In January, 2009 the Fed didn’t hold any mortgage-backed securities.
Today they have $843 billion, and yesterday they “agreed to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities.”
“These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.”
(seen at CR, HT josap)
Will the Fed’s buying more MBS make a difference in housing?
Everybody I know was happy at the thought of getting a 3.875% rate. Freddie Mac’s 30-year rate was 3.55% this week. If the Fed’s actions push them lower, what is the effect on monthly payments?
They are only buying agency paper, so let’s look at the conforming $417,000 loan amount:
$417,000 @ 3.55% = $1,884.17
$417,000 @ 3.00% = $1,758.09
If 30-year conforming rates got all the way down to 3.00%, buyers would either save $126/mo., or be able to afford a $30,000 higher mortgage and pay the same $1,884.
But JimG nailed it – this MBS buying spree will allow banks to offload stinky paper to the Fed, rather than foreclosing. Banks can predict when a mortgage is going bad – because borrowers people typically slow-pay before defaulting. Servicers would be able to dump any suspected about-to-default mortgages, and keep the short-sale desk open for the borrowers who want to cooperate over the next few years.
The Fed would probably be more accomodating of the folks who don’t pay, so defaulters would enjoy an extended free-rent period. Foreclosures will dry up further (causing banks to appear solvent), the real-estate market will have fewer distressed sales giving people the idea that prices will improve soon, and the Fed will look like a hero.
In the meantime, we’ll have tight inventory and more OPTs.
The QE3 should cause more folks to look for healthier yields from hard assets.
The yellow carpet pictured here was from the duplex on Dixie, listed for $1,050,000 (and now pending) for what is essentially a teardown. Someone made a cash offer that was $100,000 over list price….and lost:
Here’s another one below. These four 1-br units are on a 50-foot wide lot with no view listed for $1,599,888 yesterday, and it’s a teardown too. But it already has an offer on it – the link:
It seems that they think that QE3 will push down mortgage rates, but it looks like QE2 got in the way – mortgage rates went down as soon as QE2 stopped on June 30, 2011:
It will always be a different time and place, so let’s face it, there are different parts of the puzzle now. The economy is heading downward, the hot election cycle is in full swing, there is plenty of uncertainty around the world, and mortgage rates are already about as low as they can go.
There might be some psychological boost to the real estate market if mortgage rates slip down into the low-3s. But willing buyers who venture out are going to see the same environment that we have had all year:
1. Supremely over-confident sellers trying to grab an extra 5% to 10% in price due to low inventory.
2. Listing agents who get too cocky just because they get a lot of phone calls on their new listing.
3. If you can manage to finally win a bidding war, complete your inspection and then find defects, expect that the sellers/listing agents won’t do anything for you – except rub your nose in the alleged backup offers.
4. And you end up with few other choices, other than to wait longer.
I’d like to see Ben and the boys do something about those!
In the San Diego-Carlsbad-San Marcos residential market, the level of underwater mortgages leveled off in the second quarter, according to a real estate services company.
CoreLogic reported 165,650 of all residential properties with a mortgage (28.1 percent) were in negative equity, in the San Diego County market. In the first quarter, the level was 28.2 percent, or 165,582 properties, according to the new analysis.
Also in the San Diego market, an additional 4.8 percent — or 28,352 residential properties — were in near negative equity for second quarter 2012 compared to 4.9 percent, or 28,889, in first quarter 2012.
Negative equity, often referred to as “underwater” or “upside down,” means that borrowers owe more on their mortgages than their homes are worth. Negative equity can occur because of a decline in value, an increase in mortgage debt or a combination.
JtR: Including homeowners without a mortgage, those underwater are fewer than 20%.
There have been 9,410 San Diego short-sales and REO listings closed this year, or 6% of 165,650.
As unpalatable as it sounds, a working paper paper from the National Bureau of Economic Research finds that delaying foreclosures and trying to keep distressed homeowners in their properties is actually worse for local housing economies.
Their proposed solution is to speed up REOs.
The Cambridge, MA thinktank provides the beginning and end dates of U.S. recessions and prides itself on unbiased, economic research. But this will be of little solace to those who will no doubt object to the findings.
Here’s the bomb:
“Our results suggest that the key to minimizing the costs of foreclosure is to minimize the time that properties spend in serious delinquency and in REO. On one hand, this implies putting pressure on lenders to sell properties out of REO quickly,” concludes the paper.
“On the other hand, and perhaps much less palatably, it implies minimizing the time a borrower spends in serious delinquency, which means accelerating the foreclosure process,” they claim.
Researchers Kristopher Gerardi, Eric Rosenblatt, Paul S. Willen and Vincent Yao did their homework on this report. They show that “foreclosure externalities” such as houses sell at lower values, albeit not by much, simply by having neighbors delinquent on the mortgage. But they can’t explain exactly why.
“We discuss three possible explanations for the facts: supply effects, demand effects, and investment externalities, and argue that the third is the most plausible,” they say. “But to be sure, the interactions of all three are so complex that no dataset and no model could likely completely rule out an explanation or precisely allocate the observed correlations to one of the three stories.”
The researchers also point out the right-to-cure law in Massachusetts, passed in 2007, forced lenders to give borrowers an additional 90 days to cure their mortgage before foreclosure proceedings could start. Those borrowers benefited little from such legislation, as qualified homeowners were no more likely to cure the mortgage than other residents of the state.
“One might say that the law only failed to produce benefits, but our analysis suggests that it may also have imposed costs on homeowners who lived near borrowers who were able to take advantage of the law,” they state.
To the general public, the information comes as a total shock. So far, there is no press on it. Perhaps this blog post will change that. More importantly, this will not come as news to HousingWire readers — thus explaining the logic of a blog post and not a more noticeable feature.
Actually, to quote publisher Paul Jackson in March 2010, “Recovery in housing is spelled R-E-O. Anything else is wasting time until we get there.”
House lawmakers overcame election-year gridlock on Tuesday to punt their version of a bill that would shore up the Federal Housing Administration, whose embattled Mutual Mortgage Insurance Fund falls short of the capital required by law.
The lower chamber passed the Federal Housing Administration Fiscal Solvency Act by a sweeping vote of 402 -7.
If it becomes law, the bill would strengthen HUD’s ability to do away with lenders that fail important lending criteria and allow the federal agency to avoid losses on defaulted loans underwritten by non-compliant lenders.
The law would allow HUD to charge up to 2.05 percent in annual insurance premiums, establish an annual fee for lenders at 0.55 percent, and deepen repayment requirements for lenders that commit fraud or violate other FHA criteria.
LITHONIA, Ga.—On a muggy morning earlier this month, Paul Fuhrman pried the screen off a window to get into a two-story house in this Atlanta suburb.
It was just another day’s work for the 43-year-old executive at private-equity firm Colony Capital LLC, based in Santa Monica, Calif. After buying the house for $120,000 in a foreclosure auction, Mr. Furhman and his colleagues wanted to check out Colony’s new investment—and broke in because they hadn’t gotten the keys yet.
Mr. Fuhrman’s sweat and dirty hands show how the business of buying foreclosed homes, renovating and renting them out is morphing from a largely mom-and-pop business into the next big thing on Wall Street. Investors who once chased only big-ticket deals now are buying houses one at a time.
“We went from hunting elephants to whacking ants with a mallet,” says Mr. Fuhrman, who found stained carpets, piles of discarded clothing, a broken door and signs of a recent living-room camp out by squatters.
Colony owns about 3,600 foreclosed homes, including 133 bought in the Atlanta area in one day, and officials hope to increase the firm’s inventory to 10,000 by next spring.
At first, many investors hoped lenders would sell foreclosed houses in bulk. But most banks prefer to sell one house at a time, figuring that approach will fetch higher prices.
As a result, the foreclosure circuit hasn’t yet produced a giant windfall for buyers like Colony, though executives say early returns are promising. Yields on rents from houses owned by the firm are 7% to 8%, higher than many other types of real estate. Purchase prices have averaged 12% less than Colony expected, which should make it easier to sell the homes or borrow against them and exit with double-digit percentage gains.
In the last 30 seconds the list price of this house is mentioned, $1,250,000, and that 70% of the houses for sale today between La Jolla and Carlsbad are priced OVER $1,000,000 – averaging $744/sf! There are 293 houses for sale under $1 million, but there is a typo on the video – their list prices are averaging $342/sf:
Six years after the U.S. housing market tumbled into the abyss, demand for brand-new homes is picking up. Sales are on the rise, and prices in many areas are inching higher.
The bad news for buyers: The new market environment means less discounting, fewer incentives and, in some cases, longer waits for homes. But there are several steps you can take to be a better shopper—from choosing amenities judiciously to waiting until a home is partially built before pulling the trigger on a deal.
To be sure, the housing recovery is still in its infancy, with credit tight and sales and prices well below historical levels. Rising interest rates, an uptick in the supply of foreclosed homes or a weakening economy all could crimp sales.
But after years of retrenching, builders have whittled down their stockpiles greatly, and are being cautious about bringing new homes to market. The inventory of unsold new homes now stands at 144,000, down from a peak of 575,000 in July 2006, the Commerce Department reports.
At the current sales pace, that’s a 4.9 month supply of new homes; six months is considered a balanced market, says NAHB chief economist David Crowe.
