Smart Real Estate News & Commentary by Chris McLaughlin July 29, 2010

Foreclosures climb in 75% of metro areas

RealtyTrac, an online marketer of foreclosed homes, says that foreclosure
filings climbed in 75% of the nation’s metro areas during the first half of
2010.  California, Florida, Arizona and Nevada continue to lead the nation in
the rate of foreclosures. Las Vegas was the worst-hit city.  According to
spokesman Rick Sharga, unemployment has replaced toxic mortgages as the leading
cause of foreclosures throughout the country.  “Las Vegas has seamlessly shifted
from having a high level of foreclosures due to bad loans,” said Sharga, “to
defaults caused by a high level of unemployment.” Some 14.5% of its work force
was idle in June, up 2.1 points from last June.  Las Vegas had one filing for
every 15 households in the metro area. The second highest rate was in Cape
Coral/Fort Myers, Fla., with one for every 20 households. Two California cities,
Modesto and Merced, tied for third with one filing for every 22 households.  One
in every 48 Salt Lake City households filed foreclosure
notices during the first six months of 2010, a 55% increase over the same
period in 2009. 

Salt Lake’s unemployment is up this year, rising 0.2% to 7.1% in June, even as
the national unemployment rate dropped 0.2% to 9.5%.  Besides Salt Lake City,
other metro areas where foreclosures have soared primarily due to the economy
include Chicago, which saw filings climb 23% year-over-year to one in every 48
households. Charleston, S.C.’s, rate climbed 17% to one in every 68 homes, while
Albuquerque saw a 157% jump in filings to one in 80 households.  Each of these
cities has rising unemployment. Chicago’s unemployment stood at 10.6% in June,
more than a point above the national rate, while Albuquerque’s unemployment
jumped to 8.9% from 7.9% in the last 12 months and Charleston’s rate stands at
9.5%.

Jobless claims down

The Labor Department says there were 457,000 initial jobless claims filed in the
week ended July 24, down 11,000 from a upwardly revised 468,000 the previous
week.  The number of claims was lower than the 464,000 claims expected in a
consensus estimate of economists surveyed by Briefing.com.  Analysts polled by
Reuters had forecast claims slipping to 459,000 from the previously reported
464,000 the prior week, which was revised slightly up to 468,000 in Thursday’s
report.  The government said 4,565,000 people filed continuing claims in the
week ended July 17, the most recent data available. That’s up 81,000 from the
preceding week’s downwardly revised 4,484,000 claims. 

Economists surveyed by Briefing.com were looking for 4,550,000 ongoing claims. 
The four-week average of new jobless claims, seen as a better measure of
underlying labor market trends, fell 4,500 to 452,500.  The government is
expected to report on Friday that growth slowed to a 2.5 percent annual rate in
the April-June period from a 2.7 percent pace in the first three months of the
year.  In the week ended July 17, 4.57 million people were still receiving
benefits after an initial week of aid, up 81,000 from the prior week. The
continuing claims data covered the survey period for the government’s July
household survey from which the national unemployment rate is derived.  Analysts
polled by Reuters had forecast so-called continuing claims increasing to 4.55
million.

Banks not a “public nuisance”

A panel of federal judges rejected the City of Cleveland’s appeal to pursue a
lawsuit that charged nearly two dozen top banks with creating a “public
nuisance” by dealing in bad loans.  In 2007 alone, Cleveland suffered more than
7,000 foreclosures and had four of the top 21 ZIP codes for bad loans. Many of
those properties were being abandoned and turning to blight.  So in 2008, city
officials sued the banks, hoping to recover hundreds of millions of dollars in
damages for lost property tax revenue, the cost of demolishing abandoned homes
and the cost of policing neighborhoods pocked by foreclosures.  But judges for
the U.S. Court of Appeals for the Sixth Circuit dashed their hopes and rejected
the notion that banks named in the suit — including Goldman Sachs and JPMorgan
Chase as well as now defunct firms such as Countrywide or Bear Stearns — were
responsible. 

Rather, they suggested that at least part of the blame lay with the companies
that sold the mortgages as well as the individuals who signed up for the loans. 
“The injuries that Cleveland alleges could have been caused by many other
factors unconnected to the Defendants’ conduct,” wrote Judge Richard
Suhrheinrich.  Baltimore has pursued a similar case against Wells Fargo,
suggesting that the city’s neighborhoods became unsafe and a public health
threat as a result of the bank’s discriminatory lending practices.  The cities
of Chicago and Memphis have also filed separate suits against the
California-based lender, suggesting it steered minorities, namely African
Americans and Latinos, into subprime mortgages.

Bleak outlook for 2011

According to an Associated Press (AP) survey of leading economists, the U.S.
economic recovery will remain slow deep into next year, held back by shoppers
reluctant to spend and employers hesitant to hire.  The AP survey compiles
forecasts of leading private, corporate and academic economists on a range of
indicators, including employment, consumer spending and inflation. Among their
forecasts:  Economic growth the rest of this year and early next year will
weaken, to less than 3 percent. From January through May, the economy grew at
roughly a 3.5 percent pace; the unemployment rate will be no lower at the end of
the year than it is now; 9.5 percent. A majority think it will be 2015 or later
before the rate falls to a historically normal 5 percent; State budget
shortfalls pose a “significant” or “severe” risk to the national economy. The
loss of tax revenue has forced state and local governments to cut services and
lay off workers. 

The economists have turned more pessimistic since the recovery hit turbulence in
May. Europe’s debt crisis sent tremors through Wall Street, causing stocks to
tumble and raising doubts about the durability of the rebound.  Since then,
businesses have been slow to step up hiring. Americans’ confidence in the
economy has declined, leading shoppers to reduce spending. And the housing
market has weakened further with the end of a homebuyer tax credit that had
buoyed sales earlier this year.  Consumers aren’t leading this rebound, as they
usually do, despite ultra-low borrowing costs. Their spending growth will weaken
in the second half of this year and strengthen only slightly next year, a
majority of economists said. They think shoppers’ reluctance to spend more money
poses a “significant” or “severe” risk to the recovery.  “It seems like we hit
an air pocket in consumer spending,” said survey participant Richard DeKaser,
president of Woodley Park Research.

Olick - HAMP under attack

“Criticism of the Obama Administration’s mortgage bailout, the Home Affordable
Modification Program, is reaching a fever pitch, and I know this because, among
other things, the Administration itself appears to be mounting a defense. 
Recently, reporters who cover housing were called to the Treasury Department for
a ‘background briefing’ by Administration officials, who tried to focus
attention on the many, varied Administration efforts to stabilize housing; the
message was…it’s not all about our modification program.  Yesterday I received
several emailed announcements from both HUD and the Treasury. One alerted us to
a ‘Conference on the Future of Housing Finance,’ set for quite possibly the
slowest news week near the end of August.  ‘Now is the time to build on the
foundation we laid with the historic Wall Street Reform legislation President
Obama signed last week and aggressively move forward to improve our nation’s
housing finance system,’ reads the statement from Trea
sury Secretary Tim Geithner. ‘The Obama Administration is committed to
delivering a comprehensive reform proposal that protects taxpayers, institutes
tough oversight, restores the long-term health of our housing market, and
strengthens our nation’s economic recovery.’ 

Moments after that email came in, another flashed: ‘Treasury’s Goldstein Pens
White House Blog Post: Moving Forward on Housing Finance Reform.’  So obviously
here we go with the push to reform Fannie Mae and Freddie Mac, which we all knew
was coming after the passage of Fin Reg. In the blog, Goldstein’s blog assures
that ‘work is under way’ and the ‘commitment to public engagement will
continue.’   Goldstein affirms the Administration stance that ‘the current
structure of the government’s role in the housing finance market is
unsustainable and unacceptable,’ but he also defends the lack of action thus
far, which ‘could have destabilized an already fragile housing industry and made
it even more difficult for Americans to buy a home or refinance a mortgage.’ 
Barely a few hours after that I received more email announcements from HUD, one
touting a new report that shows ’states have awarded more than $4 billion in
recovery act funds to create jobs, build affordable housing.’

In another, HUD announced that $79 million in grants is available for housing
counseling ‘to help hundreds of thousands avoid foreclosure or make informed
home purchases.’  I’m not drawing any particular conclusions, but tomorrow
President Obama will be speaking at the Urban League conference at the
Washington DC Convention Center. This is the same venue where the NACA 8-Day
foreclosure prevention event is still going on.  NACA’s chief, Bruce Marks,
announced they would hold a protest as the President arrives at the Convention
Center tomorrow. ‘Over a thousand homeowners will urge President Obama to
advocate for homeowners…Homeowners from around the country say that President
Obama’s Making Home Affordable plan has not helped the vast majority of
homeowners in trouble with their loans and does not go far enough by excluding
FHA backed loans.’  What’s so interesting about this event is that I’m guessing
the bulk of the protestors are overall Obama supporters. The majority
of NACA employees and volunteers are minorities and largely Democrats. Bruce
Marks says he voted for Obama and supported him. This will be the first
large-scale, organized protest of the Administration’s housing bailout, and
given who is protesting, it will be hard for the President to ignore.”

MBA - Originations

According to the Mortgage Bankers Association’s (MBA) Quarterly Survey of
Commercial/Multifamily Mortgage Bankers Originations, second quarter 2010
commercial and multifamily mortgage loan originations were one% higher than
during the same period last year and 35% higher than during the first quarter. 
“Borrowing remains light as few commercial property owners are selling or
refinancing their properties unless they have to,” said Jamie Woodwell, MBA’s
Vice President of Commercial Real Estate Research.  “Life insurers, CMBS
conduits and others are back in the market and lending, and rates are at
extremely attractive levels. However, low volumes of property sales, depressed
property values, stressed cash flows and modest loan maturities are all keeping
borrowing to a minimum.” Among the key findings in the report are:  Second
quarter commercial and multifamily mortgage originations were flat from last
year’s levels, and increased 35%  from first quarter volumes; o
riginations for life insurance companies and CMBS conduits increased
dramatically on a percentage basis; originations for Fannie Mae and Freddie Mac
fell by more than half from Q2 2009 levels; on an absolute level, volumes remain
low. 

Among investor types, loans for conduits for CMBS saw an increase of 173%
compared to last year’s second quarter.  There was also a 148% increase in loans
for life insurance companies, a 12% decrease in loans for commercial bank
portfolios, and the dollar volume of loans for Government Sponsored Enterprises
(or GSEs – Fannie Mae and Freddie Mac) saw a decrease of 55%.  Second quarter
2010 mortgage originations were 35% higher than originations in the first
quarter of 2010.  Among investor types, loans for conduits for CMBS saw an
increase in loan volume of 106% compared to the first quarter, loans for life
insurance companies saw an increase in loan volume of 57% compared to the first
quarter, originations for GSEs increased 21% from the first quarter to the
second quarter of 2010, and loans for commercial bank portfolios decreased by
two% during the same time span.  Compared to the first quarter, second quarter
originations for hotel properties saw a 405% increase. There
  was a 114% increase for industrial properties, a 107% increase for health care
properties, a 56% increase for office properties, a 38% increase for multifamily
properties, and an 11% decrease for retail properties.

You can sell your house – if the price is rightOAKLAND, Calif. – July 29, 2010 – Emily Rennie’s three-bedroom house in Oakland was a beauty in a sweet location. Walking distance to the lakeshore. Close to shops. A refurbished patio in the back. Inside, a modern kitchen with granite countertops.

Listed at $539,000 when she put it on the market, the Excelsior Avenue house was missing one crucial thing: The right price. After a few weeks with no offers, she cut the price to $499,000 in May. Then she cut it to $475,000 in June. She is still hoping for an offer.

Rennie is discovering the cold reality of post-housing-bust prices: No matter what she thinks her house is worth, what matters is what buyers are willing to pay. That can be a lot less in areas where the supply of houses for sale is swollen by foreclosures and short sales, often priced 20% to 30% below the ones being sold by financially healthy owners. Nationally, such properties account for a third of all sales three years after a historic chill blew over an overheated housing market.

Foreclosures “do make it harder to sell,” acknowledges Rennie, who works in marketing communications. “People can get a really good deal.”

Real estate professionals say Rennie is in good company. Nationally, 30% of the houses for sale were reduced in price in June, according to Zillow.com, an online real estate site. Plenty of sellers have trouble pricing their home against the foreclosed houses that lenders are trying to unload.

“It’s one of the hardest things for sellers to do. They have an emotional attachment to their house,” says Amy Bohutinsky, a spokeswoman for Zillow.com. “For sellers to understand how they should price, they should deeply understand their market and competition — what’s on the market now, not just what’s sold.”

Those who do that successfully don’t have a problem.

“People who price their homes to the market are selling them in a reasonable amount of time, but people who cling to 2004 or 2005 prices aren’t,” says Richard Smith, president and CEO of Realogy, the parent company of Century 21, ERA, Coldwell Banker and Sotheby’s International Realty. “If you take into account (bank-owned property) pressures, you’ll sell pretty quickly.”

Competition for bargains

Oakland and nearby San Francisco are two markets where foreclosures have a strong influence.

Nearly three of every 1,000 homeowners in Oakland lost their homes to foreclosure in May, according to Zillow. Foreclosure resales made up 36% of all sales in May, although that’s down from a peak of 66% in March 2009.

Sellers have had to adjust. In June, 20% of the properties for sale in Oakland made price cuts, according to Zillow.com, compared with 15% in May. Drawn by falling prices, young professionals from San Francisco are coming across the bay to snap up homes in Oakland, and most of the stiffest competition for properties is in the top tier, around $808,000.

At that price, sellers in May paid 0.1% less than the asking price, according to Zillow. In all price ranges, they paid 0.3% less than asking price. Based on the median list price, that’s $1,080 less than the last listing price.

But some agents are seeing bidding wars.

“We’re seeing multiple offers; we’re seeing above asking price,” says David Kerr, a ZipRealty agent who represents buyers and sellers in Oakland. “People are buying foreclosures, fixing them up and selling them and getting offers.”

Those who do take foreclosures into account and price their homes right cannot only find a buyer, but sometimes one who will pay well above what they’re asking.

One such buyer was Rosa Verdin, 40, who bought a restored Victorian in north Oakland from a developer in May. The asking price was $450,000, which was well-priced, she says. She and her partner, Kelly Helms, 32, a nurse, offered $50,000 more, outbidding at least two other parties.

“We had been looking for six to eight months,” says Verdin, 40, who works in graphic arts. “The location was centrally located to our work, the house was move-in ready and within our price points. Timing just seemed right, and the decision was relatively easy.”

Not all offers go so smoothly. Even when owners find willing buyers, getting their price isn’t a sure thing. Lenders generally require appraisals before giving a mortgage, and appraisers often take into account what foreclosed properties in the area sell for when determining how much a home is worth. If a home is being sold at too high a price, the sale can fall apart.

“Every day, sales fall apart,” says Leslie Sellers, with the Appraisal Institute. “Smart sellers get appraisals done before they sell the home.”

Neighborhoods buck trend

Other neighborhoods also show just how well good prices pull in successful offers.

In the heart of San Francisco, Noe Valley is home to dot-com millionaires and working professionals. The streets are lined with Edwardian and grand Victorian row houses built in the late 19th century, and the neighborhood, flanked by hills, features an eclectic array of coffee shops, sushi restaurants and lively bookshops.

The real estate market in San Francisco is struggling to regain its footing, with home prices down 0.7% from the third quarter of 2009 to the first quarter of this year. But in Noe Valley, most homes are going just above listing price. In May, homes sold for an average of 0.02% more than the last listing price, according to Zillow.com. Based on median list price, that translates into $218 more.

“It’s crazy,” says Brendon DeSimone, a Realtor with Paragon Real Estate in San Francisco, who represents buyers and sellers in Noe Valley. “I had one house with five offers, and it went from $1.4 million to $1.7 million. The valley has just popped. It’s not uncommon for one open house to have 200 people come through.”

Nationally, the average property takes eight to nine weeks to sell, down from 10 to 11 weeks a year ago, according to the National Association of Realtors. In Noe Valley in May, there were 25 listings that sold after averaging five weeks on the market.

As the overall housing market has tumbled, Noe Valley has take a hit, with home values down 17% from their peak in June 2008, according to Zillow.com. In the neighborhood, about 5% of home sales in March were foreclosure resales.

But Noe Valley remains a hot neighborhood for several reasons. Other neighborhoods such as Pacific Heights and the Marina District have already been in such demand that prices are often out of reach for younger families, DeSimone says. Noe Valley remains more affordable but still has the kind of row houses desired by families.

It’s also closer to Silicon Valley than other neighborhoods in northern San Francisco, which shaves off about 20 to 30 minutes of commuting time (Google and Apple both have bus stops in Noe Valley). And many buyers want historic Victorians, so demand for homes in the neighborhood is strong.

That’s why, when homes are priced well, they can set off a bidding frenzy — even in an anemic real estate market.

Copyright © 2010 USA TODAY, a division of Gannett Co. Inc., Stephanie Armour.

Smart Real Estate News & Commentary by Chris McLaughlin July 27, 2010

Home sales up

Yesterday the Commerce Department reported that new home sales increased 23.6%
to a seasonally adjusted annual rate of 330,000 last month, up from an
downwardly revised 267,000 in May.  Sales year-over-year fell 16.7%.  The June
sales pace is the second slowest ever on record since the Commerce Department
began tracking the data in 1963, but it was slightly better than the annual rate
of 310,000 economists were expecting, according to a consensus survey by
Briefing.com.  Home sales had surged in March and April as homebuyers scrambled
to sign contracts ahead of the April 30 deadline for the tax credit, plummeted
40% in May, the first month after the incentive expired. 

The report showed that the median price of new homes sold in June was $213,400,
down 1.4% from May and a 0.6% drop from June 2009.  An estimated 210,000 new
homes were for sale at the end of June, the lowest inventory level in nearly 42
years.  At the current sales pace, the government expects it will take 7.6
months to sell through that inventory, down from 9.6 months in May. Six months
of inventory is considered normal market conditions.  Sales rose the most in the
Northwest, where they surged by more than 46%; the South saw sales climb by
about a third, while sales in the Midwest increased 21%.  Sales in the West, the
only region to suffer a decline during the month, edged down almost 7%.

States going broke.  Again

According to a budget report issued by the National Conference of State
Legislatures, four states — California, Texas, North Carolina and New York –
could face new gaps exceeding $1 billion each, while 21 others could see
shortfalls over $100 million.  The Recovery Act initially paid out additional
money for the insurance program — which helps the poor — through Dec. 31, the
halfway point for most states’ 2011 budgets.  Earlier this year the House and
the Senate approved measures that extended the payments through June 30, 2011.
As a result, many state legislatures became optimistic and planned their budgets
around having the additional funding.  But the bills have since fallen victim to
common sense and the unreasonable desire to make them not spend more than they
take in.   “States are in a tenuous fiscal position, teetering between delicate
revenue improvement and the end of the federal stimulus funds,” said Corina
Eckl, National Conference of State Legislatures’ fisca
l program director. 

“If Congress decides not to extend enhanced [Medicaid] rates for six months, it
will be another blow to the states’ fragile recovery,” she added.  In fact, a
majority of states are also worried about budget challenges for fiscal years
2012 and 2013. So far, 33 states anticipate gaps totaling $72 billion for 2012,
and 23 states predict shortfalls amounting to $64 billion for 2013.  It’s odd
how public servants imagine that paying non-value-added salaries somehow equals
“stimulus,” and how the Obama administration thinks it can reboot the economy
simply by printing money and passing it to the public sector.  By all accounts,
“Medicaid” is a convenient window dressing  for what is really bloated
bureaucracy.

Olick - Housing high still low

“You would think that a 24% positive jump in any index, housing or otherwise,
would have the analysts for that industry toasting recovery with bubbly
champagne; not so much today.  The 24% jump in sales of new construction from
May to June followed a 37% drop in sales of new construction from April to May
(following the expiration of the home buyer tax credit.) You could say that the
two months kind of cancel each other out, slightly to the negative, but today’s
number, if nothing else, offers a big sigh of relief that while things aren’t
exactly getting better, they’re not getting significantly worse.  We’re
“stabilizing”, but stabilizing at historically poor levels. Foreclosures, sales,
prices…no more plummeting, but no improvement yet either.  Just listen to the
experts:

Peter Boockvar, Miller Tabak: Bottom line, while the figure was better than
expected, new home sales make up less than 10% of the overall industry with
existing homes making up the balance. It’s good to see a pick up in new home
sales but an overall market that still has way to much inventory does not need
too many new homes built.

Dan Oppenheim, Credit Suisse: The small sample size, especially given the lack
of activity to survey recently, lends itself to extreme volatility in reported
Census figures, and it’s hard to trust the data in months like these. Either
way, the low level of activity (even with the reported increase) is well below
desired absorption levels of builders and will lead to additional pressure on
home prices.
Mark Hanson, Housing/Mortgage Analyst: In June, New Home Sales as a percentage
of Existing Home Sales was also the lowest ever for any June on record and the
second lowest in history — last month was the lowest ever. With New Home Sales
at 5% of Existing Sales, some many think there is a lot of growth ahead But with
demand being in distressed real estate and incredible growth expected through
foreclosures & short sales over the near, mid and long term the builders have an
uphill battle ahead.”

It’s the anti-business uncertainty, stupid

Fed Chairman Ben Bernanke went before Congress last week looking to emphasize
the “unusual uncertainty” surrounding the US economy and wound up pledging that
the Fed was prepared to take unusual steps to fire up growth.  The trouble is,
he can’t.  “I think he’s trying to mollify people. It’s not a question of
whether you have bullets but that people think he has bullets,” says FAO
Economics Chief Economist Robert Brusca.  “I’m somewhat skeptical. I don’t think
the bullets the Fed has left are very high-caliber ones.”  “He was simply
playing to the audience,” adds veteran Fed watcher David Jones of DMJ Advisors.
“It might have been OK to do these unconventional things when we were in a panic
and the conditions were unstable and unpredictable. It’s another thing to do it
when rates are already at historic lows. You’re not going to get much positive
effect.”

Both supporters and critics say Bernanke is on the verge of hurting the central
bank’s credibility, especially at a time when there’s little consensus among its
board of governors and regional bank presidents.  Under Congressional grilling,
Bernanke trotted out the usual suspects the Fed considers options and tools,
from lowering interest rates to zero, to more purchases of government debt to
nudging banks into lending by making it less attractive for them to build and
maintain large cash reserves.  Most of those get yawns or skepticism from
everyone.   “There’s a lot that can be done and much of it doesn’t require new
spending,” says Allan H. Meltzer, a Fed historian, former White House economist
and professor at Carnegie Mellon University’s Tepper School of Business,. “Much
of it is reducing uncertainty, which is massive.”

Foreclosure hurts value - 27%

A foreclosure reduces the value of a house by 27%, on average, and accounts for
a much steeper price drop than other forced sales, according to a study by an
Massachusetts Institute of Technology (MIT) economist and two Harvard University
researchers.  In comparison, when a house is sold after the death of an owner,
the price drops 5% to 7% on average. When an owner declares bankruptcy, the
value sinks 3%, according to the report.  The research, “Forced Sales and House
Prices,” has been accepted for publication in the American Economic Review.  In
the study, MIT economist Parag Pathak and Harvard researchers John Y. Campbell
and Stefano Giglio examined 1.8 million home sales in Massachusetts from 1987
through March 2009. 

MIT said the paper represents the first time economists have been able to
clearly quantify how much nearby foreclosures affects prices of inhabited homes. 
“It’s not surprising that there is a discount due to foreclosure,” said Pathak.
“But it is surprising that it’s so large.”  In addition, sellers trying to sell
their non-distressed, occupied properties in a neighborhood that has a
foreclosed home on the market will take a price hit, according to the report.
The researchers estimated the value of a home drops by 1%, on average, if it is
within roughly 250 feet of a foreclosed home.  “This can happen for multiple
reasons,” Pathak said. First of all, he notes, “If you live near a foreclosed
house, it may not be maintained.”  Neighborhood appearance enhances real estate
value. Secondly, even without visible deterioration, such homes, when resold
quickly for a discount, can affect neighborhood values because homebuyers and
real estate brokers look at compara
ble sales when making an offer.

Smart Real Estate News & Commentary by Chris McLaughlin July 23, 2010

Existing homes sales fall

According to the National Association of Realtors (NAR), existing homes sales
fell 5.1% to a seasonally adjusted annual rate of 5.37 million units in June
from 5.66 million in May, but are 9.8% higher than the 4.89 million-unit pace in
June 2009. Lawrence Yun, NAR chief economist, said the market shows
uncharacteristic yet understandable swings as buyers responded to the tax
credits. “June home sales still reflect a tax credit impact with some sales not
closed due to delays, which will show up in the next two months,” he said.
“Broadly speaking, sales closed after the home buyer tax credit will be
significantly lower compared to the credit-induced spring surge. Only when jobs
are created at a sufficient pace will home sales return to sustainable healthy
levels.”  AR President Vicki Cox Golder, owner of Vicki L. Cox & Associates in
Tucson, Ariz., said softer home sales expected this summer don’t tell the whole
story. “Despite these market swings, total annual home
sales are rising above 2009 and we’re looking for overall gains again this year
as well as in 2011,” she said. “Conditions have become more balanced in much of
the country, which is good for both buyers and sellers. However, consumers find
it even more challenging to navigate the transaction process, especially for
distressed properties, which only underscores the value Realtors® bring to
buyers and sellers in this market.”

Most Americans think things will get worse

A nationwide survey from Citigroup shows that nearly two-thirds of Americans
believe that the economy has yet to hit bottom, meaning a double-dip recession
is expected.  The quarterly report, conducted by Hart Research Associates,
revealed that 62 percent of people asked were still not counting on a rebound,
which is 3-point decline from the March reading and almost as bad as last
September’s result of 63 percent.  The survey also showed that Americans’
expectations for when the economy will stabilize for their households have been
pushed further into the future. Nearly two thirds think that their households
will not see a stable financial situation for at least two or three years, it
said.  On the positive side, Americans’ views on current economic conditions and
the outlook for their own personal financial situations are improving or holding
steady, the survey said.  Twenty-four percent said that the local economy where
they live is good or excellent, which is up from 19 pe
rcent in March, the report said.  “The big question is, could the gloomy news
become a self-fulfilling prophesy, prompting consumers to restrain their
spending, thus hurting the economic recovery?” he added.

Inventories up, sales down

A NAR practitioner survey shows that first-time buyers purchased 43% of homes in
June, down from 46% in May. Investors accounted for 13% of sales in June, little
changed from 14% in May; the remaining purchases were by repeat buyers. All-cash
sales were at 24% in June compared with 25% in May.  Total housing inventory at
the end of June rose 2.5% to 3.99 million existing homes available for sale,
which represents an 8.9-month supply at the current sales pace, up from an
8.3-month supply in May. Single-family home sales fell 5.6% to a seasonally
adjusted annual rate of 4.70 million in June from a level of 4.98 million in
May, but are 8.5% above the 4.33 million pace in June 2009. The median existing
single-family home price was $184,200 in June, up 1.3% from a year ago. 
Single-family median existing-home prices were higher in 10 out of 19
metropolitan statistical areas reported in June in comparison with June 2009. In
addition, existing single-family home sales rose in 12 of
the 19 areas from a year ago while two were unchanged.  Existing condominium
and co-op sales slipped 1.5% to a seasonally adjusted annual rate of 670,000 in
June from 680,000 in May, but are 20.5% higher than the 556,000-unit pace in
June 2009. The median existing condo price was $180,100 in June.

Bush did it … another perspective

In office 18 months, Obama is still running against the policies of George W.
Bush and cites “nearly a decade of not paying for key policies and programs”
such as the wars in Iraq and Afghanistan, big tax cuts and a costly Medicare
prescription drug program.  Bush came to office with a $236 billion budget
surplus in 2001, says Obama. “The day I took office, eight years later, America
faced a record $1.3 trillion deficit.”  But blaming the country’s economic woes
on Bush tax cuts and spending is a stretch.  It ignores the fact that as
recently as 2007, the budget deficit was just $162 billion — long after Bush’s
tax cuts of 2001 and 2003 kicked in and spending on the two wars and on the
Medicare program was in place.  Furthermore, the projected surplus reflected a
continuation of the bubble economy of the late 1990s, when the stock market was
soaring, high-tech businesses were on a roll and corporate profits were surging.
Those surpluses would have evaporated no matter who b
ecame president in 2001. 

The rise in the annual deficit from $162 billion in 2007 to over $1 trillion now
is largely due to collapsing tax revenues from the recession that began in
December 2007, and stimulus and bailout spending by both Bush and Obama, said
Brian Riedl, a budget analyst at the Heritage Foundation.  The Bush tax cuts and
other policies are “a convenient scapegoat for past and future budget woes,” he
said, but can’t be blamed for today’s trillion-dollar deficits — or future ones. 
“Over the next 10 years, virtually 100 percent of the rising deficits” will be
driven by “entitlement” programs such as Social Security, Medicare and Medicaid
and interest payments on the $13.2 trillion national debt, Riedl said.

Olick – don’t be fooled

“Don’t be fooled by the little uptick in home prices in today’s Existing Home
Sales report from the National Association of Realtors.  Even the always
glass-is-half-full chief economist Lawrence Yun made clear several times in the
briefing before the report’s release, that he expects home prices to come under
significant pressure over the coming months, as inventories rise.  The report
today showed inventories up 2.5 percent to 3.99 million units. At the current
sales pace, that represents an 8.9 month supply. The current sales pace ticked
down 5 percent in June, even though those numbers are still under the sway of
the home buyer tax credit (remember, EHS represent closings in June, so
contracts likely signed in April before the credit expired).  But more
importantly, the Pending Home Sales Index, which represents contracts signed,
fell off a cliff in May, down 30 percent, indicating that closings will be way
off as well.  Bottom line, experts who follow housing are having
  a hell of a time predicting just where home prices are headed nationally.”

“A new monthly report, Macro Markets Home Price Expectations, a venture by price
guru Robert Shiller, found that the results for 2010 vary widely, anywhere from
plus 4.9 percent to minus 12 percent. “In July 60 percent of the panelists
projected negative home price growth for 2010,” writes Shiller in the report.
The longer-term results, however, were less optimistic.  “Although still
positive, the average outlook for five-year cumulative home price appreciation
fell in July for the second consecutive month, and is now in single-digit
territory,” writes Terry Loebs, MacroMarkets Managing Director. “This new
consensus suggests a less robust housing recovery scenario - one that, all other
things equal, would result in U.S. household wealth by year-end 2014 being about
$500 billion less than the level implied by the average of panelist responses
just two months ago.”

I got an e-mail today with the subject line of “Bankruptcy will get your finances back on track.”

The reason I bring this up is because we lose so many potential short sales to bankruptcy. People think that a bankruptcy will cleanse them of their debts. That is a myth. Here is why.

Yes, it’s true, that a Chapter 7 Bankruptcy will release a debtor of all debts. The problem is that most the bankruptcy laws were changed in 2005.

This law makes it much harder to file a Chapter 7 bankruptcy. Now the judges have to steer debtors towards a Chapter 13. What does a Chapter 13 bankruptcy mean?

It means that a debtor will have to repay part (if not all) of their debts. In addition, the debtor has their finances managed by the bankruptcy trustee. And, the debtor has to pay that trustee!

If a person just stops paying their debts, then they can actually pay less money than they would with a Chapter 13 bankruptcy. Let’s face it. The people who handle bad debt are so disorganized. Yes, it’s very similar to how a “servicer” handles a third party loan.

Most big companies don’t have the stomach to do the hard work of collecting money. That is why they farm that hard work out to a collection agency. What does the collection agency do? They just call the person over and over again.

Very few collection agencies are going to do what is actually necessary to force the borrower to pay. And that is file a lawsuit. If they ever do file a lawsuit, the court system is so backed up that it’s hard to get a judgment. And what good does a judgment do them?  

Statistics show that only 20% of all judgments ever get collected. Why do I tell you this? Because so many short sale sellers instead declare bankruptcy. They don’t want to waste time on a short sale. So they don’t do one.

They think that bankruptcy will get rid of their problems. In fact, it could just make their problems worse. Educate your customers. Tell them the truth. They are usually much better off short selling.

They can stop paying their unwanted debts, ignore the debt collectors, and in 2-3 years be back on track. They will be much better off then, versus a bankruptcy which stays on your credit for 7 years.

Got questions about short sales? Just ask.

Ben & Chris Curry

Smart Real Estate News & Commentary by Chris McLaughlin July 22, 2010

Failed HAMP may benefit from HAFA

With the amount of canceled trial modifications in the Home Affordable
Modification Program (HAMP) passing permanent conversions, some are anticipating
that the Home Affordable Foreclosure Alternatives (HAFA) program will be more
effective in keeping homeowners out of foreclosure.  As you’ll recall, HAFA was
designed to give borrowers who failed to make those payments a chance at a short
sale or deed-in-lieu of foreclosure.  Based on survey data of the eight largest
HAMP participants, the Treasury found that 45% of the canceled trials from HAMP
are in an alternate modification. More failed HAMP modifications could enter
HAFA after falling into delinquency after the conversion into permanent status.

For modifications that have been permanent for more than six months, 6% have
fallen into 60-plus day delinquency again. The default rate, or the percentage
of modified loans that are now 90 or more days delinquent, is less than 2% at
six months after the conversion. Cary Sternberg, president of Excellen REO, an
asset management firm and subsidiary of Titanium Solutions, said that HAMP was
designed for those who want to stay in their home, but as prices continue to
deteriorate, more homeowners are looking for a way out, either through short
sale or deed-in-lieu.  “Then comes HAFA. In recognition of the fact that some
borrowers simply could not make payments even if the payment were lower, a more
dignified exit strategy was created,” Sternberg said.  “It is too early to tell
what the success rate of the HAFA program will be, but I am betting it will be
far better than HAMP,” Sternberg said. “HAMP is a Band-Aid, HAFA is an exit
strategy.”

Dodd-Frank Act bad for business

Surprise!  The Dodd-Frank Act signed yesterday by President Barack Obama could
have a range of unintended consequences on the mortgage securitization market,
according to various commentaries.  Standard & Poor’s (S&P) president Deven
Sharma warned the legislation could expose rating agencies to greater liability
for — and lawsuits over — ratings of mortgage-backed deals.  According to
Barclays Capital analyst Joseph Astorina, Moody’s Investors Service, Fitch
Ratings and S&P “have instinctively pulled back from the new issue
securitization market until they are better able to asses this new liability.” 
The law’s reforms concerning securitization are designed to remove the incentive
of the “originate-to-distribute” model, according to a client alert from law
firm K&L Gates. 

Other “unintended” consequences cannot be known until the legislation is
enforced, noted accounting firm Deloitte in commentary.  “By way of example, a
driving element of the law has been to address the ‘too big to fail’ issue,
reducing the risk that large firms might take excessive risk because they are in
effect guaranteed to be bailed out in the event of a failure,” the firm said.
“But because this is an extremely complicated problem, no one actually knows
what the consequences of the new law will be — the new systemic regulator will
probably make this a central issue as it sharpens its mandate in the coming
months.”

Jobless claims up

The Labor Department says there were 464,000 initial jobless claims filed in the
week ended July 17, up 37,000 from a revised 427,000 the previous week.  The
number of claims was much higher than expected. A consensus estimate of
economists surveyed by Briefing.com expected new claims to rise to 445,000.  The
4-week moving average of initial claims, which is calculated to smooth out
volatility, was 456,000, up 1,250 from the previous week’s revised average of
454,750.  The government also said 4,487,000 people filed continuing claims in
the week ended July 10, the most recent data available. That’s down 223,000 from
the preceding week’s upwardly revised 4,710,000 claims.  Economists surveyed by
Briefing.com expected ongoing claims to edge lower to 4,600,000 from the
unrevised 4,681,000 in the previous week.  The 4-week moving average for ongoing
claims fell by 21,500 to 4,567,000 from the preceding week’s revised 4,588,500.

Commercial real estate coming back?

Analysts have been warning for months that commercial real estate could be the
next shoe to drop in the subprime mortgage collapse that came to a head in 2008,
but there may be some good signs in the thawing of securitization markets and
indications that investors are ready to come to auction when properties are on
the block.  Marc Halle, managing director of real estate investments for
Prudential Financial executives, acknowledged that distressed conditions are
likely to intensify in the market but does not expect to see “wholesale
foreclosures.” Instead, real estate investment trusts could become a more
attractive asset class in a slowing economy as interest rates stay low and REIT
dividends remain solid.  The banks are expected to launch $1.4 billion in two
offerings of commercial mortgage-backed securities, according to a report
Wednesday in the Wall Street Journal, which cited sources familar with the
planned sales. 

The offerings pale in comparison to the more than $1 trillion coming due in
maturing debt over the next five years, but offer some glimpse that Wall Street
may be getting back on board.  Uncertainty among borrowers regarding whether
banks will go back to more normalized lending practices is at the root of
criticism against the Frank-Dodd financial regulations that President Obama
signed Wednesday.  Banking analyst Dick Bove, at Rochdale Securities, said there
is a persistent rumor that the Federal Reserve is looking at loosening capital
requirements. Bove, a harsh critic of the new law, said that would be a welcome
development.  “It demonstrates that the Fed understands that it must help the
banks so that the banks can help the economy,” Bove said in a note to clients.
“It implies that the Fed will not be very hasty in putting into effect the
onerous rules being mandated by the banking legislation. If the Fed truly
understands this, the outlook for banking and, more important
ly, the economy is beginning to change in a positive manner.”  Banks themselves
have been voicing some slightly encouraging sentiment regarding the direction of
commercial real estate.

20% of Americans suffered major economic loss

The new Economic Security Index, constructed by Yale political scientist Jacob
Hacker and a team of researchers, estimates that 20% of Americans suffered a
significant economic loss last year - the highest level in the past 25 years. 
The Index looks at the interaction of three key variables that have a direct
bearing on a person’s economic security: income loss, medical expenses and debt. 
The ESI defines people as economically insecure when their situation meets two
criteria. First, within a year’s time they have lost 25% or more of their
available gross income. Available gross income is the money they have left over
after paying for medical costs and debt. Second, they don’t have enough in an
emergency fund or other liquid reserves to make up the difference. 

According to the index, which tracks Census Bureau data since 1985, 12.2% of
Americans were economically insecure in 1985. By 2009, Hacker and his team
estimate that 20.4% of Americans could be classified that way. The actual number
of people affected increased by more than half, from 28 million in 1985 to
roughly 46 million by 2007, the last year for which hard numbers were available. 
In the past, some economists, such as Stephen Rose of the moderate-progressive
think tank The Third Way, have conducted research that counters the broadly
negative view about how the middle class has fared economically over the years.

Now for our real estate education section…

How to Price Any Property for Maximum Profits

Although the classic definition of the “right price” is whatever a willing buyer
is willing to pay a willing seller (yes, we know it’s redundant), pricing is
also a value proposition. In order to price a property for maximum profits, it’s
essential to understand how to communicate and evaluate the value proposition to
both the buyer and the bank.

What to Measure

1. Capacity - Any given area or builder has a set capacity. The more less
capacity, the higher the price assuming demand is in place. During the height of
the real estate boom, savvy builders capitalized on desirable locale’s by
creating a sense of urgency related to capacity…often to the detriment of the
eventual buyers who later learned there was a glut of unsold condo’s or other
properties waiting in the sideline. However, despite the recent decline in real
estate, many markets and specific neighborhoods remain highly desirable with
limited capacity.

2. First Offering - Closely related to capacity is the concept of “first
offering”. Face it, everyone likes something that is “brand new” but have you
ever stopped to ask yourself why? A new house or neighborhood is somewhat
“unproven” but the excitement of being “first” tends to create anticipation that
can be tapped into. Take a note from developers that routinely price high to
create a sense of value, then discount to provide customers a sense of a “good
deal”.

3. Enhanced Value - Everyone likes to feel like they are appreciated and nothing
says “appreciation” like a free upgrade or other valuable service. Make a list
of amenities included in the sale of the property and/or consider including a
few low-cost additional enhancements. Popular ones include free lawn-care for a
year, electronic device or home warranty.

What to Exclude

1. Acquisition Cost - Without a doubt, this is one of the most common mistakes
made by novice investors; the tendency to use acquisition cost as a basis for
the sales price of a property. As millions of Americans have learned, what you
pay for a property may have little to no bearing on the eventual price of a
property….good and bad. Although the media is filled with horror stories about
people that paid too much for a property (of more often…obtained bad financial
terms), there are equally impressive numbers of people that made a lot of money
after paying very little for a property. Price the property based upon
value…not acquisition cost.

2. Expenses - If acquisition cost is the most common errors, surely expenses are
the next. The tendency to add up the cost of repairs, insurance, broker and
agent fees, taxes and other expenses in order to derive a figure is outdated at
best and limiting at worst. Again, price the property based upon perceived value
rather than cost or expenses. It’s often possible to perform inexpensive
upgrades that dramatically alter the appearance (and desirability) of a property
for very little investment. Don’t deny yourself the benefit of a fully priced
property if in fact, it’s possible to price higher.

Smart Real Estate News & Commentary by Chris McLaughlin July 21, 2010

HAMP still a failure

An increase in foreclosures, combined with the recent drop in housing sales,
could send home prices plummeting again.  Some 91,118 people in trial
modifications were canceled in June, bringing the total to 520,814 since the
program began in the spring of 2009. More than 60% of those who dropped out last
month had been in trials for at least half a year.  Homeowners usually are
kicked out of the mortgage modification program because they don’t make the
required payments, meet the qualifications, or submit the needed paperwork. Once
their trials are canceled, about 45% of homeowners receive alternate
modifications, often one from their loan servicer.

Some 8.9% had foreclosure proceedings started against them and 1.3% lost their
home in foreclosure.  Only 364,077 troubled borrowers remain in the trial phase,
some 38,728 of whom entered the program in June. Nearly 166,000 have been in
trials for at least six months.  51,205 troubled homeowners received long-term
mortgage modifications in June, bringing the total to 389,198.  8,823 homeowners
had their permanent modifications canceled, 195 of whom paid off their loans. 
“I feel like a broken record, but HAMP continues to perform very poorly,” said
John Taylor, head of the National Community Reinvestment Coalition, an advocacy
group. “The permanent modification numbers are simply too low, while foreclosure
filings continue above 300,000 for the 16th month in a row.” 

Unemployment bill passes

A bill that pushes back the deadline to file for extended unemployment benefits
until the end of November passed a key procedural hurdle in the Senate
yesterday. The vote was 60-40, the minimum margin needed to end debate on the
measure.  Sens. Olympia Snowe and Susan Collins, Republicans of Maine, switched
sides to support the bill. Carte Goodwin, the newly appointed Democratic senator
from West Virginia who replaced the late Robert Byrd, gave his party the 60th
vote.  Democrats had stripped the unemployment insurance measure down to the
bare essentials for Tuesday’s vote, a do-over of a tally taken late last month.
The Senate could put its final stamp of approval on the bill on Wednesday, after
which it would go back to the House. It is expected to pass both chambers and be
sent to President Obama for his signature. Final passage in the Senate requires
just 51 votes. 

Democrats tout the economy-boosting effect of unemployment checks since most
beneficiaries spend them immediately. But the numbers amount to less than
one-quarter of 1% of the size of the $14.6 trillion economy, and are far smaller
than last year’s $862 billion stimulus legislation, which appears to have done
little good for the economy.  Republicans say they do favor the benefits but
insist they be paid for with spending cuts elsewhere in the government’s $3.7
trillion budget. As Senate Minority Leader Mitch McConnell puts it, “What we do
not support—and we make no apologies for—is borrowing tens of billions of
dollars to pass this bill at a time when the national debt is spinning
completely out of control.”

Loan demand up

The Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for
the week ending July 16, 2010, increased 7.6% on a seasonally adjusted basis
from one week earlier.  On an unadjusted basis, the Index increased 19.5%
compared with the previous week, which included the Independence Day holiday. 
The Refinance Index increased 8.6% from the previous week and was the highest
Refinance Index observed in the survey since the week ending May 15, 2009. The
increase in total refinance applications was driven by a 10.7% increase in
conventional refinance applications, while government refinance applications
decreased by 4.2%. 

The seasonally adjusted Purchase Index increased 3.4% from one week earlier,
driven by an 8.0% increase in government purchase applications. Conventional
purchase applications were essentially flat, increasing just 0.3% from last
week. The unadjusted Purchase Index increased 15.3% compared with the previous
week and was 35.7% lower than the same week one year ago.  “As rates on 30- and
15-year fixed-rate mortgages declined to the lowest levels recorded in the
survey, refinance activity increased last week.  The refinance index is up
almost 30% over the past 4 weeks, but is still well below the peak seen last
spring,” said Michael Fratantoni, MBA’s Vice President of Research and
Economics.  “Refinance borrowers, aiming for the lowest possible rate, are
getting conventional loans.  The strength in purchase applications comes from
government loans, likely indicating that prospective buyers are drawn by the
lower downpayment requirements.”

Michael Boskin - Obama’s economic fish stories

“President Obama says “every economist who’s looked at it says that the Recovery
Act has done its job”—i.e., the stimulus bill has turned the economy around.
That’s nonsense. Opinions differ widely and many leading economists believe that
its impact has been small. Why? The expectation of future spending and future
tax hikes to pay for the stimulus and Mr. Obama’s vast expansion of government
are offsetting the direct short-run expansionary effect. That is standard in all
macroeconomic theories.  So, as I and others warned in 2008, the permanent
government expansion and higher tax rate agenda is a classic example of what not
to do during bad economic times. Worse yet, all the subsidies, bailouts,
regulations and mandates are forcing noncommercial decisions on the economy,
which now awaits literally thousands of new diktats as a result of things like
ObamaCare and the financial reform bill. The uncertainty is impeding investment
and hiring. 

The president does not say that economists agree that the high future taxes to
finance the stimulus will hurt the economy. (The University of Chicago’s Harald
Uhlig estimates $3.40 of lost output for every dollar of government spending.)
Either the president is not being told of serious alternative viewpoints, or
serious viewpoints are defined as only those that support his position. In
either case, he is being ill-served by his staff. Mr. Obama’s economic
statements are increasingly divorced not only from competing viewpoints but from
those of his own economic advisers. It is surprising how many numerically
challenged pronouncements come from this most scripted and political of White
Houses. One slip is eventually forgiven, but when a pattern emerges, no one
believes it is an accident. For example, on the anniversary of the stimulus
bill, Mr. Obama declared, “It is largely thanks to the Recovery Act that a
second Depression is no longer a possibility.” Yet his Council of Eco
nomic Advisers just estimated the stimulus bill’s effect on GDP at its trough
was 1%-2%.  On his recent “Recovery Tour,” Mr. Obama boasted, “The stimulus bill
prevented the unemployment rate from “getting up to . . . 15%.”

But the president’s own chief economic adviser, Christina Romer, has estimated
that the stimulus bill reduced peak unemployment by one percentage point—i.e.,
since the unemployment rate peaked at 10.1%, it prevented the unemployment rate
from rising to just over 11%. So Mr. Obama claims that the stimulus bill was
several times more potent than his chief economic adviser estimates.  The
president badly needs to make more realistic pronouncements. No one expects him
to say his policies have failed (although most have delivered far less than
claimed at large cost). A little candor about the results of experimentation in
uncharted waters would go a long way. But at the very least, his staff needs to
avoid putting these exaggerations on the teleprompter. It undermines confidence
and raises concerns about competence. It’s doing nobody any good—not the economy
and certainly not Mr. Obama.”

Wall Street Journal - reasons for a flat housing market

Even falling interest rates aren’t enough to whet consumer appetites for
housing. Last week, the average rate on a 30-year fixed-rate mortgage was quoted
at 4.57%, according to Freddie Mac, the lowest since its survey began in 1971.
But demand for home-purchase mortgages sits near 14-year lows, according to the
Mortgage Bankers Association, down 44% over the past two months.  Economists
aren’t singling out one reason for the stalling housing market. A variety of
factors have led to flagging confidence, they say, including sluggish labor
markets, global economic turmoil and falling stock prices.  While the housing
downturn dragged the economy into a recession nearly three years ago, now it is
the economy that is pulling down housing, says economist Patrick Newport at IHS
Global Insight.

Without sustained job growth, the housing market likely won’t improve. That in
turn will ricochet across manufacturing, retail and other trades heavily
dependent on home building and consumer spending.  The government last fall
extended tax credits worth up to $8,000 to home buyers who signed contracts by
April 30, causing sales to surge early this year. Those buyers had until June 30
to close their sales until Congress, concerned that the backlog of sales
wouldn’t close in time, extended the deadline through September.  Analysts long
expected the withdrawal of a federal tax credit, which had juiced sales, to lead
to a slower-than-usual summer.  “It’s the magnitude that’s been the issue,'’
says Douglas Duncan, chief economist at Fannie Mae. “The drop-off in activity
has surpassed expectations.'’  Affordability gains have been offset for many
buyers by tighter lending standards, particularly for “jumbo” loans that are too
large for government backing. Banks are requiring down
payments of 20% and more and strong credit scores because they must hold jumbo
loans in their portfolios. 

More broadly, the housing market faces two big problems: too many homes and
falling demand. More than seven million borrowers are 30 days or more past due
on their mortgage payments or in some stage of foreclosure. Rising foreclosures
will keep pressure on prices as banks put more homes on the market.  Last month,
nearly 39,000 borrowers received government-backed loan modifications, but more
than 90,000 borrowers fell out of the program, the Obama administration said on
Tuesday.  Moreover, the pool of potential buyers remains constrained by the
unprecedented number of homeowners who are underwater, or who owe more than
their homes are worth.  To add to it all, mortgage-finance giants Fannie Mae and
Freddie Mac are starting to push more repossessed homes onto the market. The
companies owned 164,000 homes at the end of March, up 80% from a year ago. 
Finally, unrealistic sellers have flooded the market” after reports of bidding
wars and home-price increases earlier in the year
.

Tenant Act extended to 2014

The financial reform bill passed by Congress will extend the Protecting Tenants
at Foreclosure Act (PTFA) through the end of 2014.  PTFA, originally enacted in
May 2009, allows renters whose landlords have lost their properties to
foreclosure the right to stay in the home for 90 days after the foreclosure or
through the term of their lease. Without the new extension in the financial
reform bill, the law would have expired at the end of 2012.  The new law also
clarifies the date of a notice of foreclosure as the date of a completed title
transfer: “The date of a notice of foreclosure shall be deemed to be the date on
which complete title to a property is transferred to a successor entity or
person as a result of an order of a court or pursuant to provisions in a
mortgage, deed of trust, or security deed.’’ 

When the PTFA was enacted last year, it completely changed the way REO evictions
are conducted, said Robert Jackson, president and managing attorney at the
Irvine, Calif.-based Jackson and Associates law firm, while speaking last month
at REO Expo 2010.  Under the Dodd-Frank bill, any lease or tenancy created prior
to the change of title as a result of foreclosure is protected by PTFA,
according to The National Low Income Housing Coalition (NLIHC), a
tenant-advocacy group that supports the changes.  Whether the PTFA has caused
tenants to sign long-term leases immediately before a foreclosure — tying up
disposition of a property — is a subject of concern for the default servicing
industry.

Now for our real estate education section…

Mortgage Overhaul & What is Means for You

By the time you are reading this, the new 2300 page financial reform bill is
likely to be making the headlines. The Senate has already approved the new bill
and President Obama is expected to sign it into law this week ..despite the fact
that many of the provision related to specific regulations have yet to even be
written. If that sounds faintly disturbing, don’t worry…your concern is noted
and shared by many experts through the nation. However, there are sweeping
changes that are already apparent despite the lack of specific details.

Although broad in scope, home buyers and sellers are likely to be among the
first impacted by the new provisions. They represent one of the most
comprehensive - top to bottom  changes to the finance, valuation, types of
mortgage products offered and how lenders are compensated to take place in
decades. In fact, there are even new rules for investors that provide capital
for the purchase of mortgages.

A few of the most important points likely to make immense impact to buyers,
sellers and investors is the language dealing with any type of mortgage outside
of the “traditional” or “plain vanilla” category. Unfortunately, regulators have
yet to fully define what will constitute a “traditional” mortgage under the new
plan but it is clear that the line will be drawn to reduce the number of
sub-prime borrowers as well as offerings of owner finance and other alternative
forms of finance. Experts predict an immediate severe impact on many minority
and low income borrowers; many who have already been impacted by far less severe
measures. For example, according to FHA, rejection rates for African American
and Latino borrowers have substantially increased among non-FHA loans.

The new FDIC and other regulatory oversight standards contained in the bill are
expected to provide safer mortgage(s) instruments but at a higher cost and more
stringent requirements for both banks and individuals. It is estimated that only
five banks currently control more than 65% of the current mortgage market; the
new bill is expected to further consolidate this trend by favoring big banks
over small. In part, this is due to the belief that big banks are easier to
regulate. However, at the same time, new controls and rules regulating private
investors are also expected to take another two to three years to fully
define…leading many to believe the bulk of mortgages will still be backed by
the United States government for the foreseeable future.

Smart Real Estate News & Commentary by Chris McLaughlin July 20, 2010

Housing starts down

The Commerce Department says housing starts dropped 5.0% to a seasonally
adjusted annual rate of 549,000 units, the lowest level since October.  It was
the second straight month of decline in activity and was well below market
expectations for a 580,000-unit rate.  May’s housing starts were previously
reported as a 10.0% drop, but are now revised down to show a 14.9% decline. 
Compared to June last year, starts were down 5.8%, the biggest decline since
November.  Driving the June decline was a more than 20% drop in the volatile
condominium and apartment market. Construction of single-family homes, the
biggest part of the market, was down slightly by 0.7%.  The only positive sign
in the report was an unexpected 2.1% rise in applications for building permits
to a 586,000-unit pace in June. 

That followed a 5.9% drop in May and compared to analysts’ expectations for a
slip to 570,000 units.  Still, the slumping job market and competition from
foreclosed properties have forced builders to limit construction, especially
after tax credits that spurred sales expired at the end of April.  “Despite
record low mortgage rates, housing is at risk of a double dip unless job growth
strengthens soon,” said Sal Guatieri, senior economist at BMO Capital Markets. 
Economists had had predicted that construction would fall to a rate of 580,000
and had projected that building permits would sink to a rate of 570,000,
according to Thomson Reuters.  In a typical economic recovery, the construction
sector provides much of the fuel. But not this time. While developers have cut
back on construction and the number of new homes on the market has fallen
dramatically, they still must compete against foreclosed homes selling at deep
discounts. 

Consumers will pay for new rules

Up until recently, bankers have remained mum on particular reform measures,
saying that regulators will first need to write specific rules.  But Bank of
America broke ranks on Friday, detailing the impact of several provisions,
including the so-called Durbin amendment, named after sponsor Sen. Richard
Durbin, D-Ill., which will limit the fees banks collect from debit card swipes. 
Bank of America executives said the new rule would reduce fees earned from debit
cards anywhere between 60% and 80% starting in the second half of 2011. This
year, the company said it expects to produce $2.9 billion in revenue from that
business.  “We now fear that the Durbin bill could have a great negative impact
on bank revenue than we had originally estimated,” BMO analyst Lana Chan wrote
in a note to clients Monday. 

Even though BoA is hit hard, , the biggest hit was expected to fall on major
regional players such as Regions Financial, KeyBank and Fifth Third. Each
institution generated over 3% of their overall revenue from interchange fees
last year, compared to Bank of America’s 2%, according to Chan.  Analysts
suggested that perhaps the company most exposed to the new measure was the
Minnesota-based lender TCF Financial.  In 2009, more than 10% of its revenue
came from interchange. FBR’s Paul Miller projected Monday that TCF’s earnings
could fall by as much as 40 cents a share as a result.  Banks have not been
sitting idly by. A number of major financial institutions have reportedly
started to eliminate free checking accounts, as well as imposing new or higher
fees, ultimately putting the cost of the forthcoming new laws on the consumer. 
“That is probably what is going to happen here,” said TCF Financial CEO Bill
Cooper said during a conference call with investors last week.  The bad
news is that the Durbin rule is just one small piece of an ongoing effort to
rewrite the rules of the road for the financial services by this administration
and congress.

Olick - Jumbo loans are back

“After several years of stagnation in high-end housing, thanks to the
disappearance of the jumbo market, things are moving yet again.  A quick check
on Bankrate.com shows the 30-year fixed jumbo at around 5.50%, and Citibank last
week reported applications for jumbos up 30% just over the last 60 days.  “It is
the overall weak economy driving the 10 year lower, which is the proxy for most
mortgage loans,” says FBR’s Paul Miller. “This is still probably the best of the
best getting loans at these low rates, but Jumbo activity is still very, very
low.” Miller says it’s good for the market, but only “marginally better,” as
banks are desperate to find good loans to put on their books.  But how long will
it last? Probably only as long as investors remain nervous about the economy. 
“Preliminary signs of life in the secondary market are a good indication that
the narrower spread between jumbo and conforming loans will stick around,” says
Bankrate.com’s Greg McBride. “However, the
level of mortgage rates will hinge more than anything on the demand for
Treasuries.”  Bank of America tells me that applications and fundings for jumbo
loans rose over 10% from May to June. They say they’ve always been the leader in
jumbos, which could be why Citi is getting more aggressive.”

Home Builder Confidence Plummets

Builders have been feeling increasingly pessimistic of late. The National
Association of Home Builders (NAHB) said yesterday that its monthly reading of
builders’ sentiment about the housing market sank to 14 — the lowest level
since March 2009. Readings below 50 indicate negative sentiment about the
market.  “We continue to see a lull in home buying activity following the
expiration of the federal home buyer tax credit program, as many of the sales
that would have occurred this summer were likely pulled forward to meet that
program’s deadline,” said NAHB chairman Bob Jones, a homebuilder in Bloomfield
Hills, Mich., in a press statement. “In addition, builders are reporting
continuing consumer hesitancy regarding home purchases due to uncertainty in the
overall economy and job markets.” 

Paul Dales, a US economist at the Toronto-based Capitol Economics concurred that
the tax credit’s expiration is impacting the housing market.  “It is becoming
increasing clear that without the government’s artificial support, the US
housing market is struggling to stand on its own two feet,” Dales wrote in
commentary Monday. ” The fall in the NAHB housing index…shows that demand for
new homes has weakened further.”  Specific factors contributing to the negative
view include hesitation on the part of homebuyers, tight consumer credit and
continuing competition from foreclosed and distressed properties, according to
NAHB chief economist David Crowe.

Now for our real estate education section…

Mortgage Overhaul & What is Means for You

By the time you are reading this, the new 2300 page financial reform bill is
likely to be making the headlines. The Senate has already approved the new bill
and President Obama is expected to sign it into law this week ..despite the fact
that many of the provision related to specific regulations have yet to even be
written. If that sounds faintly disturbing, don’t worry…your concern is noted
and shared by many experts through the nation. However, there are sweeping
changes that are already apparent despite the lack of specific details.
Although broad in scope, home buyers and sellers are likely to be among the
first impacted by the new provisions. They represent one of the most
comprehensive - top to bottom  changes to the finance, valuation, types of
mortgage products offered and how lenders are compensated to take place in
decades. In fact, there are even new rules for investors that provide capital
for the purchase of mortgages.

A few of the most important points likely to make immense impact to buyers,
sellers and investors is the language dealing with any type of mortgage outside
of the “traditional” or “plain vanilla” category. Unfortunately, regulators have
yet to fully define what will constitute a “traditional” mortgage under the new
plan but it is clear that the line will be drawn to reduce the number of
sub-prime borrowers as well as offerings of owner finance and other alternative
forms of finance. Experts predict an immediate severe impact on many minority
and low income borrowers; many who have already been impacted by far less severe
measures. For example, according to FHA, rejection rates for African American
and Latino borrowers have substantially increased among non-FHA loans.

The new FDIC and other regulatory oversight standards contained in the bill are
expected to provide safer mortgage(s) instruments but at a higher cost and more
stringent requirements for both banks and individuals. It is estimated that only
five banks currently control more than 65% of the current mortgage market; the
new bill is expected to further consolidate this trend by favoring big banks
over small. In part, this is due to the belief that big banks are easier to
regulate. However, at the same time, new controls and rules regulating private
investors are also expected to take another two to three years to fully
define…leading many to believe the bulk of mortgages will still be backed by
the United States government for the foreseeable future.

Smart Real Estate News & Commentary by Chris McLaughlin July 19, 2010

HUD wants a FICO of 500

The Department of Housing and Urban Development (HUD) said that it intends to
require borrowers to have scores of at least 500 to qualify for FHA-insured
loans. The agency has not required a minimum score before.  “It really is just
conforming FHA standards to what FHA lenders have already been doing,” said
Michael Fratantoni, vice president of research and economics for the Mortgage
Bankers Association.  As a result, the practical impact of this move will be
extremely limited; during the second quarter of 2010, no FHA-insured loans were
issued to borrowers with sub-500 scores. And, in fact, less than 1% of borrowers
were below 580; most loans went to borrowers with scores above 620. 

The initiative is part of an ongoing effort to reduce default risk to the FHA
loan portfolio and to boost the reserves that back those loans, according to HUD
Commissioner David Stevens.  “These are the latest in a series of changes to
allow the FHA to manage its risk better while continuing to support the nation’s
housing recovery,” he said. “By protecting FHA’s capital reserves, we can
continue providing affordable, responsible mortgage products and will remain the
nation’s largest source of home purchase financing for underserved communities.” 
During May, 8.97% of all FHA loans were seriously delinquent (seasonably
adjusted). That was up from 7.93% during May 2009. But defaults have turned
downward since January, when they peaked at 9.16%.  The defaults have drained
FHA reserve, which is funded by insurance payments, to below the 2% minimum
mandated by Congress. Taxpayer money could be in jeopardy if the insurance funds
are depleted any further.

Hiring up slightly

According to a survey by National Association for Business Economics (NABE),
employers grew payrolls for a second consecutive quarter this year. The
percentage of firms increasing staff levels grew to 31% in the quarter, versus
only 6% in the same period a year ago, while at the same time, the percentage of
employers cutting jobs continued to move lower.  Looking ahead, the survey
showed that 39% of companies expect to add employees over the next six months,
the highest level of planned hiring since January 2008.  “The labor market
continued to improve, with increases in current hiring and a rise in the
percentage of firms planning to add workers over the next six months,” William
Strauss, an economist at the Federal Reserve Bank of Chicago, said in a
statement.

The U.S. unemployment rate stands at 9.5% as of June. The jobless rate has
averaged 9.7% over the first half of the year, and many economists expect it to
remain elevated into 2011.  The survey, based on responses from 84 NABE
economists who work for private-sector firms and industry trade associations,
also indicated that the pace of the economic recovery slowed in the
second-quarter.  Industry demand grew at a slower pace in the quarter, the
survey said. Corporate profits grew as price and cost pressures remained tame.
About one out of four firms increased capital spending versus the previous
quarter, and a growing number expect to continue investing over the next 12
months, according to NABE.  While economic activity is expected to remain
positive this year, more economists lowered their expectations for 2010 gross
domestic product. Only 20% of prognosticators expect GDP will grow more than 3%
this year.

Asking prices up slightly

After increasing for the first time in nine months in May, asking prices for
active home listings were virtually unchanged in the June reading of the Altos
Research 10-city composite price index. In addition, inventory of existing homes
for sale increased both in June and for Q210.  The June median listing sales
price for single-family existing homes was $477,937 in June, down $146, about
0.03%, below the May 2010 median of $478,083 for homes in Boston, Chicago,
Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco, and
Washington DC.  Altos Research said 13 of 26 markets it tracks reported
increases in asking sales prices for homes during the month of June.

For Q210, asking prices were up in 14 markets. San Francisco led both categories
with a 2% in June and an increase of 4.4% quarter-over-quarter.  Following San
Francisco in asking price increases was San Jose (1.5% in June, 2.5% in Q210),
Austin (1%, 1.7%), Dallas (0.9%, 2.2%) and Cleveland (0.8%, 1.5%).  The market
with the biggest decrease was Phoenix, down 2.4% from June and 3.9% in Q210,
followed by changes in Miami (-2.3%, -4%), Washington DC (-0.8%, 0.4%), Las
Vegas (-0.6%, -0.9%) and Boston (-0.5%, 0.1%).  Listing inventory totaled
304,831 properties in the 10-city composite, up 2.8% and 5.4% for the quarter.
Chicago was the only market where listing inventory decreased in June, but the
area was still up 0.7% for the quarter. While Detroit posted a 1.6% increase in
listing inventory during June, it was the only market with a decrease in listing
inventory for the quarter, down 2.1%. San Francisco lead all markets in
inventory volume, up 7.6% in June and 13.5% for the qu
arter.

Antidote to an anti-business agenda?

Because of the perception that Obama is anti-business and his policies are
causing small and large businesses to hunker down and wait out the witch hunt,
House GOP Leader John Boehner said he supports a ban on all new federal
regulations, after meeting Friday with business lobbyists who complained about
uncertain economic conditions.  “I think having a moratorium on new federal
regulations is a great idea. It sends a wonderful signal to the private sector
they may have some breathing room,” Boehner said.  He said any ban would include
an exemption for “emergency regulations” for some agencies, and suggested it
could last a year.  Boehner and Illinois Republicans Peter Roskam and Aaron
Schock convened a group of nearly 20 Washington-based business leaders on Friday
who represent various sectors — including homebuilders, retailers and
manufacturers — as part of their “America Speaking Out” initiative to gather
ideas for the GOP legislative agenda.  Roskam said those in the me
eting reported that a significant obstacle to the economic recovery is “the
down-talking of the private sector, the rhetoric.” 

“The anti-business rhetoric that they see coming out of Washington is more than
just symbolic.” Roskam added. “It’s creating a great deal of uncertainty.”  The
people in the meeting repeatedly criticized the approach to the economy taken by
the Obama administration and congressional Democratic leaders, criticizing
excessive federal spending and burdensome government regulations.  Jay Timmons
from the National Association of Manufacturers maintained the United States is
“becoming one of the most risky places in the world in which to do business.”
But Timmons did make a pitch for both parties to come together, saying, “It
takes a bipartisan effort to get this economy moving again.”  Naturally, Ryan
Rudominer, spokesman for the Democratic Congressional Campaign Committee, seized
on the GOP meeting Friday to argue it would result in “a Republican agenda
written for lobbyists by lobbyists.”  Apparently it’s better to have a
Democratic business agenda written by social activists?

BoA encourages short sales

Bank of America (BoA) reported $35.7 billion in nonperforming loans, leases and
foreclosed properties in Q210 - which is 15% above levels measured in the same
quarter of last year.  These loans and properties increased more than $5 billion
in total aggregate balance since Q209. The total did drop by more than $200
million worth of these loans and properties from the $35.9 billion reported in
Q110.  They represented 3.74% of all outstanding loans, leases and foreclosed
properties at the end of Q210.  Since 2008, BofA and the acquired Countrywide
completed nearly 650,000 loan modifications. During Q210 alone, BofA completed
80,000 modifications, including 38,000 trial modifications that were converted
into permanent workouts under the Home Affordable Modification Program (HAMP). 
If a modification does fail, BoA is putting an emphasis on selling the home
through a short sale ahead of foreclosure. At REO Expo 2010, Matt Vernon, the
short sale and REO executive at BoA said that t
he bank added 1,000 employees to the short sale staff and will “do everything
possible to liquidate property prior to foreclosure.”