February 2010


Update 3/2/10: One year extension on HARP

The Home Affordable Refinance Program (HARP), which was supposed to expire June 10, will be extended for another year, the Federal Housing Finance Agency said in a statement.

Since HARP began last April, it has refinanced 190,180 mortgages. It is administered by Fannie Mae and Freddie Mac and aimed at borrowers with little or no equity in their homes.

This program is a sister to Home Affordable Modification Program (HAMP), which was severely criticized by Congress last week for failing to help enough struggling home owners.

Obama May Prohibit Home-Loan Foreclosures Without HAMP Review
 

Feb. 25 (Bloomberg) — The Obama administration may expand efforts to ease the housing crisis by banning all foreclosures on home loans unless they have been screened and rejected by the government’s Home Affordable Modification Program.

The proposal, reviewed by lenders last week on a White House conference call, “prohibits referral to foreclosure until borrower is evaluated and found ineligible for HAMP or reasonable contact efforts have failed,” according to a Treasury Department document outlining the plan.

“It is one of the many ideas under consideration in the administration’s ongoing housing stabilization efforts,” Treasury spokeswoman Meg Reilly said in an e-mail. “This proposal has not been approved and there are no immediate planned announcements on the issue.”

She confirmed the authenticity of the document, which hasn’t been made public.

At present, lenders can initiate foreclosure proceedings on any loan that hasn’t been submitted for HAMP eligibility. Under current HAMP rules, foreclosure litigation can proceed while borrowers are under review for the program or even in a trial modification.

The proposed changes would prohibit lenders from initiating new foreclosure actions before loan screening by HAMP and would require lenders to halt existing proceedings for borrowers once they are in a trial repayment plan.

‘Improved Protections’

The Treasury Department will soon release guidance “which will include a set of improved protections for borrowers” in HAMP, Phyllis Caldwell, chief of Treasury’s Homeownership Preservation Office, said today in testimony prepared for a House Oversight and Government Reform subcommittee. She didn’t provide details.

The proposal goes further than rules adopted amid the crisis by federally controlled mortgage-finance companies Freddie Mac and Fannie Mae, which require lenders to review borrowers for a federal loan modification before a foreclosed property can be sold.

Foreclosure proceedings can still be initiated without a review, said Freddie Mac spokesman Doug Duvall. Fannie Mae spokeswoman Amy Bonitatibus said it adopted the same policy last March.

About 89 percent of outstanding residential mortgage loans are covered by the voluntary HAMP program.

About 2.82 million U.S. homeowners lost properties to foreclosure last year and 4.5 million filings are expected in 2010, RealtyTrac Inc., an Irvine, California data company, said last month.

Seven Million

Obama’s foreclosure prevention initiative, announced in February 2009 to help as many as 4 million Americans avert foreclosure, has modified 116,297 loans through steps such as lowering interest rates or lengthening repayment terms. More than 830,000 borrowers received trial repayment plans through January, according to Treasury data.

“Foreclosure processes differ among states, and the process is often confusing to homeowners already facing distress,” Caldwell said in her prepared testimony. “Treasury has been reviewing guidelines around outreach and the foreclosure process as part of its continual assessment of program effectiveness and transparency.”

Foreclosures may reach as many as 7 million mortgages, and an additional 5 million are at risk of default because borrowers owe more than the property is worth, Laurie Goodman, senior managing director at Amherst Securities Group LP in New York, said in a Feb. 17 interview.

Republican Criticism

“This is a problem of mammoth proportions,” Goodman said. “You can’t throw 12 million people out of their homes, so you need a successful modification program. My fear is that this isn’t it, but I’m highly confident that the administration will continue to iterate until they succeed.”

The Treasury proposal would require all borrowers who are 60 or more days delinquent on their mortgage to be sought out for participation in HAMP. Mortgage companies would need to try to contact the borrower at least four times by phone and twice by certified mail over 30 or more days before going to foreclosure.

Under current Treasury policy, foreclosure proceedings are only halted when a borrower receives a permanent modification plan.

House Republicans criticized HAMP as a failure today, saying in a report that it is prolonging the economic crisis and harming homeowners.

“By every empirical measure, HAMP has failed,” according to the 18-page report released by Republicans on the House Oversight and Government Reform Committee. “In its current form, HAMP both hurts homeowners who might otherwise spend their trial-period mortgage payments on rent and also distorts the housing market, delaying any recovery.”

Home prices aren’t tanking everywhere. In some cities they have bounced pretty high off the bottom, according to a report in Forbes magazine.

Altos Research examined data for every U.S. city with at least 100 homes on the market – about 8,000 cities. It identified these 10 cities as having the biggest price increases from the previous year.

1. Lexington, Mass., +36 percent
2. Bay Village, Ohio, +32 percent
3. Sunnyvale, Calif., +32 percent
4. Poway, Calif., +27 percent
5. University City, Mo., +28 percent
6. Ambler, Pa., +26 percent
7. Allison Park, Pa. , +25 percent
8. New Braunfels, Texas, +25 percent
9. Kemp, Texas, +24 percent
10. Arcadia, Calif., +24 percent

Commentary from Rob Chrisman:

A copy of the first issue of Superman comics was sold for one million dollars. The copy originally sold for ten cents in 1938. Someone said that if that same dime had been invested in General Motors stock in 1938, it would be worth at least a quarter.

As I tell groups whenever I speak, you can’t drive through a downtown anywhere in the United States without seeing “For Rent,” “For Sale,” “For Lease” signs, or plain empty storefronts. It turns out that the default rate for commercial property mortgages held by U.S. banks more than doubled in the fourth quarter and may peak at 5.4 percent at the end of 2011, according to a study by Real Capital Analytics Inc. The default rate for loans on office, retail, hotel and industrial properties jumped to 3.8 percent from 1.6 percent a year earlier. The default rate for loans on apartment buildings rose to 4.4 percent from 1.8 percent. Commercial property values, which fell 29% in December from a year earlier, are down 41% from the October 2007 peak, according to the Moody’s/REAL Commercial Property Price Index. Unfortunately for banks here in the US with between $100 million and $1 billion in assets, they hold 25 percent of commercial property loans outstanding and 15 percent of apartment loans. The biggest banks, those with more than $10 billion in assets, hold about half of commercial loans and two-thirds of apartment loans.

Freddie Mac said yesterday that it lost $7.8 billion in the fourth quarter, or $26 for every man, woman, and infant in the United States. On the plus side, it was better than the $23.9 billion Freddie lost in the same quarter a year ago, and apparently doesn’t need more money (for now) than the $51 billion in taxpayer aid it already received. For all of 2009 the company lost $21.6 billion versus 2008’s loss of $50.1 billion. But Freddie Mac’s chief executive, Charles Haldeman, warned of a “potential large wave of foreclosures” still to come

Yesterday’s $42 billion 5-yr auction did not go well. It goes back to the “What if we held an auction and nobody bid?” Indirect bids, which in the past indicated a level of interest from foreign entities but in the last year became a little convoluted, have been on a roller coaster: Tuesday’s 2-yr hit over 53% of the auction while yesterday’s was the lowest since July at 40%. Not good. The Bernanke testimony (rates need to remain low), along with the much worse-than-expected New Homes Sales data, muddled the picture somewhat for investors yesterday. The good news for mortgage folks is that dealers are reporting heavy selling, and selling is often powered by locks, so current locks must be picking up.

The New Home Sales data was particularly bad. In January sales dropped 11%, the worst on record and erasing all the gains from last year. Nationwide, inventory represents over a 9 month supply – the highest in almost a year. And year-over-year the median price for a new home fell in January by 2.4%, to $203,500 from $208,600 a year ago. Regionally, January new-home sales dropped 35.1% in the Northeast, 11.9% in the West, and 9.5% in the South. Sales rose 2.1% in the Midwest.

And although Mr. Bernanke said the economy still needs the Fed’s support via low rates, he said the central bank is prepared to tighten credit when the time comes to prevent inflation. A first step toward tighter credit could involve the Fed draining the more than $1.0 trillion in excess reserves banks have accumulated after the central bank bought mortgage-backed securities and U.S. Treasury securities to combat the financial crisis, most likely through reverse repurchase agreements.

This morning the markets are being pushed around by Jobless Claims, the GDP, a $32 billion 7-yr note auction, and continued testimony from Ben Bernanke. Prior to the 8:30AM EST numbers the yield on the 10-yr was back down to 3.66%. Durable Goods were up 3% for January versus December’s +1.9%. (Ex-transportation the number was -.6%.) Jobless Claims showed an increase of 22,000 to 496,000, with a four-week moving average creeping up by 6,000 to 473,750. Immediately after the news the yield on the 10-yr dropped to 3.64%, and mortgage prices are better between .125 and .250, depending on coupon.

On today’s date: February 25…

1948: Communists seize Czechoslovakia     

1933: 1st genuine aircraft carrier christened, USS Ranger     

1926: Francisco Franco becomes General of Spain             

1910: Dali Lama flees Tibet from Chinese troop to British-Indies

1793: 1st cabinet meeting at George Washington’s home

The last word:

“Always remember that the future comes one day at a time.” – Dean Acheson

FHA Remains the Mortgage Lifeline

February 22, 2010 by
Filed under: Breaking News, Mortgage Financing, Politics & Government 

By Robert Freedman

FHA Commissioner David Stevens

David Stevens

FHA helped 2 million borrowers in its last fiscal year, double its volume the previous year. That’s a testament to the crucial role the agency is playing in housing markets, FHA Commissioner David Stevens said on Saturday on Real Estate Today, NAR’s national consumer radio show.

Stevens doesn’t talk about concerns among lawmakers and in the media about whether FHA is getting over-extended or whether the safety measures the agency rolled out about a month and a half ago are working. These include requiring borrowers with a credit score of 580 or less to put up a minimum 10 percent down (it remains 3.5 percent down for those with higher credit scores) and upping the mortgage insurance premium. No doubt it’s too soon to tell what impact those changes are having.

But he does reiterate what has always made FHA a remarkably stable agency over its seven decades, and that’s its focus on owner-occupant borrowers and its requirement that applications be fully documented. As he tells Gil Gross, the show’s host, “We don’t do investment properties. We only do 30-year, fully amortizing, fixed-rate mortgages, and every loan is fully documented, so when we approve a borrower . . . we know their ability to repay that loan has been verified.”

In various forums over the last couple of months, Stevens has been stressing the same point: that his goal is to protect his agency’s credit performance without it retreating so much that it no longer performs its counter-cyclical function of being in the market when others aren’t.

That’s a path whose difficulty real estate practitioners seem to appreciate. As John Anderson, CRS®, GRI, a 30-year real estate veteran who chairs the NATIONAL ASSOCIATION OF REALTORS®’ Federal Housing Policy Committee, says, “I think the FHA is doing the right thing.”

Listen to Stevens’ eight-minute interview on Real Estate Today: RET Radio interview with Commissioner Stevens

More on FHA’s actions to shore up its credit strength is in the April issue of REALTOR®

The financial crisis was the result of home buyers’ rational reactions to misaligned incentives – not fraud, argues Todd Zywicki, a George Mason University law professor and a Mercatus Center senior scholar.

Zywicki, who has studied the financial meltdown, argues that taking out a risky bank loan looks like a foolish choice today, but at the height of the housing boom was actually a smart decision for many people.

He says the crisis began when the Federal Reserve pushed interest rates to extreme lows from 2001 to 2004, making adjustable rate loans very attractive. It wasn’t until the Fed pushed rates back up that people walked away from their loans.

In the next phase of the crisis, Zywicki says, the availability of foreclosed properties pushed down home prices, which led to more home owners walking away from their properties. Now in the current phase of the decline, unemployment has led to even more foreclosures.

Zywicki writes: “The problem isn’t consumer gullibility or ignorance. Borrowers have shown they understand, and act on, the incentives they face all too well.”

Source: The Wall Street Journal

How to Design a Presentation

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Think of a presentation in terms of a journey; designed to take an audience to a pre-planned destination. Use this analogy to identify the key points of your message, prioritize them and allocate each one an appropriate time slot.
  
There is a simple structure into which nearly all presentations should fit. This comprises three clearly identifiable parts – an introduction, followed by a main body and finally a conclusion.
  
This is often expressed as:
  
1. Tell them what you’re going to tell them,
2. Tell them,
3. Tell them what you’ve told them.
  
A good guide for the breakdown of a presentation is the 10/80/10 rule – whereby the introduction and conclusion are each allotted 10% of the presentation time, with the main body comprising 80%. For example, a 30 minute presentation would have a 3 minute introduction and conclusion and main body lasting 24 minutes.
  
This formula can be applied to any length of presentation – as it reflects a good breakdown from the audience’ perspective. In researching and collating the material that you need and devising your key points you will have been concentrating on the main content of your presentation.
  
This is fine, as the most effective and efficient way to prepare your presentation is to construct it in the following order;
Main Body, Introduction, then the Conclusion. It is usually best to plan your presentation to have a question and answer session at the end. This will enable you to deliver your message and then end strongly with a clear and concise conclusion, before entering the relatively unpredictable area of tackling questions from the floor.
  
Identifying Key Points
  
In structuring your presentation you may find it useful to divide your journey into a series of stages. You are then faced with the challenge of deciding how many stages there should be and what should constitute a stage. It was also recommended that you should look at your aim statement and try to develop between three and five key points that you would like to drive home. This represents as much information as most people are able to take away from a presentation.
  
These key point messages can be considered as the intended destination for each stage of your journey. In other words key points are synonymous with stages in the same way that the aim statement is synonymous with the destination. If you are working in a familiar subject domain the key points may well be apparent; but what if the subject isn’t familiar and the key points are not self-evident? So follow my blog for more.

 

“Suppose They Gave a War and Nobody Came” was a 1970 movie with Ernest Borgnine and Tony Curtis (both of whom are still with us). What if the Treasury gave an auction and nobody bid, aside from Primary Dealers who must bid? That is one of the fears that drove prices down and rates up yesterday, especially with the news that China fell behind Japan to become the second-biggest holder of US Treasuries. That is not a good thing, and is an indication that the Chinese have been acting on recent complaints about US policy by unloading US debt. China was a net seller of Treasuries by $34 billion, bringing its total holdings down to $755 billion from $790 billion in November. Money talks.

Treasury prices went south yesterday after this China news came out, the positive data on the housing market, and the apparent progress on Grecian debt (Treasuries don’t need to be the “safe haven”). More important than numbers reflecting last month’s economic climate, however, were the Fed minutes. “A few suggested that the pace of asset sales, and potentially of purchases, could be adjusted over time in response to developments in the economy and the evolution of the economic outlook”. Does this mean that the Federal Open Market Committee will adjust asset sales and purchases rather than the overnight Fed Funds rate? Perhaps!

Traders saw a higher-than-recently-normal amount of selling from originators Wednesday, which made mortgage rates move a little more than Treasury rates toward the downside. The minutes from the late-January meeting revealed that members debated how and when to shrink the central bank’s $2.26 trillion balance sheet, with some policy makers pushing to start selling assets in the “near future.” Officials unanimously agreed that Fed assets and banks’ excess cash will need to shrink “substantially over time” and return the central bank’s holdings to just Treasuries, but obviously there is concern about upsetting the stability of the markets.

Today we have another large amount of economic news with which to grapple. We have already had the Producer Price Index and Jobless Claims; still ahead are the Philly Fed and Leading Economic Indicators. The PPI showed that inflation picked up more than expected: +1.4%, with the core rate +.3%. Year-over-year the PPI was +4.6% and the core rate was +1.0%, roughly as expected. Jobless Claims rose 31k to 473,000. On this news stocks moved down, and rates improved somewhat: the yield on the 10-yr is chopping around 3.71% and mortgage prices are a tad better.

 Generally speaking locks desks around the nation were a little slower last week. Yesterday the MBAA reported that applications from last week were down about 2%, with purchases down 4% and refi’s down about 1%. Refi’s are still amounting to about 69% of the mortgage activity (what would your volumes look like if refi’s went below 50%?), and ARM loans are still less than 5%. Yesterday morning, after the Starts & Permits number, we learned that in January Industrial Production was +.9% and Capacity Utilization went from 71.9% to 72.6%, both relatively strong numbers.

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