Pushback on Principal Reductions

From the latimes.com:

Reporting from Washington—

The regulator over Fannie Mae and Freddie Mac pushed back against mounting pressure that the mortgage finance giants start reducing the principal owed on troubled loans, insisting the practice could hurt taxpayers and that alternatives were better at avoiding foreclosures.

Edward J. DeMarco, acting director of the Federal Housing Finance Agency, told U.S. senators Tuesday that reducing the principal on mortgages owned or guaranteed by Fannie and Freddie would not protect taxpayers.

The government has pumped about $183 billion in taxpayer money into the companies, which the agency seized in 2008 as they teetered on the brink of bankruptcy.

Lawmakers, especially Democrats, have maintained that the agency needed to direct Fannie and Freddie to write down the mortgage principal on loans that exceeded the value of homes when struggling borrowers were facing foreclosures.

Five of the nation’s major banks agreed to similar terms to settle a nationwide lawsuit. Fannie and Freddie, which own or guarantee 60% of existing mortgages and back 75% of all new mortgages, was not part of that lawsuit.

DeMarco said executives at Fannie and Freddie advised him that it wasn’t “in the best interest of the companies” to write down mortgage principal to reduce foreclosures. The companies would lose part of the total amounts lent out.

He touted other steps, such as interest rate reductions that Fannie and Freddie have approved, to help keep struggling homeowners from defaulting.

“Foreclosure is the worst possible outcome in most instances. It is the most costly, it is the most devastating to the family, and it is the most devastating to the neighborhood,” DeMarco told the Senate Banking Committee.

The agency has “a responsibility to find all prudent actions” to prevent foreclosures, he said. Refinancing, modifying the lengths of loans and deferring payments on mortgage principal are more effective at keeping people in their homes without increasing the risk of losses at Fannie and Freddie, DeMarco said.

Democrats argued that principal reductions would help stabilize the housing market, ultimately reducing taxpayer losses on the Fannie and Freddie bailout because mortgages would not end up in foreclosures.

“In my view, the FHFA has shown a dismal lack of initiative in the housing crisis and needs to be far more aggressive in taking steps that can help both homeowners and taxpayers,” said Sen. Robert Menendez (D-N.J.).

“The banks are finding it profitable to give principal reductions to about 20% of their own loans while, ironically, the government isn’t allowing principal reductions on any loans,” he said.

Housing and Urban Development Secretary Shaun Donovan said that principal reduction was the one foreclosure-prevention tool that the administration has made the least progress in employing.

But FHFA is an independent agency. DeMarco had been chief operating officer at the agency and became acting director in 2009. The White House has tried to replace him, but Senate Republicans blocked confirmation of President Obama’s nominee for the job.

Republicans, who oppose more government intervention in the housing market, praised DeMarco. But he acknowledged that “there appears to be a lot of criticism” of his performance.

California Atty. Gen. Kamala D. Harris has called on DeMarco to resign.

In a letter released Monday, she asked him to freeze foreclosures in the state until the agency did a “thorough, transparent analysis of whether principal reduction is in the best interests of struggling homeowners as well as taxpayers.”

Also Monday, 115 House members wrote to DeMarco to urge him to allow Fannie and Freddie to write down loan principals.

Fabricating A Story

Do you get the feeling that this guy had a desired outcome, and just lined up his ideas? From Time:

While experts continue to warn that housing has not yet hit bottom, a slew of indicators suggest otherwise.

The latest is a stellar quarterly earnings report from Home Depot, which is benefitting from hopeful owners sprucing up for the spring selling season.

Home Depot said Tuesday that net income jumped 32% for the quarter ending Jan. 29, blowing past Wall Street estimates. Top-performing store categories included electrical supplies, building materials, paint, lumber, lighting and flooring. Also strong: gutters, roofing and vinyl siding.

The company saw more shoppers: Number of transactions rose 3.6%. Shoppers spent more: The average customer ticket rose 2.4%. Meanwhile, the number of customers who spent more than $900 rose 3% as those who spent under $50 rose just 1.3%.

Good weather and pent-up demand for improvements from recession-weary homeowners may help explain the results. But an unmistakable sense of optimism underlies this activity. Yes, there are always high hopes for housing at this time of year. Yet people generally do not make a big investment in their home unless they feel they have equity and it is secure. Among other hopeful signs:

  • The job market is improving. Last month, unemployment hit its lowest level in three years. The unemployment rate has improved five months in a row.
  • Homebuilder sentiment in February climbed to its highest level in nearly five years.
  • Housing stocks are soaring. The stock market isn’t always right. But it often predicts developments six to nine months down the road—and companies that build houses have seen share prices increase 60% since October. Home Depot stock has rallied in similar fashion, in part because people who buy homes tend to spend money fixing them up.
  • New housing starts in January nearly matched November’s three-year high.
  • Sensing a turn, big investors are buying mortgage securities as eagerly as they once sold them. “There is light at the end of the tunnel,” Kenneth J. Taubes, the head of United States investment for Pioneer Investments, told The New York Times. “The mortgage crisis is getting behind us, and things are getting back to some semblance of normality.”
  • State and federal authorities have reached a $26 billion settlement with big banks that is expected to provide some mortgage relief and possibly ease the foreclosure nightmare.

Yes, we’ve seen false bottoms before. The foreclosure mess, especially, still hangs over the market. But housing downturns like this one end at some point—and most people are surprised when it happens. Keep an eye on mortgage rates. If they start to move up it may push buyers to act before they miss the lowest rates on recordand then higher prices would follow.


More Maids

From HW:

The government’s program to turn foreclosed Fannie Mae, Freddie Mac and FHA properties into rentals “is here to stay,” according to housing analysts at Morgan Stanley.

One of the greatest effects of it, the bank’s analysts say, is job creation, with the possibility of creating more than 1 million jobs in the hard-hit construction and real estate industries. The jobs could be created by private capital without the use of taxpayer dollars.

The program’s purpose is to clear the national backlog of distressed housing.  “On a macro level, (the REO rental program) could not have come at a better time,” the analysts say.

According to the Bureau of Labor Statistics, the economy lost million 2.5 million housing-related jobs over the past five years. Of those, 2.16 million were in construction and 240,000 were in real estate.

Employment in construction increased by 21,000 in January, following a gain of 31,000 in the previous month.

Analysts estimate about eight million properties will be sold in some form of distressed sale over the next five years. 

“Even if only half can be turned into rentals, which would represent only a 20% increase in the total number of single-family rental properties available today, that could result in the creation of one million one-time construction-oriented jobs plus a possible additional 800,000 in permanent jobs, mostly in some of the hardest-hit sectors and the hardest-hit economic areas of the country,” they say.

The 800,000 jobs would comprise the cottage industry for servicing REO rental units, from cleaning properties to collecting the rent.

The chart below shows Morgan Stanley’s full-time job-creation numbers per distressed property turned into rental by each category and for total jobs. The calculation is based on anecdotal labor-usage feedback the firm received from current single-family operators.

Capital Economics called the program to move REO properties to rentals the “best housing fix so far” and “possibly more significant” than President Brack Obama’s refinancing proposals announced late last month.

Support for a government-led program was the most popular disposition strategy among panelists at January’s American Securitization Forum.

But when Federal Reserve Chairman Ben Bernanke sent a letter in January to Congress proposing the REO rental program, it highlighted the deep political divide on how to repair housing.

Private investors, with the government’s support, are gearing up for what they perceived as a massive and long-term investment opportunity.

“With the added benefit of the potential for significant private sector-led job creation, potentially in the hardest-hit sectors in the hardest-hit regions, we are increasingly confident that (the program) can have a positive impact on housing and the macro economy as a whole,” the analysts say.

Loan Underwriting Is Normal!

Click here: Realtor survey  – scroll down to page 14 for comments from agents about the market.

Here are the garphs from page 10 – the realtors surveyed say that most homes sold have languished on the market for more than three months – which shows how bad realtors are with pricing correctly:

An excerpt from Yun – he is trying to bully the mortgage industry into making riskier loans:

Consider the following loan performance after one year from the time of origination on Fannie Mae and Freddie Mac backed mortgages.

Loan default rates were 0.3 to 0.4 percent in the more “normal” housing years of 2002 and 2003 – before the housing boom, before all those exotic mortgage products (subprime, no-doc loans) and well before the developments of any housing bubble. In the immediate years after the bubble burst – 2007 and 2008 – default rates rose to 2 and 3 percent.

Now examine the performance for those loans originated in 2009 and 2010.

The default rates came in at 0.1 and 0.2 percent after one year of seasoning. Those are exceptionally low figures – in fact, even lower than those for the normal housing years. The data for 2011 is not yet available, but several indications point towards possibly an even better loan performance than we saw in 2009 and 2010. While the headline mortgage default data are driven by the souring loans from the bubble years, the default rates among recent borrowers have been at historic lows.

Banks and the regulators need to understand this important distinction and permit more loans to flow into the market.

My estimation based on credit scores of those who are being approved for mortgages today vs. those who were approved 10 years ago suggests that home sales could easily rise by 15 to 20 percent if the underwriting standards were to go back to normal.

That would be a sizable gain in home sales and would result in a commensurate decline in inventory. A decline in inventory and increased sales would help bolster home price appreciation. If underwriting standards return to normal, the housing market will approach a more normal state as well.

A normal housing market would help fuel a continuing economic recovery, help bolster household wealth, spur consumer spending, spawn more job creation (thus providing more fuel to the economy). It would, in effect, be a win-win situation. This is what we aim for. This is what we hope for. This is what NAR continues to work towards for its members and America’s homeowners.

N.A.R. Re-Benchmarking

The N.A.R. released their exact mis-remembering of home sales data over the last few years:

They appear to be paranoid that their reputation might be slipping, because they added this gem:

Home buyers and sellers will not be affected by any revisions to NAR’s existing-home sales data. Median home prices remain the same, and the data has no impact on consumers who want to buy or sell a home in today’s market.

Their reasons for MLS sales count and Benchmark Divergence?

  • Fewer FSBO home sales and more REALTOR®-assisted home sales (e.g., no net increase in home sales in a case where 80 MLS sales and 20 FSBOs shifts to 90 MLS sales and 10 FSBOs).
  • More Homebuilders seek REALTOR®-assistance in listing properties on MLSs (More MLS count even though there is no increase in existing home sales).
  • Flipping of a home (re-sell within 12 months). Re-benchmarked figure excludes the second sale, while they are counted as twice in MLS count.
  • Enlarged MLS geographic coverage. Some of the home sales are not an increase in home sales but are just due to enlarged sampled areas.
  • Double counting as one single property is listed in two or more MLSs.(Example: a home in Colorado Springs is listed in MLS in Colorado Springs and is also listed in MLS in Denver.)

They are right that home buyers and sellers won’t be affected, because they gave up long ago that anything relevant would come from N.A.R. But I don’t know how the median price isn’t affected – they took out 737,000 sales and the median price just happened to be the same? Maybe they don’t even know how a median price is calculated?

USD Conference

From the sddt.com:

 The nation’s economy is five years into a 10-year recovery cycle, according to Douglas Duncan, Fannie Mae chief economist and vice president.

National housing prices have another 3 percent left to fall, excluding distressed sales, and could fall another 7 percent altogether, he said, speaking at the annual real estate conference held by the University of San Diego’s Burnham-Moores Center for Real Estate.

The housing market’s problem is too much supply, much of which is comprised of distressed properties, and too little demand. The lack of demand is driven not only by the nation’s stubbornly high unemployment rate, but also the lack of movement in wages of those that are employed.

Together, those factors have influenced on-the-fence buyers to decide there’s no motivation to move right now, while others aren’t in a position to enter the market in the first place.

In addition to the 8.6 percent of the population that’s currently unemployed, there’s another 26 percent who fear for their job security, according to a survey conducted by Fannie Mae, cited by Duncan. That means more than a third of the country is unsure of their immediate earnings prospects.

“Employment is the most important factor in my belief system in how you understand real estate,” he said.


NAR Circus

People have been sending in the links to the story about the NAR sales recount.


NAR has always been irrelevant, and will always be – they are a joke.

They don’t do a hard count of the actual sales; instead, they estimate the sales nationwide.  Yet, the story is that they are revising their estimating model, not that they are changing to an actual count of home sales.

They have realtor.com, which according to them is “the most comprehensive source for real estate listings”, but they don’t use it themselves to count sales?

What they should do is discontinue the national count altogether, as part of a shift to educating the public properly.  They should champion the ‘all real estate is local’ mantra, and if they are going to publish anything, it should be statistics on local sales only.

But they can’t stop from blubbering all over themselves, they even had to assure us with this:

“The benchmark revisions will be published next Wednesday and will not affect house prices.”

NAR should do all of us a favor and close their doors – for good.

Regulate Speculators Like China?

From HW:

Four years after the housing bust, researchers at the Federal Reserve Bank of New York are putting some of the blame on real estate speculators, saying they played a key role in blowing up the housing bubble that eventually popped, causing home prices to tumble nationwide.

In a report titled  “Flip This House: Investor Speculation and the Housing Bubble,” four researchers claim borrowers who owned multiple homes for investment purposes played a key role in running up national home values right before the 2007 housing meltdown.

In fact, the report found a third of U.S. home purchase lending in 2006  was issued to borrowers who already owned property. In California, Florida, Arizona and Nevada, investors made up 45% of the 2006 transactions, suggesting the deep pain in these markets was rooted in excessive levels of real estate speculation.

“In 2006, Arizona, California, Florida, and Nevada investors owning three or more properties were responsible for nearly 20% of originations, almost triple their share in 2000,” the study said.

The report describes these investors as over-leveraged borrowers, consuming large doses of non-prime debt with high interest rates and low-down payments to fuel their appetites for quick acquisitions that could be flipped for profit.

What these investors created was an insidious cycle, where their excessive buys pushed prices higher for all buyers. When the bust came, these overleveraged house flippers escaped by abandoning their second liens, while innocent homeowners ended up underwater on their mortgages.

The report – which was filed by Andrew Haughwout, Donghoon Lee, Joseph Tracy and Wilbert van der Klaauw with the New York Fed Bank – puts the blame mostly on speculators operating in the 2004-to-2006 time span.

The authors of the report claim many of the investors may have falsely stated an intention to live in the homes while applying for cheap credit.

Either way, the report’s authors see a need for housing policy to address the issue of excessive leverage and speculation to curtail similar trends in the future.

“In the 2000s, securitized nonprime credit emerged to allow leverage to increase, with effects that extended far beyond this sector, including spillovers from defaulted mortgages to the value of other properties. Effective regulation of speculative borrowing, like what is being attempted in China today, may be needed to prevent this kind of crisis from recurring,” the report concluded.

Banks Aren’t Discounting

This guy has intriguing evidence, but his reasons are just ivory-tower guesses.  Hat tip to DB for sending this along from businessinsider.com:

Barclays analyst Stephen Kim is becoming increasingly convinced that the housing market is near a bottom and that it will rebound in 2012.

He points to one key trend, which he is surprised is getting so little attention.

In the absence of a government homebuyer incentive, prices for non-distressed home sales have stabilized for almost a year! In our opinion, this is the most important trend in the housing industry right now, and we are amazed at how little attention it has been getting from the media and the Street. Meanwhile, we point out that this stability on the part of non-distressed prices has occurred despite a very high share of distressed activity and continued declines in overall prices.

Kim continues:

We are particularly intrigued by the inability of distressed sales to drag down non-distressed pricing. This separation between the two types of housing is critical for several reasons:

– The data shows that a distressed home is increasingly being seen as a poor substitute for a non-distressed home.
– This bifurcation between distressed and non-distressed homes will only widen with the passage of time.
– With buyers now discerning that distressed homes cannot be compared to non-distressed homes, concerns about the workout of foreclosures may be overblown.

Kim believes that stability in these prices in the absence of government subsidies is strong signal that home buyer sentiment is improving.  Furthermore, he notes that stabilization in relevant economic indicators such as unemployment and consumer sentiment only strengthens his argument.

Read more: http://www.businessinsider.com/barclays-the-most-important-trend-in-the-housing-industry-is-signalling-a-recovery-2011-12#ixzz1ftxltYch

Case-Shiller San Diego Sept 2011

David Blitzer and his crooked bow tie make the usual psycho-babble comments on CNBC:


“Consumer attitudes have gotten a lot more negative about long-term commitments, and the No. 1 long-term commitment most people in this country made is buying a house,” David Blitzer, chairman of the S&P Index Committee, told CNBC.

Prices in August were also revised to show a decline of 0.3 percent after originally being reported as unchanged.  The index has leveled off in recent months and analysts are hoping the market is at least stabilizing.

“Over the last year home prices in most cities drifted lower,” Blitzer said in a statement.

“The plunging collapse of prices seen in 2007-2009 seems to be behind us. Any chance for a sustained recovery will probably need a stronger economy.”



This was probably the more pertinent comment from the same article:

The number of U.S. homeowners who are underwater on their mortgages decreased modestly in the third quarter, though levels remained high, data analysis company CoreLogic said Tuesday.

The number of properties with so-called negative equity — in which the amount owed on the mortgage exceeds the property’s value — was 10.7 million, or 22.1 percent of all residential properties with a mortgage.

That is a slight decrease from 10.9 million, or 22.5 percent, in the second quarter, CoreLogic said.

“Although slightly down, negative equity remains very high and renders many borrowers vulnerable when negative economic shocks occur, such as job loss or illness,” Mark Fleming, chief economist at CoreLogic, said in a statement.

As the housing market struggles to recover, the large number of underwater homeowners has prompted concerns of more foreclosures to come if borrowers become unable to keep up with their payments or decide to walk away.



Lately, San Diego’s ride has been smooth, not bumpy, with September’s SA off -0.5%:

The last few years close-up:

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