realize that this will not be an easy or immediate goal but it is one I feel strongly about.”
Garrett said any involvement by the federal government in promoting home ownership should be limited to assistance to first-time homebuyers and perhaps renters.
As the new chair of the House Financial Services Subcommittee on Capital Markets and Government-Supported Enterprises (GSEs), Garrett will play a major role in the debate over what is to be done with Fannie Mae and Freddie Mac, which suffered major losses in the collapse of the subprime mortgage market. The cost to taxpayers of bailing out the two GSEs is presently estimated at around $150 billion.
Other GSEs include Ginnie Mae, which backs FHA and VA mortgages, among others, and the 12 Federal Home Loan Banks.
Calls for liquidating $1.5 trillion portfolio
Garrett urged that steps be taken to wind down Fannie and Freddie’s $1.5 trillion mortgage portfolio, rather than allowing them to gradually decrease as the loans come off the books. He acknowledged that doing so could depress the price of the securities involved, but contended there was also risk to taxpayers of further losses if the portfolio were maintained.
He also called for the immediate abolition of the government’s Affordable Housing Goals, which he termed a major cause of the GSEs’ losses, and for reducing the nearly $730,000 conforming loan limit, the maximum mortgage that Fannie Mae and Freddie Mac will back.
Others have taken strong exception to the notion that Affordable Housing Goals played any significant role in the housing bubble and subsequent collapse in general, or the losses incurred by Fannie Mae and Freddie Mac specifically. The bipartisan Fiscal Crisis Inquiry Commission recently dismissed that contention nearly unanimously, except for one dissent among its 10 members.
Fannie Mae and Freddie Mac currently back over half of outstanding U.S. residential mortgages. Both were established separately by Congress to provide liquidity in the residential mortgage market and improve affordability for homebuyers, and eventually were turned into private, investor-held companies operating under a government charter. The federal government re-acquired them in late 2008 to prevent their collapse in the economic downturn.top of page
Bank of America has announced that it is creating a new division to handle problem mortgages and loan modifications, in an effort to improve its handling of delinquent loans and resolve issues related to toxic mortgage assets. The new unit, called Legacy Asset Servicing, will have responsibility for all mortgages in default, including servicing those loans and handling all loan modifications and foreclosure proceedings. The unit will also be responsible for servicing discontinued mortgage products and resolving investor’s demands that the bank repurchase billions of dollars’ worth of bad mortgages.
It’s the latest step in the bank’s efforts to resolve the headaches left over from its acquisition of failed mortgage lender Countrywide in 2008. The unit will oversee about 1.3 million mortgages, most of them obtained in the Countrywide transaction.
A second new unit will be responsible for servicing healthy mortgages where borrowers remain current on their payments, some 12 million in all, as well as for making new mortgage loans.
Saddled with toxic loans
The bank has struggled to address problems arising from the collapse of the subprime mortgage market and subsequent foreclosure crisis. Countrywide has come to be seen as a symbol of what went wrong with the mortgage industry leading up to the crash, and many of the loans Bank of America acquired from it were of the high-risk type that went bad in droves once housing values began to fall.
The move, announced Friday, comes four months after Bank of America suspended all foreclosure actions amid reports that employees were cutting legal corners in order to keep up with tens of thousands of foreclosures a month; several other large mortgage servicers did the same.
Loan modification issues
The bank has also been criticized for dragging its feet on loan modifications through the government’s Home Affordable Modification Program (HAMP). The bank ranks at or near the bottom in several measures of servicer performance in the Treasury Department’s latest report on HAMP, including the rate at which trial loan modifications are converted to permanent status (31 percent), borrower complaints (third among eight largest lenders), time taken to resolve third-party issues (over 45 days) and time taken to answer homeowner phone calls (about 45 seconds, second longest of eight servicers).
For its part, Bank of America notes that the number of its borrowers entering HAMP trial modifications has more than tripled since the third quarter of 2010, a rate of increase far exceeding any other servicer. It also reports that since the beginning of the foreclosure crisis, it has done 775,000 permanent loan modifications, including 100,000 permanent HAMP modifications – the most of any servicer.
The bank has also announced plans to participate in more than 400 housing rescue fairs in 2011, where at-risk homeowners meet directly with bank representatives to seek foreclosure alternatives, as well as establishing new customer assistance centers in hard-hit communities and expanded partnerships with nonprofit consumer counseling agencies.top of page
About 1.76 million financially pressed homeowners received permanent loan modifications in 2010, well exceeding the number who lost their homes to foreclosure but also well below the number who were served with foreclosure papers for the first time. The figure represents an increase of more than half a million permanent loan modifications over 2009, virtually all of them coming from the government’s Home Affordable Modification Program (HAMP), according to figures released today by the HOPE NOW alliance. Proprietary modifications, those done under a lender’s own terms, were largely unchanged from 2009 levels, but still made up over two-thirds of the 2010 total.
There were 1.24 million proprietary modifications last year and 513,000 HAMP permanent modifications completed in 2010, compared to 1.17 million proprietary and 67,000 HAMP permanent modifications in all of 2009, when the HAMP program was still getting underway.
Faith Schwartz, HOPE NOW executive director, touted the fact that the 1.76 million homeowners obtaining loan modifications well surpassed the 1.07 million who lost their homes to foreclosure in 2010. However, the figure fell well short of the 2.62 million who were served with foreclosure papers for the first time during the year, although some of those may have subsequently been able to obtain loan modifications.
“2010 was a very challenging year for the housing market, but HOPE NOW’s data continues to support the fact that significant strides have been made to avail homeowners of all options before going to foreclosure,” Schwartz said.
Schwartz said the HOPE NOW coalition, which includes many of the nation’s largest lenders, plans to continue conducting large-scale outreach events in 2011, in cooperation with the Treasury Department, to bring together at-risk homeowners and lender representatives for the purpose of seeking foreclosure alternatives. The organization has conducted about 100 such events around the country since 2007.
The report indicated that over 80 percent of the more than 1 million proprietary loan modifications featured principal and/or interest reductions, with about three-quarters of them featuring principal and interest reductions of 10 percent or more.
Permanent loan modifications under the government’s HAMP program surged early in 2010, but fell off sharply during the latter part of the year as mortgage servicers worked through a backlog of trial modifications and the number of new admissions to the program dropped. The program has lately been initiating about 30,000 trial modifications a month, a preliminary step toward a permanent modification.top of page
U.S. home prices turned upward in January, a positive sign amid widespread fears that the housing market may be headed for a “double-dip” following months of declines.
National home prices showed a 0.9 percent increase during the first three weeks of January, their first reported gains since mid-August, according today’s monthly market report from Clear Capital. On a quarterly basis, prices were down 1.6 percent over the past three months, a slower decline that the 5.8 percent decline reported for the quarter ending in November.
“This recent national change in price direction is encouraging for the overall housing sector, yet it is still too early to determine whether this current uptick in home prices is a temporary reprieve or the start of a sustained recovery,” said Alex Villacorta, Clear Capital senior statistician. Even so, he said the severity of the price downturns seen last fall has clearly subsided.
Villacorta said the price uptick was the first non-incentivized price increase seen in the monthly survey since the economic downturn began.
The report says the uptick in prices is particularly significant because the first months of the year are typically slow ones for housing sales, possibly suggesting that buyer demand is picking up. However, it also notes that a primary driver of the price increase appears to be a slowdown in sales of foreclosed homes, which tend to bring down prices overall.
However, that slowdown may well be due to a temporary moratorium on foreclosure activity imposed by several of the nation’s largest lenders in the wake of last fall’s robo-signing controversy. Now that they are resuming foreclosure sales and other proceedings once again, the pent-up activity could exert considerable downward pressure on housing prices.
The widely reported price declines in October and November has generated significant concerns that the housing market is headed into another downturn. Just last week, David Blitzer, chair of the Standard and Poor’s Index Committee, predicted that more analysts would be calling for a “double-dip” decline in housing prices, based on continued declines seen in the November data for the company’s widely respected S&P/Case Shiller Home Price Indexes.
The Clear Capital report is based on more recent data, however; most other prominent home price surveys have a lag time of one to two months. The Clear Capital report is the second major study this week to come out with positive news for housing prices; a Fiserv study released Tuesday concluded that U.S. home prices are stabilizing, but still predicted continued declines for most housing markets through late 2010.top of page
Demand for mortgages increased last week, with substantial increases in applications for both home purchase loans and to refinance existing mortgages, according to figures released today by the Mortgage Bankers Association. Applications for home purchase mortgages increased 9.5 percent last week, following four weeks of declines, while refinance applications were up 11.7 percent. All figures are on a seasonally adjusted basis.
The strong showing by purchase applications pushed them to their biggest share of the market since last May, with refinance applications dropping to just below 70 percent of all mortgage activity.
Last week’s big boost wasn’t enough to counter an overall downward trend over the past month in purchase applications, which have declined an average of 1.5 percent a week over the past four weeks. Refinance applications have trended up slightly, increasing by an average of 1.7 percent during the same period.
Mortgage rate remained relatively stable for yet another week, with the average interest rate on both 30- and 15-year fixed-rate loans increasing by a single basis point, to 4.83 percent and 4.13 percent, respectively. The effective rate on both actually declined, due to a decrease in average points paid.
Average points paid on 30-year loans last week fell to 1.02 points from 1.19 points the week before, while the average on 15-year loans fell to 1.01 points from 1.26 points previously, including origination fees. All are based on 80-percent loan-to-value mortgages.top of page