I believe this article illustrates the challenge and reluctance banks have with extending loan modification terms to borrowers who are delinquent in making their mortgage payments. Some sobering facts.....
By JAMES R. HAGERTY, Wall Street Journal
Homeowners who fall behind on their mortgage payments have become much less likely to catch up again, a new study shows.
The report from Fitch Ratings Ltd., a credit-rating firm, focuses on a plunge in the "cure rate" for mortgages that were packaged into securities. The study excludes loans guaranteed by government-backed agencies as well as those that weren't bundled into securities. The cure rate is the portion of delinquent loans that return to current payment status each month.
Fitch found that the cure rate for prime loans dropped to 6.6% as of July from an average of 45% for the years 2000 through 2006. For so-called Alt-A loans -- a category between prime and subprime that typically involves borrowers who don't fully document their income or assets -- the cure rate has fallen to 4.3% from 30.2%. In the subprime category, the rate has declined to 5.3% from 19.4%.
"The cure rates have really collapsed," said Roelof Slump, a managing director at Fitch.
Because borrowers are less willing or able to catch up on payments, foreclosures are likely to remain a big problem. Barclays Capital projects the number of foreclosed homes for sale will peak at 1.15 million in mid-2010, up from an estimated 688,000 as of July 1.
Cure rates have sunk despite the Obama administration's prodding of banks to ease terms for millions of borrowers to try to prevent foreclosures. Without those loan-modification efforts, cure rates would be even lower.
Job losses have left some borrowers unable to make payments. In addition, Mr. Slump said, some who could continue to make payments probably are no longer willing to. That may be because the values of their homes have fallen below their loan balances and they see little hope of ever recovering their investments.
What's more, because of widespread backlogs and delays in the foreclosure process, people who quit paying may be able to stay in their homes for more than a year before being evicted.
The Fitch study covers about $1.7 trillion of mortgages held in securities, representing about 16% of U.S. mortgages outstanding.
Saturday, August 29, 2009
Thursday, August 27, 2009
Mortgage Fraud: A Classic Crime's Latest Twists
By ANNE TERGESEN,Wall Street Journal, August 27th
Last summer, Lawrence Ford jumped into the fast-growing market for so-called reverse mortgages. The retired auto mechanic and horse trainer used the money he received to pay off his existing $70,000 mortgage and "piddled away" the remaining $24,000 on things like restaurant meals for his four girlfriends, he says.
..Or so Mr. Ford thought. Last month, the owner of the Orlando, Fla., title company that handled his loan admitted to stealing more than $1 million from several reverse-mortgage holders, including Mr. Ford. Bank of America Home Loans, a unit of Bank of America Corp., says the title agent never sent it the money required to pay off Mr. Ford's mortgage. As a result, Mr. Ford says, the bank recently threatened to foreclose on his seven-acre ranch in Archer, Fla.
"That will put me on the streets with my cars and horses and tools," says the 68-year-old Mr. Ford. Bank of America, which says there is no immediate danger of foreclosure, adds that it is working with Mr. Ford "to find a home-retention solution."
In the wake of the mortgage meltdown, regulators and law-enforcement officials are sounding alarms about the potential for yet another type of mortgage fraud—this time, in the small but fast-growing reverse-mortgage market. Such fraud, though still rare, "is occurring in every region of the United States and reverse-mortgage schemes have the potential to increase substantially," according to a recent publication issued by the Federal Bureau of Investigation and the Office of Inspector General at the U.S. Department of Housing and Urban Development, which oversees the federally insured loans that account for some 99% of the reverse-mortgage market.
Available to people 62 and older, reverse mortgages allow homeowners to convert their home equity into cash. Instead of writing a check to the bank each month, the bank pays the homeowner, who can elect to receive a lump sum, a line of credit or monthly payments. The loan is repaid, with interest, when the borrower dies, moves, sells the house, or fails to pay property taxes or homeowner's insurance.
Reverse-mortgage fraud, typically committed by homeowners' relatives, caretakers or financial advisers, has also been cropping up recently in schemes to unload distressed real estate. Regulators cite cases in which real-estate speculators bought properties on the cheap and then sold them, using inflated appraisals, to senior citizens willing to take out reverse mortgages.
Lenders and administrators of the HUD program say reverse mortgages, for the most part, are still working well. "There are little scams around the edges," says Meg Burns, director of Single Family Program Development for the Federal Housing Administration, the HUD division that administers the reverse-mortgage program. But she dismisses talk of widespread abuse as "unsubstantiated."
Understating the Problem
Yet recent data—and HUD's own inspectors—indicate reverse-mortgage scams are on the rise. So far this fiscal year, which ends Sept. 30, HUD has referred 29 cases of suspected fraud to its Office of Inspector General for investigation, up from two the year before. Jacqueline Felton, who heads the FBI's mortgage-fraud team, says her agency is also seeing an increase. Indeed, HUD's data on suspected fraud likely understates the extent of the problem. Anthony Medici, who in June testified before Congress as a special agent in the OIG's Criminal Investigation division, said current cases "involve hundreds of properties."
.This corner of the mortgage market is attracting concern for a couple of reasons. As the falling stock market has crushed retirement nest eggs, the number of federally insured reverse mortgages soared to 112,000 in 2008, up from 43,082 in 2005. HUD forecasts some 165,000 will be originated in this fiscal year. At the same time, Congress earlier this year temporarily raised the maximum amount homeowners can borrow against, from $417,000 to $625,500, making the loans "more lucrative for misdeeds," Mr. Medici told Congress.
In recent months, lenders including Wells Fargo Home Mortgage, MetLife Bank and Financial Freedom Acquisition LLC have taken steps designed to prevent and detect fraud. For instance, many are now looking for evidence that reverse-mortgage applicants have owned their homes for a set time frame—typically at least six months or a year.
Fighting 'Flipping'
Such measures are designed to curtail "flipping." Under these arrangements, speculators purchase distressed properties and, with the aid of cosmetic repairs and inflated appraisals, deed them to seniors at above-market prices. Seniors—some of whom may be part of the scheme—typically are promised homes for no money down. In return, they secure a reverse mortgage and divert some, if not all, of the proceeds to the scheme's promoters. Regulators say promoters have even recruited seniors from homeless shelters.
In response, U.S. Sen. Claire McCaskill (D., Mo.) is pushing legislation that would, among other things, require government-certified professionals to conduct appraisals on these loans. Because the government insures lenders against losses if a home ultimately sells for less than it takes to pay off a reverse mortgage, Sen. McCaskill has expressed concern about the risk fraud poses to taxpayers.
Despite such transactions, experts say most reverse-mortgage scams are perpetrated by people well-known to their victims. In one case, Larry Bekis, 51, of St. Paul, admitted to absconding with just over $121,000 from a reverse mortgage he arranged in 2006 on his 84-year-old mother's Lauderdale, Minn., home. From March 2007 to March 2008, Mr. Bekis—who was legally responsible for his mother's finances—failed to pay over $49,000 in nursing-home bills on his mother's behalf, police say.
After pleading guilty to theft by swindle, Mr. Bekis was sentenced in June to 30 days of home detention, plus five years of probation. Mr. Bekis's attorney, John Cabak of Pine City, Minn., says he plans to contest an order that Mr. Bekis pay $80,975 in restitution to the nursing home.
Thomas Prusik Parkin, of Brooklyn, N.Y., allegedly went a step further. In April, according to local prosecutors, Mr. Parkin received a reverse mortgage in his mother's name—despite the fact that Irene Prusik has been dead since 2003. Mr. Parkin withdrew some $463,000 of the $600,000 available under the loan's line of credit, using it for expenses including tax liens on the roughly $1.5 million home he continued to claim title to, even after a 2003 foreclosure, prosecutors say.
Prosecutors also state that Mr. Parkin pocketed some $52,000 of his deceased mother's Social Security and thousands more in other government benefits she qualified for. Dennis Ring, deputy bureau chief in the rackets division of the Kings County District Attorney's Office, says Mr. Parkin maintained the fiction his mother was alive by giving the funeral director who completed her death certificate a false Social Security number and date of birth; thus, "under her legitimate information, there was no death certificate on file," Mr. Ring says. Occasionally, Mr. Parkin would also don a dress, cane and oxygen mask to disguise himself as Irene Prusik, Mr. Ring adds. Mr. Parkin pleaded not guilty, and his attorney declined to comment. He is being held on $1 million bail.
Ensnared in a Scam
Mr. Ford, in Florida, became ensnared in a larger scam. Before moving to Orlando in 2008, Garry Martin, 37, the title agent on Mr. Ford's reverse mortgage, was convicted of mortgage fraud in New York.
In Florida, Mr. Martin orchestrated about 10 reverse-mortgage schemes, pocketing about $1 million, prosecutors say. As title agent, Mr. Martin was obligated to distribute funds from his victims' reverse mortgages to retire their conventional mortgage loans. But according to prosecutors, he kept much of the money. To prevent his victims from catching on, he arranged for their monthly mortgage statements to be mailed to an address he controlled. The scheme unraveled when the banks contacted the victims about their missed mortgage payments.
Mr. Martin, who pleaded guilty to stealing over $5 million from more than 50 victims of mortgage-related frauds, faces up to 20 years in prison. His attorney declined to comment.
Mr. Ford, meanwhile, fears he may be running out of options. Unless the bank agrees to modify his loan, he says, "I don't see a way out."
Last summer, Lawrence Ford jumped into the fast-growing market for so-called reverse mortgages. The retired auto mechanic and horse trainer used the money he received to pay off his existing $70,000 mortgage and "piddled away" the remaining $24,000 on things like restaurant meals for his four girlfriends, he says.
..Or so Mr. Ford thought. Last month, the owner of the Orlando, Fla., title company that handled his loan admitted to stealing more than $1 million from several reverse-mortgage holders, including Mr. Ford. Bank of America Home Loans, a unit of Bank of America Corp., says the title agent never sent it the money required to pay off Mr. Ford's mortgage. As a result, Mr. Ford says, the bank recently threatened to foreclose on his seven-acre ranch in Archer, Fla.
"That will put me on the streets with my cars and horses and tools," says the 68-year-old Mr. Ford. Bank of America, which says there is no immediate danger of foreclosure, adds that it is working with Mr. Ford "to find a home-retention solution."
In the wake of the mortgage meltdown, regulators and law-enforcement officials are sounding alarms about the potential for yet another type of mortgage fraud—this time, in the small but fast-growing reverse-mortgage market. Such fraud, though still rare, "is occurring in every region of the United States and reverse-mortgage schemes have the potential to increase substantially," according to a recent publication issued by the Federal Bureau of Investigation and the Office of Inspector General at the U.S. Department of Housing and Urban Development, which oversees the federally insured loans that account for some 99% of the reverse-mortgage market.
Available to people 62 and older, reverse mortgages allow homeowners to convert their home equity into cash. Instead of writing a check to the bank each month, the bank pays the homeowner, who can elect to receive a lump sum, a line of credit or monthly payments. The loan is repaid, with interest, when the borrower dies, moves, sells the house, or fails to pay property taxes or homeowner's insurance.
Reverse-mortgage fraud, typically committed by homeowners' relatives, caretakers or financial advisers, has also been cropping up recently in schemes to unload distressed real estate. Regulators cite cases in which real-estate speculators bought properties on the cheap and then sold them, using inflated appraisals, to senior citizens willing to take out reverse mortgages.
Lenders and administrators of the HUD program say reverse mortgages, for the most part, are still working well. "There are little scams around the edges," says Meg Burns, director of Single Family Program Development for the Federal Housing Administration, the HUD division that administers the reverse-mortgage program. But she dismisses talk of widespread abuse as "unsubstantiated."
Understating the Problem
Yet recent data—and HUD's own inspectors—indicate reverse-mortgage scams are on the rise. So far this fiscal year, which ends Sept. 30, HUD has referred 29 cases of suspected fraud to its Office of Inspector General for investigation, up from two the year before. Jacqueline Felton, who heads the FBI's mortgage-fraud team, says her agency is also seeing an increase. Indeed, HUD's data on suspected fraud likely understates the extent of the problem. Anthony Medici, who in June testified before Congress as a special agent in the OIG's Criminal Investigation division, said current cases "involve hundreds of properties."
.This corner of the mortgage market is attracting concern for a couple of reasons. As the falling stock market has crushed retirement nest eggs, the number of federally insured reverse mortgages soared to 112,000 in 2008, up from 43,082 in 2005. HUD forecasts some 165,000 will be originated in this fiscal year. At the same time, Congress earlier this year temporarily raised the maximum amount homeowners can borrow against, from $417,000 to $625,500, making the loans "more lucrative for misdeeds," Mr. Medici told Congress.
In recent months, lenders including Wells Fargo Home Mortgage, MetLife Bank and Financial Freedom Acquisition LLC have taken steps designed to prevent and detect fraud. For instance, many are now looking for evidence that reverse-mortgage applicants have owned their homes for a set time frame—typically at least six months or a year.
Fighting 'Flipping'
Such measures are designed to curtail "flipping." Under these arrangements, speculators purchase distressed properties and, with the aid of cosmetic repairs and inflated appraisals, deed them to seniors at above-market prices. Seniors—some of whom may be part of the scheme—typically are promised homes for no money down. In return, they secure a reverse mortgage and divert some, if not all, of the proceeds to the scheme's promoters. Regulators say promoters have even recruited seniors from homeless shelters.
In response, U.S. Sen. Claire McCaskill (D., Mo.) is pushing legislation that would, among other things, require government-certified professionals to conduct appraisals on these loans. Because the government insures lenders against losses if a home ultimately sells for less than it takes to pay off a reverse mortgage, Sen. McCaskill has expressed concern about the risk fraud poses to taxpayers.
Despite such transactions, experts say most reverse-mortgage scams are perpetrated by people well-known to their victims. In one case, Larry Bekis, 51, of St. Paul, admitted to absconding with just over $121,000 from a reverse mortgage he arranged in 2006 on his 84-year-old mother's Lauderdale, Minn., home. From March 2007 to March 2008, Mr. Bekis—who was legally responsible for his mother's finances—failed to pay over $49,000 in nursing-home bills on his mother's behalf, police say.
After pleading guilty to theft by swindle, Mr. Bekis was sentenced in June to 30 days of home detention, plus five years of probation. Mr. Bekis's attorney, John Cabak of Pine City, Minn., says he plans to contest an order that Mr. Bekis pay $80,975 in restitution to the nursing home.
Thomas Prusik Parkin, of Brooklyn, N.Y., allegedly went a step further. In April, according to local prosecutors, Mr. Parkin received a reverse mortgage in his mother's name—despite the fact that Irene Prusik has been dead since 2003. Mr. Parkin withdrew some $463,000 of the $600,000 available under the loan's line of credit, using it for expenses including tax liens on the roughly $1.5 million home he continued to claim title to, even after a 2003 foreclosure, prosecutors say.
Prosecutors also state that Mr. Parkin pocketed some $52,000 of his deceased mother's Social Security and thousands more in other government benefits she qualified for. Dennis Ring, deputy bureau chief in the rackets division of the Kings County District Attorney's Office, says Mr. Parkin maintained the fiction his mother was alive by giving the funeral director who completed her death certificate a false Social Security number and date of birth; thus, "under her legitimate information, there was no death certificate on file," Mr. Ring says. Occasionally, Mr. Parkin would also don a dress, cane and oxygen mask to disguise himself as Irene Prusik, Mr. Ring adds. Mr. Parkin pleaded not guilty, and his attorney declined to comment. He is being held on $1 million bail.
Ensnared in a Scam
Mr. Ford, in Florida, became ensnared in a larger scam. Before moving to Orlando in 2008, Garry Martin, 37, the title agent on Mr. Ford's reverse mortgage, was convicted of mortgage fraud in New York.
In Florida, Mr. Martin orchestrated about 10 reverse-mortgage schemes, pocketing about $1 million, prosecutors say. As title agent, Mr. Martin was obligated to distribute funds from his victims' reverse mortgages to retire their conventional mortgage loans. But according to prosecutors, he kept much of the money. To prevent his victims from catching on, he arranged for their monthly mortgage statements to be mailed to an address he controlled. The scheme unraveled when the banks contacted the victims about their missed mortgage payments.
Mr. Martin, who pleaded guilty to stealing over $5 million from more than 50 victims of mortgage-related frauds, faces up to 20 years in prison. His attorney declined to comment.
Mr. Ford, meanwhile, fears he may be running out of options. Unless the bank agrees to modify his loan, he says, "I don't see a way out."
Wednesday, August 26, 2009
New-Home Sales Post Another Strong Gain
New-home sales climbed more than anticipated in July, staging their fourth straight month of strong gains to add to evidence that the housing market is emerging from its long slump.
Separately, demand for long-lasting goods rebounded sharply in July, staging their biggest gain in two years on the back of big orders for planes and capital goods.
Sales of single-family homes increased by 9.6% to a seasonally adjusted annual rate of 433,000 compared to the prior month, the Commerce Department said Wednesday.
That was the highest number sold since September 2008 and well above projections for a 1.6% gain to 390,000 by economists surveyed by Dow Jones Newswires.
The increase was the fifth in seven months, as buyers are returning to the market in search of bargains.
The market for new homes appears to have bottomed in January, when sales hit 329,000Home construction unexpectedly fell 1% in July, however, according to data released earlier in the month.
June new-home sales were revised up to an annual rate of 395,000, a 9.1% increase, Wednesday's data showed. Originally, the government had reported an 11% jump in June sales to 384,000, though May sales were also revised up to 362,000 from 346,000.
Year over year, July new-home sales were still down 13.4%, however.
The market for new homes is expected to continue to lag sales of used homes, where foreclosures have dragged down prices.
The median price for a new home was $210,100 in July, down 11.5% from $237,300 the same month a year ago. On a monthly basis, the price edged down 0.1% from $210,400 in June.
Oversupply has been is one factor keeping prices down, though there was significant improvement in that area, as well. The ratio of houses for sale to houses sold in July was 7.5, the lowest level since April 2007 and down from 8.5 the month before. At the end of July, there were an estimated 271,000 homes for sale, the smallest number since March 1993. That compares with 280,000 in June.
Regionally last month, new-home sales jumped 32.4% in the Northeast and 16.2% in the South, with sales up 1% in the West. Sales were down 7.6% in the Midwest.
An estimated 39,000 homes were actually sold in July, up from 36,000 in June, based on figures not seasonally adjusted.
Biggest Durables Gain in Two Years
Manufacturers' orders for durable goods jumped 4.9% last month to a seasonally adjusted $168.43 billion, the Commerce Department said Wednesday. That was the largest increase since 5.4% in July 2007.
Economists surveyed by Dow Jones Newswires had projected a 3% gain in July orders.
Overall durable goods orders for June were revised up, estimated to have declined 1.3% instead of the 2.2% drop previously reported.
Transportation-related durables climbed 18.4% in July, the biggest gain since September 2006. Orders for commercial planes soared 107.2%, following a 30% drop the previous month.
Motor-vehicle orders increased 0.9%, with General Motors Co. joining Chrysler to emerge out of bankruptcy and both firms getting a boost from the "Cash for Clunkers" program.
Excluding the transportation sector, orders for all other durables climbed 0.8%. Demand ex-transportation had gained 2.5% in June. Orders for all durables except defense goods increased by 4.3% in July, also a two-year high, after rising 0.7% in June.
Orders for nondefense capital goods excluding aircraft -- a key barometer for capital spending by U.S. businesses -- fell 0.3%. That follows a 3.6% gain in June.
Overall capital goods orders rose 9.5% in July. Nondefense capital goods -- items meant to last 10 years or longer -- gained by 8.6%. Defense-related capital goods orders went up by 14.8%.
Durable goods are products designed to last at least three years, such as cars, planes and computers. While the monthly figures tend to be volatile, such big ticket items provide an indication about the health of U.S. manufacturing and domestic demand.
Data out earlier this month showed a 0.5% pickup in U.S. industrial production in July, for the first monthly gain since October 2008 and only the second since the recession began in December 2007.
On Thursday, second-quarter gross domestic product is expected to be revised down to a 1.5% contraction, instead of the 1% decline in the preliminary estimate. That's due in part to expectations that businesses liquidated more inventory than initially thought. Still, most economists believe that the recession is at or near its end.
Wednesday's report showed that manufacturers are still reducing inventory, however, with inventories of durable goods registering their seventh straight month of declines at 0.8% in July.
Unfilled manufacturers' orders for durables, a sign of future demand, decreased 0.1% for the tenth consecutive decline.
Separately, demand for long-lasting goods rebounded sharply in July, staging their biggest gain in two years on the back of big orders for planes and capital goods.
Sales of single-family homes increased by 9.6% to a seasonally adjusted annual rate of 433,000 compared to the prior month, the Commerce Department said Wednesday.
That was the highest number sold since September 2008 and well above projections for a 1.6% gain to 390,000 by economists surveyed by Dow Jones Newswires.
The increase was the fifth in seven months, as buyers are returning to the market in search of bargains.
The market for new homes appears to have bottomed in January, when sales hit 329,000Home construction unexpectedly fell 1% in July, however, according to data released earlier in the month.
June new-home sales were revised up to an annual rate of 395,000, a 9.1% increase, Wednesday's data showed. Originally, the government had reported an 11% jump in June sales to 384,000, though May sales were also revised up to 362,000 from 346,000.
Year over year, July new-home sales were still down 13.4%, however.
The market for new homes is expected to continue to lag sales of used homes, where foreclosures have dragged down prices.
The median price for a new home was $210,100 in July, down 11.5% from $237,300 the same month a year ago. On a monthly basis, the price edged down 0.1% from $210,400 in June.
Oversupply has been is one factor keeping prices down, though there was significant improvement in that area, as well. The ratio of houses for sale to houses sold in July was 7.5, the lowest level since April 2007 and down from 8.5 the month before. At the end of July, there were an estimated 271,000 homes for sale, the smallest number since March 1993. That compares with 280,000 in June.
Regionally last month, new-home sales jumped 32.4% in the Northeast and 16.2% in the South, with sales up 1% in the West. Sales were down 7.6% in the Midwest.
An estimated 39,000 homes were actually sold in July, up from 36,000 in June, based on figures not seasonally adjusted.
Biggest Durables Gain in Two Years
Manufacturers' orders for durable goods jumped 4.9% last month to a seasonally adjusted $168.43 billion, the Commerce Department said Wednesday. That was the largest increase since 5.4% in July 2007.
Economists surveyed by Dow Jones Newswires had projected a 3% gain in July orders.
Overall durable goods orders for June were revised up, estimated to have declined 1.3% instead of the 2.2% drop previously reported.
Transportation-related durables climbed 18.4% in July, the biggest gain since September 2006. Orders for commercial planes soared 107.2%, following a 30% drop the previous month.
Motor-vehicle orders increased 0.9%, with General Motors Co. joining Chrysler to emerge out of bankruptcy and both firms getting a boost from the "Cash for Clunkers" program.
Excluding the transportation sector, orders for all other durables climbed 0.8%. Demand ex-transportation had gained 2.5% in June. Orders for all durables except defense goods increased by 4.3% in July, also a two-year high, after rising 0.7% in June.
Orders for nondefense capital goods excluding aircraft -- a key barometer for capital spending by U.S. businesses -- fell 0.3%. That follows a 3.6% gain in June.
Overall capital goods orders rose 9.5% in July. Nondefense capital goods -- items meant to last 10 years or longer -- gained by 8.6%. Defense-related capital goods orders went up by 14.8%.
Durable goods are products designed to last at least three years, such as cars, planes and computers. While the monthly figures tend to be volatile, such big ticket items provide an indication about the health of U.S. manufacturing and domestic demand.
Data out earlier this month showed a 0.5% pickup in U.S. industrial production in July, for the first monthly gain since October 2008 and only the second since the recession began in December 2007.
On Thursday, second-quarter gross domestic product is expected to be revised down to a 1.5% contraction, instead of the 1% decline in the preliminary estimate. That's due in part to expectations that businesses liquidated more inventory than initially thought. Still, most economists believe that the recession is at or near its end.
Wednesday's report showed that manufacturers are still reducing inventory, however, with inventories of durable goods registering their seventh straight month of declines at 0.8% in July.
Unfilled manufacturers' orders for durables, a sign of future demand, decreased 0.1% for the tenth consecutive decline.
Tuesday, August 25, 2009
Home Prices Show Gains for Second Month in Row
By NICK TIMIRAOS and KELLY EVANS, August 25th, Wall Street Journal
Home prices in major U.S. cities increased for the second-straight month in June, the latest sign housing markets may be bouncing along a bottom after years of declines.
The S&P/Case-Shiller index measure of home prices in 20 major cities in the three months ended June 30 was up 1.4% from the level in the three months ended May 31. Prices gained in 18 of 20 markets. It was the first time the index rose two months in a row since mid-2006.
"Momentum matters," said Robert Shiller, the Yale University economist who helped create the index. "This is a sudden break in momentum."
Housing: Should Congress Extend Tax Credit
Fewer Catching Up on Lapsed Mortgages
The hint of improvement in housing and the broader economy was underscored in a separate report Tuesday showing consumer attitudes improved in August after two months of decline. Consumer confidence rose to a level of 54.1 in August, just shy of the 54.8 level reached in May, according to a survey produced by the Conference Board, a New York-based business research group.
One component of the index, consumer expectations, rose to 75.8, its highest since the recession began in December 2007. Their assessment of present conditions also improved, and buying plans for autos, homes, and major appliances increased across the board.
Housing economists and real-estate professionals warn that the eventual recovery is likely to be bumpy and home prices could drop again as job losses drive foreclosures higher. "It really is too soon to call this as a turning point," Mr. Shiller said, recalling an improvement in prices in early 2008 before the deteriorating economy sent housing back into a tailspin.
Home prices are down 15.4% for the year ending in June, though that's an improvement over the 19.1% decline reported in the first quarter. Government officials used the Case-Shiller 10-city index when modeling their assumptions for stress tests used to gauge the health of U.S. banks earlier this year. Under a baseline scenario, officials predicted declines of 14% for 2009, while an adverse scenario forecast a 22% drop. So far, that index is down 15.1% for the last 12 months, and down 5.5% so far this year.
A separate price gauge calculated by the Federal Housing Finance Agency, which uses sales price information on mortgages owned or guaranteed by Fannie Mae or Freddie Mac, showed that home prices increased by 0.5% in June from May.
Recent home price gains have been driven, in part, by competition between first-time buyers and investors making all-cash bids for foreclosed properties. Demand also has been boosted by government intervention that helped drive mortgage rates to half-century lows in the spring and a tax credit of as much as $8,000 tax credit for first-time home buyers, set to expire Nov. 30.
Other headwinds remain. Mortgage defaults and foreclosures aren't likely to peak until unemployment ebbs. The rate of 90-day delinquencies on loans owned or guarantee by state-backed mortgage-finance company Freddie Mac rose to nearly 3% in July from 2.8% in June and 1% in July 2008.
While rising demand has helped soak up foreclosure inventory in several hard-hit markets, rising mortgage defaults have fueled concerns among real-estate professionals that the supply of new foreclosures could jump later this year. Efforts to stave off foreclosures by modifying mortgages could determine how many of those homes end up for sale. "The government has not yet handled the foreclosure problem," said Mr. Shiller.
Las Vegas and Detroit were the only markets that saw monthly declines in June. Home prices in Las Vegas have dropped by 32.4% over the past 12 months, moving ahead of Phoenix, which is down by 31.6% from one year ago. Only five markets have posted annual declines in the single digits: Dallas, Cleveland, Denver, Boston, and Charlotte, N.C.
Home prices in major U.S. cities increased for the second-straight month in June, the latest sign housing markets may be bouncing along a bottom after years of declines.
The S&P/Case-Shiller index measure of home prices in 20 major cities in the three months ended June 30 was up 1.4% from the level in the three months ended May 31. Prices gained in 18 of 20 markets. It was the first time the index rose two months in a row since mid-2006.
"Momentum matters," said Robert Shiller, the Yale University economist who helped create the index. "This is a sudden break in momentum."
Housing: Should Congress Extend Tax Credit
Fewer Catching Up on Lapsed Mortgages
The hint of improvement in housing and the broader economy was underscored in a separate report Tuesday showing consumer attitudes improved in August after two months of decline. Consumer confidence rose to a level of 54.1 in August, just shy of the 54.8 level reached in May, according to a survey produced by the Conference Board, a New York-based business research group.
One component of the index, consumer expectations, rose to 75.8, its highest since the recession began in December 2007. Their assessment of present conditions also improved, and buying plans for autos, homes, and major appliances increased across the board.
Housing economists and real-estate professionals warn that the eventual recovery is likely to be bumpy and home prices could drop again as job losses drive foreclosures higher. "It really is too soon to call this as a turning point," Mr. Shiller said, recalling an improvement in prices in early 2008 before the deteriorating economy sent housing back into a tailspin.
Home prices are down 15.4% for the year ending in June, though that's an improvement over the 19.1% decline reported in the first quarter. Government officials used the Case-Shiller 10-city index when modeling their assumptions for stress tests used to gauge the health of U.S. banks earlier this year. Under a baseline scenario, officials predicted declines of 14% for 2009, while an adverse scenario forecast a 22% drop. So far, that index is down 15.1% for the last 12 months, and down 5.5% so far this year.
A separate price gauge calculated by the Federal Housing Finance Agency, which uses sales price information on mortgages owned or guaranteed by Fannie Mae or Freddie Mac, showed that home prices increased by 0.5% in June from May.
Recent home price gains have been driven, in part, by competition between first-time buyers and investors making all-cash bids for foreclosed properties. Demand also has been boosted by government intervention that helped drive mortgage rates to half-century lows in the spring and a tax credit of as much as $8,000 tax credit for first-time home buyers, set to expire Nov. 30.
Other headwinds remain. Mortgage defaults and foreclosures aren't likely to peak until unemployment ebbs. The rate of 90-day delinquencies on loans owned or guarantee by state-backed mortgage-finance company Freddie Mac rose to nearly 3% in July from 2.8% in June and 1% in July 2008.
While rising demand has helped soak up foreclosure inventory in several hard-hit markets, rising mortgage defaults have fueled concerns among real-estate professionals that the supply of new foreclosures could jump later this year. Efforts to stave off foreclosures by modifying mortgages could determine how many of those homes end up for sale. "The government has not yet handled the foreclosure problem," said Mr. Shiller.
Las Vegas and Detroit were the only markets that saw monthly declines in June. Home prices in Las Vegas have dropped by 32.4% over the past 12 months, moving ahead of Phoenix, which is down by 31.6% from one year ago. Only five markets have posted annual declines in the single digits: Dallas, Cleveland, Denver, Boston, and Charlotte, N.C.
Home Prices Show Gains for Second Month in Row
By NICK TIMIRAOS and KELLY EVANS, August 25th, 2009 - Wall Street Journal
Home prices in major U.S. cities increased for the second-straight month in June, the latest sign housing markets may be bouncing along a bottom after years of declines.
The S&P/Case-Shiller index measure of home prices in 20 major cities in the three months ended June 30 was up 1.4% from the level in the three months ended May 31. Prices gained in 18 of 20 markets. It was the first time the index rose two months in a row since mid-2006.
"Momentum matters," said Robert Shiller, the Yale University economist who helped create the index. "This is a sudden break in momentum."
Housing: Should Congress Extend Tax Credit
Fewer Catching Up on Lapsed Mortgages
The hint of improvement in housing and the broader economy was underscored in a separate report Tuesday showing consumer attitudes improved in August after two months of decline. Consumer confidence rose to a level of 54.1 in August, just shy of the 54.8 level reached in May, according to a survey produced by the Conference Board, a New York-based business research group.
One component of the index, consumer expectations, rose to 75.8, its highest since the recession began in December 2007. Their assessment of present conditions also improved, and buying plans for autos, homes, and major appliances increased across the board.
Housing economists and real-estate professionals warn that the eventual recovery is likely to be bumpy and home prices could drop again as job losses drive foreclosures higher. "It really is too soon to call this as a turning point," Mr. Shiller said, recalling an improvement in prices in early 2008 before the deteriorating economy sent housing back into a tailspin.
Home prices are down 15.4% for the year ending in June, though that's an improvement over the 19.1% decline reported in the first quarter. Government officials used the Case-Shiller 10-city index when modeling their assumptions for stress tests used to gauge the health of U.S. banks earlier this year. Under a baseline scenario, officials predicted declines of 14% for 2009, while an adverse scenario forecast a 22% drop. So far, that index is down 15.1% for the last 12 months, and down 5.5% so far this year.
A separate price gauge calculated by the Federal Housing Finance Agency, which uses sales price information on mortgages owned or guaranteed by Fannie Mae or Freddie Mac, showed that home prices increased by 0.5% in June from May.
Recent home price gains have been driven, in part, by competition between first-time buyers and investors making all-cash bids for foreclosed properties. Demand also has been boosted by government intervention that helped drive mortgage rates to half-century lows in the spring and a tax credit of as much as $8,000 tax credit for first-time home buyers, set to expire Nov. 30.
Other headwinds remain. Mortgage defaults and foreclosures aren't likely to peak until unemployment ebbs. The rate of 90-day delinquencies on loans owned or guarantee by state-backed mortgage-finance company Freddie Mac rose to nearly 3% in July from 2.8% in June and 1% in July 2008.
While rising demand has helped soak up foreclosure inventory in several hard-hit markets, rising mortgage defaults have fueled concerns among real-estate professionals that the supply of new foreclosures could jump later this year. Efforts to stave off foreclosures by modifying mortgages could determine how many of those homes end up for sale. "The government has not yet handled the foreclosure problem," said Mr. Shiller.
Las Vegas and Detroit were the only markets that saw monthly declines in June. Home prices in Las Vegas have dropped by 32.4% over the past 12 months, moving ahead of Phoenix, which is down by 31.6% from one year ago. Only five markets have posted annual declines in the single digits: Dallas, Cleveland, Denver, Boston, and Charlotte, N.C.
Home prices in major U.S. cities increased for the second-straight month in June, the latest sign housing markets may be bouncing along a bottom after years of declines.
The S&P/Case-Shiller index measure of home prices in 20 major cities in the three months ended June 30 was up 1.4% from the level in the three months ended May 31. Prices gained in 18 of 20 markets. It was the first time the index rose two months in a row since mid-2006.
"Momentum matters," said Robert Shiller, the Yale University economist who helped create the index. "This is a sudden break in momentum."
Housing: Should Congress Extend Tax Credit
Fewer Catching Up on Lapsed Mortgages
The hint of improvement in housing and the broader economy was underscored in a separate report Tuesday showing consumer attitudes improved in August after two months of decline. Consumer confidence rose to a level of 54.1 in August, just shy of the 54.8 level reached in May, according to a survey produced by the Conference Board, a New York-based business research group.
One component of the index, consumer expectations, rose to 75.8, its highest since the recession began in December 2007. Their assessment of present conditions also improved, and buying plans for autos, homes, and major appliances increased across the board.
Housing economists and real-estate professionals warn that the eventual recovery is likely to be bumpy and home prices could drop again as job losses drive foreclosures higher. "It really is too soon to call this as a turning point," Mr. Shiller said, recalling an improvement in prices in early 2008 before the deteriorating economy sent housing back into a tailspin.
Home prices are down 15.4% for the year ending in June, though that's an improvement over the 19.1% decline reported in the first quarter. Government officials used the Case-Shiller 10-city index when modeling their assumptions for stress tests used to gauge the health of U.S. banks earlier this year. Under a baseline scenario, officials predicted declines of 14% for 2009, while an adverse scenario forecast a 22% drop. So far, that index is down 15.1% for the last 12 months, and down 5.5% so far this year.
A separate price gauge calculated by the Federal Housing Finance Agency, which uses sales price information on mortgages owned or guaranteed by Fannie Mae or Freddie Mac, showed that home prices increased by 0.5% in June from May.
Recent home price gains have been driven, in part, by competition between first-time buyers and investors making all-cash bids for foreclosed properties. Demand also has been boosted by government intervention that helped drive mortgage rates to half-century lows in the spring and a tax credit of as much as $8,000 tax credit for first-time home buyers, set to expire Nov. 30.
Other headwinds remain. Mortgage defaults and foreclosures aren't likely to peak until unemployment ebbs. The rate of 90-day delinquencies on loans owned or guarantee by state-backed mortgage-finance company Freddie Mac rose to nearly 3% in July from 2.8% in June and 1% in July 2008.
While rising demand has helped soak up foreclosure inventory in several hard-hit markets, rising mortgage defaults have fueled concerns among real-estate professionals that the supply of new foreclosures could jump later this year. Efforts to stave off foreclosures by modifying mortgages could determine how many of those homes end up for sale. "The government has not yet handled the foreclosure problem," said Mr. Shiller.
Las Vegas and Detroit were the only markets that saw monthly declines in June. Home prices in Las Vegas have dropped by 32.4% over the past 12 months, moving ahead of Phoenix, which is down by 31.6% from one year ago. Only five markets have posted annual declines in the single digits: Dallas, Cleveland, Denver, Boston, and Charlotte, N.C.
Monday, August 24, 2009
What Makes this Economic Recovery Different
In a normal economic cycle, an inventory-led recovery would be followed by corporate capital expenditure, leading to employment expansion. Rising employment leads to consumption growth, which expands profitability and more capex. Why won't it work this time? The reason, as I have argued before, is that a big bubble distorted the global economic structure. Re-matching supply and demand will take a long time.
Friday, August 21, 2009
Why the ‘Wave’ of Foreclosure Listings Might Never Happen
By Nick Timiraos, Wall Street Journal - August 21st, 2009
For weeks, even months, real-estate professionals have been asking the same question: when will the so-called shadow inventory of homes in the process of foreclosure finally hit the market?
Most mortgage servicers ended a foreclosure moratorium in March, and pre-foreclosure filings have accelerated since then, even as the supply of bank-owned properties in some markets has dwindled.
But what if that wave of foreclosures never hits the market? “For those of you still waiting for a surge of foreclosure sales, the truth is you’ll likely be waiting a long time,” writes Sean O’Toole, the founder of ForeclosureRadar.com, which tracks foreclosure filings in California. He breaks down his argument at his blog in this pithy post here.
For one, the time between a mortgage default and a foreclosure listing has grown longer as more homeowners try to complete loan modifications or short sales. Banks aren’t likely to cancel foreclosures even if they put a borrower into a trial modification. Instead, they’ll simply keep the opportunity to foreclose in case the loan modification fails.
One clue that modifications will work: cancellations of foreclosure auctions. So far, cancellations are up slightly, Mr. O’Toole says, but not enough to explain the yawning gap between mortgage defaults and bank-owned listings.
One possibility: foreclosures will simply stay at an elevated level for the next couple years, he says, but there won’t be a huge wave of inventory added all at once. For now, California is seeing a housing inventory shortage, in part because short sales are still hard to execute. Many homeowners are underwater and can’t sell, and those who can don’t want to put their homes on the market if they’re looking at a big loss.
Mr. O’Toole has done some interesting analysis that shows just how profound government policies may have been in encouraging banks to slow down foreclosures. His argument: When the U.S. last September began purchasing direct obligations of government-sponsored mortgage companies, and later began buying mortgage-backed securities that sent a message to banks that they didn’t need to refill empty cash cushions by foreclosing. Policymakers also changed accounting rules so that banks wouldn’t have to take as severe writedowns.
While the raw data suggests that foreclosures should be increasing, it’s harder to predict because “there’s so much government middling into this process,” Mr. O’Toole told the Developments blog. “When you have this much government intervention going on, things don’t necessarily proceed as they should.” (See our earlier post this week on the topic.)
As for the idea that banks are deliberately holding onto foreclosed homes? Mr. O’Toole shoots that idea down too, with a quick back-of-the-envelope sketch that shows that while the gap between bank repossessions and foreclosure sales stands at around 90,000 in California, the actual shadow inventory is probably closer to 22,500.
Readers, what do you think: is the shadow inventory just a Realtor pipe dream?
For weeks, even months, real-estate professionals have been asking the same question: when will the so-called shadow inventory of homes in the process of foreclosure finally hit the market?
Most mortgage servicers ended a foreclosure moratorium in March, and pre-foreclosure filings have accelerated since then, even as the supply of bank-owned properties in some markets has dwindled.
But what if that wave of foreclosures never hits the market? “For those of you still waiting for a surge of foreclosure sales, the truth is you’ll likely be waiting a long time,” writes Sean O’Toole, the founder of ForeclosureRadar.com, which tracks foreclosure filings in California. He breaks down his argument at his blog in this pithy post here.
For one, the time between a mortgage default and a foreclosure listing has grown longer as more homeowners try to complete loan modifications or short sales. Banks aren’t likely to cancel foreclosures even if they put a borrower into a trial modification. Instead, they’ll simply keep the opportunity to foreclose in case the loan modification fails.
One clue that modifications will work: cancellations of foreclosure auctions. So far, cancellations are up slightly, Mr. O’Toole says, but not enough to explain the yawning gap between mortgage defaults and bank-owned listings.
One possibility: foreclosures will simply stay at an elevated level for the next couple years, he says, but there won’t be a huge wave of inventory added all at once. For now, California is seeing a housing inventory shortage, in part because short sales are still hard to execute. Many homeowners are underwater and can’t sell, and those who can don’t want to put their homes on the market if they’re looking at a big loss.
Mr. O’Toole has done some interesting analysis that shows just how profound government policies may have been in encouraging banks to slow down foreclosures. His argument: When the U.S. last September began purchasing direct obligations of government-sponsored mortgage companies, and later began buying mortgage-backed securities that sent a message to banks that they didn’t need to refill empty cash cushions by foreclosing. Policymakers also changed accounting rules so that banks wouldn’t have to take as severe writedowns.
While the raw data suggests that foreclosures should be increasing, it’s harder to predict because “there’s so much government middling into this process,” Mr. O’Toole told the Developments blog. “When you have this much government intervention going on, things don’t necessarily proceed as they should.” (See our earlier post this week on the topic.)
As for the idea that banks are deliberately holding onto foreclosed homes? Mr. O’Toole shoots that idea down too, with a quick back-of-the-envelope sketch that shows that while the gap between bank repossessions and foreclosure sales stands at around 90,000 in California, the actual shadow inventory is probably closer to 22,500.
Readers, what do you think: is the shadow inventory just a Realtor pipe dream?
Wednesday, August 19, 2009
Has Government Intervention Stalled Home Price Declines?
Some housing analysts have made the case that home prices have stabilized in recent months, in part, because foreclosure moratoria earlier this year helped to limit the supply of homes coming on the market during the spring and summer—just as the policymakers simultaneously goosed demand by lowering mortgage rates and offering a tax credit to first-time home buyers.
That raises some big questions: What happens when those new foreclosures accelerate later this year, and more supply hits the market? Will prices decline further if those demand-side incentives run their course? Have government efforts simply hit the pause button on the housing market downturn?
The answers to those questions produce different estimates about how much further the housing market has to fall, and a new forecast from Lazard Asset Management offers several different scenarios. The most probable scenario forecasts that home prices have another 10-15% decline from the current level, though prices are expected to rise slightly through the end of the summer as government intervention helps boost the housing market.
But Lazard also offers two additional scenarios: a “bull” market forecast that predicts an 8% home price decline from May, and a “bear” market scenario that forecasts a 19% price decline from the first quarter of 2009.
“Even in our bear case, it is clear that the government intervention to increase affordability and demand through lower mortgage rates, and to decrease supply through foreclosure moratoria and modifications, are having a positive impact on house prices relative to what would have occurred in the short term,” writes Ronald Temple, portfolio manager and co-director of research at Lazard Asset Management. ”The key question is how sustainable the benefits of such intervention will be.”
Even if government efforts simply delay an onslaught of new bank-owned supply of homes, the government’s attempt to kick the supply can down the road could have a positive benefit–provided that the economy is in better shape and consumer confidence has improved when that supply becomes available, there could be more buyers ready to soak up the inventory.
Also, various moratoria and foreclosure modification programs have increased the average time it takes for a lender to move a home from foreclosure to sale to around 11 months (and longer in some states, such as Florida and New York), according to Lazard. That means that homes slated for foreclosure last November might not sell until later this year or early 2010, providing some tailwinds for home prices through next year.
That raises some big questions: What happens when those new foreclosures accelerate later this year, and more supply hits the market? Will prices decline further if those demand-side incentives run their course? Have government efforts simply hit the pause button on the housing market downturn?
The answers to those questions produce different estimates about how much further the housing market has to fall, and a new forecast from Lazard Asset Management offers several different scenarios. The most probable scenario forecasts that home prices have another 10-15% decline from the current level, though prices are expected to rise slightly through the end of the summer as government intervention helps boost the housing market.
But Lazard also offers two additional scenarios: a “bull” market forecast that predicts an 8% home price decline from May, and a “bear” market scenario that forecasts a 19% price decline from the first quarter of 2009.
“Even in our bear case, it is clear that the government intervention to increase affordability and demand through lower mortgage rates, and to decrease supply through foreclosure moratoria and modifications, are having a positive impact on house prices relative to what would have occurred in the short term,” writes Ronald Temple, portfolio manager and co-director of research at Lazard Asset Management. ”The key question is how sustainable the benefits of such intervention will be.”
Even if government efforts simply delay an onslaught of new bank-owned supply of homes, the government’s attempt to kick the supply can down the road could have a positive benefit–provided that the economy is in better shape and consumer confidence has improved when that supply becomes available, there could be more buyers ready to soak up the inventory.
Also, various moratoria and foreclosure modification programs have increased the average time it takes for a lender to move a home from foreclosure to sale to around 11 months (and longer in some states, such as Florida and New York), according to Lazard. That means that homes slated for foreclosure last November might not sell until later this year or early 2010, providing some tailwinds for home prices through next year.
Monday, August 17, 2009
Home Prices: There's No Quick Recovery Ahead
By BRETT ARENDS, Wall Street Journal
So, is our long national nightmare over? Has the housing market finally hit bottom?
There has been some muted -- albeit exhausted -- cheering from homeowners in recent weeks. But before we break out the champagne, look out for further potential problems just down the road.
The good news? According to the closely watched Case-Shiller Home Price Index, which tracks home prices across 20 major cities nationwide, the three-year housing slump slowed sharply in April and May.
May's decline was just 0.2%, the slowest in two years. And several cities actually saw prices rise -- among them Denver, Washington, D.C., Chicago, Boston, Cleveland and Dallas.
Even Miami only fell about 1% in May. That's a great month down there. Previously, prices had been falling 3% a month.
We'll get an even better picture of the situation when the Case-Shiller figures for June are released on Aug. 25.
But these data aren't the only hopeful signs.
Inventories of unsold homes have come down. According to the National Association of Realtors, there were about 3.8 million unsold homes on the market at the end of June. That's down a long way from 4.5 million a year ago.
And yes, housing affordability is dramatically better. People, obviously, need to live somewhere. At some point, housing gets cheap enough that the fundamentals start to look good.
The average home is about a third cheaper than it was at the peak three years ago, a plunge unprecedented since the Great Depression. In the hardest-hit places, such as Phoenix, Las Vegas and Miami, average prices have been halved or better from their bubble peaks.
Cheap Mortgages, Too
Factor in falling mortgage rates as well, and housing starts to look cheap by many measures. Thirty-year mortgage rates, at around 5.5%, are still low by historic standards. A few months ago, when they fell below 5%, they were very cheap.
There's some other good news for homeowners from the rest of the economy. July's job losses were better than feared: The unemployment rate, which was heading vertical a few months ago, eased to 9.4% last month from 9.5%.
Some are saying the worst is behind us, for the economy and the housing market. No wonder the iShares Dow Jones U.S. Home Construction exchange-traded fund (ITB), which tracks shares of home-building stocks, has bounced sharply since early July.
So, is that it?
Not so fast.
Prices may -- may -- be nearing the bottom in many markets. But beyond the headlines, there are plenty of reasons to stay cautious. There may even be fresh dangers just ahead.
And even if prices have stopped falling, it may be years before they start rising sharply again.
First, late spring is traditionally the strongest season in the real-estate market.
And it's hardly a surprise the market saw some green shoots this time around. It's enjoying not one, but two, gigantic taxpayer subsidies -- an $8,000 refundable tax credit, or gift, for first-time buyers, as well as those cheap mortgage rates. The Federal Reserve has been spending billions of dollars to keep interest rates down.
Both are only short-term fixes. Any sustained economic upturn would be expected to send long-term mortgage rates rising again, dousing the real-estate market with fresh cold water.
Glut of Empty Houses
The picture on inventories isn't as good as it sounds, either. A lot of unsold homes have simply been put up for rent instead, especially in the most difficult markets like Miami. The result? A glut of empty rentals as well.
New waves of foreclosures and distressed sales may be coming, too. In states such as California, it can take many months for delinquencies to turn to foreclosures, which means last winter's bad news may still be coming down the pike. Meanwhile, vast tranches of teaser-rate mortgages are due to reset later this year and in 2010.
As for the economy: Both unemployment and household debt levels remain at extremely high levels by the standards of postwar history. Either is bad news for housing. The combination is very bad.
Dean Baker, co-director of the Center for Economic and Policy Research, argued in a recent paper that the fundamentals still aren't great. It still remains cheaper to rent than to own in many markets, he says.
The biggest bubbles usually produce the deepest busts. And the 2002-2006 bubble was a doozy. The bad news may have ended after three terrible years, but maybe not. Japanese housing prices still haven't recovered from the late 1980s bubble. Western U.S. markets took six or seven years to recover after the last big bubble burst there in the early 1990s.
Yes, there are some hopeful signs, but don't let them fool you into thinking it's all clear. It might not be. As ever, anyone making a major financial decision needs to think more about his or her own situation than what "the market" is doing. A real-estate purchase needs to make sense on its own terms. And measure it on cash flow today, not the hope for capital gains tomorrow. When you factor in all the costs, is the purchase cheaper than renting?
If you get a cheap mortgage and you are aggressive on price, you may get a bargain. That's especially true if the owner has to sell. Foreclosures and other distressed sales are selling for about 20% below the rest of the market. There are opportunities out there. But you can afford to take your time to shop around.
So, is our long national nightmare over? Has the housing market finally hit bottom?
There has been some muted -- albeit exhausted -- cheering from homeowners in recent weeks. But before we break out the champagne, look out for further potential problems just down the road.
The good news? According to the closely watched Case-Shiller Home Price Index, which tracks home prices across 20 major cities nationwide, the three-year housing slump slowed sharply in April and May.
May's decline was just 0.2%, the slowest in two years. And several cities actually saw prices rise -- among them Denver, Washington, D.C., Chicago, Boston, Cleveland and Dallas.
Even Miami only fell about 1% in May. That's a great month down there. Previously, prices had been falling 3% a month.
We'll get an even better picture of the situation when the Case-Shiller figures for June are released on Aug. 25.
But these data aren't the only hopeful signs.
Inventories of unsold homes have come down. According to the National Association of Realtors, there were about 3.8 million unsold homes on the market at the end of June. That's down a long way from 4.5 million a year ago.
And yes, housing affordability is dramatically better. People, obviously, need to live somewhere. At some point, housing gets cheap enough that the fundamentals start to look good.
The average home is about a third cheaper than it was at the peak three years ago, a plunge unprecedented since the Great Depression. In the hardest-hit places, such as Phoenix, Las Vegas and Miami, average prices have been halved or better from their bubble peaks.
Cheap Mortgages, Too
Factor in falling mortgage rates as well, and housing starts to look cheap by many measures. Thirty-year mortgage rates, at around 5.5%, are still low by historic standards. A few months ago, when they fell below 5%, they were very cheap.
There's some other good news for homeowners from the rest of the economy. July's job losses were better than feared: The unemployment rate, which was heading vertical a few months ago, eased to 9.4% last month from 9.5%.
Some are saying the worst is behind us, for the economy and the housing market. No wonder the iShares Dow Jones U.S. Home Construction exchange-traded fund (ITB), which tracks shares of home-building stocks, has bounced sharply since early July.
So, is that it?
Not so fast.
Prices may -- may -- be nearing the bottom in many markets. But beyond the headlines, there are plenty of reasons to stay cautious. There may even be fresh dangers just ahead.
And even if prices have stopped falling, it may be years before they start rising sharply again.
First, late spring is traditionally the strongest season in the real-estate market.
And it's hardly a surprise the market saw some green shoots this time around. It's enjoying not one, but two, gigantic taxpayer subsidies -- an $8,000 refundable tax credit, or gift, for first-time buyers, as well as those cheap mortgage rates. The Federal Reserve has been spending billions of dollars to keep interest rates down.
Both are only short-term fixes. Any sustained economic upturn would be expected to send long-term mortgage rates rising again, dousing the real-estate market with fresh cold water.
Glut of Empty Houses
The picture on inventories isn't as good as it sounds, either. A lot of unsold homes have simply been put up for rent instead, especially in the most difficult markets like Miami. The result? A glut of empty rentals as well.
New waves of foreclosures and distressed sales may be coming, too. In states such as California, it can take many months for delinquencies to turn to foreclosures, which means last winter's bad news may still be coming down the pike. Meanwhile, vast tranches of teaser-rate mortgages are due to reset later this year and in 2010.
As for the economy: Both unemployment and household debt levels remain at extremely high levels by the standards of postwar history. Either is bad news for housing. The combination is very bad.
Dean Baker, co-director of the Center for Economic and Policy Research, argued in a recent paper that the fundamentals still aren't great. It still remains cheaper to rent than to own in many markets, he says.
The biggest bubbles usually produce the deepest busts. And the 2002-2006 bubble was a doozy. The bad news may have ended after three terrible years, but maybe not. Japanese housing prices still haven't recovered from the late 1980s bubble. Western U.S. markets took six or seven years to recover after the last big bubble burst there in the early 1990s.
Yes, there are some hopeful signs, but don't let them fool you into thinking it's all clear. It might not be. As ever, anyone making a major financial decision needs to think more about his or her own situation than what "the market" is doing. A real-estate purchase needs to make sense on its own terms. And measure it on cash flow today, not the hope for capital gains tomorrow. When you factor in all the costs, is the purchase cheaper than renting?
If you get a cheap mortgage and you are aggressive on price, you may get a bargain. That's especially true if the owner has to sell. Foreclosures and other distressed sales are selling for about 20% below the rest of the market. There are opportunities out there. But you can afford to take your time to shop around.
Friday, August 14, 2009
Mortgage Rates Will Drop - Are We in a Bull Market Yet ?
Dear Clients,
If you’re waiting for interest rates to drop, a pull back in the equities market will be a catalyst. I side with the author of this article, that we are in a ‘bear market rally’ and a pull back is eminent.
If you are a client of mine who has already received lender approval, as a service to you, I have placed you on my daily ‘rate watch’ monitor and you should expect regular updates on rate drops so I can get your permission to lock. Please make sure you have provided me with the best number to reach you, because rates can change at a moment’s notice, so you have to strike while the iron’s hot.
For most people, the article below is “too much information”. I happen to love economics, and actively trade stocks, so I stay on top of financial and economic news on a daily basis. By doing this, I am able to provide my clients with factual guidance so they can make informed decisions.
Feel free to contact me if you have any questions.
The time to lock is here.
Tom
Thomas L. Drasler
HomeQuest Mortgage Corporation
CA DRE#01775516
FHA - VA - Conventional
Direct: 714-478-3153
Office: 949-460-7799/877-966-3696
Fax: 949-460-7797
www.TomDrasler.com
To Complete a Loan Application: http://www.tomdrasler.com/loanapplication
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_____________________________________________________________________________________
Are We in a Bull Market Yet?
By MICHAEL KAHN
The technical evidence suggests that we're still in a bear-market rally. So get ready for a pullback.
WITH SO MANY PUNDITS arguing that we have finally entered into a bonafide stock-market recovery, it's worth studying how the current stock rally stacks up with the last true early bull market in 2002-2003.
While there are many structural similarities on the charts, there is one factor that is very different.
As of this month, the current rally has not yet reached, let alone broken through, a trendline that defined the bear market from its October 2007 peak. That makes the current rally still officially of the bear-market variety.
To be sure, bear-market rallies can carry on for a long time, and that means it is possible for the market to touch its bear-market trendline before all is said and done. If the trend continues at its current pace from March, then it is possible that 1100 on the Standard & Poor's 500 is in the cards.
That is a tough pill for a bear like me to swallow.
One precedent for this possibility comes from the 1972-1974 bear market when the index shed just under half its value. The ensuing bear-market rally lasted nearly two years and regained more than three-quarters of what was lost before the next bearish cycle took hold.
I am not saying the current rally will last that long, and I do not believe it will reach 1100. The point is that after brutal bear markets, when panic sets in and the world seems as if it is about to end, recoveries can also go "too far" before equilibrium is restored. The pendulum swings too far in both directions.
Before moving on, let me restate that I do not think this type of gain is likely. But ignoring the evidence on the charts that does not fit in with one's theories is always a bad move.
Several months ago, I began to look at the exact slopes of the two bear markets starting in 2000 and 2007, respectively. Using basic trendline drawing techniques, I was amazed to see that the two bear markets had exactly the same initial rates of decline. In other words, the trendlines drawn from their respective peaks were exactly parallel.
The big difference was that the 2007-2009 bear was 17 months from top to bottom while the 2000-2002 bear was 24 months for the S&P 500 and even longer for the Nasdaq. What this means is that the market fell much harder during the most recent bear, and to me that means it needs more time to recover.
Much has been written about a huge inverted head-and-shoulders pattern that was broken to the upside last month. When a similar pattern completed in 2003, the market never really looked back so it is no wonder people are excited now.
However, the bear-market trendline was already broken to the upside so the move above the huge pattern was confirmation of what had already triggered -- a bull market. Fast forwarding to today, the corresponding bear-market trendline, as mentioned, has not been broken.
We can debate how high the rally will continue and reaction in the post-Fed days to come should be telling. My thesis is that the gyrations and emotional disruptions of the bear market have not been fully resolved. That means that I do not believe the bear-market trendline will be broken during this bear-market rally.
For the S&P 500, there is a level I am watching very closely in the short term. Several factors are converging on 950 as the do-or-die level, where my thesis is proved right or wrong. At that level, the rising trendline from March, the horizontal support from June, and both the 50- and 200-day exponential moving averages all meet.
If I am right and 950 does not hold as support, then another scary selloff is in the cards. However, I do not see new lows being reached.
If I am wrong and 950 serves as a springboard for the next leg up, then I will have to admit that 1100 is entirely possible.
If you’re waiting for interest rates to drop, a pull back in the equities market will be a catalyst. I side with the author of this article, that we are in a ‘bear market rally’ and a pull back is eminent.
If you are a client of mine who has already received lender approval, as a service to you, I have placed you on my daily ‘rate watch’ monitor and you should expect regular updates on rate drops so I can get your permission to lock. Please make sure you have provided me with the best number to reach you, because rates can change at a moment’s notice, so you have to strike while the iron’s hot.
For most people, the article below is “too much information”. I happen to love economics, and actively trade stocks, so I stay on top of financial and economic news on a daily basis. By doing this, I am able to provide my clients with factual guidance so they can make informed decisions.
Feel free to contact me if you have any questions.
The time to lock is here.
Tom
Thomas L. Drasler
HomeQuest Mortgage Corporation
CA DRE#01775516
FHA - VA - Conventional
Direct: 714-478-3153
Office: 949-460-7799/877-966-3696
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Are We in a Bull Market Yet?
By MICHAEL KAHN
The technical evidence suggests that we're still in a bear-market rally. So get ready for a pullback.
WITH SO MANY PUNDITS arguing that we have finally entered into a bonafide stock-market recovery, it's worth studying how the current stock rally stacks up with the last true early bull market in 2002-2003.
While there are many structural similarities on the charts, there is one factor that is very different.
As of this month, the current rally has not yet reached, let alone broken through, a trendline that defined the bear market from its October 2007 peak. That makes the current rally still officially of the bear-market variety.
To be sure, bear-market rallies can carry on for a long time, and that means it is possible for the market to touch its bear-market trendline before all is said and done. If the trend continues at its current pace from March, then it is possible that 1100 on the Standard & Poor's 500 is in the cards.
That is a tough pill for a bear like me to swallow.
One precedent for this possibility comes from the 1972-1974 bear market when the index shed just under half its value. The ensuing bear-market rally lasted nearly two years and regained more than three-quarters of what was lost before the next bearish cycle took hold.
I am not saying the current rally will last that long, and I do not believe it will reach 1100. The point is that after brutal bear markets, when panic sets in and the world seems as if it is about to end, recoveries can also go "too far" before equilibrium is restored. The pendulum swings too far in both directions.
Before moving on, let me restate that I do not think this type of gain is likely. But ignoring the evidence on the charts that does not fit in with one's theories is always a bad move.
Several months ago, I began to look at the exact slopes of the two bear markets starting in 2000 and 2007, respectively. Using basic trendline drawing techniques, I was amazed to see that the two bear markets had exactly the same initial rates of decline. In other words, the trendlines drawn from their respective peaks were exactly parallel.
The big difference was that the 2007-2009 bear was 17 months from top to bottom while the 2000-2002 bear was 24 months for the S&P 500 and even longer for the Nasdaq. What this means is that the market fell much harder during the most recent bear, and to me that means it needs more time to recover.
Much has been written about a huge inverted head-and-shoulders pattern that was broken to the upside last month. When a similar pattern completed in 2003, the market never really looked back so it is no wonder people are excited now.
However, the bear-market trendline was already broken to the upside so the move above the huge pattern was confirmation of what had already triggered -- a bull market. Fast forwarding to today, the corresponding bear-market trendline, as mentioned, has not been broken.
We can debate how high the rally will continue and reaction in the post-Fed days to come should be telling. My thesis is that the gyrations and emotional disruptions of the bear market have not been fully resolved. That means that I do not believe the bear-market trendline will be broken during this bear-market rally.
For the S&P 500, there is a level I am watching very closely in the short term. Several factors are converging on 950 as the do-or-die level, where my thesis is proved right or wrong. At that level, the rising trendline from March, the horizontal support from June, and both the 50- and 200-day exponential moving averages all meet.
If I am right and 950 does not hold as support, then another scary selloff is in the cards. However, I do not see new lows being reached.
If I am wrong and 950 serves as a springboard for the next leg up, then I will have to admit that 1100 is entirely possible.
Tuesday, August 11, 2009
Don't Make Rookie Home Buyer Mistakes
By JUNE FLETCHER, WSJ
Like many first-time buyers who want to take advantage of the $8,000 tax credit before it expires on November 30, Brendt Montgomery was in a rush to buy a home. And what better than a seemingly bargain-priced distressed property?
Mr. Montgomery, a 25-year-old manufacturing engineer, recently moved to Atlanta from Pittsburgh. After looking around for a day, he quickly found a condo that had been repossessed by the bank. He gave it a quick tour, made an offer and then embarked on a short vacation. While he was gone, a bidding war erupted, and spurred by the competition, he upped his bid to $143,100. His offer was accepted, and as soon as he returned, he signed a 33-page contract without really reading it. He was thrilled.
Before You Buy Your First Home…
Research properties online, but don't make a decision until you've toured a number of places, talked to neighbors, and developed a feel for the community.
Prepare a monthly budget, and factor in costs for taxes, association fees, insurance, maintenance and repairs, as well as the mortgage.
Make sure that any contract that you sign, even for a foreclosed property being sold "as is," has a clause that allows you to have an inspector examine the property, and to cancel the deal without penalty if you don't like the findings. That will give you an out should the cost of repairs be too high.
Understand that any contract that's prepared by the seller will protect the seller's interests, not yours. Read it carefully and question any provisions that you disagree with or don't understand. And have your own attorney review it.
Realize that if you back out of a contract, you may lose your deposit and be liable for brokers' fees. If you don't have a valid reason to cancel, legally you may be obligated to go through with the sale.
.But the high didn't last more than a week or two. After paying $2,000 for an earnest money deposit, plus $250 for an inspection and $85 to the condo association—but before the deal closed--he again toured the condo.
There were problems: dirty carpets, mold in the air conditioning system, holes in the wall. He had second thoughts about how secure the first-floor location might be, and realized that the north-facing windows would never let in much light. "It was a little depressing," he says. "I realized I'd acted hastily."
Mr. Montgomery called his agent and asked how he could unwind his deal. He quickly learned that backing out wouldn't be easy or cheap. He agreed to talk about his mistakes so that other first-time buyers wouldn't duplicate them.
His first mistake was to sign a contract after looking at listings for only one day, even though he'd spent considerable time beforehand doing online research. But one day, he now realizes, really isn't enough time to get to know a neighborhood or to explore all of the potential deals, and he's sorry now that he rushed. Just to get a tax credit, "it's not worth buying a property you're not satisfied with," he says.
His second mistake was to decide on a condo based just on the purchase price, without taking into consideration taxes, homeowners' association fees, and the cost to fix up and maintain a distressed property. He admits in the excitement of a bidding war, he didn't calculate these costs; he was focused only on winning the deal. He started doing the math only after he'd signed the papers, and soon regretted not adding up these expenses before he'd committed himself. "There were little issues I hadn't anticipated that would add up in the long run," he says.
Associated Press
.His third—and probably most important—mistake was not to read the contract carefully before he signed it. The contract stipulated that if he backed out of the deal, he'd lose his $2,000 earnest money deposit, plus other out-of-pocket expenses, and also made him responsible for paying the entire 6% brokers' commission. He wishes now that he'd negotiated those provisions.
Luckily, there was a contractual loophole: His parents rescinded the down payment money that they were gifting him, so he no longer qualified for a mortgage. The agents involved didn't press for the commission, but he lost his deposit.
Mr. Montgomery was much more cautious in his next round of house-hunting. Eventually, he found a new condo that has more space and better views than his original choice, and made an offer. But this time, before he signed any papers, he had his agent run comparable sales prices, figured out his total monthly expenses, and had an attorney read over the fine print. The offer was accepted, and Mr. Montgomery is looking forward to closing the deal. "I've learned some valuable lessons," he says.
Like many first-time buyers who want to take advantage of the $8,000 tax credit before it expires on November 30, Brendt Montgomery was in a rush to buy a home. And what better than a seemingly bargain-priced distressed property?
Mr. Montgomery, a 25-year-old manufacturing engineer, recently moved to Atlanta from Pittsburgh. After looking around for a day, he quickly found a condo that had been repossessed by the bank. He gave it a quick tour, made an offer and then embarked on a short vacation. While he was gone, a bidding war erupted, and spurred by the competition, he upped his bid to $143,100. His offer was accepted, and as soon as he returned, he signed a 33-page contract without really reading it. He was thrilled.
Before You Buy Your First Home…
Research properties online, but don't make a decision until you've toured a number of places, talked to neighbors, and developed a feel for the community.
Prepare a monthly budget, and factor in costs for taxes, association fees, insurance, maintenance and repairs, as well as the mortgage.
Make sure that any contract that you sign, even for a foreclosed property being sold "as is," has a clause that allows you to have an inspector examine the property, and to cancel the deal without penalty if you don't like the findings. That will give you an out should the cost of repairs be too high.
Understand that any contract that's prepared by the seller will protect the seller's interests, not yours. Read it carefully and question any provisions that you disagree with or don't understand. And have your own attorney review it.
Realize that if you back out of a contract, you may lose your deposit and be liable for brokers' fees. If you don't have a valid reason to cancel, legally you may be obligated to go through with the sale.
.But the high didn't last more than a week or two. After paying $2,000 for an earnest money deposit, plus $250 for an inspection and $85 to the condo association—but before the deal closed--he again toured the condo.
There were problems: dirty carpets, mold in the air conditioning system, holes in the wall. He had second thoughts about how secure the first-floor location might be, and realized that the north-facing windows would never let in much light. "It was a little depressing," he says. "I realized I'd acted hastily."
Mr. Montgomery called his agent and asked how he could unwind his deal. He quickly learned that backing out wouldn't be easy or cheap. He agreed to talk about his mistakes so that other first-time buyers wouldn't duplicate them.
His first mistake was to sign a contract after looking at listings for only one day, even though he'd spent considerable time beforehand doing online research. But one day, he now realizes, really isn't enough time to get to know a neighborhood or to explore all of the potential deals, and he's sorry now that he rushed. Just to get a tax credit, "it's not worth buying a property you're not satisfied with," he says.
His second mistake was to decide on a condo based just on the purchase price, without taking into consideration taxes, homeowners' association fees, and the cost to fix up and maintain a distressed property. He admits in the excitement of a bidding war, he didn't calculate these costs; he was focused only on winning the deal. He started doing the math only after he'd signed the papers, and soon regretted not adding up these expenses before he'd committed himself. "There were little issues I hadn't anticipated that would add up in the long run," he says.
Associated Press
.His third—and probably most important—mistake was not to read the contract carefully before he signed it. The contract stipulated that if he backed out of the deal, he'd lose his $2,000 earnest money deposit, plus other out-of-pocket expenses, and also made him responsible for paying the entire 6% brokers' commission. He wishes now that he'd negotiated those provisions.
Luckily, there was a contractual loophole: His parents rescinded the down payment money that they were gifting him, so he no longer qualified for a mortgage. The agents involved didn't press for the commission, but he lost his deposit.
Mr. Montgomery was much more cautious in his next round of house-hunting. Eventually, he found a new condo that has more space and better views than his original choice, and made an offer. But this time, before he signed any papers, he had his agent run comparable sales prices, figured out his total monthly expenses, and had an attorney read over the fine print. The offer was accepted, and Mr. Montgomery is looking forward to closing the deal. "I've learned some valuable lessons," he says.
Saturday, August 8, 2009
Help, We're Underwater!!
Q: In October 2007, my wife and I bought a two-bedroom condo for $525,000. About a year later, we both lost our jobs. We put our condo on the market for $512,000 last November, and dropped the price in January to $499,000. We got zero offers. As far as we can tell, prices for condos similar to ours are now $465,000; we now owe more than the condo is worth. We approached our lender early this year, seeking a loan modification and were turned down because we still had some emergency funds available. But we are running through this money fast, and expect it will be gone in six months. We do have some retirement funds, as well; if we do a short sale, will the lender be able to come after us? What other options do we have?
--Chicago
A: I'm sorry to hear about your problems. Many others are in the same predicament, as property prices continue to slide. In Illinois, according to Moody's Economy.com, more than one out of five homeowners are upside-down on their mortgages.
Although the Chicago market is improving on a month-to-month basis -- median prices for condominiums went up 1%, to $282,500, in June from May -- prices are still down 14% from a year earlier, according to ChicagoCondosOnline.com. And since there's an almost 13-month supply of condos on the market, according to ChicagoCondos, it's unlikely that you'll be able to sell your place for as much as you paid for it before your emergency funds run out.
But don't despair. You do have options:
■Try again for a loan modification: The federal government rolled out its Making Home Affordable program on Feb.18, giving lenders new financial incentives to refinance or modify loans. To qualify for a refinance, you must be up-to-date on your loan payments and your first lien can't exceed 125% of the current market value of your house. For a loan modification that lowers interest rates and perhaps even reduces the principal owed, you must document hardship, have a monthly mortgage payment that's more than 31% of current gross income and have an unpaid balance on a principal residence of less than $729,750. Normally, a lender would probably require that either you or your wife have a job or other steady income stream before changing the terms of your loan. But, says Chicago real estate attorney J. Kelly Bufton, "these are not normal times." Your lender may decide it's better to stick with you if you can make the payments for a few more months, she says, rather than foreclosing and trying to sell in an over-supplied market.
Getty Images
Condo prices in Chicago have stablized but they haven't bounced back.
.■Declare bankruptcy: Filing for bankruptcy could automatically forestall your foreclosure and discharge your debts—or allow you to repay them over a long period of time. (More information.) Though bankruptcy will hurt your credit, you'll be able to rebuild it faster if you have a clean slate.
■Try a short sale: Many buyers are concentrating on distressed properties these days. So you may be able to find one who will pay enough for your place to satisfy your lender, even if it's less than you owe. Accepting short sales saves lenders from the carrying and processing costs of foreclosure. However, they won't agree to this solution unless you prove that you don't have the money to pay off the debt (retirement funds are exempted from this calculation, by both federal and Illinois state law). Chicago real estate attorney Michael McCormick says to make sure that the agreement that you sign with your lender forgives the debt permanently. Don't agree to a "release of lien" that requires you to pay back the shortfall sometime after the sale.
Related
Developments: More homeowners upside down on mortgages.
Developments: Strategies for backing out of condo deals.
.■Return the condo to the lender: If all else fails, you can return the keys to the lender (deed in lieu of foreclosure), or simply stop paying the mortgage, which will eventually lead to foreclosure and your home being sold at auction. In the former instance, you transfer ownership of the property to the lender; in return, you get a document that marks your note "paid" as well as a waiver for a right to a deficiency judgment, meaning the lender can't make you pay for the difference between what you owe and the price the condo fetches on the courthouse steps. A "deed in lieu" won't hurt your credit rating as much as a foreclosure. However, you'll have to leave your home immediately; in a foreclosure, the rent-free period between when you stop making payments and you're evicted can last more than a year.
■A note on taxes: Normally, you have to pay tax on any forgiven debt, which is considered income to you. But the Mortgage Forgiveness Debt Relief Act gives many financially-strapped homeowners a pass until January 1, 2010.
■And a caveat: Whichever option you pick will affect both your ability to borrow and your financial stability for years to come. Don't go it alone. Before you decide what to do, call 1-888-995-HOPE for free mortgage advice. The National Foreclosure Mitigation Counseling Program, administered in your area by the Illinois Housing Development Authority, also provides free counseling and legal assistance.
To find out if you qualify for the Home Affordable Refinance Program, launched as part of Obama's economic stimulus program in February. I am approved to provide these programs with most all major lenders and get homeowners quickly approved and into a more stable loan product and lower monthly payment.
Call me directly to arrange for a no-cost consultation at 714-478-3153 or apply at www.tomdrasler.com/loanapplication.
--Chicago
A: I'm sorry to hear about your problems. Many others are in the same predicament, as property prices continue to slide. In Illinois, according to Moody's Economy.com, more than one out of five homeowners are upside-down on their mortgages.
Although the Chicago market is improving on a month-to-month basis -- median prices for condominiums went up 1%, to $282,500, in June from May -- prices are still down 14% from a year earlier, according to ChicagoCondosOnline.com. And since there's an almost 13-month supply of condos on the market, according to ChicagoCondos, it's unlikely that you'll be able to sell your place for as much as you paid for it before your emergency funds run out.
But don't despair. You do have options:
■Try again for a loan modification: The federal government rolled out its Making Home Affordable program on Feb.18, giving lenders new financial incentives to refinance or modify loans. To qualify for a refinance, you must be up-to-date on your loan payments and your first lien can't exceed 125% of the current market value of your house. For a loan modification that lowers interest rates and perhaps even reduces the principal owed, you must document hardship, have a monthly mortgage payment that's more than 31% of current gross income and have an unpaid balance on a principal residence of less than $729,750. Normally, a lender would probably require that either you or your wife have a job or other steady income stream before changing the terms of your loan. But, says Chicago real estate attorney J. Kelly Bufton, "these are not normal times." Your lender may decide it's better to stick with you if you can make the payments for a few more months, she says, rather than foreclosing and trying to sell in an over-supplied market.
Getty Images
Condo prices in Chicago have stablized but they haven't bounced back.
.■Declare bankruptcy: Filing for bankruptcy could automatically forestall your foreclosure and discharge your debts—or allow you to repay them over a long period of time. (More information.) Though bankruptcy will hurt your credit, you'll be able to rebuild it faster if you have a clean slate.
■Try a short sale: Many buyers are concentrating on distressed properties these days. So you may be able to find one who will pay enough for your place to satisfy your lender, even if it's less than you owe. Accepting short sales saves lenders from the carrying and processing costs of foreclosure. However, they won't agree to this solution unless you prove that you don't have the money to pay off the debt (retirement funds are exempted from this calculation, by both federal and Illinois state law). Chicago real estate attorney Michael McCormick says to make sure that the agreement that you sign with your lender forgives the debt permanently. Don't agree to a "release of lien" that requires you to pay back the shortfall sometime after the sale.
Related
Developments: More homeowners upside down on mortgages.
Developments: Strategies for backing out of condo deals.
.■Return the condo to the lender: If all else fails, you can return the keys to the lender (deed in lieu of foreclosure), or simply stop paying the mortgage, which will eventually lead to foreclosure and your home being sold at auction. In the former instance, you transfer ownership of the property to the lender; in return, you get a document that marks your note "paid" as well as a waiver for a right to a deficiency judgment, meaning the lender can't make you pay for the difference between what you owe and the price the condo fetches on the courthouse steps. A "deed in lieu" won't hurt your credit rating as much as a foreclosure. However, you'll have to leave your home immediately; in a foreclosure, the rent-free period between when you stop making payments and you're evicted can last more than a year.
■A note on taxes: Normally, you have to pay tax on any forgiven debt, which is considered income to you. But the Mortgage Forgiveness Debt Relief Act gives many financially-strapped homeowners a pass until January 1, 2010.
■And a caveat: Whichever option you pick will affect both your ability to borrow and your financial stability for years to come. Don't go it alone. Before you decide what to do, call 1-888-995-HOPE for free mortgage advice. The National Foreclosure Mitigation Counseling Program, administered in your area by the Illinois Housing Development Authority, also provides free counseling and legal assistance.
To find out if you qualify for the Home Affordable Refinance Program, launched as part of Obama's economic stimulus program in February. I am approved to provide these programs with most all major lenders and get homeowners quickly approved and into a more stable loan product and lower monthly payment.
Call me directly to arrange for a no-cost consultation at 714-478-3153 or apply at www.tomdrasler.com/loanapplication.
Friday, August 7, 2009
Strong Economic Data Pushes Mortgage Rates Higher
With just minor exceptions, all of the economic data released this week beat the consensus forecast, indicating that the economy is improving more quickly than expected. While current inflation levels remain low, faster economic growth generally leads to higher future inflation, which is negative for mortgage rates. As a result, mortgage rates ended the week higher.
Early in the week, stronger than expected manufacturing and housing data convinced economists to revise higher their forecasts for economic growth, and Friday's Employment data supported the improved economic outlook. Against a consensus forecast for a loss of -300K jobs, the economy lost -247K jobs in July, and the May and June data was revised to show fewer job losses as well. This was the 19th straight month of job declines, but it was the smallest level of losses since August 2008. The July Unemployment Rate fell to 9.4% from 9.5% in June, its first decline in 15 months. In addition, wages and the length of the average workweek increased. Overall, this report revealed unexpected improvement in nearly every area.
This week's housing market data also came in stronger than expected. June Pending Home Sales rose 4%, the fifth consecutive monthly increase. Pending Home Sales are a leading indicator for future housing market activity, meaning that Existing and New Home Sales reports may show improvement in coming months. According to the chief economist of the National Association of Realtors (NAR), affordable home prices, low mortgage rates, and a rush to take advantage of the $8,000 first-time homebuyer tax credit have helped increase home sales.
Early in the week, stronger than expected manufacturing and housing data convinced economists to revise higher their forecasts for economic growth, and Friday's Employment data supported the improved economic outlook. Against a consensus forecast for a loss of -300K jobs, the economy lost -247K jobs in July, and the May and June data was revised to show fewer job losses as well. This was the 19th straight month of job declines, but it was the smallest level of losses since August 2008. The July Unemployment Rate fell to 9.4% from 9.5% in June, its first decline in 15 months. In addition, wages and the length of the average workweek increased. Overall, this report revealed unexpected improvement in nearly every area.
This week's housing market data also came in stronger than expected. June Pending Home Sales rose 4%, the fifth consecutive monthly increase. Pending Home Sales are a leading indicator for future housing market activity, meaning that Existing and New Home Sales reports may show improvement in coming months. According to the chief economist of the National Association of Realtors (NAR), affordable home prices, low mortgage rates, and a rush to take advantage of the $8,000 first-time homebuyer tax credit have helped increase home sales.
Tuesday, August 4, 2009
Mortgage-Servicer Performance Is 'Uneven'
By MAYA JACKSON RANDALL and JESSICA HOLZER
WASHINGTON -- Some 9% of eligible borrowers have received trial modifications under the Obama administration's ambitious effort to help struggling homeowners, according to data released by the Treasury Department Tuesday.
More
Econ: List of Banks' Progress
.The administration announced its highly anticipated plan to stabilize the housing market in February through a program that provides $75 billion in incentives for borrowers, mortgage servicers and investors. However, foreclosures are still mounting amid ongoing weakness in the labor market. U.S. foreclosure activity in the second quarter was up 11%, according to a July RealtyTrac report.
The administration Tuesday acknowledged that the performance of participating mortgage servicers has been "uneven."
For instance, Bank of America Corp. has started trial modifications with only 4% of the eligible mortgages in its servicing portfolio, according to a report Treasury provided. Meanwhile, J.P. Morgan Chase & Co. has started trial modifications on behalf of 20% of its eligible delinquencies. Wells Fargo Bank's share is 6% while trial modifications started by Wachovia Mortgage make up just 2% of estimated eligible delinquent loans, the data show.
Despite the low numbers, Treasury still says the "Making Home Affordable" loan modification program is on pace to offer assistance to up to 4 million homeowners over the next three years.
For each homeowner who makes regular payments for three months, the loan servicer collects $1,000 from the government. If the borrower stays current for three years, the servicer gets a maximum of $4,500.
The administration said it has asked servicers to more than double the total of trial modifications started by Nov. 1, which would bring the cumulative total to 500,000 in a few months. Currently, only 235,247 modifications have been started.
Additionally, the administration said it has asked Freddie Mac to audit loan modification applications that have been declined.
Meanwhile, Treasury on Tuesday announced plans to provide transparency reports on modifications on a monthly basis.
WASHINGTON -- Some 9% of eligible borrowers have received trial modifications under the Obama administration's ambitious effort to help struggling homeowners, according to data released by the Treasury Department Tuesday.
More
Econ: List of Banks' Progress
.The administration announced its highly anticipated plan to stabilize the housing market in February through a program that provides $75 billion in incentives for borrowers, mortgage servicers and investors. However, foreclosures are still mounting amid ongoing weakness in the labor market. U.S. foreclosure activity in the second quarter was up 11%, according to a July RealtyTrac report.
The administration Tuesday acknowledged that the performance of participating mortgage servicers has been "uneven."
For instance, Bank of America Corp. has started trial modifications with only 4% of the eligible mortgages in its servicing portfolio, according to a report Treasury provided. Meanwhile, J.P. Morgan Chase & Co. has started trial modifications on behalf of 20% of its eligible delinquencies. Wells Fargo Bank's share is 6% while trial modifications started by Wachovia Mortgage make up just 2% of estimated eligible delinquent loans, the data show.
Despite the low numbers, Treasury still says the "Making Home Affordable" loan modification program is on pace to offer assistance to up to 4 million homeowners over the next three years.
For each homeowner who makes regular payments for three months, the loan servicer collects $1,000 from the government. If the borrower stays current for three years, the servicer gets a maximum of $4,500.
The administration said it has asked servicers to more than double the total of trial modifications started by Nov. 1, which would bring the cumulative total to 500,000 in a few months. Currently, only 235,247 modifications have been started.
Additionally, the administration said it has asked Freddie Mac to audit loan modification applications that have been declined.
Meanwhile, Treasury on Tuesday announced plans to provide transparency reports on modifications on a monthly basis.
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