No easy answer to housing crisis, Paulson says
Administration looking at options as wave of mortgages to reset rates
The Associated Press
updated 3:53 p.m. ET, Mon., Jan. 7, 2008
WASHINGTON - The Bush administration is working to combat the country’s severe housing crisis but there is no simple solution, Treasury Secretary Henry Paulson said Monday, adding that a correction in the housing market is “inevitable and necessary.”
Paulson said the country was facing an unprecedented wave of 1.8 million subprime mortgages that are scheduled to reset to sharply higher rates over the next two years. He said this raised the threat of a market failure and was the reason the administration brokered a deal with the mortgage industry to freeze certain subprime mortgage rates for five years to allow the housing market to recover.
“By preventing avoidable foreclosures, we will safeguard neighborhoods and communities and fulfill our responsibility of protecting the broader U.S. economy,” Paulson said in a speech in New York. “However, let me be clear: there is no single or simple solution that will undo the excesses of the last few years.”
Paulson said that the deal the administration brokered with the industry to freeze certain subprime mortgage rates for five years did not involve the use of any taxpayer money. Conservative critics have complained that the administration’s plan represented government intrusion in the operation of markets that would end up rewarding some people who had taken out risky mortgages.
In his speech, Paulson raised the possibility that some sort of “systematic approach” may need to be developed to help homeowners with other types of adjustable-rate mortgages that are resetting to higher rates. The current plan only involves subprime mortgages, loans offered to borrowers with weak credit histories.
The steep slump in housing has been a serious drag on the overall economy. There are rising fears that the country could topple into a recession. Those worries were heightened after a report Friday showing that the unemployment rate jumped to a two-year high of 5 percent in December with job growth slowing to a crawl.
Paulson called the current housing correction inevitable after what occurred during the five-year boom in which sales and prices climbed to record levels.
“After years of unsustainable price appreciation and lax lending practices, a housing correction is inevitable and necessary,” Paulson said.
He said that the correction was taking a toll on the economy that would continue for a period of months.
“It will take additional time for markets to regain confidence,” Paulson said. “The overhang of unsold homes will contribute to a prolonged adjustment and poses by far the biggest downside risk.”
Paulson and President Bush both delivered speeches Monday declaring the economy is fundamentally sound. Bush received an update Friday from Paulson, Federal Reserve Chairman Ben Bernanke and other market regulators about how markets have been performing following a severe credit squeeze that began in August that roiled financial markets around the world.
The administration is considering an economic stimulus package that might include tax cuts to ward off a recession. Bush is expected to unveil the package, if he decides to go ahead with it, around the time of the Jan. 28 State of the Union address.
Asked about a stimulus package, Paulson said Monday that Bush has not made any decisions yet but that the administration was very much focused on the issue.
“This is a decision the president still has to make. When he makes it, we will report to all of you,” Paulson said during a question-and-answer session after his speech.
The credit crisis was sparked by raising defaults on subprime mortgages. Those defaults have already resulted in multibillion-dollar losses at many financial institutions who bought securities backed by the subprime mortgages that have gone bad.
Paulson said that those large write-downs showed the system was working.
“As markets reassess, we should not be surprised or disappointed to see financial institutions writing down assets and strengthening balance sheets,” he said.
Paulson said the administration is continuing to work with the mortgage industry to ensure the quick implementation of the agreement to freeze subprime mortgages that are due to reset if the homeowner is living in the house, is current with payments before they reset but cannot make the higher payments.
He said that last Friday more than 20 mortgage institutions that are part of the HOPE NOW alliance met to work through outstanding issues involved in the mortgage plan. “We expect most servicers to begin fast-tracking borrowers in the next few weeks,” he said.
Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Tuesday, January 08, 2008
Monday, January 07, 2008
Dirty deeds: Cities fight banks over vacant homes
As housing crisis deepens, cities fight lenders over abandoned homes
By Michael Orey
Business Week
updated 9:21 a.m. ET, Mon., Jan. 7, 2008
On Dec. 17 in a windowless Buffalo courtroom, Cindy T. Cooper, a prosecutor for the city, buzzes among a dozen men in suits, cutting deals. "You've got to unboard [the house], go in, and clean it out," she tells one. "If all the repairs are done quickly, I wouldn't ask for any fines." To another, she says, "the gutters weren't done right," and asks to see receipts for the work. It's "Bank Day" in Judge Henry J. Nowak's housing courtroom, more typically a venue where landlords and tenants duke it out over evictions and back rent. Instead, Cooper is asking lawyers for CitiFinancial, JPMorgan Chase, and Countrywide Financial to fix problems like peeling paint, broken masonry, and overgrown or trash-filled yards at houses the city says the banks are responsible for maintaining. It may be surprising to find these financial-services giants hauled before this obscure local tribunal.
In fact, Cooper and Nowak are at the forefront of a pioneering effort to deal with a vexing problem: The surging number of vacant and abandoned homes resulting from the mortgage market meltdown. The vacancies occur when lenders bring foreclosure suits against delinquent borrowers. Mere notice that such an action might be filed often sends residents packing. In Buffalo and other Rust Belt cities, the problem has been particularly acute, because in many cases banks are abandoning the houses, too, after determining that their value is so low that it's not worth laying claim to them. When city officials try to hold someone responsible for dilapidated properties, they often find the homeowner and bank pointing fingers at each other. Indeed, the houses fall into a kind of legal limbo that Cleveland housing attorney Kermit J. Lind calls "toxic title". While formal ownership remains with a borrower who has fled, the bank retains its lien on the property. That opens up a dispute over who is responsible for taxes and maintenance. Even when lenders do complete the foreclosure, they may walk away from the property, leaving it to be taken by a city for unpaid taxes, a process that can take years. Orphaned properties quickly fall into disrepair, the deterioration sometimes hastened by vandals who trash the interiors, lighting fires and ripping out wiring and pipes to sell for scrap. Squatters or drug dealers may move in.
The impact goes far beyond the defaulting homeowner, as neighbors and entire communities confront a spreading blight. Vacant residences deprive cities of tax revenue and can cost them thousands to maintain. A 2001 Temple University study in Philadelphia found that simply being within 150 feet of an abandoned property knocked $7,600 off a home's value.
In Buffalo, prosecutor Cooper is bringing lenders before Judge Nowak to hold them accountable. Wielding the threat of liens, which can hold up the lenders' other real estate transactions, she aims to make banks keep foreclosed homes in good condition until a buyer can be found. As an alternative, Cooper or Nowak may try to get lenders to donate properties to community groups or to pay for demolition when houses are beyond repair. "At least in Buffalo," says Cooper, "the days are gone when you can do a foreclosure and walk away without taking care of the property."
Those charged with violations by Cooper include participants all along the complex mortgage-industry food chain, from loan originators to servicers to the Wall Street trusts that buy up the vast majority of home loans and then securitize them. A similar initiative is under way in Cleveland, where Judge Raymond L. Pianka puts lenders on trial in absentia when they fail to respond to charges.
Even places with high property values, like Chula Vista, Calif., a San Diego suburb, are taking steps to avoid the neglect that can occur during lengthy foreclosures. "It seems like a number of the lenders aren't even doing things that are in their own best interest to preserve the asset," says Pianka — a problem he attributes to the fragmented nature of the business. "It's not an address. It's not a property. It's just a loan number," he says. "So they'll push a button in San Francisco, and it will set things in motion to do things with [a] property that don't even make sense."
The proceedings in Pianka's and Nowak's courtrooms offer a sobering reminder that underlying the attenuated ownership and esoteric products spun out of mortgages are actual buildings, some with leaky roofs or broken porch railings. The industry denies responsibility for properties to which it has not taken title. "The notion that a mortgage company has an obligation to make repairs on a property that it doesn't even own is very hard to comprehend," says Marco Cercone, a Buffalo attorney who represents a range of lenders before Nowak in the courtroom. Cooper says that banks and other financial firms once extolled houses as the best possible collateral for a loan. Now they're stuck with that collateral, and they don't like it.
If there ever is a national response to the messy legacy left by foreclosures, it might include something like the Buffalo system, which seeks to take action before the presence of abandoned houses hurts entire neighborhoods and which spreads the pain among many players. "We're kind of a crystal ball into what might happen" elsewhere, Cooper says.
Lenders may rue the day the State University of New York at Buffalo admitted Cooper to pursue a PhD in sociology and a law degree. The subject of her doctoral thesis, submitted in December, 2006: the role of banks in residential abandonment and why they should be accountable for property-code violations. The fourth-generation Californian says she quickly became attached to Buffalo for its history and architecture. Now 33, Cooper and her husband are rehabilitating a house that she bought after getting an IRS tax lien removed from the property. "My passion for this work is because I love this town," she says.
While researching her thesis, Cooper interned for Judge Nowak. Tall, soft-spoken, and unfailingly courteous, the judge, 39, began holding Bank Day earlier this year and schedules it once a month. The civility of the proceedings and the large number of bank lawyers in attendance belie a noteworthy fact: They are there under coercion. A few years ago, Nowak says, "the city became increasingly frustrated with the banks' role" in contributing to Buffalo's abandoned-property problem. (Estimates put the number of abandoned homes in the city at between 5,000 and 10,000.) In 2004, New York State amended the definition of "owner" in its property maintenance code to include not just titleholders but others who had "control" over a premises.
While the statute makes no reference to lenders, Nowak contends that the letters banks send to defaulting homeowners threatening to boot them from their houses show that they have begun to "assert some measure of control." On this premise, Nowak says, Buffalo began contacting banks "en masse" about foreclosed properties, but "a lot of times we'd just be rebuffed and ignored."
Cooper, as an intern, suggested a tactic that the judge adopted. When banks ignored summonses for code violations, Nowak began entering default judgments against them and imposing the maximum fine, which can reach $10,000 to $15,000. For a big bank, that's not much. The real pain comes because the fines give the city a lien that impedes the banks' ability to buy or sell other properties in the area. In addition, when lenders come to his court to get residents evicted from a particular property, Nowak refuses to grant the request until the bank addresses violations outstanding on other properties. Judge Pianka employs similar tactics in Cleveland. On Dec. 10, for example, he assessed a $50,000 fine against an absentee defendant, Mortgage Lenders Network USA, for 21 code violations at a home.
Even far from the Rust Belt, in places where empty houses retain significant value, the lending industry seems to have trouble preserving its collateral when homes are abandoned during foreclosure. In Chula Vista, a number of houses have been trashed by college students who have held parties in the vacant properties. In other cases, pillagers pull up in rental trucks to cart away cabinets, wood flooring, and fixtures stripped from the homes. But in October, an ordinance went into effect requiring lenders to register and maintain houses that have been abandoned during foreclosure.
Compliance, says Chula Vista code enforcement manager Doug Leeper, has been spotty. "What I need them to do is keep the water on and keep the lawn green," he says, noting that the first sign of abandonment is often a yard that has turned brown and a pool that has gone murky green.
That slide into decrepitude is exactly what Cooper is trying to head off in Buffalo. In February, she joined the city's law department, where one of her duties is prosecuting banks. She and Nowak each say their main objective is not collecting fines but bringing banks to the table to try to find constructive solutions for dealing with abandoned property. That doesn't mean borrowers are off the hook. Cooper typically charges both borrowers and lenders, and Nowak may fine homeowners or sentence them to community service. "Can both be responsible?" asks Cooper. "Absolutely."
The approach in Buffalo is paying dividends. In a case on Dec. 17, attorney Cercone addressed the status of a house that had gone into foreclosure in 2006. Cercone was representing JPMorgan Chase and Ocwen Loan Servicing (which in turn were representatives of a securitized trust that had purchased the mortgage). Cercone submitted an affidavit showing that Ocwen, which had been cited for violations in December, 2006, had spent $30,000 to repair the property, including scraping lead paint from the entire house. In September, the affidavit notes, JP Morgan Chase sold the property at a loss of $19,500, not including the cost of repairs. "The bank in this case dealt with the property as well as could be done under the circumstances," Nowak said from the bench, and he agreed not to impose any fines.
Still, even with novel and aggressive tactics, the path to resolution for many properties in Buffalo can be tortuous and protracted. A house at 1941 Niagara St. — one of dozens of properties that Cooper examined as a graduate studenthas yet to see its final chapter, though it may be close.
In 1998, Elizabeth M. Manuel obtained a $34,500 mortgage on the property from IMC Mortgage (since acquired by Citibank). By 2002, the loan had been sold into a securitization trust administered by Chase Manhattan (now JPMorgan Chase) as trustee. It also went into default, and Chase began foreclosure proceedings. In a court filing, Manuel (who could not be located for comment) said she left the home while the foreclosure action was pending. More than five years later, though, the title remains in her name. The house, although still standing, has become a fire-gutted wreck.
In May 2007, Nowak issued a default judgment against Chase for $9,000. But these cases can be notoriously difficult to untangle. Thomas A. Kelly, a spokesman for the bank, notes that Chase sold its trustee business to the Bank of New York Mellon in October, 2006, and couldn't locate anyone at Chase able to comment. But he reiterates the industry view that Chase can't be held responsible for maintaining a property it never owned. He acknowledges that if a home didn't seem worth taking as collateral, the bank may have made a decision to "just walk away."
The value of 1941 Niagara, estimate city assessors, is $4,500, of which $4,300 represents the value of the land. The home, Cooper says, is slated for "imminent" demolition.
Copyright © 2008 The McGraw-Hill Companies Inc. All rights reserved.
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As housing crisis deepens, cities fight lenders over abandoned homes
By Michael Orey
Business Week
updated 9:21 a.m. ET, Mon., Jan. 7, 2008
On Dec. 17 in a windowless Buffalo courtroom, Cindy T. Cooper, a prosecutor for the city, buzzes among a dozen men in suits, cutting deals. "You've got to unboard [the house], go in, and clean it out," she tells one. "If all the repairs are done quickly, I wouldn't ask for any fines." To another, she says, "the gutters weren't done right," and asks to see receipts for the work. It's "Bank Day" in Judge Henry J. Nowak's housing courtroom, more typically a venue where landlords and tenants duke it out over evictions and back rent. Instead, Cooper is asking lawyers for CitiFinancial, JPMorgan Chase, and Countrywide Financial to fix problems like peeling paint, broken masonry, and overgrown or trash-filled yards at houses the city says the banks are responsible for maintaining. It may be surprising to find these financial-services giants hauled before this obscure local tribunal.
In fact, Cooper and Nowak are at the forefront of a pioneering effort to deal with a vexing problem: The surging number of vacant and abandoned homes resulting from the mortgage market meltdown. The vacancies occur when lenders bring foreclosure suits against delinquent borrowers. Mere notice that such an action might be filed often sends residents packing. In Buffalo and other Rust Belt cities, the problem has been particularly acute, because in many cases banks are abandoning the houses, too, after determining that their value is so low that it's not worth laying claim to them. When city officials try to hold someone responsible for dilapidated properties, they often find the homeowner and bank pointing fingers at each other. Indeed, the houses fall into a kind of legal limbo that Cleveland housing attorney Kermit J. Lind calls "toxic title". While formal ownership remains with a borrower who has fled, the bank retains its lien on the property. That opens up a dispute over who is responsible for taxes and maintenance. Even when lenders do complete the foreclosure, they may walk away from the property, leaving it to be taken by a city for unpaid taxes, a process that can take years. Orphaned properties quickly fall into disrepair, the deterioration sometimes hastened by vandals who trash the interiors, lighting fires and ripping out wiring and pipes to sell for scrap. Squatters or drug dealers may move in.
The impact goes far beyond the defaulting homeowner, as neighbors and entire communities confront a spreading blight. Vacant residences deprive cities of tax revenue and can cost them thousands to maintain. A 2001 Temple University study in Philadelphia found that simply being within 150 feet of an abandoned property knocked $7,600 off a home's value.
In Buffalo, prosecutor Cooper is bringing lenders before Judge Nowak to hold them accountable. Wielding the threat of liens, which can hold up the lenders' other real estate transactions, she aims to make banks keep foreclosed homes in good condition until a buyer can be found. As an alternative, Cooper or Nowak may try to get lenders to donate properties to community groups or to pay for demolition when houses are beyond repair. "At least in Buffalo," says Cooper, "the days are gone when you can do a foreclosure and walk away without taking care of the property."
Those charged with violations by Cooper include participants all along the complex mortgage-industry food chain, from loan originators to servicers to the Wall Street trusts that buy up the vast majority of home loans and then securitize them. A similar initiative is under way in Cleveland, where Judge Raymond L. Pianka puts lenders on trial in absentia when they fail to respond to charges.
Even places with high property values, like Chula Vista, Calif., a San Diego suburb, are taking steps to avoid the neglect that can occur during lengthy foreclosures. "It seems like a number of the lenders aren't even doing things that are in their own best interest to preserve the asset," says Pianka — a problem he attributes to the fragmented nature of the business. "It's not an address. It's not a property. It's just a loan number," he says. "So they'll push a button in San Francisco, and it will set things in motion to do things with [a] property that don't even make sense."
The proceedings in Pianka's and Nowak's courtrooms offer a sobering reminder that underlying the attenuated ownership and esoteric products spun out of mortgages are actual buildings, some with leaky roofs or broken porch railings. The industry denies responsibility for properties to which it has not taken title. "The notion that a mortgage company has an obligation to make repairs on a property that it doesn't even own is very hard to comprehend," says Marco Cercone, a Buffalo attorney who represents a range of lenders before Nowak in the courtroom. Cooper says that banks and other financial firms once extolled houses as the best possible collateral for a loan. Now they're stuck with that collateral, and they don't like it.
If there ever is a national response to the messy legacy left by foreclosures, it might include something like the Buffalo system, which seeks to take action before the presence of abandoned houses hurts entire neighborhoods and which spreads the pain among many players. "We're kind of a crystal ball into what might happen" elsewhere, Cooper says.
Lenders may rue the day the State University of New York at Buffalo admitted Cooper to pursue a PhD in sociology and a law degree. The subject of her doctoral thesis, submitted in December, 2006: the role of banks in residential abandonment and why they should be accountable for property-code violations. The fourth-generation Californian says she quickly became attached to Buffalo for its history and architecture. Now 33, Cooper and her husband are rehabilitating a house that she bought after getting an IRS tax lien removed from the property. "My passion for this work is because I love this town," she says.
While researching her thesis, Cooper interned for Judge Nowak. Tall, soft-spoken, and unfailingly courteous, the judge, 39, began holding Bank Day earlier this year and schedules it once a month. The civility of the proceedings and the large number of bank lawyers in attendance belie a noteworthy fact: They are there under coercion. A few years ago, Nowak says, "the city became increasingly frustrated with the banks' role" in contributing to Buffalo's abandoned-property problem. (Estimates put the number of abandoned homes in the city at between 5,000 and 10,000.) In 2004, New York State amended the definition of "owner" in its property maintenance code to include not just titleholders but others who had "control" over a premises.
While the statute makes no reference to lenders, Nowak contends that the letters banks send to defaulting homeowners threatening to boot them from their houses show that they have begun to "assert some measure of control." On this premise, Nowak says, Buffalo began contacting banks "en masse" about foreclosed properties, but "a lot of times we'd just be rebuffed and ignored."
Cooper, as an intern, suggested a tactic that the judge adopted. When banks ignored summonses for code violations, Nowak began entering default judgments against them and imposing the maximum fine, which can reach $10,000 to $15,000. For a big bank, that's not much. The real pain comes because the fines give the city a lien that impedes the banks' ability to buy or sell other properties in the area. In addition, when lenders come to his court to get residents evicted from a particular property, Nowak refuses to grant the request until the bank addresses violations outstanding on other properties. Judge Pianka employs similar tactics in Cleveland. On Dec. 10, for example, he assessed a $50,000 fine against an absentee defendant, Mortgage Lenders Network USA, for 21 code violations at a home.
Even far from the Rust Belt, in places where empty houses retain significant value, the lending industry seems to have trouble preserving its collateral when homes are abandoned during foreclosure. In Chula Vista, a number of houses have been trashed by college students who have held parties in the vacant properties. In other cases, pillagers pull up in rental trucks to cart away cabinets, wood flooring, and fixtures stripped from the homes. But in October, an ordinance went into effect requiring lenders to register and maintain houses that have been abandoned during foreclosure.
Compliance, says Chula Vista code enforcement manager Doug Leeper, has been spotty. "What I need them to do is keep the water on and keep the lawn green," he says, noting that the first sign of abandonment is often a yard that has turned brown and a pool that has gone murky green.
That slide into decrepitude is exactly what Cooper is trying to head off in Buffalo. In February, she joined the city's law department, where one of her duties is prosecuting banks. She and Nowak each say their main objective is not collecting fines but bringing banks to the table to try to find constructive solutions for dealing with abandoned property. That doesn't mean borrowers are off the hook. Cooper typically charges both borrowers and lenders, and Nowak may fine homeowners or sentence them to community service. "Can both be responsible?" asks Cooper. "Absolutely."
The approach in Buffalo is paying dividends. In a case on Dec. 17, attorney Cercone addressed the status of a house that had gone into foreclosure in 2006. Cercone was representing JPMorgan Chase and Ocwen Loan Servicing (which in turn were representatives of a securitized trust that had purchased the mortgage). Cercone submitted an affidavit showing that Ocwen, which had been cited for violations in December, 2006, had spent $30,000 to repair the property, including scraping lead paint from the entire house. In September, the affidavit notes, JP Morgan Chase sold the property at a loss of $19,500, not including the cost of repairs. "The bank in this case dealt with the property as well as could be done under the circumstances," Nowak said from the bench, and he agreed not to impose any fines.
Still, even with novel and aggressive tactics, the path to resolution for many properties in Buffalo can be tortuous and protracted. A house at 1941 Niagara St. — one of dozens of properties that Cooper examined as a graduate studenthas yet to see its final chapter, though it may be close.
In 1998, Elizabeth M. Manuel obtained a $34,500 mortgage on the property from IMC Mortgage (since acquired by Citibank). By 2002, the loan had been sold into a securitization trust administered by Chase Manhattan (now JPMorgan Chase) as trustee. It also went into default, and Chase began foreclosure proceedings. In a court filing, Manuel (who could not be located for comment) said she left the home while the foreclosure action was pending. More than five years later, though, the title remains in her name. The house, although still standing, has become a fire-gutted wreck.
In May 2007, Nowak issued a default judgment against Chase for $9,000. But these cases can be notoriously difficult to untangle. Thomas A. Kelly, a spokesman for the bank, notes that Chase sold its trustee business to the Bank of New York Mellon in October, 2006, and couldn't locate anyone at Chase able to comment. But he reiterates the industry view that Chase can't be held responsible for maintaining a property it never owned. He acknowledges that if a home didn't seem worth taking as collateral, the bank may have made a decision to "just walk away."
The value of 1941 Niagara, estimate city assessors, is $4,500, of which $4,300 represents the value of the land. The home, Cooper says, is slated for "imminent" demolition.
Copyright © 2008 The McGraw-Hill Companies Inc. All rights reserved.
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URL: http://www.msnbc.msn.com/id/22506609/
Sunday, January 06, 2008
Wall Street Eyes Housing, 4Q Earns Data
The start of 2008 has brought a harsh reality to Wall Street: The U.S. may indeed be headed toward recession.
So, after suffering punishing losses the first three trading days of the year, the stock market will be seizing on any data or forecast in the coming weeks that can help investors determine if their worst fears are coming to pass. And earnings are now part of the equation, with results from Alcoa Inc., the first of the 30 Dow Jones industrials to report fourth-quarter results, opening earnings season on Tuesday.
Analysts polled by Thomson Financial, on average, expect the aluminum producer to post a drop in per-share profit, but the company's outlook is likely to have a bigger impact on Wall Street.
Last week's readings showed that the economy continues to slump amid the ongoing mortgage and credit crisis, and that energy costs could have further to climb. Over the course of the week, oil prices hit the psychologically important $100-a-barrel mark, investors found out that manufacturing unexpectedly contracted in December, and — perhaps most devastatingly — payrolls grew less than anticipated last month, while unemployment hit a two-year high of 5 percent. When people start losing their jobs, they pare back spending and find it harder to pay their bills, a trend that would aggravate already deteriorated lending conditions.
The news pounded stocks. In just the first three trading days of 2008, the Dow Jones industrial average lost 3.50 percent, the Standard & Poor's 500 index fell 3.86 percent, and the Nasdaq composite index dropped 5.57 percent.
Economists and market analysts are still split on whether this year will bring recession, but virtually no one is completely discounting the possibility.
Keefe, Bruyette & Woods banking analysts are factoring into their forecasts a mild U.S. recession in 2008, and they predict the nation's unemployment will reach 6 percent by the end of the year.
There's hope, though: Fed rate cuts, companies continuing to find ways to make money, and ongoing growth overseas could save the U.S. economy from recession and stocks from a bear market, according to Michael Sheldon of Spencer Clarke LLC.
This week, as it has been for months now, Wall Street will be eyeing housing data — though bad news rarely comes as a surprise now to investors who have already sold off stocks related to homebuilding or mortgage lending. On Tuesday, the National Association of Realtors releases its forward-looking index of U.S. home sales for November. Economists surveyed by Thomson Financial predict the index will slip after gaining for two straight months, despite the association's forecast last month that sales and prices will start rising modestly next year.
KB Home's quarterly earnings report Tuesday could offer further insight into whether the housing market is near its bottom or has much further to fall. The homebuilder is expected to post a loss.
With the job market and energy sector in focus, the Energy Department's weekly report Wednesday on crude oil, gasoline and heating oil inventories and the Labor Department's weekly reading Thursday on jobless claims will be closely monitored.
Comments from several Fed officials could also give investors a clearer view of where the economy is headed, and if inflation is a growing concern to the central bank, which meets Jan. 29-30 to decide whether to lower interest rates again for the fourth time in a row.
On Tuesday, Philadelphia Fed President Charles Plosser will speak in Gladwyne, Pa., on the economy, and Boston Fed President Eric Rosengren will speak in Hartford, Conn., on the economy as well. On Wednesday, St. Louis Fed President William Poole will speak in St. Louis on economic and financial literacy, and Thursday, Kansas City Fed President Thomas Hoenig speaks on the economy in Kansas City, Mo.
Lastly, on Friday, the Commerce Department reports on November's international trade and December import prices. These two pieces of data that could indicate how the weakening dollar is helping or hurting the United States' position in global commerce.
© Copyright 2008 CSC Holdings, Inc.
The start of 2008 has brought a harsh reality to Wall Street: The U.S. may indeed be headed toward recession.
So, after suffering punishing losses the first three trading days of the year, the stock market will be seizing on any data or forecast in the coming weeks that can help investors determine if their worst fears are coming to pass. And earnings are now part of the equation, with results from Alcoa Inc., the first of the 30 Dow Jones industrials to report fourth-quarter results, opening earnings season on Tuesday.
Analysts polled by Thomson Financial, on average, expect the aluminum producer to post a drop in per-share profit, but the company's outlook is likely to have a bigger impact on Wall Street.
Last week's readings showed that the economy continues to slump amid the ongoing mortgage and credit crisis, and that energy costs could have further to climb. Over the course of the week, oil prices hit the psychologically important $100-a-barrel mark, investors found out that manufacturing unexpectedly contracted in December, and — perhaps most devastatingly — payrolls grew less than anticipated last month, while unemployment hit a two-year high of 5 percent. When people start losing their jobs, they pare back spending and find it harder to pay their bills, a trend that would aggravate already deteriorated lending conditions.
The news pounded stocks. In just the first three trading days of 2008, the Dow Jones industrial average lost 3.50 percent, the Standard & Poor's 500 index fell 3.86 percent, and the Nasdaq composite index dropped 5.57 percent.
Economists and market analysts are still split on whether this year will bring recession, but virtually no one is completely discounting the possibility.
Keefe, Bruyette & Woods banking analysts are factoring into their forecasts a mild U.S. recession in 2008, and they predict the nation's unemployment will reach 6 percent by the end of the year.
There's hope, though: Fed rate cuts, companies continuing to find ways to make money, and ongoing growth overseas could save the U.S. economy from recession and stocks from a bear market, according to Michael Sheldon of Spencer Clarke LLC.
This week, as it has been for months now, Wall Street will be eyeing housing data — though bad news rarely comes as a surprise now to investors who have already sold off stocks related to homebuilding or mortgage lending. On Tuesday, the National Association of Realtors releases its forward-looking index of U.S. home sales for November. Economists surveyed by Thomson Financial predict the index will slip after gaining for two straight months, despite the association's forecast last month that sales and prices will start rising modestly next year.
KB Home's quarterly earnings report Tuesday could offer further insight into whether the housing market is near its bottom or has much further to fall. The homebuilder is expected to post a loss.
With the job market and energy sector in focus, the Energy Department's weekly report Wednesday on crude oil, gasoline and heating oil inventories and the Labor Department's weekly reading Thursday on jobless claims will be closely monitored.
Comments from several Fed officials could also give investors a clearer view of where the economy is headed, and if inflation is a growing concern to the central bank, which meets Jan. 29-30 to decide whether to lower interest rates again for the fourth time in a row.
On Tuesday, Philadelphia Fed President Charles Plosser will speak in Gladwyne, Pa., on the economy, and Boston Fed President Eric Rosengren will speak in Hartford, Conn., on the economy as well. On Wednesday, St. Louis Fed President William Poole will speak in St. Louis on economic and financial literacy, and Thursday, Kansas City Fed President Thomas Hoenig speaks on the economy in Kansas City, Mo.
Lastly, on Friday, the Commerce Department reports on November's international trade and December import prices. These two pieces of data that could indicate how the weakening dollar is helping or hurting the United States' position in global commerce.
© Copyright 2008 CSC Holdings, Inc.
Friday, January 04, 2008
Federal Reserve to loan banks $60 billion
Stepped-up lending intended to address credit crunch
Friday, January 04, 2008Inman News
With a surge in unemployment and rising oil prices as a backdrop, the Federal Reserve announced today it will make $60 billion in short-term loans available to banks this month -- half again as much as offered in December -- as the credit crunch shows few signs of easing.
To address fears about deteriorating credit markets, last month the Federal Reserve and four other central banks said they would inject more than $90 billion in liquidity into financial markets. The Fed made $40 billion in loans available to commercial banks in auctions held Dec. 17 and Dec. 20.
The auctions -- in which the funds available for 28-day loans go to the banks willing to pay the highest interest rates -- made it possible for banks to borrow at an average interest rate of 4.65 percent in December.
That's slightly less than the 4.75 percent rate the Fed charges for short-term loans at the "discount window," which some banks are reluctant to use because it's viewed as a last resort. The Fed has cut its target for the federal funds rate -- the amount banks charge each other for overnight loans -- three times since September, bringing it down from 5.25 percent to 4.25 percent.
Today, with oil prices flirting with $100 a barrel and a new report from the Department of Labor showing unemployment rose to 5 percent in December, the Fed said it would make a total of $60 billion in loans available to banks in auctions to be held Jan. 14 and Jan. 28.
In a statement, the Fed said it plans to continue conducting the twice-a-month auctions "for as long as necessary to address elevated pressures in short-term funding markets." The amount of auctions to take place next month will be announced by Feb. 1.
The latest numbers from the Department of Labor show the number of unemployed workers rose by 474,000 in December, to 7.7 million. Job growth in service industries, including professional and technical services, health care and food services, was offset by job losses in construction and manufacturing, the Labor Department said, bringing the unemployment rate to 5 percent -- the highest since November 2005.
Investors were gloomy about the jobs report, sending the Dow Jones Industrial Average down nearly 200 points in afternoon trading. Stocks in the index have lost about 5 percent of their value since Dec. 24.
Stepped-up lending intended to address credit crunch
Friday, January 04, 2008Inman News
With a surge in unemployment and rising oil prices as a backdrop, the Federal Reserve announced today it will make $60 billion in short-term loans available to banks this month -- half again as much as offered in December -- as the credit crunch shows few signs of easing.
To address fears about deteriorating credit markets, last month the Federal Reserve and four other central banks said they would inject more than $90 billion in liquidity into financial markets. The Fed made $40 billion in loans available to commercial banks in auctions held Dec. 17 and Dec. 20.
The auctions -- in which the funds available for 28-day loans go to the banks willing to pay the highest interest rates -- made it possible for banks to borrow at an average interest rate of 4.65 percent in December.
That's slightly less than the 4.75 percent rate the Fed charges for short-term loans at the "discount window," which some banks are reluctant to use because it's viewed as a last resort. The Fed has cut its target for the federal funds rate -- the amount banks charge each other for overnight loans -- three times since September, bringing it down from 5.25 percent to 4.25 percent.
Today, with oil prices flirting with $100 a barrel and a new report from the Department of Labor showing unemployment rose to 5 percent in December, the Fed said it would make a total of $60 billion in loans available to banks in auctions to be held Jan. 14 and Jan. 28.
In a statement, the Fed said it plans to continue conducting the twice-a-month auctions "for as long as necessary to address elevated pressures in short-term funding markets." The amount of auctions to take place next month will be announced by Feb. 1.
The latest numbers from the Department of Labor show the number of unemployed workers rose by 474,000 in December, to 7.7 million. Job growth in service industries, including professional and technical services, health care and food services, was offset by job losses in construction and manufacturing, the Labor Department said, bringing the unemployment rate to 5 percent -- the highest since November 2005.
Investors were gloomy about the jobs report, sending the Dow Jones Industrial Average down nearly 200 points in afternoon trading. Stocks in the index have lost about 5 percent of their value since Dec. 24.
Thursday, January 03, 2008
Mortgage rates down on economic worries
Manufacturing, home sales, loan apps high on radar
Thursday, January 03, 2008Inman News
Long-term mortgage rates this week dropped to their lowest levels in four weeks on news of a sharp slowdown in manufacturing and new-home sales, Freddie Mac reported today.
According to Freddie Mac, the average 30-year fixed-rate mortgage fell this week to 6.07 percent from 6.17 percent a week earlier, and the average 15-year fixed was down to 5.68 percent from 5.79 percent. Points, or fees lenders charge for loan processing expressed as a percent of the loan, averaged 0.5 and 0.6, respectively, on the 30- and 15-year loans.
Freddie Mac reported that average rates on adjustable-rate mortgages (ARMs) also declined, with the five-year Treasury-indexed hybrid ARM falling from 5.9 percent to 5.78 percent and the one-year ARM dropping from 5.53 percent to 5.47 percent. Points on these loans averaged 0.5.
"The new year has begun with mixed signals on the direction of the economy and mortgage market," Frank Nothaft, Freddie Mac vice president and chief economist, said in a statement. "On the downside, the Institute for Supply Management's index of manufacturing activity showed significant contraction in this sector, perhaps a harbinger of a more substantial economic slowdown to begin this year. On the upside, the Conference Board reported that consumer confidence rose in December for the first time in five months, with more positive expectations for the next six months. Furthermore, interest rates have moved lower with average 30-year fixed-rate mortgage rates down about a tenth of a percentage point, the lowest in four weeks."
On home sales, Nothaft said the latest data sent "mixed messages on the direction of housing activity towards the end of 2007," and that the "latest forecast has total home sales continuing to decline in the first quarter of (2008) before starting a slow recovery."
Further weakening was seen in applications for home loans, as the Mortgage Bankers Association reported mortgage application volume declined 11.6 percent last week on a seasonally adjusted basis from the previous week, with the index tracking refinancings down 15.4 percent and the index tracking purchase loans down 8.5 percent.
According to Bankrate.com's mortgage-rate survey this week, "Declining new-home sales and weaker economic indicators gave investors new reasons to worry about the economy. Such worries typically prompt investors to park money in safe havens such as Treasury securities … With four weeks and an entire cycle of economic data before the next scheduled meeting of the Federal Open Market Committee, sentiment about the direction of interest rates and the economy may swing back and forth as worries alternate between economic growth and the outlook for inflation."
Manufacturing, home sales, loan apps high on radar
Thursday, January 03, 2008Inman News
Long-term mortgage rates this week dropped to their lowest levels in four weeks on news of a sharp slowdown in manufacturing and new-home sales, Freddie Mac reported today.
According to Freddie Mac, the average 30-year fixed-rate mortgage fell this week to 6.07 percent from 6.17 percent a week earlier, and the average 15-year fixed was down to 5.68 percent from 5.79 percent. Points, or fees lenders charge for loan processing expressed as a percent of the loan, averaged 0.5 and 0.6, respectively, on the 30- and 15-year loans.
Freddie Mac reported that average rates on adjustable-rate mortgages (ARMs) also declined, with the five-year Treasury-indexed hybrid ARM falling from 5.9 percent to 5.78 percent and the one-year ARM dropping from 5.53 percent to 5.47 percent. Points on these loans averaged 0.5.
"The new year has begun with mixed signals on the direction of the economy and mortgage market," Frank Nothaft, Freddie Mac vice president and chief economist, said in a statement. "On the downside, the Institute for Supply Management's index of manufacturing activity showed significant contraction in this sector, perhaps a harbinger of a more substantial economic slowdown to begin this year. On the upside, the Conference Board reported that consumer confidence rose in December for the first time in five months, with more positive expectations for the next six months. Furthermore, interest rates have moved lower with average 30-year fixed-rate mortgage rates down about a tenth of a percentage point, the lowest in four weeks."
On home sales, Nothaft said the latest data sent "mixed messages on the direction of housing activity towards the end of 2007," and that the "latest forecast has total home sales continuing to decline in the first quarter of (2008) before starting a slow recovery."
Further weakening was seen in applications for home loans, as the Mortgage Bankers Association reported mortgage application volume declined 11.6 percent last week on a seasonally adjusted basis from the previous week, with the index tracking refinancings down 15.4 percent and the index tracking purchase loans down 8.5 percent.
According to Bankrate.com's mortgage-rate survey this week, "Declining new-home sales and weaker economic indicators gave investors new reasons to worry about the economy. Such worries typically prompt investors to park money in safe havens such as Treasury securities … With four weeks and an entire cycle of economic data before the next scheduled meeting of the Federal Open Market Committee, sentiment about the direction of interest rates and the economy may swing back and forth as worries alternate between economic growth and the outlook for inflation."
Wednesday, January 02, 2008
Real Estate Professionals --Meeting the Needs of Home Sellers
by Dr. Paul C. Bishop, Harika “Anna” Barlett and Jessica Lautz, NAR Survey Research
Selling a home is a major decision for most households. Whether that decision is driven by the desire for a larger (or just different) home, a relocation due to a job change or personal situation, or plans to retire in a different community, selling one’s home can be a major challenge.Fortunately, sellers can choose from many options when looking to successfully complete a home sale. Sellers can work with a real estate agent who will manage the entire transaction, or they can take on the entire selling and marketing responsibility themselves, without the assistance of an agent.In fact, most home sellers do work with a real estate professional. Results from the recently released 2007 NAR Profile of Home Buyers and Sellers indicate that among recent home sellers, 85 percent were assisted by a real estate agent. How those home sellers select their real estate agent, what they expect their agent to do for them in the home sales transaction, and whether or not they would use that agent again are just a few of the questions that the report answers. Highlights from The Profileare presented below.Home selling experienceSome home sellers have considerable experience in the buying and selling of homes. The typical home seller has owned three homes; about one third have owned two homes. Not surprisingly, older sellers typically have owned more homes than younger ones; 43 percent of sellers 45 to 64 years old, have owned at least four homes, while more than a third of sellers who are 65 or older have owned at least five homes. Despite their previous experience of home buying and selling, the majority of these sellers still rely on the expertise and knowledge of real estate professionals to help them in selling a home.Finding a real estate professionalMost home sellers rely on referrals from a friend or family member or on their own experience with a particular agent when they look for a real estate professional to assist in their home sale. Among recent sellers, 41 percent reported that they found the agent they used in their home sale as a result of a referral, while 23 percent used the agent in a previous home sale or purchase transaction. Although there are a number of other ways that sellers can find an agent, they are far less common.The most important factor when choosing a real estate professional, cited by 38 percent of recent sellers, is the reputation of the agent. For an additional 20 percent of sellers, the agent’s honesty and trustworthiness was the most important consideration. Both of these qualities are closely tied to the manner in which most sellers find an agent – through referrals or as a result of their own experience with a particular agent, both of which can serve to validate reputation and trustworthiness.“Please Help Me”Sellers can choose the level of service they would like their real estate agent to provide. Some sellers want their agent to perform many tasks and manage the process from start to finish; others choose to perform some tasks themselves. In most cases, real estate agents assisted recent home sellers with many tasks. Seventy-four percent of sellers worked with their agents to determine the asking price, while 81 percent reported that their agent entered their property in the Multiple Listing Service.Most sellers continue to favor full-service brokerage, where real estate agents provide a range of services that generally entail managing the entire process of selling a home. Limited services, which may include discount brokerage, and minimal services also are important business models for sellers who want to take an active role in the process such as holding open houses, contacting potential buyers, negotiating terms or preparing the contract. Comparable to findings in the previous year’s profile, the 2007 report found 81 percent of sellers use full-service brokerage, 9 percent choose limited services and 9 percent use minimal service, such as simply listing a property on a multiple listing service.Expectations and performanceSellers have several expectations of their real estate agent depending on the particular circumstances of each sales transaction. These expectations vary among sellers in part because some sellers are willing to take on more of the tasks associated with selling a home, while other sellers want an agent to closely manage the entire process.Most sellers expect an agent to market the home, with 90 percent of sellers reporting their home was placed on a MLS and 88 percent saying their home was listed on the Internet; eight in 10 had yard signs. For one-quarter of sellers, the most important expectation is that the real estate agent will help sell the home within a specific timeframe. Nearly an equal percentage expects their agent to help find a buyer for their home.Eight in 10 sellers, using all kinds of brokerage services, said their agent reviewed sales contracts and purchase offers, managed paperwork and contracts, negotiated with buyers and scheduled showings. Three-quarters worked with their agent in determining the asking price, and said their agents coordinated home inspections and appraisals.FSBOs and commissionsWhile the majority of home sellers use a real estate agent to sell their home, some take on the tasks associated with completing a sale themselves. Many of these “for sale by owner” (FSBO) sales are between a seller and buyer who knew each other prior to the sale, which in most cases would not require the assistance of a real estate professional. The percentage of sellers who sell their home themselves has changed little in recent years. The level of for-sale-by-owner transactions remains at a record-low market share of 12 percent, the same as in 2006. The level of FSBOs has declined since reaching a cyclical peak of 18 percent in 1997.Why do people try to sell a home themselves? One in five FSBO sellers sold their home to a friend or relative. But the chief reason that sellers choose to sell their home without the assistance of a real estate agent, cited by 56 percent, is that they do not want to pay a fee or commission. Seventy percent of open-market FSBO sellers – that is, FSBO sellers who sold their home to a buyer whom they did not know – cited the fee or commission as the main reason.But it is important to note that often a real estate agent’s commission is one of several points of negotiation when sellers choose an agent. In fact, sometimes the real estate agent herself initiates the discussion of the commission or fee for selling the home; other times the seller raises the topic. Among recent sellers, 39 percent reported that the real estate agent raised the topic of compensation, while an additional 31 percent of sellers reported that they initiated the negotiation over the fee or commission.“Repeat” businessReal estate brokerage is a “people” business, and consumers’ satisfaction with their real estate professional is essential for generating repeat or referral business with the same or new clients.Whether or not sellers would recommend the agent who assisted in their sale is a critical measure of the sellers’ satisfaction. Moreover, the important role of referrals and word-of-mouth in the process of selecting an agent suggests that potential home sellers value the experience of others when choosingan agent.Among recent sellers, 62 percent reported that they would definitely use the same agent again or recommend that agent to others. An additional 19 percent would probably use the agent again.CompetitionReal estate is a very competitive industry. There are well over a million REALTORS® serving property buyers and sellers. What is particularly unique to these professionals is that they share vital information with their competitors. The industry is also very entrepreneurial. Real estate professionals constantly experiment with business models and cater to a wide array of consumer interests and preferences. NAR embraces this competition, and to succeed in this marketplace, REALTORS® must place a high priority on client satisfaction. The 2007 NAR Profile of Home Buyers and Sellersreveals that REALTORS® and other real estate professionals are effectively answering the needs of home sellers.In August 2007, NAR mailed an eight-page questionnaire to 150,000 consumers who purchased a home between July 2006 and June 2007. The survey yielded 9,966 usable responses with a response rate, after adjusting for undeliverable addresses, of 6.9 percent. Consumer names and addresses were obtained from Experian, a firm that maintains an extensive database of recent home buyers derived from county records. information about sellers comes from those buyers who also sold a home. All information in The Profile is characteristic of the 12-month period ending June 2007, with the exception of income data, which was reported for 2006. In some sections comparisons are also given for results obtained in previous surveys. Not all results are directly comparable due to changes in questionnaire design and sample size. The median is the primary statistical measure used throughout the report. Due to rounding and omissions for space, percentage distributions may not add to 100.
by Dr. Paul C. Bishop, Harika “Anna” Barlett and Jessica Lautz, NAR Survey Research
Selling a home is a major decision for most households. Whether that decision is driven by the desire for a larger (or just different) home, a relocation due to a job change or personal situation, or plans to retire in a different community, selling one’s home can be a major challenge.Fortunately, sellers can choose from many options when looking to successfully complete a home sale. Sellers can work with a real estate agent who will manage the entire transaction, or they can take on the entire selling and marketing responsibility themselves, without the assistance of an agent.In fact, most home sellers do work with a real estate professional. Results from the recently released 2007 NAR Profile of Home Buyers and Sellers indicate that among recent home sellers, 85 percent were assisted by a real estate agent. How those home sellers select their real estate agent, what they expect their agent to do for them in the home sales transaction, and whether or not they would use that agent again are just a few of the questions that the report answers. Highlights from The Profileare presented below.Home selling experienceSome home sellers have considerable experience in the buying and selling of homes. The typical home seller has owned three homes; about one third have owned two homes. Not surprisingly, older sellers typically have owned more homes than younger ones; 43 percent of sellers 45 to 64 years old, have owned at least four homes, while more than a third of sellers who are 65 or older have owned at least five homes. Despite their previous experience of home buying and selling, the majority of these sellers still rely on the expertise and knowledge of real estate professionals to help them in selling a home.Finding a real estate professionalMost home sellers rely on referrals from a friend or family member or on their own experience with a particular agent when they look for a real estate professional to assist in their home sale. Among recent sellers, 41 percent reported that they found the agent they used in their home sale as a result of a referral, while 23 percent used the agent in a previous home sale or purchase transaction. Although there are a number of other ways that sellers can find an agent, they are far less common.The most important factor when choosing a real estate professional, cited by 38 percent of recent sellers, is the reputation of the agent. For an additional 20 percent of sellers, the agent’s honesty and trustworthiness was the most important consideration. Both of these qualities are closely tied to the manner in which most sellers find an agent – through referrals or as a result of their own experience with a particular agent, both of which can serve to validate reputation and trustworthiness.“Please Help Me”Sellers can choose the level of service they would like their real estate agent to provide. Some sellers want their agent to perform many tasks and manage the process from start to finish; others choose to perform some tasks themselves. In most cases, real estate agents assisted recent home sellers with many tasks. Seventy-four percent of sellers worked with their agents to determine the asking price, while 81 percent reported that their agent entered their property in the Multiple Listing Service.Most sellers continue to favor full-service brokerage, where real estate agents provide a range of services that generally entail managing the entire process of selling a home. Limited services, which may include discount brokerage, and minimal services also are important business models for sellers who want to take an active role in the process such as holding open houses, contacting potential buyers, negotiating terms or preparing the contract. Comparable to findings in the previous year’s profile, the 2007 report found 81 percent of sellers use full-service brokerage, 9 percent choose limited services and 9 percent use minimal service, such as simply listing a property on a multiple listing service.Expectations and performanceSellers have several expectations of their real estate agent depending on the particular circumstances of each sales transaction. These expectations vary among sellers in part because some sellers are willing to take on more of the tasks associated with selling a home, while other sellers want an agent to closely manage the entire process.Most sellers expect an agent to market the home, with 90 percent of sellers reporting their home was placed on a MLS and 88 percent saying their home was listed on the Internet; eight in 10 had yard signs. For one-quarter of sellers, the most important expectation is that the real estate agent will help sell the home within a specific timeframe. Nearly an equal percentage expects their agent to help find a buyer for their home.Eight in 10 sellers, using all kinds of brokerage services, said their agent reviewed sales contracts and purchase offers, managed paperwork and contracts, negotiated with buyers and scheduled showings. Three-quarters worked with their agent in determining the asking price, and said their agents coordinated home inspections and appraisals.FSBOs and commissionsWhile the majority of home sellers use a real estate agent to sell their home, some take on the tasks associated with completing a sale themselves. Many of these “for sale by owner” (FSBO) sales are between a seller and buyer who knew each other prior to the sale, which in most cases would not require the assistance of a real estate professional. The percentage of sellers who sell their home themselves has changed little in recent years. The level of for-sale-by-owner transactions remains at a record-low market share of 12 percent, the same as in 2006. The level of FSBOs has declined since reaching a cyclical peak of 18 percent in 1997.Why do people try to sell a home themselves? One in five FSBO sellers sold their home to a friend or relative. But the chief reason that sellers choose to sell their home without the assistance of a real estate agent, cited by 56 percent, is that they do not want to pay a fee or commission. Seventy percent of open-market FSBO sellers – that is, FSBO sellers who sold their home to a buyer whom they did not know – cited the fee or commission as the main reason.But it is important to note that often a real estate agent’s commission is one of several points of negotiation when sellers choose an agent. In fact, sometimes the real estate agent herself initiates the discussion of the commission or fee for selling the home; other times the seller raises the topic. Among recent sellers, 39 percent reported that the real estate agent raised the topic of compensation, while an additional 31 percent of sellers reported that they initiated the negotiation over the fee or commission.“Repeat” businessReal estate brokerage is a “people” business, and consumers’ satisfaction with their real estate professional is essential for generating repeat or referral business with the same or new clients.Whether or not sellers would recommend the agent who assisted in their sale is a critical measure of the sellers’ satisfaction. Moreover, the important role of referrals and word-of-mouth in the process of selecting an agent suggests that potential home sellers value the experience of others when choosingan agent.Among recent sellers, 62 percent reported that they would definitely use the same agent again or recommend that agent to others. An additional 19 percent would probably use the agent again.CompetitionReal estate is a very competitive industry. There are well over a million REALTORS® serving property buyers and sellers. What is particularly unique to these professionals is that they share vital information with their competitors. The industry is also very entrepreneurial. Real estate professionals constantly experiment with business models and cater to a wide array of consumer interests and preferences. NAR embraces this competition, and to succeed in this marketplace, REALTORS® must place a high priority on client satisfaction. The 2007 NAR Profile of Home Buyers and Sellersreveals that REALTORS® and other real estate professionals are effectively answering the needs of home sellers.In August 2007, NAR mailed an eight-page questionnaire to 150,000 consumers who purchased a home between July 2006 and June 2007. The survey yielded 9,966 usable responses with a response rate, after adjusting for undeliverable addresses, of 6.9 percent. Consumer names and addresses were obtained from Experian, a firm that maintains an extensive database of recent home buyers derived from county records. information about sellers comes from those buyers who also sold a home. All information in The Profile is characteristic of the 12-month period ending June 2007, with the exception of income data, which was reported for 2006. In some sections comparisons are also given for results obtained in previous surveys. Not all results are directly comparable due to changes in questionnaire design and sample size. The median is the primary statistical measure used throughout the report. Due to rounding and omissions for space, percentage distributions may not add to 100.
This Slowdown We Can Handle
by Lawrence Yun, NAR Chief Economist
The economy is slowing. In the fourth quarter, GDP growth will have shrunk for the first time since the 2001 recession. The projected decline is only 0.4 percent, but it is nonetheless a decline. Because of the lag time in data collection, economic shrinkage will be reported in late January. At that point there will be shouts of RECESSION, RECESSION, and RECESSION. Beware of DoomsdayersNo worries though. Technically an economic recession comprises two consecutive quarters of contraction. (It is measured that way because only a sustained economic contraction leads to sustained net job cuts.) The projected fourth quarter decline is due to cutbacks in residential construction activity and from a statistical “quirk” in business inventory investment. The business inventory components generally regain quickly. The inventory-to-sales ratio is touching record lows (i.e., companies are operating with thin inventory) and some build-up in business inventory is inevitable going into 2008. The cutbacks in residential construction are continuing but most of the major declines have already occurred. Subsequent construction declines in 2008 will have less of an impact. Housing starts have fallen from their 1.5 million unit pace in the early part of 2007 to 1.2 million in the latter part of 2007. For 2008, housing starts are projected to be 1.15 million units – weak activity but still a rather mild decline from the final quarter of 2007.The other components of GDP will hold on. Consumer spending will continue to expand, albeit at a slower pace. It is difficult to foresee a consumer spending contraction given the fundamental improvement in household balance sheets. Compared to two years ago, salary payments to workers have increased by $700 billion, four million additional net new jobs have been added, and household net worth has risen by $8 trillion – principally from a rising stock market. Wealth in homes has declined by $200 billion in the past year due to the lower home prices (on average). On a net average though, if you add up the above figures, households are in better financial condition. Consumer spending will not contract.Business profit appears to have topped out in the past two quarters. However, business spending will advance at a respectable pace because aggregate corporate profits are considerably higher now compared to just two years ago. Government spending nearly always rises. Net exports also look favorable given the weakness in the U.S. dollar. Foreign purchases of U.S. products will remain strong because U.S. products are competitively priced.Eye on the FedAll in all, we will easily escape recession – despite the anticipated screaming headlines of impending doom. The GDP reading for each of the successive quarters in 2008 will be positive: 2.2 percent in the first quarter, 2.6 percent in the second quarter, 3.0 percent in the third quarter, and 3.1 percent in the fourth. Job gains also will continue into 2008.But even a temporary contraction in GDP has some benefits. Despite a relatively high inflation reading in November (0.8%), weaker GDP growth will hold back inflationary pressure in 2008. It is likely we’ll see another rate cut by the Federal Reserve. The Fed Funds rate will fall by another quarter point to 4.0 percent in January. Mortgage rates will hover near 6 percent – nearly comparable to the 45-year low rates we encountered in 2004 and 2005 during the housing boom years. Note, however, that is forconforming mortgages and not jumbo rates. But once the economy gathers momentum, mortgage rates will tick modestly higher.Foreclosures and FraudUnfortunately, foreclosure rates will continue to rise in 2008. That is a given due to the weak underwriting standards of past loan originations. Subprime mortgage loss write-downs will also continue. (Write-downs are based on assumed anticipated losses and not actual losses.) Because of inactive trading of subprime debts, the market value of these “toxic” loans is unknowable. It is possible that the actual losses – after tallying the figures for the next several years – could be measurably lower. In my view, a considerable share of the recent spikes in default rates is due to investors walking away from their loan obligations. Fraud is also a factor. However, homeowners will fight hard to keep their homes, so the assumed rise in default rates based on a simple extrapolation of recent figures may not be accurate. Investors/speculators and fraudulent loans will have defaulted quickly, thereby leaving fewer in the potential default pool at a later stage.Recent mortgage originations are much less problematic. We are back to the basics of sound underwriting. Nonetheless, past weak lending standards will mean higher foreclosures well into 2008. Therefore, it is critical for homebuilders to sharply cut back production so as to not add to the already high inventory. As always, we go back to our mantra: All real estate is local. There are wide variations with no one neighborhood trend looking like another. Some areas will see housing activity and prices moving up and some moving down. Local real estate professionals are critical in properly ascertaining local market conditions. In the aggregate, the national home sales and home prices will be very similar in 2008 as in 2007.
by Lawrence Yun, NAR Chief Economist
The economy is slowing. In the fourth quarter, GDP growth will have shrunk for the first time since the 2001 recession. The projected decline is only 0.4 percent, but it is nonetheless a decline. Because of the lag time in data collection, economic shrinkage will be reported in late January. At that point there will be shouts of RECESSION, RECESSION, and RECESSION. Beware of DoomsdayersNo worries though. Technically an economic recession comprises two consecutive quarters of contraction. (It is measured that way because only a sustained economic contraction leads to sustained net job cuts.) The projected fourth quarter decline is due to cutbacks in residential construction activity and from a statistical “quirk” in business inventory investment. The business inventory components generally regain quickly. The inventory-to-sales ratio is touching record lows (i.e., companies are operating with thin inventory) and some build-up in business inventory is inevitable going into 2008. The cutbacks in residential construction are continuing but most of the major declines have already occurred. Subsequent construction declines in 2008 will have less of an impact. Housing starts have fallen from their 1.5 million unit pace in the early part of 2007 to 1.2 million in the latter part of 2007. For 2008, housing starts are projected to be 1.15 million units – weak activity but still a rather mild decline from the final quarter of 2007.The other components of GDP will hold on. Consumer spending will continue to expand, albeit at a slower pace. It is difficult to foresee a consumer spending contraction given the fundamental improvement in household balance sheets. Compared to two years ago, salary payments to workers have increased by $700 billion, four million additional net new jobs have been added, and household net worth has risen by $8 trillion – principally from a rising stock market. Wealth in homes has declined by $200 billion in the past year due to the lower home prices (on average). On a net average though, if you add up the above figures, households are in better financial condition. Consumer spending will not contract.Business profit appears to have topped out in the past two quarters. However, business spending will advance at a respectable pace because aggregate corporate profits are considerably higher now compared to just two years ago. Government spending nearly always rises. Net exports also look favorable given the weakness in the U.S. dollar. Foreign purchases of U.S. products will remain strong because U.S. products are competitively priced.Eye on the FedAll in all, we will easily escape recession – despite the anticipated screaming headlines of impending doom. The GDP reading for each of the successive quarters in 2008 will be positive: 2.2 percent in the first quarter, 2.6 percent in the second quarter, 3.0 percent in the third quarter, and 3.1 percent in the fourth. Job gains also will continue into 2008.But even a temporary contraction in GDP has some benefits. Despite a relatively high inflation reading in November (0.8%), weaker GDP growth will hold back inflationary pressure in 2008. It is likely we’ll see another rate cut by the Federal Reserve. The Fed Funds rate will fall by another quarter point to 4.0 percent in January. Mortgage rates will hover near 6 percent – nearly comparable to the 45-year low rates we encountered in 2004 and 2005 during the housing boom years. Note, however, that is forconforming mortgages and not jumbo rates. But once the economy gathers momentum, mortgage rates will tick modestly higher.Foreclosures and FraudUnfortunately, foreclosure rates will continue to rise in 2008. That is a given due to the weak underwriting standards of past loan originations. Subprime mortgage loss write-downs will also continue. (Write-downs are based on assumed anticipated losses and not actual losses.) Because of inactive trading of subprime debts, the market value of these “toxic” loans is unknowable. It is possible that the actual losses – after tallying the figures for the next several years – could be measurably lower. In my view, a considerable share of the recent spikes in default rates is due to investors walking away from their loan obligations. Fraud is also a factor. However, homeowners will fight hard to keep their homes, so the assumed rise in default rates based on a simple extrapolation of recent figures may not be accurate. Investors/speculators and fraudulent loans will have defaulted quickly, thereby leaving fewer in the potential default pool at a later stage.Recent mortgage originations are much less problematic. We are back to the basics of sound underwriting. Nonetheless, past weak lending standards will mean higher foreclosures well into 2008. Therefore, it is critical for homebuilders to sharply cut back production so as to not add to the already high inventory. As always, we go back to our mantra: All real estate is local. There are wide variations with no one neighborhood trend looking like another. Some areas will see housing activity and prices moving up and some moving down. Local real estate professionals are critical in properly ascertaining local market conditions. In the aggregate, the national home sales and home prices will be very similar in 2008 as in 2007.
Where are mortgage rates headed?
Commentary: Jobs report to shed light on economy, inflation
Monday, December 31, 2007By Lou BarnesInman News
An inflation-inspired popup in rates is reversing on news of a weakening economy. Mortgages are still above 6 percent (they touched 6.25 percent at Christmas Eve worst), and markets will now hold until the release of all-powerful payroll numbers on Friday, Jan. 4.
The inflation news before Christmas was disturbing: The indicator was a technical one ("core personal consumption expenditure deflator"), but a Fed favorite jumping the 2 percent top-of-target range. Not by much, 2.2 percent year-over-year, but 2.9 percent in the last three quarters. "Headline" overall CPI is north of 4 percent, felt by everyone.
New claims for unemployment insurance are in an unmistakable uptrend, at 350,000 weekly within 20,000 of the level at onset of the last two recessions.
November data is old, but indicative: Orders for durable goods crept to a 0.1 percent gain versus 2.2 percent forecast, and personal spending soared by 1.1 percent, personal savings going negative by 0.5 percent -- hardly a sustainable party. Markets reacted to Friday's report of a 9 percent collapse in new-home sales as bad news; it is not -- we need these "incentive" discounters to take a couple of years off.
New Year predictions? Don't be silly. Not for 2008.
Instead, herewith a "bracketing" forecast, the probability borders of happy and poor outcomes set by today's mid-range optimists and pessimists. Outliers -- the wacky fringe -- need not apply (which excludes at least half of the commentariat).
First, on recessions in general: They are rare. Since the worst in modern times, the double-bottom '79-'82 affair, we've had only two, both short and shallow affairs, 1991 and 2001.
If you watch nothing else, watch the job market. Sensible optimists call for job "stability," meaning marginal gains and a gradually rising unemployment rate, the consumer staying in the game. Heard everywhere: "Historically, it's a bad idea to bet against the consumer." Reluctant pessimists counter that the job market is a lagging component of the economy, breaking after the start of recession.
Inflation. So long as oil, commodity and food prices behave as they have, it will be hard to find an optimist. In this case, bracketing goes to the world economy, and is three-sided. Economic optimists, many believing that a go-go world has "de-coupled" from the United States, are the inflation worrywarts; the slowdowners think that inflation is another lagging component and will fall back. The third bracket, pushing in from the cutesy sideline, says "stagflation." (I'll be judgmental, here: Stagflation was coined in the '70s during very high inflation and unemployment, both insignificant today by comparison. The stagflationists just can't make up their minds.)
Credit crunch. The hopeful see markets digesting trillions in bad assets "in a couple of quarters" -- Goldman Sachs. The non-apocalyptic skeptics see an impaired system short of credit suppressing growth for years -- Goldman Sachs (different guy).
Housing. Given an absence of optimists, I'll speak for the missing: Foreclosures will rise until 2011, but damage to the overall economy from housing alone (as opposed to the wreck in the financial system) will be less than forecast, as will be credit losses. Prices will stabilize in most Bubble Zones in 2008. Pick your own pessimist.
The Fed. Bernanke's solution to failure as a communicator is to stop trying. Hence, all is guesswork. Truly expert monetary mechanics are in a fierce argument, unable to tell if the Fed is fire-hosing cash to float the economy (and failing), or syringing just enough into banks to keep them alive. The range of serious opinion includes: Bernanke is a courageous, modern-day Volcker who will let the economy slide as far as he can to squelch inflation; or, now at the limit of the Fed's traditional power, is a passive Chairman. Quite incredible that we cannot tell which.
The World. Biggest forecast gap of all. Globalists expect strength to pull all through the credit wreck; old-timers look for Europe then Asia to follow the U.S. into the tank, then the U.S. to pull everybody out in 2009. I have increasing fondness for old guys.
Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@boulderwest.com.
Commentary: Jobs report to shed light on economy, inflation
Monday, December 31, 2007By Lou BarnesInman News
An inflation-inspired popup in rates is reversing on news of a weakening economy. Mortgages are still above 6 percent (they touched 6.25 percent at Christmas Eve worst), and markets will now hold until the release of all-powerful payroll numbers on Friday, Jan. 4.
The inflation news before Christmas was disturbing: The indicator was a technical one ("core personal consumption expenditure deflator"), but a Fed favorite jumping the 2 percent top-of-target range. Not by much, 2.2 percent year-over-year, but 2.9 percent in the last three quarters. "Headline" overall CPI is north of 4 percent, felt by everyone.
New claims for unemployment insurance are in an unmistakable uptrend, at 350,000 weekly within 20,000 of the level at onset of the last two recessions.
November data is old, but indicative: Orders for durable goods crept to a 0.1 percent gain versus 2.2 percent forecast, and personal spending soared by 1.1 percent, personal savings going negative by 0.5 percent -- hardly a sustainable party. Markets reacted to Friday's report of a 9 percent collapse in new-home sales as bad news; it is not -- we need these "incentive" discounters to take a couple of years off.
New Year predictions? Don't be silly. Not for 2008.
Instead, herewith a "bracketing" forecast, the probability borders of happy and poor outcomes set by today's mid-range optimists and pessimists. Outliers -- the wacky fringe -- need not apply (which excludes at least half of the commentariat).
First, on recessions in general: They are rare. Since the worst in modern times, the double-bottom '79-'82 affair, we've had only two, both short and shallow affairs, 1991 and 2001.
If you watch nothing else, watch the job market. Sensible optimists call for job "stability," meaning marginal gains and a gradually rising unemployment rate, the consumer staying in the game. Heard everywhere: "Historically, it's a bad idea to bet against the consumer." Reluctant pessimists counter that the job market is a lagging component of the economy, breaking after the start of recession.
Inflation. So long as oil, commodity and food prices behave as they have, it will be hard to find an optimist. In this case, bracketing goes to the world economy, and is three-sided. Economic optimists, many believing that a go-go world has "de-coupled" from the United States, are the inflation worrywarts; the slowdowners think that inflation is another lagging component and will fall back. The third bracket, pushing in from the cutesy sideline, says "stagflation." (I'll be judgmental, here: Stagflation was coined in the '70s during very high inflation and unemployment, both insignificant today by comparison. The stagflationists just can't make up their minds.)
Credit crunch. The hopeful see markets digesting trillions in bad assets "in a couple of quarters" -- Goldman Sachs. The non-apocalyptic skeptics see an impaired system short of credit suppressing growth for years -- Goldman Sachs (different guy).
Housing. Given an absence of optimists, I'll speak for the missing: Foreclosures will rise until 2011, but damage to the overall economy from housing alone (as opposed to the wreck in the financial system) will be less than forecast, as will be credit losses. Prices will stabilize in most Bubble Zones in 2008. Pick your own pessimist.
The Fed. Bernanke's solution to failure as a communicator is to stop trying. Hence, all is guesswork. Truly expert monetary mechanics are in a fierce argument, unable to tell if the Fed is fire-hosing cash to float the economy (and failing), or syringing just enough into banks to keep them alive. The range of serious opinion includes: Bernanke is a courageous, modern-day Volcker who will let the economy slide as far as he can to squelch inflation; or, now at the limit of the Fed's traditional power, is a passive Chairman. Quite incredible that we cannot tell which.
The World. Biggest forecast gap of all. Globalists expect strength to pull all through the credit wreck; old-timers look for Europe then Asia to follow the U.S. into the tank, then the U.S. to pull everybody out in 2009. I have increasing fondness for old guys.
Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@boulderwest.com.
Sunday, December 30, 2007
Sales of New Homes Worse Than Expected
WASHINGTON, Sat Dec 29, 07:28 PM
The housing market plunged deeper into despair last month, with sales of new homes plummeting to their lowest level in more than 12 years.
The slump worsened even more than most analysts expected, heightening fears that the country might be thrust into a recession.
New-home sales tumbled 9 percent in November from October to a seasonally adjusted annual sales pace of 647,000, the Commerce Department reported Friday. That was the worst sales pace since April 1995.
"It was ugly," declared Richard Yamarone, economist at Argus Research. "It is the one sector of the economy that doesn't show any signs of life. It doesn't look like there is any resuscitation in store for housing over the next year," he said.
The housing picture turned out to be more grim than most anticipated. Many economists were predicting sales to decline by 1.8 percent to a pace of 715,000.
By region, sales fell in all parts of the country, except for the West.
In the Midwest, new-home sales plunged 27.6 percent in November from October. Sales dropped 19.3 percent in the Northeast and fell 6.4 percent in the South. In the West, however, sales rose 4 percent.
Over the last 12 months, new-home sales nationwide have tumbled by 34.4 percent, the biggest annual slide since early 1991, and stark evidence of the painful collapse in the once high-flying housing market.
think you can classify what we are seeing in the housing market as a crash," said Mark Zandi, chief economist at Moody's Economy.com. "Sales and home prices are in a free fall. The downturn is intensifying."
The median sales price of a new home dipped to $239,100 in November. That is 0.4 percent lower than a year ago. The median price is where half sell for more and half for less.
On Wall Street, the Dow Jones industrials, after an erratic session, managed to squeeze out a small gain even as the grim home sales report added to some investors' angst. The Dow closed up 6.26 points at 13,365.87.
Would-be home buyers have found it more difficult to secure financing, especially for "jumbo" mortgages — those exceeding $417,000. The tighter credit situation is deepening the housing slump. Unsold homes have piled up, which will force builders to cut back even more on construction and look for ways to sweeten the pot to lure prospective buyers.
"A lot of borrowers are being disqualified for loans. If you can't qualify for a mortgage the game is over. For those who do qualify, it takes longer to get loans," said Brian Bethune, economist at Global Insight.
The housing market has been suffering through a severe slump following five years of record-breaking activity from 2001 through 2005. Sales turned weak as did home prices. The boom-to-bust situation has increased dangers to the economy as a whole and has been especially hard on some homeowners.
Foreclosures have soared to record highs and probably will keep rising. A drop in home prices left some people stuck with balances on their home mortgages that eclipsed the worth of their home. Other home buyers were clobbered as low introductory rates on their mortgages jumped to much higher rates, which they couldn't afford.
Problems in housing are expected to persist well into 2008 — a major election year.
The housing and mortgage meltdowns have raised the odds that the country will fall into a recession. And, the situation has given Democrat and Republican politicians— including those who want to be the next president — plenty of opportunities to spread blame around.
The economy's growth is expected to have slowed sharply to a pace of just 1.5 percent or less in the final three months of this year. Former Federal Reserve Chairman Alan Greenspan recently warned that the economy is "getting close to stall speed." The big worry is that the housing and credit troubles will force individuals to cut back on spending and businesses to cut back on hiring and capital investment, throwing the economy into a tailspin.
To help bolster the economy, the Federal Reserve has sliced a key interest rate three times this year. Its latest rate cut, on Dec. 11, dropped the Fed's key rate to 4.25 percent, a two-year low. Many economists are predicting the Fed will lower rates again when they meet in late January.
"The risks are as high as they've ever been during this expansion that started in late 2001 that the economy will fall into a recession," said Bethune. "The odds are now nudging up close to the 50 percent mark."
WASHINGTON, Sat Dec 29, 07:28 PM
The housing market plunged deeper into despair last month, with sales of new homes plummeting to their lowest level in more than 12 years.
The slump worsened even more than most analysts expected, heightening fears that the country might be thrust into a recession.
New-home sales tumbled 9 percent in November from October to a seasonally adjusted annual sales pace of 647,000, the Commerce Department reported Friday. That was the worst sales pace since April 1995.
"It was ugly," declared Richard Yamarone, economist at Argus Research. "It is the one sector of the economy that doesn't show any signs of life. It doesn't look like there is any resuscitation in store for housing over the next year," he said.
The housing picture turned out to be more grim than most anticipated. Many economists were predicting sales to decline by 1.8 percent to a pace of 715,000.
By region, sales fell in all parts of the country, except for the West.
In the Midwest, new-home sales plunged 27.6 percent in November from October. Sales dropped 19.3 percent in the Northeast and fell 6.4 percent in the South. In the West, however, sales rose 4 percent.
Over the last 12 months, new-home sales nationwide have tumbled by 34.4 percent, the biggest annual slide since early 1991, and stark evidence of the painful collapse in the once high-flying housing market.
think you can classify what we are seeing in the housing market as a crash," said Mark Zandi, chief economist at Moody's Economy.com. "Sales and home prices are in a free fall. The downturn is intensifying."
The median sales price of a new home dipped to $239,100 in November. That is 0.4 percent lower than a year ago. The median price is where half sell for more and half for less.
On Wall Street, the Dow Jones industrials, after an erratic session, managed to squeeze out a small gain even as the grim home sales report added to some investors' angst. The Dow closed up 6.26 points at 13,365.87.
Would-be home buyers have found it more difficult to secure financing, especially for "jumbo" mortgages — those exceeding $417,000. The tighter credit situation is deepening the housing slump. Unsold homes have piled up, which will force builders to cut back even more on construction and look for ways to sweeten the pot to lure prospective buyers.
"A lot of borrowers are being disqualified for loans. If you can't qualify for a mortgage the game is over. For those who do qualify, it takes longer to get loans," said Brian Bethune, economist at Global Insight.
The housing market has been suffering through a severe slump following five years of record-breaking activity from 2001 through 2005. Sales turned weak as did home prices. The boom-to-bust situation has increased dangers to the economy as a whole and has been especially hard on some homeowners.
Foreclosures have soared to record highs and probably will keep rising. A drop in home prices left some people stuck with balances on their home mortgages that eclipsed the worth of their home. Other home buyers were clobbered as low introductory rates on their mortgages jumped to much higher rates, which they couldn't afford.
Problems in housing are expected to persist well into 2008 — a major election year.
The housing and mortgage meltdowns have raised the odds that the country will fall into a recession. And, the situation has given Democrat and Republican politicians— including those who want to be the next president — plenty of opportunities to spread blame around.
The economy's growth is expected to have slowed sharply to a pace of just 1.5 percent or less in the final three months of this year. Former Federal Reserve Chairman Alan Greenspan recently warned that the economy is "getting close to stall speed." The big worry is that the housing and credit troubles will force individuals to cut back on spending and businesses to cut back on hiring and capital investment, throwing the economy into a tailspin.
To help bolster the economy, the Federal Reserve has sliced a key interest rate three times this year. Its latest rate cut, on Dec. 11, dropped the Fed's key rate to 4.25 percent, a two-year low. Many economists are predicting the Fed will lower rates again when they meet in late January.
"The risks are as high as they've ever been during this expansion that started in late 2001 that the economy will fall into a recession," said Bethune. "The odds are now nudging up close to the 50 percent mark."
Saturday, December 22, 2007
38,000 might qualify, but pilot program would fund 500 mortgages
Friday, December 21, 2007Inman News
Five banks have committed $125 million to help New England homeowners with good payment histories refinance out of high-cost loans or avoid interest rate resets on adjustable-rate mortgages.
At least 38,000 borrowers in six New England states may be eligible for help under the program, but the initial funding pledged by Citizens Bank, Sovereign Bank, TD Banknorth, Webster Bank and Bank of America would only fund about 500 mortgages.
The Federal Reserve Bank of Boston, which organized the Mortgage Relief Fund, is hoping it will be expanded to include more banks and more funding.
"If the demand proves to be greater than the initial $125 million commitment, we will try to go further -- especially if the mortgages can be securitized," participants in the program said in a press release.
Backers said outreach is a key part of the initiative, and the banks have created a Web site, www.MortgageReliefFund.com, providing more information for borrowers and information on contacting the banks.
"It is particularly important to find and locate the borrowers who may be eligible for a better rate and a healthier relationship with their lender," said Boston Fed president Eric Rosengren in a statement.
Rosengren said participating banks will tap state programs and Federal Housing Administration loan guarantees, which include flexible underwriting and eligibility guidelines. Those programs will help banks offer troubled borrowers lower interest rates, similar to those paid by prime borrowers.
The Boston Fed estimates that 38,000 subprime borrowers in New England may qualify for the program, because they had 10 percent equity in their homes when they took out a loan, had credit scores over 620, and took out fully documented loans on owner-occupied houses.
Those criteria provide a "conservative estimate" of the number of subprime borrowers who might qualify for the program, Rosengren said, including more than 15,000 households in Massachusetts, 10,000 in Connecticut, 3,800 in New Hampshire and Rhode Island, 3,400 in Maine and nearly 1,000 in Vermont.
The program is "not designed for borrowers who are seriously delinquent on their mortgage payments or facing imminent foreclosure," although those borrowers may be eligible for refinancing under the new FHASecure loan guarantee program.
***
Friday, December 21, 2007Inman News
Five banks have committed $125 million to help New England homeowners with good payment histories refinance out of high-cost loans or avoid interest rate resets on adjustable-rate mortgages.
At least 38,000 borrowers in six New England states may be eligible for help under the program, but the initial funding pledged by Citizens Bank, Sovereign Bank, TD Banknorth, Webster Bank and Bank of America would only fund about 500 mortgages.
The Federal Reserve Bank of Boston, which organized the Mortgage Relief Fund, is hoping it will be expanded to include more banks and more funding.
"If the demand proves to be greater than the initial $125 million commitment, we will try to go further -- especially if the mortgages can be securitized," participants in the program said in a press release.
Backers said outreach is a key part of the initiative, and the banks have created a Web site, www.MortgageReliefFund.com, providing more information for borrowers and information on contacting the banks.
"It is particularly important to find and locate the borrowers who may be eligible for a better rate and a healthier relationship with their lender," said Boston Fed president Eric Rosengren in a statement.
Rosengren said participating banks will tap state programs and Federal Housing Administration loan guarantees, which include flexible underwriting and eligibility guidelines. Those programs will help banks offer troubled borrowers lower interest rates, similar to those paid by prime borrowers.
The Boston Fed estimates that 38,000 subprime borrowers in New England may qualify for the program, because they had 10 percent equity in their homes when they took out a loan, had credit scores over 620, and took out fully documented loans on owner-occupied houses.
Those criteria provide a "conservative estimate" of the number of subprime borrowers who might qualify for the program, Rosengren said, including more than 15,000 households in Massachusetts, 10,000 in Connecticut, 3,800 in New Hampshire and Rhode Island, 3,400 in Maine and nearly 1,000 in Vermont.
The program is "not designed for borrowers who are seriously delinquent on their mortgage payments or facing imminent foreclosure," although those borrowers may be eligible for refinancing under the new FHASecure loan guarantee program.
***
Friday, December 21, 2007
Bush signs tax bill to aid ailing homeowners
Forgiven debt, renegotiated terms will no longer be classified at income
WASHINGTON - President Bush on Thursday signed a measure to provide financial relief for financially strapped homeowners facing foreclosure or in bankruptcy.
The bill gives a tax break to homeowners who have mortgage debt forgiven as part of a foreclosure or renegotiation of a loan. No taxes would be owed on the value of any debt forgiven or written off. Currently such debt forgiveness is taxable income.
"When you're worried about making your payments, higher taxes are the last thing you need to worry about," Bush said in a bill-signing ceremony. He stood along side members of his Cabinet and lawmakers who pushed the measure.
While the measure is anticipated to reduce taxes of some strapped homeowners by $650 million, the cost to the government would be offset in part by limiting a tax break available on the sale of second homes.
The bill was in response to a mortgage crisis touched off this spring by a blowup in high-priced home loans for risky borrowers, throwing a pall over the economy. Foreclosures are at record highs and late payments are spiking. Lenders have been forced out of business and investors have taken huge financial hits.
"This is going to make a happy holiday for many homeowners," Bush said of the bill moments before signing it into law.
An estimated 2 million to 2.5 million adjustable-rate mortgages _ worth some $600 billion _ will jump from low initial "teaser" rates to higher rates this year and next. Steep prepayment penalties have made it difficult for some to get out of their mortgages, and some overstretched homeowners can't afford to refinance or sell their homes.
Forgiven debt, renegotiated terms will no longer be classified at income
WASHINGTON - President Bush on Thursday signed a measure to provide financial relief for financially strapped homeowners facing foreclosure or in bankruptcy.
The bill gives a tax break to homeowners who have mortgage debt forgiven as part of a foreclosure or renegotiation of a loan. No taxes would be owed on the value of any debt forgiven or written off. Currently such debt forgiveness is taxable income.
"When you're worried about making your payments, higher taxes are the last thing you need to worry about," Bush said in a bill-signing ceremony. He stood along side members of his Cabinet and lawmakers who pushed the measure.
While the measure is anticipated to reduce taxes of some strapped homeowners by $650 million, the cost to the government would be offset in part by limiting a tax break available on the sale of second homes.
The bill was in response to a mortgage crisis touched off this spring by a blowup in high-priced home loans for risky borrowers, throwing a pall over the economy. Foreclosures are at record highs and late payments are spiking. Lenders have been forced out of business and investors have taken huge financial hits.
"This is going to make a happy holiday for many homeowners," Bush said of the bill moments before signing it into law.
An estimated 2 million to 2.5 million adjustable-rate mortgages _ worth some $600 billion _ will jump from low initial "teaser" rates to higher rates this year and next. Steep prepayment penalties have made it difficult for some to get out of their mortgages, and some overstretched homeowners can't afford to refinance or sell their homes.
Thursday, December 20, 2007
Number of filings up 68% year-over-year in November
Wednesday, December 19, 2007Inman News
Nevada continued to lead the nation for its rate of foreclosure filings per household in November -- a position it has held for the past 11 months, foreclosure data company RealtyTrac reported today.
The company reported a 67.8 percent nationwide gain in the volume of foreclosure filings in November 2007 compared to the same month last year, though filings declined 10 percent compared to October 2007.
The national rate of foreclosure filings in November was 1 for every 617 households -- Nevada had a rate of 1 filing for every 152 households during that month.
Next on the list was Florida, with a rate of 1 filing for every 282 households; followed by Ohio, 1-in-307; Colorado, 1-in-320; California, 1-in-325; Michigan, 1-in-391; Georgia, 1-in-421; Arizona, 1-in-441; Indiana, 1-in-484; and Illinois, 1-in-624.
"The 10 percent drop in November is the first double-digit monthly decrease we've seen since April 2006," said James J. Saccacio, RealtyTrac, in a statement.
Saccacio also stated that the company anticipates "a seasonal surge in foreclosure filings and another possible wave of resetting mortgages" next year that "could place further pressure on the housing market."
Five of the 10 metro areas with the highest foreclosure rates in the nation in November are in California, RealtyTrac reported. Stockton, Calif., led the nation with a metro area foreclosure rate of one filing for every 99 households. Modesto, Calif., ranked second, with one foreclosure filing for every 104 households.
Merced, Calif., took third, with a rate of one foreclosure filing for every 106 households, followed by Las Vegas, Detroit, Vallejo, Calif.; Greeley, Colo.; Cape Coral-Fort Myers, Fla.; Riverside-San Bernardino, Calif.; and Miami.
California led the nation for its total number of foreclosure filings in November, with 39,992; followed by Florida with 29,238; Ohio with 16,308; Texas with 11,599; Michigan with 11,464; Georgia with 8.968; Illinois with 8,238; Nevada with 6,694; Colorado with 6,425; and New York with 5,794.
Wednesday, December 19, 2007Inman News
Nevada continued to lead the nation for its rate of foreclosure filings per household in November -- a position it has held for the past 11 months, foreclosure data company RealtyTrac reported today.
The company reported a 67.8 percent nationwide gain in the volume of foreclosure filings in November 2007 compared to the same month last year, though filings declined 10 percent compared to October 2007.
The national rate of foreclosure filings in November was 1 for every 617 households -- Nevada had a rate of 1 filing for every 152 households during that month.
Next on the list was Florida, with a rate of 1 filing for every 282 households; followed by Ohio, 1-in-307; Colorado, 1-in-320; California, 1-in-325; Michigan, 1-in-391; Georgia, 1-in-421; Arizona, 1-in-441; Indiana, 1-in-484; and Illinois, 1-in-624.
"The 10 percent drop in November is the first double-digit monthly decrease we've seen since April 2006," said James J. Saccacio, RealtyTrac, in a statement.
Saccacio also stated that the company anticipates "a seasonal surge in foreclosure filings and another possible wave of resetting mortgages" next year that "could place further pressure on the housing market."
Five of the 10 metro areas with the highest foreclosure rates in the nation in November are in California, RealtyTrac reported. Stockton, Calif., led the nation with a metro area foreclosure rate of one filing for every 99 households. Modesto, Calif., ranked second, with one foreclosure filing for every 104 households.
Merced, Calif., took third, with a rate of one foreclosure filing for every 106 households, followed by Las Vegas, Detroit, Vallejo, Calif.; Greeley, Colo.; Cape Coral-Fort Myers, Fla.; Riverside-San Bernardino, Calif.; and Miami.
California led the nation for its total number of foreclosure filings in November, with 39,992; followed by Florida with 29,238; Ohio with 16,308; Texas with 11,599; Michigan with 11,464; Georgia with 8.968; Illinois with 8,238; Nevada with 6,694; Colorado with 6,425; and New York with 5,794.
Wednesday, December 19, 2007
Home foreclosures fall second time in 3 months
Defaults remain at elevated levels as rising payments pressure borrowers
NEW YORK - Home foreclosure filings fell in November from October, though they may remain at elevated levels as rising payments on adjustable loans pressure borrowers, a real estate data company reported on Wednesday.
The hardest-hit states were Nevada and Florida, where price gains were among the strongest during the housing boom.
Lenders filed 201,950 foreclosure filings last month, down 10 percent from October, for a foreclosure rate of one in 617 households, according to RealtyTrac. Total filings were up almost 68 percent from November 2006, said the firm, which markets foreclosed houses.
Soaring foreclosures have set regulators and lawmakers scrambling to curb the trend, which many economists say could tip the U.S. economy into recession. Plans that make it easier to get a government-insured loan or would freeze interest rates for some subprime borrowers will slow foreclosures, analysts say. But many homeowners remain vulnerable to default.
The decline in November follows a 2 percent increase in filings in October and an 8 percent fall in September.
"This could indicate that foreclosure activity has topped out for the year, but the true test of whether this ceiling will hold will come at the beginning of next year" when a seasonal increase tends to occur and rates on more mortgages are to rise, James Saccacio, chief executive officer of Irvine, California-based RealtyTrac, said in a statement.
About $500 billion in adjustable-rate mortgages are due to reset at higher levels in 2008, according to JPMorgan.
States with strong price gains during the boom are seen leading a drop of as much as 15 percent in national home prices by 2009, according to UBS economists.
In Nevada and Florida, annual price gains approached 20 percent and 30 percent, respectively, at the height of the housing boom in 2005. Nevada topped the list of foreclosure rates for the 11th month, with one filing for every 152 households, RealtyTrac said. The rate, based on a 1 percent rise from October, is more than four times the national average.
In Florida, filings declined 3 percent, but the Sunshine State still had one filing for every 282 households, the data showed.
Ohio, beset with a shaky economy, had the third-worst rate of foreclosures in November, with one filing for every 307 households. However, total foreclosures in Ohio declined 6 percent from October.
Among cities, Stockton, California, posted the worst foreclosure rate, with one in every 99 homes, the report showed. The top 10 cities included four others in California, as well as Las Vegas, Nevada.
Defaults remain at elevated levels as rising payments pressure borrowers
NEW YORK - Home foreclosure filings fell in November from October, though they may remain at elevated levels as rising payments on adjustable loans pressure borrowers, a real estate data company reported on Wednesday.
The hardest-hit states were Nevada and Florida, where price gains were among the strongest during the housing boom.
Lenders filed 201,950 foreclosure filings last month, down 10 percent from October, for a foreclosure rate of one in 617 households, according to RealtyTrac. Total filings were up almost 68 percent from November 2006, said the firm, which markets foreclosed houses.
Soaring foreclosures have set regulators and lawmakers scrambling to curb the trend, which many economists say could tip the U.S. economy into recession. Plans that make it easier to get a government-insured loan or would freeze interest rates for some subprime borrowers will slow foreclosures, analysts say. But many homeowners remain vulnerable to default.
The decline in November follows a 2 percent increase in filings in October and an 8 percent fall in September.
"This could indicate that foreclosure activity has topped out for the year, but the true test of whether this ceiling will hold will come at the beginning of next year" when a seasonal increase tends to occur and rates on more mortgages are to rise, James Saccacio, chief executive officer of Irvine, California-based RealtyTrac, said in a statement.
About $500 billion in adjustable-rate mortgages are due to reset at higher levels in 2008, according to JPMorgan.
States with strong price gains during the boom are seen leading a drop of as much as 15 percent in national home prices by 2009, according to UBS economists.
In Nevada and Florida, annual price gains approached 20 percent and 30 percent, respectively, at the height of the housing boom in 2005. Nevada topped the list of foreclosure rates for the 11th month, with one filing for every 152 households, RealtyTrac said. The rate, based on a 1 percent rise from October, is more than four times the national average.
In Florida, filings declined 3 percent, but the Sunshine State still had one filing for every 282 households, the data showed.
Ohio, beset with a shaky economy, had the third-worst rate of foreclosures in November, with one filing for every 307 households. However, total foreclosures in Ohio declined 6 percent from October.
Among cities, Stockton, California, posted the worst foreclosure rate, with one in every 99 homes, the report showed. The top 10 cities included four others in California, as well as Las Vegas, Nevada.
Real estate rates fall overnight
30-year fixed rate down to 5.84%; 10-year Treasury yield at 4.12%
Wednesday, December 19, 2007Inman News
Long-term mortgage interest rates were lower Tuesday, and the benchmark 10-year Treasury bond yield dropped to 4.12 percent.
The 30-year fixed-rate average sank to 5.84 percent, and the 15-year fixed rate dipped to 5.4 percent. The 1-year adjustable rate held at 5.59 percent.
The 30-year Treasury bond yield edged down to 4.54 percent.
Rates and bonds are current as of 7:15 p.m. Eastern Standard Time.
Mortgage rate figures are according to Bankrate.com, which publishes nightly averages based on its survey of 4,000 banks in 50 states. Points on these mortgages range from zero to 3.5.
In other economic news, the Dow Jones Industrial Average rose 65.27 points, or 0.5 percent, finishing at 13,232.47. The Nasdaq gained 21.57 points, or 0.84 percent, closing at 2,596.03.
Stock figures are current as of 7:30 p.m. Eastern Standard Time.
30-year fixed rate down to 5.84%; 10-year Treasury yield at 4.12%
Wednesday, December 19, 2007Inman News
Long-term mortgage interest rates were lower Tuesday, and the benchmark 10-year Treasury bond yield dropped to 4.12 percent.
The 30-year fixed-rate average sank to 5.84 percent, and the 15-year fixed rate dipped to 5.4 percent. The 1-year adjustable rate held at 5.59 percent.
The 30-year Treasury bond yield edged down to 4.54 percent.
Rates and bonds are current as of 7:15 p.m. Eastern Standard Time.
Mortgage rate figures are according to Bankrate.com, which publishes nightly averages based on its survey of 4,000 banks in 50 states. Points on these mortgages range from zero to 3.5.
In other economic news, the Dow Jones Industrial Average rose 65.27 points, or 0.5 percent, finishing at 13,232.47. The Nasdaq gained 21.57 points, or 0.84 percent, closing at 2,596.03.
Stock figures are current as of 7:30 p.m. Eastern Standard Time.
Home loan apps plunge 19%
MBA index posts largest decline in years
Wednesday, December 19, 2007Inman News
Mortgage application volume last week posted the sharpest drop in recent years as interest rates continued higher, the Mortgage Bankers Association reported today.
The group's market composite index, a measure of home loan application volume, tumbled 19.5 percent on a seasonally adjusted basis from the first week of December. The last double-digit losses for the index were seen in December 2006 (down 14.3 percent) and June 2005 (down 11.3 percent.)
MBA reported that the index that tracks refinancings tumbled 27.3 percent last week from just one week earlier, while the purchase-loan index fell 10.6 percent.
As a result, the refinance share of applications fell to 53.2 percent last week from 57.6 percent one week earlier, while the adjustable-rate mortgage (ARM) share actually rose during the period from 9.4 percent to 9.9 percent.
Borrowing costs were up considerably for the second straight week, as the average contract interest rate for 30-year fixed-rate mortgages gained from 6.07 percent to 6.18 percent, the average 15-year fixed climbed from 5.72 percent to 5.78 percent, and the average one-year ARM rate was up to 6.48 percent from 6.31 percent in the previous week.
Points, or loan-processing fees expressed as a percent of the total loan amount, averaged 1.12 on the 30-year loans, 1.1 on the 15-year, and 0.95 on one-year ARMs -- compared with 1.17, 1.01 and 0.97, respectively, in the previous week. These points include the origination fee and are based on loan-to-value ratios of 80 percent.
The Mortgage Bankers Association survey covers approximately 50 percent of all U.S. retail residential mortgage originations, and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts.
MBA index posts largest decline in years
Wednesday, December 19, 2007Inman News
Mortgage application volume last week posted the sharpest drop in recent years as interest rates continued higher, the Mortgage Bankers Association reported today.
The group's market composite index, a measure of home loan application volume, tumbled 19.5 percent on a seasonally adjusted basis from the first week of December. The last double-digit losses for the index were seen in December 2006 (down 14.3 percent) and June 2005 (down 11.3 percent.)
MBA reported that the index that tracks refinancings tumbled 27.3 percent last week from just one week earlier, while the purchase-loan index fell 10.6 percent.
As a result, the refinance share of applications fell to 53.2 percent last week from 57.6 percent one week earlier, while the adjustable-rate mortgage (ARM) share actually rose during the period from 9.4 percent to 9.9 percent.
Borrowing costs were up considerably for the second straight week, as the average contract interest rate for 30-year fixed-rate mortgages gained from 6.07 percent to 6.18 percent, the average 15-year fixed climbed from 5.72 percent to 5.78 percent, and the average one-year ARM rate was up to 6.48 percent from 6.31 percent in the previous week.
Points, or loan-processing fees expressed as a percent of the total loan amount, averaged 1.12 on the 30-year loans, 1.1 on the 15-year, and 0.95 on one-year ARMs -- compared with 1.17, 1.01 and 0.97, respectively, in the previous week. These points include the origination fee and are based on loan-to-value ratios of 80 percent.
The Mortgage Bankers Association survey covers approximately 50 percent of all U.S. retail residential mortgage originations, and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts.
Tuesday, November 20, 2007
Market Trends
Turning the Bad Press around by listening to the professionals!
“Economy in Focus”. Lawrence Yun, NAR VP interviewed by Robert Freedman of Realtor Magazine, November 2007.
• Prediction of existing home sales down 7% for 2007. BUT, after a 5 year high, leveling to normal figures of
2002 is happening (and that was a “very good year”).
• Analysts use county records and mortgage data from the secondary market, lagging in information. Real Estate
professionals use the MLS data which is “timely and more representative of market” (3rd quarter of 2007 is
showing “positive price growth”).
• Foreclosures may rise in 2008 because of “teaser rates”, but that market is “less than 1% of the market”. (New
Mexico foreclosure rate has decreased 9%).
• The challenge is the psychology beyond the headlines: inventories are flush, prices are moderating, interest
rates remain historically low. It is a very good time to buy.
• Loans? If you are a good risk, credit will be there. Can’t qualify for prime loans, options still are available. FHA
reforms are being backed by NAR.
“The Market’s (stock) Mixed Message”. US News & World Report, 11/12/07.
“The economy did turn in its best back-to-back quarters in four years, booming 3.9% in the July – September
quarter.” …”better than expected report from the Labor Dept that the economy added 166,000 new jobs in
October, twice as many as predicted”. “Growth to dip to +2% this quarter before rebounding to around
+3% next year as the housing market becomes less of a drag”.
Turning the Bad Press around by listening to the professionals!
“Economy in Focus”. Lawrence Yun, NAR VP interviewed by Robert Freedman of Realtor Magazine, November 2007.
• Prediction of existing home sales down 7% for 2007. BUT, after a 5 year high, leveling to normal figures of
2002 is happening (and that was a “very good year”).
• Analysts use county records and mortgage data from the secondary market, lagging in information. Real Estate
professionals use the MLS data which is “timely and more representative of market” (3rd quarter of 2007 is
showing “positive price growth”).
• Foreclosures may rise in 2008 because of “teaser rates”, but that market is “less than 1% of the market”. (New
Mexico foreclosure rate has decreased 9%).
• The challenge is the psychology beyond the headlines: inventories are flush, prices are moderating, interest
rates remain historically low. It is a very good time to buy.
• Loans? If you are a good risk, credit will be there. Can’t qualify for prime loans, options still are available. FHA
reforms are being backed by NAR.
“The Market’s (stock) Mixed Message”. US News & World Report, 11/12/07.
“The economy did turn in its best back-to-back quarters in four years, booming 3.9% in the July – September
quarter.” …”better than expected report from the Labor Dept that the economy added 166,000 new jobs in
October, twice as many as predicted”. “Growth to dip to +2% this quarter before rebounding to around
+3% next year as the housing market becomes less of a drag”.
Commentary: Spread between Treasurys, mortgages raises concern
Friday, November 16, 2007
By Lou Barnes Inman News
In one of life's larger mixed blessings, a return of financial panic is pushing mortgage rates lower. The approach to 6 percent is taking longer than I thought, but the week's events make crossover to the fives more likely than ever.
Signs of slowdown are accumulating: Retail sales in October rose a meager 0.2 percent; new claims for unemployment insurance are now rising (slowly, but rising), and October industrial production slipped by 0.5 percent.
Half of the commentariat still insists that inflation is the real trouble, the economy is fine, and the credit markets will soon self-correct. Two Fed governors also made these points today (Poole and Kroszner). This flight to quality -- 10-year Treasurys down to 4.14 percent this morning -- has nothing to do with expectations of an easy Fed. At this point, the queasy sensation of a Fed out of touch with reality adds to the panic.
The stock and bond markets this week were overwhelmed by blown deals, probable bankruptcies, more write-downs pending, and cash running to safety. Even "safe" positions in commodities began to fail, gold in free-fall: this Crunch is deflationary.
Instead of a recitation of institutions and their woes, here is an example, a story to describe the peculiar nature of this Crunch and its consequences: the oddly wide spread between the 10-year T-note and mortgages.
Under normal historical circumstances, the 10-year should lead retail mortgage rates on a leash no longer than 1.5 percent to 1.75 percent. We've taught a generation of borrowers that wherever the 10-year goes, mortgages are sure to follow.
Since the onset of the Crunch in August, frightened money has gone to the 10-year, but mortgage rates have been sticky. For the last couple of weeks, the 10-year has been at 4.25 percent, and the retail rate for the lowest-fee 30-year mortgages has been stuck at 6.375 percent. A spread wider than 2 percent! Why?
Mortgages are toxic, but given Fannie's and Freddie's federal "Agency" credit and too-big-to-fail status, who should care? Almost all the Treasury/mortgage spread is compensation for the risk that you'll refinance -- nothing new there. And, if credit were the issue, Ginnies' yield would be falling versus F&F; Ginnies are by statute "full faith and credit," the same credit as Treasurys. The Ginnie/F&F spread is stable.
I posed the question to a kid running a trading desk (in his 20s, already a Master of the Universe). "There's too much production for demand." Son, don't fib to an oldster: The production of mortgage-backed securities has crashed by two-thirds since August. "So? I said there was too much production for demand."
By what mechanism in the midst of a flight to quality would investor demand fall faster than collapsing production? In all recent recessions, consumer demand evaporated and the Fed restored it by injecting liquidity. This predicament is unique (since the 1930s ... heh-heh...): Capital is evaporating, and the capital is leveraged. Lose 10 percent of a stock market mutual fund and you've lost 10 percent of your money; if a bank loses 10 percent of its assets, it has lost everything -- all of its capital.
The Fed can't create capital. Only earnings over time, or sale of new stock, or raising subordinated debt can do that. If you're losing money, new capital doesn't want to join your busted party. To raise $2 billion in capital from BofA, Countrywide had to give an option on 17 percent ownership and pay 7.5 percent interest. Even on rich terms, capital injection is risky: BofA's option is at $17, but Countrywide stock hit $12 this week.
If you are a bank or dealer with impaired capital, you can't make new investments and may have to shed some that you have. Giant banks and dealers alone wrote off $50 billion in capital in the third quarter, and face a like amount in the fourth, more following. At 12:1 leverage, conservative for guaranteed-credit assets, that's enough capital to have supported $1.2 trillion in Agency mortgage-backed securities.
That's where demand went, and is still going. Fast. Nevertheless, panic is pulling Treasurys down enough that even at a wide spread, mortgages are going lower.
Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@boulderwest.com.
Friday, November 16, 2007
By Lou Barnes Inman News
In one of life's larger mixed blessings, a return of financial panic is pushing mortgage rates lower. The approach to 6 percent is taking longer than I thought, but the week's events make crossover to the fives more likely than ever.
Signs of slowdown are accumulating: Retail sales in October rose a meager 0.2 percent; new claims for unemployment insurance are now rising (slowly, but rising), and October industrial production slipped by 0.5 percent.
Half of the commentariat still insists that inflation is the real trouble, the economy is fine, and the credit markets will soon self-correct. Two Fed governors also made these points today (Poole and Kroszner). This flight to quality -- 10-year Treasurys down to 4.14 percent this morning -- has nothing to do with expectations of an easy Fed. At this point, the queasy sensation of a Fed out of touch with reality adds to the panic.
The stock and bond markets this week were overwhelmed by blown deals, probable bankruptcies, more write-downs pending, and cash running to safety. Even "safe" positions in commodities began to fail, gold in free-fall: this Crunch is deflationary.
Instead of a recitation of institutions and their woes, here is an example, a story to describe the peculiar nature of this Crunch and its consequences: the oddly wide spread between the 10-year T-note and mortgages.
Under normal historical circumstances, the 10-year should lead retail mortgage rates on a leash no longer than 1.5 percent to 1.75 percent. We've taught a generation of borrowers that wherever the 10-year goes, mortgages are sure to follow.
Since the onset of the Crunch in August, frightened money has gone to the 10-year, but mortgage rates have been sticky. For the last couple of weeks, the 10-year has been at 4.25 percent, and the retail rate for the lowest-fee 30-year mortgages has been stuck at 6.375 percent. A spread wider than 2 percent! Why?
Mortgages are toxic, but given Fannie's and Freddie's federal "Agency" credit and too-big-to-fail status, who should care? Almost all the Treasury/mortgage spread is compensation for the risk that you'll refinance -- nothing new there. And, if credit were the issue, Ginnies' yield would be falling versus F&F; Ginnies are by statute "full faith and credit," the same credit as Treasurys. The Ginnie/F&F spread is stable.
I posed the question to a kid running a trading desk (in his 20s, already a Master of the Universe). "There's too much production for demand." Son, don't fib to an oldster: The production of mortgage-backed securities has crashed by two-thirds since August. "So? I said there was too much production for demand."
By what mechanism in the midst of a flight to quality would investor demand fall faster than collapsing production? In all recent recessions, consumer demand evaporated and the Fed restored it by injecting liquidity. This predicament is unique (since the 1930s ... heh-heh...): Capital is evaporating, and the capital is leveraged. Lose 10 percent of a stock market mutual fund and you've lost 10 percent of your money; if a bank loses 10 percent of its assets, it has lost everything -- all of its capital.
The Fed can't create capital. Only earnings over time, or sale of new stock, or raising subordinated debt can do that. If you're losing money, new capital doesn't want to join your busted party. To raise $2 billion in capital from BofA, Countrywide had to give an option on 17 percent ownership and pay 7.5 percent interest. Even on rich terms, capital injection is risky: BofA's option is at $17, but Countrywide stock hit $12 this week.
If you are a bank or dealer with impaired capital, you can't make new investments and may have to shed some that you have. Giant banks and dealers alone wrote off $50 billion in capital in the third quarter, and face a like amount in the fourth, more following. At 12:1 leverage, conservative for guaranteed-credit assets, that's enough capital to have supported $1.2 trillion in Agency mortgage-backed securities.
That's where demand went, and is still going. Fast. Nevertheless, panic is pulling Treasurys down enough that even at a wide spread, mortgages are going lower.
Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@boulderwest.com.
Wednesday, November 07, 2007
Overnight real estate rates rise again
30-year fixed rate at 5.96%; 10-year Treasury yield at 4.37%
Inman News
Long-term mortgage interest rates continued higher Tuesday, and the benchmark 10-year Treasury bond yield rose to 4.37 percent.
The 30-year fixed-rate average inched up to 5.96 percent, and the 15-year fixed rate gained to 5.57 percent. The 1-year adjustable, however, slipped to 5.63 percent.
The 30-year Treasury bond yield gained to 4.67 percent.
Rates and bonds are current as of 7:15 p.m. Eastern Standard Time.
Mortgage rate figures are according to Bankrate.com, which publishes nightly averages based on its survey of 4,000 banks in 50 states. Points on these mortgages range from zero to 3.5.
In other economic news, the Dow Jones Industrial Average climbed 117.54 points, or 0.87 percent, finishing at 13,660.94. The Nasdaq jumped 30 points, or 1.07 percent, closing at 2,825.18.
Stock figures are current as of 7:30 p.m. Eastern Standard Time.
30-year fixed rate at 5.96%; 10-year Treasury yield at 4.37%
Inman News
Long-term mortgage interest rates continued higher Tuesday, and the benchmark 10-year Treasury bond yield rose to 4.37 percent.
The 30-year fixed-rate average inched up to 5.96 percent, and the 15-year fixed rate gained to 5.57 percent. The 1-year adjustable, however, slipped to 5.63 percent.
The 30-year Treasury bond yield gained to 4.67 percent.
Rates and bonds are current as of 7:15 p.m. Eastern Standard Time.
Mortgage rate figures are according to Bankrate.com, which publishes nightly averages based on its survey of 4,000 banks in 50 states. Points on these mortgages range from zero to 3.5.
In other economic news, the Dow Jones Industrial Average climbed 117.54 points, or 0.87 percent, finishing at 13,660.94. The Nasdaq jumped 30 points, or 1.07 percent, closing at 2,825.18.
Stock figures are current as of 7:30 p.m. Eastern Standard Time.
-------------------------------------------------------------------------------
Investment group calls for removal of CEO
Inman News
Embattled builder Beazer Homes USA Inc., which is facing a series of investigations and lawsuits over business practices and plans to restate earnings dating back to the 2004 fiscal year, announced that it cut a quarter of its workforce, or 650 positions, in October.
Also, an investment group affiliated with a coalition of unions is calling for the removal of Beazer Homes CEO Ian McCarthy.
CtW Investment Group charges in a scathing letter to the chairman of Beazer's nominating and corporate governance committee, "Taken together, the combination of improper practices, compliance failures and poor corporate governance … constitute a stinging indictment of Beazer's leadership in general and of Mr. McCarthy in particular. By swiftly replacing Mr. McCarthy with a qualified CEO and naming an independent director to assume Mr. Beazer's role as chairman, the board can begin to restore the credibility Beazer desperately needs."
The letter also states, "Rather than create sustainable, long-term value for shareholders, Mr. McCarthy has garnered egregious compensation while allowing his management team to violate federal law, improperly account for land development costs and sale-leaseback transactions, and provide undisclosed loans to executives."
A Beazer spokesperson was not immediately available for comment about this letter, issued today. CtW Investment group works with pension funds sponsored by affiliates of a coalition of unions that represents about 6 million members. CtW has also called for the resignation of Countrywide Chairman and CEO Angelo Mozilo.
Beazer in October announced plans to restate earnings, and said an internal investigation revealed that employees of the company's mortgage corporation "violated certain U.S. Department of Housing and Urban Development regulations."
The U.S. Securities and Exchange Commission and U.S. Attorney's Office are investigating Beazer's business practices, and several lawsuits have been filed by shareholders.
The company announced today that it is not able to report its earnings results for the fourth quarter of the fiscal year and the full year because of the pending restatements of past financial results.
The company expects results for the fourth quarter to include noncash pretax charges to abandon land option contracts, recognize inventory impairments, and to record impairments and land option abandonments in joint ventures of about $230 million.
"The company is working expeditiously to complete the restatements and report audited financial results for the quarter and year ended September 30, 2007 as soon as possible," according to the announcement.
The company's net new-home orders totaled 973 for the quarter ended Sept. 30, a 53 percent decline compared to the same quarter last year, "driven largely by an unusually high cancellation rate" of 68 percent, which he company attributes, in part, "to the pronounced tightening in the mortgage markets in August and September."
"The housing industry continues to face the most difficult business conditions in over a decade," McCarthy said in a statement.
"We must continue to adapt to the realities of the current market by remaining disciplined in our operating approach and continuing to focus on initiatives aimed at responding to what we believe will continue to be a challenging environment in the near term. These initiatives include reductions in direct costs, overhead expenses and land spending, and an intense focus on sales and marketing efforts to reduce unsold home inventories, all with the aim of generating cash."
The company announced that its workforce reached a peak level in March 2006, and since then the overall company headcount has dropped by about 50 percent "through reductions in force and attrition."
"The company expects these most recent headcount reductions to result in annualized cost savings of at least $30 million. In addition, the company has reorganized accounting and back-office functions and is centralizing a number of marketing initiatives to achieve additional efficiencies," according to the announcement.
"With recent industry data suggesting that market conditions may deteriorate further before a recovery is under way, we need to adapt and further align our cost structure and investment levels to expected lower volumes. While these decisions are not taken lightly, they are necessary in order to maintain our sound financial position," McCarthy said in a statement.
The company's board of directors voted to suspend a quarterly dividend of 10 cents per share, concluding that the action would allow the company to conserve an estimated $16 million of cash on an annual basis and "is prudent in light of the continued deterioration in the housing market," according to the announcement.
Beazer, headquartered in Atlanta, has operations in Arizona, California, Colorado, Delaware, Florida, Georgia, Indiana, Kentucky, Maryland, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Virginia and West Virginia, and also provides mortgage origination and title services to home buyers.
***
Send tips or a Letter to the Editor to glenn@inman.com, or call (510) 658-9252, ext. 137.
Copyright 2007 Inman News
Top
Investment group calls for removal of CEO
Inman News
Embattled builder Beazer Homes USA Inc., which is facing a series of investigations and lawsuits over business practices and plans to restate earnings dating back to the 2004 fiscal year, announced that it cut a quarter of its workforce, or 650 positions, in October.
Also, an investment group affiliated with a coalition of unions is calling for the removal of Beazer Homes CEO Ian McCarthy.
CtW Investment Group charges in a scathing letter to the chairman of Beazer's nominating and corporate governance committee, "Taken together, the combination of improper practices, compliance failures and poor corporate governance … constitute a stinging indictment of Beazer's leadership in general and of Mr. McCarthy in particular. By swiftly replacing Mr. McCarthy with a qualified CEO and naming an independent director to assume Mr. Beazer's role as chairman, the board can begin to restore the credibility Beazer desperately needs."
The letter also states, "Rather than create sustainable, long-term value for shareholders, Mr. McCarthy has garnered egregious compensation while allowing his management team to violate federal law, improperly account for land development costs and sale-leaseback transactions, and provide undisclosed loans to executives."
A Beazer spokesperson was not immediately available for comment about this letter, issued today. CtW Investment group works with pension funds sponsored by affiliates of a coalition of unions that represents about 6 million members. CtW has also called for the resignation of Countrywide Chairman and CEO Angelo Mozilo.
Beazer in October announced plans to restate earnings, and said an internal investigation revealed that employees of the company's mortgage corporation "violated certain U.S. Department of Housing and Urban Development regulations."
The U.S. Securities and Exchange Commission and U.S. Attorney's Office are investigating Beazer's business practices, and several lawsuits have been filed by shareholders.
The company announced today that it is not able to report its earnings results for the fourth quarter of the fiscal year and the full year because of the pending restatements of past financial results.
The company expects results for the fourth quarter to include noncash pretax charges to abandon land option contracts, recognize inventory impairments, and to record impairments and land option abandonments in joint ventures of about $230 million.
"The company is working expeditiously to complete the restatements and report audited financial results for the quarter and year ended September 30, 2007 as soon as possible," according to the announcement.
The company's net new-home orders totaled 973 for the quarter ended Sept. 30, a 53 percent decline compared to the same quarter last year, "driven largely by an unusually high cancellation rate" of 68 percent, which he company attributes, in part, "to the pronounced tightening in the mortgage markets in August and September."
"The housing industry continues to face the most difficult business conditions in over a decade," McCarthy said in a statement.
"We must continue to adapt to the realities of the current market by remaining disciplined in our operating approach and continuing to focus on initiatives aimed at responding to what we believe will continue to be a challenging environment in the near term. These initiatives include reductions in direct costs, overhead expenses and land spending, and an intense focus on sales and marketing efforts to reduce unsold home inventories, all with the aim of generating cash."
The company announced that its workforce reached a peak level in March 2006, and since then the overall company headcount has dropped by about 50 percent "through reductions in force and attrition."
"The company expects these most recent headcount reductions to result in annualized cost savings of at least $30 million. In addition, the company has reorganized accounting and back-office functions and is centralizing a number of marketing initiatives to achieve additional efficiencies," according to the announcement.
"With recent industry data suggesting that market conditions may deteriorate further before a recovery is under way, we need to adapt and further align our cost structure and investment levels to expected lower volumes. While these decisions are not taken lightly, they are necessary in order to maintain our sound financial position," McCarthy said in a statement.
The company's board of directors voted to suspend a quarterly dividend of 10 cents per share, concluding that the action would allow the company to conserve an estimated $16 million of cash on an annual basis and "is prudent in light of the continued deterioration in the housing market," according to the announcement.
Beazer, headquartered in Atlanta, has operations in Arizona, California, Colorado, Delaware, Florida, Georgia, Indiana, Kentucky, Maryland, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Virginia and West Virginia, and also provides mortgage origination and title services to home buyers.
***
Send tips or a Letter to the Editor to glenn@inman.com, or call (510) 658-9252, ext. 137.
Copyright 2007 Inman News
Top
Florida's condo craze
Florida's condo market, where investors and speculators were active during the boom, illustrates how condos and condo conversions may affect rental markets.
According to Marcus & Millichap, the five markets that saw the greatest percentage of apartment units converted from apartments to condos during the housing boom are all in Florida.
Nearly one in three apartments in Ft. Lauderdale -- an estimated 28,800 units -- were converted to condos. The pace of condo conversions was also impressive in Orlando (24.2 percent of apartments converted); Palm Beach (23.7 percent); Miami (20.7 percent); and Tampa (15.6 percent).
Other cities on Marcus & Millichap's list of top 10 condo conversion markets include Charleston, S.C. (15.3 percent converted); Jacksonville, Fla. (11.6 percent); Las Vegas (11.6 percent); Phoenix (9.6 percent); and San Diego (7.8 percent).
While apartment vacancy rates fell precipitously in the top 10 condo conversion markets from 2003 to 2006, the trend has since reversed itself in each of those markets.
If a 5 percent vacancy rate represents a balance of the needs of property owners and renters, the apartment vacancy rate in mid-2006 favored renters in just two of the top 10 condo conversion markets -- Charleston and Phoenix.
By the end of the second quarter of 2007, vacancy rates exceeded 5 percent in six out of 10 of those markets, putting renters in the driver's seat in Orlando, Palm Beach, Tampa and Jacksonville. In just 12 months, Marcus & Millichap reports, the vacancy rate in Palm Beach shot up from 4.2 percent to 7 percent.
Ron Witten, a consultant who advises developers, investors and lenders on major U.S. apartment markets, said rents are generally tied to the housing inventories. In some markets, for-sale homes may be so abundant -- and attractively priced -- that they attract buyers who might otherwise have been renters.
"The number one factor (on rents) is how overbuilt the overall housing market is in each of these metro areas," Witten said.
In markets like Austin, Texas and Raleigh, N.C. -- where there's no evidence of an oversupply of single-family homes or condos -- the subprime fallout will turn many families into renters, Witten said. While other apartment owners will move up to home ownership, "there's no dilution of demand. It's a swap -- some move from A to B, while others move from B to A."
But in areas where developers built lots of new homes and condos during the boom, oversupply has the potential to depress rents, Witten said. Compounding the problem, many areas that saw a boom in construction were also popular with speculators who bought properties that are now or soon will be back on the for-sale or rental markets.
According to the Mortgage Bankers Association, 32 percent of home loans in default in the state of Nevada at the end of June were to borrowers who didn't occupy the property in question (see Inman News story). In other words, they were second homes or properties bought to flip. The non-occupied share of loans in default was also much higher than the national average of 13 percent in Arizona (26 percent), Florida (25 percent), and California (21 percent).
Trosien said those areas -- and also places like Chicago and Washington, D.C. -- are examples of ghost markets, where owners of rental properties are "competing against not only professionally managed developments, but people who went in and bought to flip."
The latest Census Bureau numbers show rental vacancy rates are highest in the South (12.1 percent) and Midwest (11.6 percent), and lowest in the West (6.8 percent) and Northeast (7.1 percent).
Marcus & Millichap and Economy.com estimate that so far this year, condo sales have plummeted 55.5 percent in the Washington, D.C., area, 40.2 percent in Las Vegas and 25.6 percent in Phoenix. Condo sales have also slowed in the Florida cities that led the nation in condo conversions, including Tampa-St. Petersburg (down 34 percent); Jacksonville (down 28.6 percent); and Miami (down 28 percent).
Although most of RealFacts' clients own, manage or develop multifamily housing projects, Latham said the firm has been retained to do studies for developers who have San Francisco Bay Area condominium projects in the works. Developers are anxious about whether there will be buyers, and if so whether the buyers will be able to get loans.
"People have been coming to us and saying, 'What would we get if we turned this into a rental project?' " Latham said.
Like Latham, Witten expects to see existing buildings subjected to condo conversion coming back as rentals, and new projects originally conceived as condos marketed as apartments instead.
"It's much easier to speculate in condos than it is in the single-family market. I can put a deposit down on a new condo, and if it's a presale I don't have to worry for 18 months if I have to close," Witten said. "I think we ended up getting a lot of condo construction supported by those speculators that, in hindsight, was in excess of what was needed. As the market goes soft, those presale agreements are dropped, deposits are forfeited, and lawsuits are filed."
Despite that worrisome trend, Witten estimates that nationwide, there are about 10 excess single-family homes for every condo.
"I would say its on the magnitude of just under 1 million more empty single-families on the ground today than the nation would normally have, and it's 100,000 to 150,000 units for condos," Witten said.
We need a big place
One factor that could cushion the influx of homes and condos onto rental markets is that construction of multifamily rental housing declined in many areas during the housing boom. Witten said 2007 could mark a 14-year low in new apartment starts nationwide.
Another bit of good news for some accidental landlords in markets hit hard by foreclosures is that when families lose their homes, they're not looking for a studio apartment, Latham said. Many will want to move to a three-bedroom apartment, home or condo.
"We are just starting to see if those are the units in greatest demand, and where units are going up the most," Latham said.
According to the latest Census Bureau data on housing vacancies and home ownership, single-unit buildings such as homes and condos had a lower vacancy rate -- 9.4 percent at the end of September -- than buildings with multiple units. Buildings with five to nine units had the highest vacancy rate, 10.9 percent, compared with a 10.2 vacancy rate for buildings with 10 or more units.
The Census Bureau reports that the more rooms a rental had, the more likely it was to be occupied during the third quarter. Units with one or two rooms had the highest vacancy rates -- 20.5 percent -- and those with six or more rooms the lowest, 7.6 percent.
Rent per square foot has been "of special interest" to people thinking about renting out condos, Latham said, because condos tend to be larger than most rentals.
"Let's say a one-bedroom unit in a rental building might be 650 square feet, but a condo might be 1,000 square feet," Latham said. Condo owners want to know, "How much more can we get because it's a bigger unit with additional amenities?"
ApartmentRating.com founder Jeremy Bencken said a survey of the site's users found "the vast majority of renters -- people who are ostensibly apartment hunting -- are interested in (renting) houses and condos."
Witten, however, questions whether condos and single-family homes are more desirable to renters than apartments.
"The reality is that professionally managed apartments have lots of amenities, and if something goes wrong, you know where to go to get it fixed," Witten said. "That's an advantage to the rental sector."
Another difficulty of marketing a condo or home that the owner intends to put up for sale when market conditions improve is that many renters are looking for long-term accommodations.
A final consideration in setting rent is the time of year a home goes on the market. Don't get discouraged -- or assume you've set the rent too high -- if you put a property up for rent at the end of the year and there are no takers.
October and November are "the worst time of the year" to market rental properties, said Robert Massey Jr., founder of RentalHouses.com and vice president of industry development at Primedia's Rentals.com.
When Massey was a full-time property manager, prospective clients would approach him around that time about renting out a property they were having trouble selling.
"I'd often be contacted late in the year, because it's a slow market for sales," Massey said. "Well, guess what? The rental market follows the same pattern. The reality is, the house will sit vacant longer than if it comes to me in April."
Up next: Part three of a three-part series on "accidental landlords" provides an overview of software and Web sites for marketing and managing rental properties.
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