Home Loan Applications Increase 5.7 Percent Last Week – second consecutive week of increased home buyer activity
Dennis Norman
The Mortgage Bankers Association (MBA) released its weekly mortgage applications survey for the week ending March 5, 2010. The report showed the MBA Purchase Index (a measure of the volume of loan applications related to a home purchase) increased 5.7 percent from the week before and the four-week moving average for the index is up 0.7 percent.
The mortgage activity seems consistent with recent increased sales activity. I think a key factor going forward is going to be interest rates and the concern I have, as well as many in the industry, is when the Treasury stops buying mortgage-backed securities we will see interest rates increase.
Interest rates and fees for the week:
30 year fixed-rate mortgage interest rates continued the roller coaster ride with the 5.0 percent mark, this week inching back above it slightly to 5.01 percent, up from 4.95 percent, with fees decreasing to .82 percent from .99 percent on loans that are 80 percent of the value of the home.
15 year fixed rate mortgage interest rates increased slightly to 4.32 percent from 4.27 percent, with fees decreasing to .88 percent from 1.36 percent on loans that are 80 percent of the value of the home.
One-year ARM interest rates increased slightly to 6.80 percent from 6.77 percent with fees increasing to 0.30 percent from 0.29 percent for loans that are 80 percent of the value of the home.
The Mortgage Bankers Association (MBA) released its report on the performance of commercial and multifamily mortgages in the fourth quarter of 2009. Their last report from a year ago showed that commercial and multifamily mortgages were among the best performing loans held by banks and thrifts. Now, a year later, the data still looks good and shows that commercial and multifamily mortgages continue to have the lowest charge off rate of all loan types at banks and thrifts and also perform better than their overall portfolios as well.
This is good news for an already-struggling banking industry, especially since, according to the MBA report, commercial and multifamily loans together account for 35 percent of all bank loan holdings (residential loans, including 1 to 4 families, make up 26 percent of the bank loan holdings).
Highlights from the report (all data is as of end of fourth quarter, 2009):
Mortgage Delinquency -
7.30 percent of all loans and leases held by banks and thrifts were 30 or more days past due.
5.06 percent of commercial mortgages were 30 or more days past due.
5.64 percent of multifamily mortgages were 30 or more days past due.
4.39 percent of commercial and industrial loans were 30+ days past due.
Construction loans had the highest delinquency rate at 18.56 percent 30+ days past due, followed next by single-family mortgages at 12.49 percent.
Surprisingly (at least to me) credit card delinquency rates were about half that of single-family mortgages at 6.28 percent.
According to a report issued today by Zip Realty, sellers in Florida are slashing prices by more than 10 percent
South Florida has deals on homes! According to Zip Realty, sellers in Miami and Ft. Lauderdale have reduced their list price by an average of nearly 15 percent, or $36,000 in February 2010. In addition, one out of every two “for sale” homes in Jacksonville included at least one price reduction in February.
In Orlando, 47.7 percent of homes listed for sale in February included at least one price reduction, with sellers on average reducing the list price 2.39 times — the highest of any of the 27 major housing markets that ZipRealty surveys monthly.
“Contrary to the national trend, sellers in Florida seem to be cutting their asking prices aggressively to attract buyer interest,” said ZipRealty CEO Pat Lashinsky. “First-time buyers looking to take advantage of the $8,000 tax credit, those looking for a second home and real estate investors are finding there are deals to be had in South Florida, Orlando and Jacksonville .”
Other highlights from the report include:
The number of price-reduced homes on the market in Orlando rose 17.1 percent in February compared to January
Miami has the second highest number of reduced-price homes available for sale nationally, though 4.7 percent fewer in February compared to January. Only Chicago has more price reduced homes listed for sale nationally
Sellers in Miami/Ft. Lauderdale reduced their list price by 15 percent
on average — more than double the national average of 7.4 percent
A report released by First American CoreLogic shows the foreclosure rate in the US increased in January to 3.19 percent, an increase of 60.3 percent from a year ago when the national foreclosure rate was 1.99 percent.
The national rate for seriously delinquent mortgage’s (mortgages that are 90+ days delinquent) increased in January as well to a rate of 8.66 percent, an increase of 56.6 percent from a year ago when the rate was 5.53 percent.
So while we are seeing some markets in the US showing signs of “hitting bottom” and some are evening saying some markets have begun a “recovery“, I think we should be very slow and cautious to say the worst is behind us. Perhaps for those markets that had extremely high concentrations of the foreclosure activity (Nevada, Arizona, California and Florida) most of the damage may be done, but for other markets foreclosures are going to continue to put downward pressure on home prices. Until mortgage delinquency and foreclosure rates start trending downward significantly we cannot underestimate their impact on the market.
In addition, with the Fed Reserve’s announcement of their plan to discontinue the purchase of mortgage-backed securities in the next month or so, many in the industry feel this may lead to higher interest rates. With the housing market already struggling, higher interest rates will be yet another blow.
So, in my humble opinion, what we need to happen before we are going to see a true recovery begin in the housing market is; interest rates to hold reasonably steady or at least not increase significantly, foreclosure and mortgage delinquency rates drop back closer to normal levels, and unemployment to drop significantly from the current levels approaching 10 percent.
Today the National Association of REALTORS released it’s January Pending Home Sales Index showing a decrease of 7.6 percent in the index from December, 2009 to January 2010 (seasonally adjusted) and a 12.3 percent increase from last year.
Here are highlights from the report:
January’’s pending home sales index (seasonally adjusted) was 90.4 (the index is based upon 100.0 being equal to the average level of sales activity in 2001 which we could call the last “normal” year) which was a decrease of 7.6 percent in the index from December’s revised index of 97.8 and an increase of 12.3 percent from January, 2009 when it was 80.5.
January’’s not-seasonally adjusted index index was at 74.4, an increase of 17.7 percent from December and an increase of 8.8 percent increase from a year ago.
Lawrence Yun, NAR chief economist, said weather is likely to impact housing data. “January pending sales, though still higher than one year ago, remain much lower than expected given that a large number of potential buyers are eligible for the expanded home buyer tax credit. Moreover, the abnormally severe and prolonged winter weather, which affected large regions of the U.S., hampered shopping activity in February,” he said.
The Justice Department today filed a lawsuit against the owner and property manager of a 48-unit apartment complex in Ann Arbor, Mich., alleging that the defendants discriminated on the basis of race or color in the rental of apartments, the Justice Department’s Civil Rights Division and the U.S. Attorney’s Office for the Eastern District of Michigan announced.
“Housing is a basic human need, and no individual should be subjected to indignity of discrimination as they look for a home for their family,” said Thomas E. Perez, Assistant Attorney General of the Civil Rights Division. “This lawsuit demonstrates that the Justice Department will not tolerate violations of our nation’s fair housing laws.”
“Discrimination in housing goes to the very core of American values,” said Barbara L. McQuade, U.S. Attorney for the Eastern District of Michigan. “The ability to choose where to live affects every other aspect of life – access to schools, jobs and transportation – and we will not ignore violations of this fundamental right.”
The lawsuit, filed in federal court in Detroit, alleges that Acme Investments Inc., d/b/a Ivanhoe House Apartments and Laurie Courtney, the apartment complex’s property manager, engaged in a pattern or practice of discriminating against African American prospective renters. The allegations in the lawsuit are based on evidence generated by a series of fair housing tests conducted at Ivanhoe House Apartments by the Fair Housing Center of Southeastern Michigan, a private non-profit organization located in Ann Arbor. Testers are individuals who pose as applicants for housing and report on their interactions with housing providers to determine the providers’ compliance with fair housing laws.
The Fair Housing Center of Southeastern Michigan filed a lawsuit against the defendants on July 16, 2009, based on the results of the fair housing tests. That lawsuit is currently pending in federal court before the Honorable Sean F. Cox.
The United States’ complaint seeks a court order prohibiting future discrimination by the defendants, monetary damages for those harmed by the defendants’ actions and a civil penalty.
Individuals who may have information related to this lawsuit should contact the Justice Department toll-free at 1-800-896-7743, mail box number 91, the U.S. Attorney’s Office for the Eastern District of Michigan at 313-226-9727, or email the Justice Department at fairhousing@usdoj.gov.
Fighting illegal housing discrimination is a top priority of the Justice Department. The federal Fair Housing Act prohibits discrimination in housing based on race, color, religion, national origin, sex, disability and familial status. More information about the Civil Rights Division and the laws it enforces is available at http://www.justice.gov/crt. Individuals who believe that they may have been victims of housing discrimination can call the Housing Discrimination Tip Line at 1-800-896-7743, e-mail the Justice Department at fairhousing@usdoj.gov, or contact HUD at 1-800-669-9777.
The complaint is an allegation of unlawful conduct. The allegations must be proven in federal court.
Home Loan Applications Jump 11.7 Percent Last Week after decreasing two prior weeks
Dennis Norman
The Mortgage Bankers Association (MBA) released its weekly mortgage applications survey for the week ending February 26, 2010. The report showed the MBA Purchase Index (a measure of the volume of loan applications related to a home purchase) increased 11.7 percent from the week before and the four-week moving average for the index is down 2.7 percent.
“Mortgage applications rebounded last week, particularly refis, as rates dropped back below 5 percent,” said Michael Fratantoni, MBA’s Vice President of Research and Economics. “Purchase activity remains subdued, with application volumes remaining within the narrow range seen in the last few months.”
Interest rates and fees for the week:
30 year fixed-rate mortgage interest rates dropped back below the 5 percent mark landing at 4.95 percent, down from 5.03 percent, with fees decreasing as well to .99 percent from 1.34 percent on loans that are 80 percent of the value of the home.
15 year fixed rate mortgage interest rates decreased slightly to 4.27 percent from 4.35 percent, with fees increasing to 1.36 percent from 1.31 percent on loans that are 80 percent of the value of the home.
One-year ARM interest rates decreased slightly to 6.77 percent from 6.80 percent with fees decreasing to 0.29 percent from 0.33 percent for loans that are 80 percent of the value of the home.
Recently HUD published a report, “U.S. Rental Housing Characteristics: Supply, Vacancy, and Affordability“, which was packed with data about the rental housing market. The data in the report clearly illustrates that the rental market is holding up pretty well, at least in the lower rent price-ranges, while the for-sale housing market has been getting it’s teeth kicked in.
Vacancy Rates:
Vacancy rates have increased, reaching 10.6 percent on a nation-wide basis through the second-quarter of 2009 (the most recent period in the report).
The additional supply however has been mainly higher-priced units.
From the second quarter of 2008 to 2009, the percentage of vacant rental units with rents of $1,500 or more have climbed from 7.6 percent to 9.3 percent. The share of vacant units with rents below $400 fell from 10.8 percent to 9.3 percent over the same time period.
Vacancy rates in project-based Section 8 developments have not exceeded 5 percent.
Properties receiving the Low Income Housing Tax Credit (LIHTC) have “considerably lower vacancy rates than the nation’s overall rental market from 2006 to 2009.”
Rental Supply:
Since 2000 LIHTC properties make up about 50 percent of all newly constructed multi-family rental units.
From 2001 to 2007 the nation’s affordable-unassisted rental housing stock decreased by 6.3 percent, while the high-rent rental housing stock increased 94.3 percent. This translates inot a loss of more than 1.2 million affordable unassisted rental units from 2001 to 2007.
Rents:
Inflation-adjusted gross rents have risen steadily from a national average of $715 in 1996 to $790 in 2008.
37.64 percent of US rental households in 2005 spent 35 percent or more of their income on gross rent. IN 2008, this number increased to 37.85 percent.
The Justice Department today announced that landlord James Stevens, his company Fountain View Apartments Inc., and his former rental manager, Mildred Chastain, have agreed to pay $415,000 in monetary damages and civil penalties to settle a Fair Housing Act lawsuit alleging that they discriminated against African Americans and families with children at Fountain View Apartments, a 42-unit apartment complex in Orange City, Fla.
Under the consent decree, which must still be approved by the U.S. District Court for the Middle District of Florida, the defendants must pay $175,000 to nine individuals identified by the United States as victims of defendants’ discriminatory conduct, $140,000 to three plaintiff-intervenors, and $100,000 to the United States as a civil penalty. In addition, the consent decree prohibits the defendants from engaging in discrimination and requires Fountain View Apartments Inc. to retain an independent manager to manage the property.
“Equal access to housing is a basic necessity and a civil right, and the Fair Housing Act guarantees that all individuals can access that right free from discrimination,” said Thomas E. Perez, Assistant Attorney General for the Civil Rights Division. “This settlement will ensure that the equal housing opportunities required by law are provided at Fountain View Apartments and send a message to all housing providers that we have no tolerance for discrimination based on race or color or familial status.”
“It is immensely important that the Department of Justice is working so hard to stop this unfair treatment and penalize those who engage in housing discrimination in our District and nationwide,” stated A. Brian Albritton, U.S. Attorney for the Middle District of Florida.
The case began when Lewarna Williams, an African American woman, visited Fountain View with her grandson and a friend and inquired about the availability of apartments. Defendant Chastain told her that there were no vacancies. Ms. Williams requested an application and was given one, but Defendant Chastain refused to allow her to submit it. The application contained the notation “ADULTS ONLY” in the space designated for the number of children. Later the same day, Ms. Williams’ friend telephoned Fountain View to request information about apartment availability, and the female agent informed her that apartments were available. A local television station subsequently conducted a series of fair housing tests – simulated transactions to compare responses given by housing providers to different types of apartment-seekers to determine whether illegal discrimination is occurring – and found that the defendants were providing more information and better treatment to white persons than to African American persons.
Ms. Williams filed a fair housing complaint with the U.S. Department of Housing and Urban Development (HUD). After investigating, HUD referred the matter to the Justice Department, which filed the lawsuit in June 2008. Ms. Williams and others intervened in the lawsuit as plaintiffs.
“This case underscores the importance of fair housing testing in uncovering differences in the way people or different racial backgrounds are treated when they visit some apartment complexes,” said John Trasviña, HUD Assistant Secretary for Fair Housing and Equal Opportunity. “HUD will continue to use fair housing testing to bring to light the discriminatory practices that still deny too many Americans equal housing opportunities.”
In December 2009, the court, ruling on a motion filed by the United States, found that the defendants had violated the Fair Housing Act by engaging in a pattern or practice of discrimination against families with children. Had the remainder of the case gone to trial, the United States was prepared to show that the defendants also discriminated against African Americans by, among other things, telling white persons that a selling point of the apartment complex is that Fountain View does not have any black residents; denying the availability of apartments to African American persons while at the same time telling white persons about available apartments; refusing to show apartments to African American persons while at the same time showing apartments to white persons; discouraging African American persons from applying for an apartment while encouraging white persons to apply; refusing to negotiate with African American prospective tenants for rental; threatening to evict one or more tenants who were known or believed to have African American friends and associates; and making statements with respect to the rental of apartments at Fountain View indicating a preference, a limitation, or discrimination because of race or color. Today’s settlement resolves these claims.
The federal Fair Housing Act prohibits discrimination in housing based on race, color, religion, national origin, sex, disability and familial status. Individuals who believe that they may have been victims of housing discrimination should call the Housing Discrimination Tip Line (1-800-896-7743) or e-mail the Justice Department at fairhousing@usdoj.gov. Such persons may also contact the U.S. Department of Housing and Urban Development at 1-800-669-9777.
The sunshine state’s real estate market is heating up according to the latest report from the Florida REALTORS(R). Existing home sales rose in January, marking 17 months that sales activity has increased in the year-to-year comparions.
Existing home sales in Florida increased 24 percent in January with a total of 10,465 homes sold statewide compared to 8,444 homes sold in January, 2009, according to the report. Condo sales for January were up a whopping 81 percent from the year before.
Gulf Coast Sunset
Sixteen of Florida’s metro areas reported increased existing home sales in January; all metros in the state had higher condo sales. A majority of the state’s metro areas have reported increased sales for 19 consecutive months.
Prices may be fueling the sales:
Florida’s median sales price for existing homes last month was $130,900,down 6 percent from a year ago when it was $139,400. The median sales price for existing condo’s last month was $97,300, down 14 percent from a year ago when it was $113,300. The sale of foreclosures and other distressed properties continue to apply downward pressure on median home and condo prices.
“Now is the time for anyone thinking of buying a home in Florida to make that decision,” said 2010 Florida REALTORS(R) President Wendell Davis. Davis went on to add “markets across the state are seeing increased sales, yet conditions remain very favorable with still-low mortgage rates, a range of housing inventory and attractive prices. ”
The United States Court of Appeals for the Eleventh Circuit recently consdered an appeal by the plaintiffs of a class action lawsuit again D.R. Horton, Inc. and DHI Mortgage, Co brought by John R. Yeatman and Eleanor E. Yeatman on behalf of themselves and all similarly situated individuals.
The lawsuit stems from the Yeatman’s purchase of a home from DR Horton in 2006 in which the purchase agreement gave the Yeatmans the option of receiving a discount on their closing costs on the house, provided they used DHI Mortgage as their mortgage lender. This was not a condition of the contract however.
The lawsuit alleged that the builders offer of a discount for using a related company was a violation of the Real Estate Settlement Procedures Act (RESPA) however the lower court dismissed the complaint, and the Yeatman’s appealled.
The appellant court upheld the decision of the lower court saying “the district court correctly determined that the mere offering of an option of a discount on closing costs does not violate the Real Estate Settlement Procedures Act (RESPA). Neither does it violate the United States Department of Housing and Urban Development (HUD) regulation prohibiting arrangements where consumers are required to use a specified service in order to buy another service or product.”
I usually try to keep the focus of my posts on this site on topics that, for the most part, apply to the entire real estate industry and shy away from local issues. I’m going to make an exception today however as I feel this is an issue, albeit local at this point, seems to be spreading throughout the country.
What I’m talking about, in general, are local laws and ordinances that are being passed that negatively impact the rights of property owners, particularly those of landlords, which can not only affect your clients, but for those of you that do property management may very well affect you. Specifically what I’m going to talk about today is an ordinance as well as a proposed ordinance in the City of St. Louis that requires the registration of vacant property.
Now, on the surface, “registering vacant property” sounds pretty innocuous, but once you dig into the details you find “the devil is in the details“, literally. Since most readers don’t own property in the city of St. Louis, I am not going to go through all the details of the ordinance here, but I if you want to check it out I suggest you read a post I did on a St. Louis blog – I guarantee you, it’s worth reading and very enlightening as to what some cities have on their minds and in their “play books”.
In a nutshell, here are some of the highlights of the proposed ordinance (which may pass as soon as next week):
If a property is vacant for 6 months and has as little as one building code violation (I would like someone to find a building without any violations) then the owner must register it with the city.
The registration process requires the owner to give their name, street address where they live, phone number and email as well as pay a $200 fee every six months while the building is vacant.
The owner’s personal information (including email and phone) will then be published in an on-line database for the public to see. (Sort of like the national sex-offenders registry…difference is they are convicted felons and in this case the only thing the people are guilty of is owning a vacant property….Oh yeah, sex offender only have to give an address, not a phone number and email address)
If you fail to give the personal information the penalty is a fine of up to $500 and/or imprisonment of up to 90 days.
If you fail to “secure” the property within 30 days of it being vacant the penalty is a fine of up to fine of up to $500 and/or imprisonment of up to 90 days for EVERY day you fail to do so (do the math, if you are 30 days late it gets scary)l. This penalty appears to apply to PROPERTY MANAGERS as well as the owner….Look out!
Fail to pay the fee and after one year the city can foreclose on the property (so basically you lose the property over $400)
There’s more, but that gives you an idea. Before I go further I need to point out I am NOT an advocate of derelict buildings or derelict property owners but I AM an advocate for private property rights and due process…the latter is something I feel is missing in this ordinance.
What I see happening in St. Louis, and in many parts of the country, is that municipalities are looking for new ways to deal with “problem” properties, raise revenue and in some case achieve other agendas. Many times the result are new ordinances and rules which typically apply only to rental property or other property owend by investors. Landords and investors tend to be the target many times. Granted, some landlords are not responsible landlords, but neither are some homeowners.
I would love to hear from others around the country about issues like this. Are you seeing ordinances and laws in your state, city or county that you feel are attacking landlords or investors, or singling them out? Perhaps laws that are making property managers liable for properties they manage? Or, laws that just attack private property rights in general? If so, I would love to hear more about it. Please comment with the details.
According to the latest report from the National Association of REALTORS(R), existing home sales in January decreased 7.2 percent to a seasonally adjusted-annual rate of 5.05 million units in January from a level of 5.44 million units in December, however this does represent an increase over a year ago when the rate was 4.53 million units (seasonally adjusted).
Lawrence Yun, NAR chief economist, said there is still some delay between shopping and closing that affected current sales. “Most of the completed deals in January were based on contracts in November and December. People who got into the market after the home buyer tax credit was extended in November have only recently started to offer contracts, so it will take a couple months to close those sales,” he said. “Still, the latest monthly sales decline is not encouraging, and raises concern about the strength of a recovery.”
I don’t like “seasonally adjusted rates of sales”:
If you have been reading my posts for a while you know by now I don’t like “seasonally adjusted” numbers, particularly when artificial stimuli, such as homebuyer tax-credits, can cause an unseasonal spike in sales activity. I much prefer to see the actual numbers and try to garner from them what is going on in the housing market.
The following are the ACTUAL Existing Home sales reported by NAR without any adjustment or fluff:
There were 275,00 existing homes sold in January which is a 33.4 percent decrease from December’s 413,000 sales.
January’s sales of 275,000 units is a 7.0 percent increase from January, 2009’s sales of 257,000 units.
Below are highlights from each region:
Northeast – 41,000 homes sold in January, 2010, a decrease of 37.8 percent from December and and increase of 17.1 percent from the year before.
Midwest - 54,000 homes sold in January, 2010, a decrease of 37.2 percent from December and an increase of 3.8 percent from the year before
South - 104,000 homes sold in January, 2010, a decrease of 35.0 pecent from December and an increase of 8.3 percent from the year before.
West – 76,000 homes sold in January, 2010, a decrease of 24.7 percent from December and a increase of 2.7 percent from the year before.
Other highlights of the NAR Report:
Median price of homes sold in January in the US was $164,700, a decrease of 3.4 percent from December’s median price of $170,500 and is the same as the median price from a year ago.
Distressed sales accounted for 38 percent of all home sales in January, an increase of 18.8 percent from December’s rate of 32 percent.
First-Time homebuyers accounted for 40 percent of the home sales in January, down from 43 percent in December.
Investors were the buyers of 17 percent of the homes in January, up from 15 percent in December.
Repeat home buyers were responsible for approximately 43 percent of January’s sales.
Total housing inventory at the end of January was 3,265,000 homes for a 7.8 month supply, an increase of 8.3 percent from last months 7.2 month supply.
My Take On the Numbers:
I think the numbers in this report, along with other recent reports, shows that reports about a “housing recovery” we heard over the past few months were premature and had put way too much emphasis on a little uptick in sals and/or prices. Having said that, I do feel this report and others support the possibility that the housing downturn is leveling off and trying to find the “bottom”. Finding the bottom will be good and I think actually instill some confidence in buyers; even if there is no indication prices will appreciate any time soon, I think a lot of buyers would be happy just to feel comfortable prices aren’t going to drop after they buy.
What to look out for:
Interest rates – Rates ALWAYS have an affect on the housing market…presently we have near record-low rates, however the Fed Reserve is indicating they will stop purchasing mortgage-backed securities in the next couple of months and industry experts feel this will lead to higher interest rates. In addition, there is some concern about inflation, which would lead to higher rates as well. Needless to say, higher interest rates are not going to help the housing market recover.
Tax Credits- By all indications the homebuyer tax credits have played a role in getting buyers to pull the trigger and has contributed to home sales. The credits come to an end April 30th, unless extended by Congress which I feel is doubtful, and then we will see what happens to the market afterward. First-time buyers, the biggest benificiaries of the credit, make up 40 percent of the sales currently, so they are s significant component.
Foreclosures – Foreclosures, REO’s and short-sales all put negative pressure on the housing market in terms of home prices and there is no end in site.
Underwater Borrower Sentiment- There are a record number of people “underwater” on their homes (owe more than their homes are worth) but, according to Robert Shiller, a noted economist, 80 percent of those borrowers still feel like they should continue to pay their mortgages and stick it out. According to a recent report by First Amercian CoreLogic, this sentiment changes dramatically once homeowners exceed 25 percent negative equity or exceed $70,000 in negative equity…according to the same report the average negative equity for underwater borrowers at the end of 2009 was $70,700. The number of underwater homeowners was 11.3 million at the end of 2009; if the sentiment of these homeowners change and they start walking away from their homes, look out housing market!
The U.S. Department of Commerce released a report showing the sale of New Homes in January were at a seasonally adjusted annual rate of 309,000, an 11.2 percent decrease from the revised December rate of 348,000 and is 6.1percent below a year ago.
The inventory of new homes (seasonally adjsuted) at the end of January is 9.1 months an increase of 13.7 percent from December’s inventory of 8 months.
My Mantra
As has been my long-running mantra, I don’t like “seasonally adjusted” numbers and “rate” of sales. Why, for one I can’t figure out how in the world they compute the numbers. Second, I just don’t think discussing the “rate” of new home sales paints a realistic picture of the market. I think this holds especially true when we have artificial forces affecting the housing market such as tax credits and other incentives. This can create unseasonal bursts or declines in sales that don’t really have anything to do with the underlying fundamentals of the housing market.
Here is the raw data, the ACTUAL new homes sold- no fluff, no “adjusting”
21,000 new homes sold in December, a 12.5 percent decrease from December’’s 24,000 new homes sold and also a 12.5 percent decrease from January 2009 when there were 24,000 new homes sold.
52 percent (11,000) of the new homes sold were in the South region- a decrease of 15.3 percent from December’s 13,000 new homes sold
the west region had 5,000 new homes sold, the same as each of the two months before.
the Midwest had 3,000 new homes sold, the same as December.
The Northeast had 2,000 new homes sold, a decrease of 33 percent from December’s 3,000 new homes sold.
Median sale price of new homes in the US in January was $203,500, an 8.7 percent decrease from December’s median new home price of $221,300.
New Homes in the US in January have been for sale for a median time of 14.2 months since the homes were completed; this number has been increasing every month.
Inventory of new home in US at end of January is 233,000, down slightly from December’s inventory of 234,000 homes.
My prediction for 2010
I am really an optimistic person by nature, but I can’t help but be pessimistic about the outlook for new home sales this year. The announcement by the Fed that they may stop buying mortgage-backed securities soon is going to most likely lead to higher interest rates: The HomeBuyer tax credit is set to expire April 30th and I doubt will get extended again. Both these events are going to have a negative impact on the housing industry and are going to put even more downward pressure on the housing market. Not to mention the effect of record foreclosure rates, record numbers of people underwater on their mortgages and the like.
Therefore, even though it is still very early in the year, I’m going to downwardly adjust my prediction of new home sales this year. I’m going to estimate that we are going to see a decline in new home sales from last year of 5 – 10 percent which would put us at about 336,600 – 355,000 new home sales in 2010.
Home Loan Applications Drop 7.3 Percent Last Week after decreasing 4.0 percent the week before.
Dennis Norman
The Mortgage Bankers Association (MBA) released its weekly mortgage applications survey for the week ending February 19, 2010. The report showed the MBA Purchase Index (a measure of the volume of loan applications related to a home purchase) decreased 7.3 percent from the week before and the four-week moving average for the index is down 2.1 percent showing a downward trend in homebuyer activity.
“As many East Coast markets were digging out from the blizzard last week, purchase applications fell, another indication that housing demand remains relatively weak,” said Michael Fratantoni, MBA’s Vice President of Research and Economics. “With home prices continuing to drift amid an abundant inventory of homes on the market, potential homebuyers do not see any urgency to lock in purchases.”
Interest rates and fees for the week:
30 year fixed-rate mortgage interest rates increased back above the 5 percent mark hitting 5.03 percent, up from 4.94 percent, with fees increasing as well to 1.34 percent from 1.09 percent on loans that are 80 percent of the value of the home.
15 year fixed rate mortgage interest rates increased slightly to 4.35 percent from 4.33 percent, with fees increasing significantly to 1.31 percent from 1.02 percent on loans that are 80 percent of the value of the home.
One-year ARM interest rates increased to 6.80 percent from 6.67 percent with fees increasing to 0.33 percent from 0.32 percent for loans that are 80 percent of the value of the home.
I don’t know if these increases to interest rates can be attributed to this or not, but in an article, Robert Fishel points out that the indication the Fed Reserve will stop buying mortgage backed securities toward the end of this quarter will most likely cause an increase in mortgage interest rates: Yet another blow to the housing market, if it happens.
Seventy Percent of all mortgaged properties in Nevada are underwater
Dennis Norman
According to a report released today by First American CoreLogic more than 11.3 million U.S. mortgages, or 24 percent of all mortgaged properties, are in a negative equity position meaning the borrowers owe more on their mortgage than their home is worth as of December 31, 2009.
There were approximately 600,000 more borrowers underwater on December 31, 2009 than just three months earlier. In addition, there were an additional 2.3 million mortgages approaching negative equity at the end of last year .
Together, negative equity and near-negative equity mortgages account for nearly 29 percent of all residential properties with a mortgage nationwide.
Like foreclosures, borrowers with negative equity are concentrated in five states: Nevada, which had the highest percentage of negative equity with 70 percent of all of the states mortgaged properties underwater, followed by Arizona (51 percent), Florida (48 percent), Michigan (39 percent) and California (35 percent). Among these five states the average negative equity is 42 percent of the mortgages compared with an average of 15 percent for the remaining 45 states.
Other highlights from the report are:
The states with the highest percentage increases in negative equity during 4th quarter 2009 were Nevada, Georgia and Arizona.
The rise in negative equity is closely tied to increases in foreclosures and is a major factor in changing the behavior of homeowners. According to the report, once a homeowner has over 25 percent negative equity or the mortgage balance is $70,000 higher than the current property value, homeowners begin to default with the same propensity as investors. In other words, they stop looking at their home from an emotional standpoint and start treating it like a bad investment.
The average negative equity in 4th quarter was $70,700, up from $69,700 in 3rd quarter.
Of the over 47 million homeowners with a mortgage, the average loan to value ratio (LTV) is 70 percent. More than 23 million, or 49 percent, of all homeowners with a mortgage have at least 25 percent equity in their home, and over 12 million have at least 50 percent equity in their homes.
Even though the housing market is showing signs of stabilizing in many areas, the number of people underwater on their mortgages is something that gives me great concern. As shown in the corelogic report, the average amount of negative equity has now broken the $70,000 threshold where homeowners are more easy to succumb to walking away. As borrowers due this, we will see the mortgage delinquency rates, which are already at record highs, continue at a record pace, and we will see the shocking foreclosure rate continue for some time. This will continue to put downward pressure on the housing market making an actual recovery that much more difficult.
I hate to sound gloom and doom, but I think unless some good things start happening (a whole lot less unemployment for one) this will be reality.
Maybe I’m naive, but it surprises me that some property managers (and owners) are clueless about Fair Housing Laws or just blatantly disregard them…particularly owners and operators and large apartment complexes. I’m going to share information on another settlement, and an expensive one at that, the Department of Justice obtained from the property owners and managers to settle claims of Housing Discrimination.
Department of Justice
FOR IMMEDIATE RELEASE Friday, February 19, 2010
The Justice Department today announced the settlement of a case alleging housing discrimination in the rental of apartments in Kansas City, Kan. The combined $2.13 million settlement represents the second largest monetary payment ever obtained by the department in a fair housing case alleging housing discrimination in the rental of apartments.
The department brought a lawsuit in federal district court in Kansas alleging that Stacy Sturdevant, the community manager of the Central Park Towers Apartments (CPT), her employer, NHP Management Co., as well as the Apartment Investment and Management Company (AIMCO) and the former owners of CPT, engaged in a pattern or practice of discrimination on the basis of race in violation of the Fair Housing Act. The lawsuit also alleged that the defendants retaliated against an employee, Melissa Kothe, for cooperating with Department of Housing and Urban Development (HUD) investigators.
In its amended complaint, filed on Sept. 18, 2008, the department alleged that for two-and-a-half years between 2003-2005, Sturdevant engaged in discriminatory rental practices on the basis of race. The United States presented evidence in litigation that Sturdevant openly displayed racially hostile materials at CPT, such as hangman’s nooses, frequently referred to African Americans with racial epithets and generally treated white residents more favorably than African American residents. The government also alleged that the defendants improperly retaliated against Kothe, a resident services coordinator at CPT, by firing her when she cooperated with HUD investigators and advised a resident to contact HUD.
“The right to live peacefully in one’s own home without being victimized, harassed and treated unfairly because of race is a fundamental right in our nation,” said Thomas E. Perez, Assistant Attorney General for the Civil Rights Division. “This settlement is designed to send a message to housing providers across the country that we have a zero-tolerance policy for this type of egregious behavior.”
“Individuals who step forward to assist victims of housing discrimination should know that HUD and the Justice Department will protect them from retaliation,” said John Trasviña, HUD Assistant Secretary for Fair Housing and Equal Opportunity. “This settlement vindicates that interest.”
Sturdevant was an employee of NHP Management Company, a subsidiary of AIMCO, one of the nation’s largest owners and operators of multifamily dwellings. Central Park Towers II L.P. owned the building where Sturdevant was employed — a Section 8 property with 195 units designated for persons with disabilities and/or elderly. This settlement will resolve the United States’ claims on behalf of over 40 current and former tenants of Central Park Towers, as well as the claim on behalf of Melissa Kothe.
The department settled its claim against the former owners, Central Park Towers II L.P. last summer, for $145,000. That settlement, together with the agreement announced today, amount to a total settlement of $2.13 million. The settlements are in the form of consent orders that the parties have submitted to the court for approval. Last summer’s settlement with the former owners has already been approved by the court. Today’s agreement must still be approved by U.S. District Court Judge Kathryn Vratil.
The agreement filed today would require the defendants to pay $95,500 in civil penalties to the United States, and a total of approximately $1.89 million into a fund that would be used to compensate persons who were harmed by the defendants’ discriminatory practices. The terms of the distribution of the monetary damages will be determined in a separate disbursement order to be submitted by the United States for approval by the court.
The federal Fair Housing Act prohibits discrimination in housing on the basis of race, color, religion, national origin, sex, disability and familial status. Individuals who believe that they may have been victims of housing discrimination should call the Housing Discrimination Tip Line (1-800-896-7743) or email the Justice Department at fairhousing@usdoj.gov. Such persons may also contact the U.S. Department of Housing and Urban Development at 1-800-669-9777 to report discrimination.
American homeowners’ confidence in their own homes’ values falls to lowest level in almost two years
According to the Zillow 4th quarter, 2009 Homeowner Confidence Survey, American’s aren’t feeling so good about the value of their homes, and, in fact, just one in five (20 percent) believe their own homes’ values increased during 2009. What’s interesting here is, according to Zillow, 28 percent of all homes increased in value, meaning that almost a third of the homeowners with homes that increased in value don’t think so.
Even though the confidence level in this report is the lowest in seven quarters, homeowners continue to be optimistic about the future with 38 percent believing their homes’ values will increase in the next six months.
Other highlights from the survey:
For the first time since the survey was first done in the 2nd quarter of 2008, homeowners were overly cynical about the values of their own homes, with a Misperception Index of -2 (an INdex of 0 would indicate homeowner perceptions are aligned with reality; a negative index indicates they are over cynical)
Home are more optimistic about the future: Fewer than one in six (14 percent) believe their own homes’ value will decrease in the next six months.
Homeowners in the Northeast and West were the most cynical about the performance of their own homes’ values in the last year, with Misperception Indexes of -14 and -5, respectively.
Home Prices Exhibit “Improving Declines” (sounds rather oxymoronic, huh?)
In a report issued by First American CoreLogic national home prices continue to decline with their HPI (Loan Performance Home Price Index) declining by 3.7 percent in December 2009 compared with the year before. If you take the distressed sales out (foreclosures, short sales, etc) the nation decline in HIP for the same period was 3.3 percent.
The First American CoreLogic report points out the Decembers year-over-year price decline of 3.7 percent is an improvement from November’s 5.3 percent year-over-year price decline. So basically prices are still falling, just not as fast….good news, I guess although it’s strange that today a “lessor negative” rather than a “positive” qualifies as good.
Forecast Shows-Continue Short-term Declines
First American CoreLogic’s forecast continues to project declining house prices into the spring months. The national HPI is projected to fall an average of 4.4 percent through April 2010, as high levels of unemployment, housing inventories and foreclosures continue to exert downward pressure on prices. The forecast indicates that April will be a critical month for the housing market, given the current scheduled expiration of the federal homebuyer tax credit. While the tax credit provided some significant support to house prices in 2009, the forecast model currently indicates that the future path of house prices after April will be significantly impacted by whether the tax credit is allowed to expire or is once again extended. Nationally, the HPI 12-month forecast is expected to be up 3.5 percent excluding distressed sales; and up 2.7 percent including distressed sales by December 2010.
Highlights of the report:
Including distressed transactions, the HPI (home price index) has fallen 28.2 percent nationally through December from its peak in April 2006. Excluding distressed properties, the national HPI has fallen 21.5 percent from the same period.
When distressed sales were included Nevada (-20.8 percent) remained the top-ranked state for annual price depreciation followed by Arizona (-12.6 percent), Idaho (-11.4), Florida (-11.3 percent) and Michigan (-10.8 percent). Of these five states all but Michigan showed month over month descreases in home prices from November to December.
Excluding distressed sales, the worst five states for year-over-year price declines changes slightly. Nevada (-18.8 percent) still holds the top spot, followed by Arizona (-11.8 percent), Florida (-10.3 percent), Michigan (-10.0 percent) and Maine (-9.1 percent).
“The housing market, after experiencing stabilization in many, but not all, markets in the spring and summer of 2009 is going through the typical seasonal winter malaise,” said Mark Fleming, chief economist for First American CoreLogic. “The big unknown for the 2010 spring selling season continues to be the future of the federal home buyer tax credit,” he said.
Author’s Note: I frequently publish stories on actions of the Department of Justice with regard to Fair Housing Laws…I do this not to draw attention to the parties involved in particular suit or case but to heighten the awareness of Property Managers, Brokers and Landlord’s of Fair Housing Laws and the repurcussions of violating them.
The Justice Department’s Civil Rights Division announced an agreement with the Latvian Tower Condominium Association Inc. and its former president, Karl Tegtmeyer, to settle allegations of discrimination against families with children. Under the consent decree, which must still be approved in federal court in Omaha, Neb., the defendants must pay $112,500 to victims of discrimination and an additional $15,000 to the government as a civil penalty.
This lawsuit arose as a result of a complaint filed with the U.S. Department of Housing and Urban Development (HUD) by a couple who attempted to sell their condominium. After an investigation of the complaint, HUD issued a charge of discrimination and the complainants elected to have the case heard in federal court. The lawsuit alleged that the condominium association maintained rules that barred the sale or rental of condominiums to families with children. The lawsuit also alleged that the condominium association and Tegtmeyer’s conduct constituted a pattern or practice of discrimination, and sought a civil penalty as well as monetary damages for any other persons harmed by the defendants’ actions.
“Federal law guarantees families with children the right to equal access to housing. Settlements such as this one help ensure that all families can enjoy that right,” said Thomas E. Perez, Assistant Attorney General for the Civil Rights Division. “The Department of Justice will vigorously pursue violations of the Fair Housing Act.”
“This settlement sends a strong message that we will not tolerate discrimination in housing,” said Deborah Gilg, U.S. Attorney for the District of Nebraska.
“Housing discriminating against families with children is illegal. Together with the Justice Department, HUD will ensure that neighborhoods are free from discrimination,” stated John Trasvina, Assistant Secretary for Fair Housing & Equal Opportunity.
Fighting illegal housing discrimination is a top priority of the Justice Department. The federal Fair Housing Act prohibits discrimination in housing on the basis of race, color, religion, sex, familial status, national origin and disability.
Radarlogic Housing Market Report Shows First November-December Increase in Home Prices Since 2004- Also shows a 44 percent year-over-year increase in housing transactions in December
Finally, some good news on the home front…literally. According to the Housing Market Report that was just released by Radarlogic, their RPX Composite Price, which tracks home prices in 25 major metropolitan areas, increased from November to December, the first time for an increase in the price index during the month of December since 2004.
Another positive piece of news is that the number of housing transactions for December increased in all 25 metroplitan areas covered by the report relative to the prior year.
Other highlights from the RadarLogic Housing Market report for December are:
The number of home sales in the 25 metropolitan areas covered by the report increased in December 44 percent from the year before
Even though year over year home sales showed an increase, December’s home sales were 11 percent less than November making it the first significant month-over month decline since January 2009.
Sales of foreclosed homes increased as a percentage of total sales during early December. This reversed the trend during the prior two months, when sales of distressed homes decreased as a share of total transactions. Foreclosed home sales increased from 22 percent of total sales to 24 percent in the first half of December.
Home sale prices on foreclosures were 37 to 38 percent less than other home sales during December.
Notwithstanding the stability in aggregate home prices during December, there was considerable regional variation in price dynamics over this period. On a month-over-month basis, the composite price for housing markets in the Northeast increased by 2 percent, while the Midwest composite decreased by 5 percent. The West composite price remained flat month over month, as price increases in San Francisco, Denver and, surprisingly, Las Vegas were offset by price declines in the other western cities. The composite price for the South also remained essentially flat month over month.
“Most signs point to a return to more normal activity in housing markets,” said Michael Feder, President and CEO of Radar Logic. “While we are still exposed to inventory swings and financing constraints, a continued recovery this spring looks likely.”
Recovery in spring? Hmm….let’s hope….time will tell…
Home Loan Applications Drop 4.0 Percent Last Week.
Dennis Norman
The Mortgage Bankers Association (MBA) released its weekly mortgage applications survey for the week ending February 12, 2010. The report showed the MBA Purchase Index (a measure of the volume of loan applications related to a home purchase) decreased 4.0 percent from the week before and the four-week moving average for the index is down 1.2 percent.
In spite of interest rates dropping to near historic lows, mortgage application activity by home buyers appears to be slowing down. Existing homeowners are still refinancing their mortgages though and make up 69.3 percent of the total mortgage activity.
Interest rates and fees for the week:
30 year fixed-rate mortgage interest rates remained unchanged at 4.94 percent, with fees increasing to 1.09 percent from 1.06 percent on loans that are 80 percent of the value of the home.
15 year fixed rate mortgage interest rates remained unchanged at 4.33 percent, with fees increasing to 1.02 percent from 0.95 percent on loans that are 80 percent of the value of the home.
One-year ARM interest rates decreased slightly to 6.67 percent from 6.68 percent with fees increasing to 0.32 percent from 0.35 percent for loans that are 80 percent of the value of the home.
Deceleration in Rise of Mortgage Delinquencies Short Lived
Back in July, 2009 when speaking in North Carolina President Barack Obama announced “we may be seeing the beginning of the end of the recession“. My thoughts then were that was very optimistic and I didn’t agree (for whatever that is worth). Since then some economists have announced the recession is officially over. Technically based upon a few bits of data the recession may be over, but for us real people that are actually living and functioning in this economy I don’t think it is over; at least not for the one market I know best, the housing market.
Today, TransUnion had more sobering news for the real estate market; the mortgage loan delinquency rate (the ratio of borrowers 60 or more days past due) increased for the 12th straight quarter, hitting an all-time national average high of 6.89 percent for the fourth quarter of 2009. The fourth quarter marks the first time the mortgage delinquency rate increase did not decelaerate after doing so in the three prior quarters.
Highlights from the fourth quarter report:
Mortgage delinquency rates continued to be highest in Nevada (16.19 percent) and Florida (14.93 percent)
Mortgage delinquency rates were lowest in North Dakota (1.84 percent), South Dakota (2.46 percent) and Alaska (2.84 percent)
Areas with the greatest growth in delinquency rates from the previous quarter were the District of Columbia (+20.2 percent), Louisiana (+17.7 percent) and Delaware (+14.8 percent).
No state showed in a decrease in mortgage delinquency rates from third quarter.
Average national mortgage debt per borrower increased (0.29 percent) to $193,690 from $193,121 in 3rd quarter.
The area with the highest average mortgage debt per borrower was the District of Columbia at $372,869, followed by California at $352,688 and Hawaii at $317,599.
The lowest average mortgage debt per borrower was in West Virginia at $99,028.
The Forecast for 2010 is not pretty
TransUnion is forecasting the 60-day mortgage delinquency rate to “peak between7.5 and 8 percent over the course of 2010.” So we could be looking at an increase of anywhere from 8.8 percent to 16 percent in mortgage delinquencies from the record level they hit in the 4th quarter of 2009.
Ugh…I’m glad the recession is over, think how bad it would be if it wasn’t.
Last week a friend emailed me a link to a video titled “The Indymac Slap in Our Face” that was created by Think Big Work Small. I watched the video which gave a recap of the failure of Indymac bank back resulting in it’s seizure by the FDIC in July, 2008, and the ultimate sale by the FDIC of Indymac Bank to One West Bank in March, 2009.
According to the video, One West Bank received a cushy, “sweetheart deal” and implied it was related to the fact that the owners of One West Bank include Goldman Sachs VP, Steven Mnuchin, billionaires George Soros and John Paulsen, and that “it’s good to have friends in high places.” Here is a recap of some of the “facts” of the deal they gave on the video:
One West Bank paid the FDIC 70 percent of the principal balance of all current residential loans
One West Bank paid the FDIC 58 percent of the principal balance of all HELOC’s (Home Equity Lines of Credit)
The FDIC agreed to cover 80 – 95 percent of One West’s loss on an Indymac loan as a result of a short sale or foreclosure.
The kicker is, according to the video, is that the “loss” is computed based upon the original loan amount and notthe amount One West paid for the loan.
On the video the hosts give an example of an “actual scenario” showing how the deal worked, below is a recap:
One West Bank approved a short-sale of $241,000 on one of the Indymac loans it purchased from the FDIC (the total balance owed by the borrower at the time was $485,200).
Based upon the terms of the loss sharing agreement, One West “lost” $244,200 on this transaction, 80 percent of which ($195,360) was paid to One West by the FDIC.
So, One West received $241,000 from the short sale and $195,360 from the FDIC for a total of $436,360 on a loan they bought from the FDIC for $334,600, thereby resulting in a profit of $101,760 on the loan to One West.
One last kicker, the video claims, in addition to making over $100,000 on the loan, since the house was sold for less than what the borrower owed, One West also made the borrower sign a promissory note for $75,000 of the short-fall.
Below is a link to the video if you want to watch it for yourself.
The video got me pretty fired up like I imagine it did most people that saw it. Afterall, our federal government is running up debt faster than ever before, the FDIC has had to take over a record number of banks in the past year and now a sweetheart deal for people that are “connected.” OK, I’ll admit it, I was a little jealous….a 30 percent profit, guaranted by the FDIC? And all I have to do is discourage borrowers from doing loan modifications and force short-sales and foreclosures? Easier than taking candy from a baby, huh?
Hmm….wait a minute though, the skeptic in me (especially when it comes to anything distributed via email) made me wonder if the video was accurate or was it misunderstanding the facts, taking facts out of context or simply just wrong? To the credit of Think Big Work Small they did have links on their site to the loss-sharing agreement they were referencing.
Following are some highlights from the FDIC “Fact Sheet” on the sale of IndyMac:
The FDIC entered into a letter of internt to sell New IndyMac to IMB HoldCo, LLC, a thrift holding company controlled by IMB Management Holdings, LOP for approximately $13.9 billion. IMB holdCo is owned by a consortium of private equity investors led by Steven T. Mnuchin of Dune Capital Management LP.
The FDIC has agreed to share losses on a portfolio of qualifying loans with New IndyMac assuming the first 20 percent of losses, after which the FDIC will share losses 80/20 for the next 10 percent and 95/5 thereafter.
Under a participation structure on approximately $2 billion portfolio of construction and other loans, the FDIC will receive a majority of all cash flows generated.
When the transaction is closed, IMB HoldCo will put $1.3 billion in cash in New IndyMac to capitalize it.
In an overview of the Consortium it does identify “Paulson & Co” as a member as well as “SSP Offshore LLC”, which is managed by Soros Fund Management.
Just about the time I finished researching everything for this article I received a press release from the FDIC in response to the video which stated “It is unfortunate but necessary to respond to the blatantly false claims in a web video that is being circulated about the loss-sharing agreement between the FDIC and One West Bank.” The press release goes on to give these “facts” about the deal:
One West has “not been paid one penny by the FDIC” in loss-share claims.
The loss-shre agreement is limited to 7 percent of the total assets that One West services.
One West must first take more than $2.5 billion in losses before it can make a loss-share claim on owned assets.
In order to be paid through loss share, One West must have adhered to the Home Affordable Modification Plan (HAMP).
The last paragraph starts with “this video has no credibility.”
My Analysis
Before I get into this, I need to point out that while I have reviewed the sale agreement between the FDIC and One West as well as the loss-sharing agreement, watched the video above and read the FDIC’s press release, this is complicated stuff and not easy to understand. However, I think I have my arms around the deal somewhat so the following is my best guess analysis of the IndyMac deal with regard to the loss-sharing provision:
The FDIC says the loss sharing agreement only applies to 7 percent of the IndyMac Loans serviced by One West. It appears there is $157.7 billion in loans serviced, 7 percent of that amount is about $11 billion. So my guess is the loss-share applies to about $11 billion worth of loans.
One West agreed to a “First Loss Amount” of 20 percent of the shared-loss loans. The attachment for this was blank but the FDIC’s press release indicates this amount is $2.5 Billion. If that is the case then the total amount of loans the loss-share provision applies to is $12.5 billion. Obviously there is a $1.5 billion discrepancy between my calculation above and here (what’s $1.5 billion among friends?) but I’m going to go with the $12.5 billion because the amount of loans serviced I referenced may have been adusted at closing.
One West purchased the $12.5 billion in loans covered by the loss-sharing agreement for less than$8.75 billion. I say “less than” $8.75 billion as that is 70 percent of the loan amount which represents the amount One-West paid for residential loans that were current. The amount paid for current HELOC’s was only 58 percent and the price for delinquent mortgages went as low as 55 percent and as low as 37.75 percent for delinquent HELOC’s. Therefore I would assume the actual price paid by One-West was less than the $8.75 billion.
Once One West has covered $2.5 billion in losses, then the FDIC starts covering 80 percent of the losses up to a threshold at which time the FDIC covers 95 percent of the losses. Figuring out the threshold was a little trickier…I see a reference to 30 percent of the total loans covered by the loss-share so I’m going to use that which works out to $3.75 billion.
Now let’s figure the profit One West stands to make on the loans covered by the Loss-Share agreement;
If all the borrowers would pay off their loans in full, not less than $3.75 billion (not likely though that all borrowers will pay off in full).
Let’s be real pessimistic and look at the “worst-case” scenario: Lets say 100 percent of the loans bought by One West (covered by the loss-share) go bad and have to be short-sales or foreclosures at a loss. For the sake of conversation lets say the losses equal 40 percent of the loan amount, or $5 billion ($12.5 billion times 40 percent).
One West would have to cover the first $2.5 billion at which time the 80/20 rule would kick in for the next $1.25 billion in losses resulting in One West recovering $1.0 billion of those losses from the FDIC. Then for the next $1.25 billion ($3.75 to $5 billion) One West would recover 95 percent of the loss fro the FDIC or $1.1875 billion.
Recap: Of the $12.5 billion in loans, under the scenario above, One West would have realized $7.5 billion from foreclosures or short sales (60 percent of the debt) and would have recovered $2.1875 billion from the FDIC of the $5 billion in losses, for a total to One West of $9.6875 billion for loans they paid not more than $8.75 billion for a profit of a little less than $1 billion.
Keep in mind, my analysis above is based somewhat on fact and some on speculation and my “profit” scenario is based purely on speculation and pretty negative assumptions as to loan losses. This coupled with the fact that, as I stated above, One West probably bought the loans for less than I indicated, probably makes this a better deal with more than the $1 billion profit at the end of the day.
So is is a sweetheart deal or not? You be the judge…
One thing to keep in mind is the investors only put $1.3 billion cash into the deal to buy IndyMac, and they got a lot more than just the loans covered by the loss-sharing agreement. I’m thinking it’s a pretty good deal and one I probably would have jumped on…well, if I had $1.3 billion sitting around doing nothing…
Valentine’s Day is a time for love…Are you feeling left out because you haven’t found Mr or Mrs Right?
Maybe you aren’t looking in the right places…. have you tried hanging out in the laundry room of Apartment complexes?
All right, I know what you are wondering, what does this have to do with real estate and why am I writing about it? Actually I couldn’t resist….I guess I’m in the Valentine spirit, plus I was intrigued when I was sent the results of a survey done by Apartments.com concerning “Renter Romances in the Apartment Community.”
So here are the results from the more than 900 renters Apartments.com surveyed about “Renter Romances“:
53 percent said they have never had a romantic relationship with their roommate or neighbor living in the same apartment community.
32 percent said they have had such relationships
21 percent have made those relationships last anywhere from a few months to over a year
3 percent ended up engaged or married
The most popular meeting spots are the pool and laundry room
Other popular places for encounters included resident social functions, hallways and to and from the parking lot
40 percent said they would not object to a relationship with their roommate or neighbor.
Nearly 45 percent said they believe in “love at first sight”
OK, now the juicy stuff
nearly 10 percent said they always kiss on the first date
38 percent consider kissing on the first date
more than 35 percent said it depends on how the date is going
Overall Activity Up 15 Percent From January 2009, REOs Up 31 Percent From January 2009; More Than 300,000 Properties Receive Foreclosure Filings for 11th Straight Month
RealtyTrac® today released its January 2010 U.S. Foreclosure Market Report™, which shows foreclosure filings — default notices, scheduled auctions and bank repossessions — were reported on 315,716 U.S. properties during the month, a decrease of nearly 10 percent from the previous month but still 15 percent above the level reported in January 2009. The report also shows one in every 409 U.S. housing units received a foreclosure filing in January.
REO activity nationwide was down 5 percent from the previous month but still up 31 percent from January 2009; default notices were down 12 percent from the previous month but still up 4 percent from January 2009; and scheduled foreclosure auctions were down 11 percent from the previous month but still up 15 percent from January 2009.
“January foreclosure numbers are exhibiting a pattern very similar to a year ago: a double-digit percentage jump in December foreclosure activity followed by a 10 percent drop in January,” said James J. Saccacio, chief executive officer of RealtyTrac. “If history repeats itself we will see a surge in the numbers over the next few months as lenders foreclose on delinquent loans where neither the existing loan modification programs or the new short sale and deed-in-lieu of foreclosure alternatives works.”
Nevada, Arizona, California, Florida post top state foreclosure rates Despite a year-over-year decrease in foreclosure activity of nearly 18 percent, Nevada’s foreclosure rate remained highest among the states for the 37th straight month. One in every 95 Nevada housing units received a foreclosure filing during the month — more than four times the national average.
A 4 percent month-over-month increase in foreclosure activity boosted Arizona’s foreclosure rate to second highest among the states in January. One in every 129 Arizona housing units received a foreclosure filing during the month.
Foreclosure activity decreased by double-digit percentages from the previous month in both California and Florida, and the two states registered nearly identical foreclosure rates — one in every 187 housing units receiving a foreclosure filing. California’s foreclosure rate was statistically higher by a slim margin and ranked third highest among the states while Florida’s foreclosure rate ranked fourth highest.
With one in every 231 housing units receiving a foreclosure filing, Utah registered the nation’s fifth highest state foreclosure rate despite a nearly 12 percent month-over-month decrease in foreclosure activity. Other states with foreclosure rates among the nation’s 10 highest were Idaho, Michigan, Illinois, Oregon and Georgia.
Six states account for nearly 60 percent of national total California, Florida and Arizona posted the three highest state totals in terms of properties receiving foreclosure filings in January, and together those states accounted for more than 44 percent of the national total.
Illinois posted the nation’s fourth highest total in January, with 18,120 properties receiving a foreclosure filing during the month — a nearly 2 percent increase from the previous month and a 25 percent increase from January 2009.
Michigan posted the nation’s fifth highest total, with 17,574 properties receiving a foreclosure filing, and Texas posted the sixth highest total, with 12,225 properties receiving a foreclosure filing.
Other states with totals among the 10 highest in the country were Nevada (11,854), Georgia (11,274), Ohio (11,105) and New Jersey (6,146). Phoenix only top 10 metro area to post monthly foreclosure increase Phoenix foreclosure activity increased nearly 4 percent from the previous month, and one in every 102 Phoenix housing units received a foreclosure filing during the month — the second highest foreclosure rate among metropolitan areas with a population of at least 200,000. Phoenix was the only metro area among the top 10 to post a month-over-month increase in foreclosure activity.
Las Vegas documented the highest metro foreclosure rate, with one in every 82 housing units receiving a foreclosure filing, despite a nearly 2 percent decrease in foreclosure activity from the previous month and a nearly 21 percent decrease in foreclosure activity from January 2009.
Six California cities registered foreclosure rates among the top 10: Modesto at No. 3 (one in every 107 housing units); Stockton at No. 4 (one in 107); Riverside-San Bernardino-Ontario at No. 5 (one in 109); Merced at No. 6 (one in 109); Vallejo-Fairfield at No. 7 (one in 112); and Bakersfield at No. 8 (one in 118).
Two Florida cities rounded out the top 10: Cape Coral-Fort Myers at No. 9 (one in 121); and Orlando-Kissimmee at No. 10 (one in 143).
Commercial Real Estate to be the next “shoe to drop”? Can the banks suffer another blow?
This sobering statistic was included in the Congressional Oversight Panel report, “Commercial Real Estate Losses and the Risk to Financial Stability” that was released this morning.
The report states the panel “is deeply concerned that a wave of commercial real estate loan losses over the next four years could jeopardize the stability of many banks, particularly community banks, and prolong an already painful recession.”
According to the panel, there are $1.4 trillion in commercial real estate (CRE) loans that were made in the last decade that will require refinancing in 2011 through 2014 and “nearly half (of the loans) are at present underwater,” meaning the borrower owes more o the loan than the property is worth. The concern is that “even borrowers who own profitable properties may be unable to refinance their loans as they face tightened underwriting standards, increased demands for additional investment by borrowers, and restricted credit.”
The commercial real estate crisis is not expected to bring down any of the largest banks however community banks face “the greatest risk of insolvency due to mounting commercial real estate loans losses” according to the report.
Think this won’t affect you if you are not an investor in commerical real estate or a banker? Think again…According to the panel “a significant wave of commercial mortgage defaults would trigger economic damage that could touch the lives of nearly every American.” When commercial properties fail, it creates a downward spiral of economic contraction: job losses; deteriorating store fronts, office buildings and apartments; and the failure of the banks serving those communities. Because community banks play a critical role in financing the small businesses that could help the American economy create new jobs, their widespread failure could disrupt local communities, undermine the economic recovery and extend an already painful recession.
So as the housing market is showing signs of flattening out and that perhaps we have “reached the bottom” in many parts of the country, it appears the commercial market’s woes may be just getting started and could, most likely will, be an anchor to the housing market’s recovery.
Home Loan Applications Drop 7.0 Percent Last Week.
Dennis Norman
The Mortgage Bankers Association (MBA) released its weekly mortgage applications survey for the week ending February 5, 2010. The report showed the MBA Purchase Index (a measure of the volume of loan applications related to a home purchase) decreased 7.0 percent from the week before and the four-week moving average for the index is almost flat, rising just 0.8 percent.
In spite of interest rates dropping to near historic lows, mortgage application activity by home buyers appears to be slowing down. Existing homeowners are still refinancing their mortgages though and make up 69.7 percent of the total mortgage activity.
Interest rates and fees for the week:
30 year fixed-rate mortgage interest rates dropped back down below 5 percent to 4.94 percent from 5.01 percent the previous week, with fees increasing to 1.06 percent from 1.04 percent on loans that are 80 percent of the value of the home.
15 year fixed rate mortgage interest rates remained unchanged at 4.33 percent, with fees decreasing to 0.95 percent from 1.17 percent on loans that are 80 percent of the value of the home.
One-year ARM interest rates decreased slightly to 6.68 percent from 6.7 percent with fees increasing to 0.35 percent from 0.34 percent for loans that are 80 percent of the value of the home.
In January, Sellers Reduced List Prices by $21,925 on Average, According to ZipRealty
According to a report released today by ZipRealty just over 40 percent of available homes for sale had reduced prices in January, down from 44 percent in December.
“Sellers are taking a realistic look at current market conditions before listing their homes,” said ZipRealty CEO Pat Lashinsky. “We have a lot fewer homes for sale right now than we did last year, and we are seeing more sellers sticking to their original list prices, rather than cutting them to try to attract buyers.”
Highlights of the report include:
January was the fifth consecutive month of fewer priced reduced homes on the market, with sellers reducing list prices by $21,925 on average across 27 markets
Homeowners in San Diego reduced prices by the highest dollar amount, cutting an average of $44,901
Homeowners in Houston reduced prices by the lowest dollar amount, cutting an average of $10,000
Markets with the lowest percentage of price-reduced MLS-listed homes were Los Angeles and San Diego (both at 32.6 percent), San Francisco (31.9 percent), and Denver (29.5 percent)
One out of every two home listings in Jacksonville (49.9 percent) and Phoenix (48.8 percent) had cut their list prices, the highest percentage in the survey
Markets with the largest median price reductions in absolute dollars were:
If you are a small to medium sized property manager or landlord odds are you receive your rent payments in the form of cash or a check. Why not accept credit cards and debit cards for rent payments in addition? This is something I did for years and think for many landlords it is worth the effort to get your self set up to accept these forms of payment.
While I wasn’t looking to help my tenants run up credit card debt I did realize there would be times when a tenant may not have the money available to pay rent on time but would have room on their credit card to cover the rent, which would mean I was going to be paid on time since I accepted credit cards.
There are other benefits though as well, even benefits to the tenant. One such benefit is almost every credit card out there today offers airline miles, points towards gifts or some other incentive to use their card. This gives tenants the ability to rack up some miles with their rental payments. There is also the convenience factor; if the tenant is out of town, or has waited unti the last minute to pay the rent, they can call you and take care of it over the phone using a credit card. Oh yeah, my favorite part is, with a little time creating a form authorizing it, you could have the tenant authorize you to automatically charge their card each month for the rent!
There are some fees from the credit card companies that you will incur, but I think it is a decent trade-off to late payments, bounced checks and the like.
So how do you go about getting yourself set up to accept credit cards and debit cards for rent payments? Ah, thanks to our tax dollars, the US government is a great resource and has the whole process outlined for us. Below is the information from Business.Gov on the steps you need to take:
Step 1:
Determine if Accepting Card Payments is for You
Choosing to accept debit and credit card payments is a big step, but often a necessary one when running a successful business. Should your business accept debit and credit cards? To answer that question, you’ll need to understand the associated costs and benefits of card payments and laws that regulate their use. To better inform your decision, read these resources from Business.gov before you get started:
Accepting Checks
Quick guide to accepting checks as a form of payment
Step 2:
Understand the Difference Between Credit and Debit Cards
Credit and debit may sound similar, but they are actually two very different processes. Credit cards allow customers to make purchases by drawing on their reserved line of approved credit. Debit cards let customers make purchases by withdrawing funds directly from their personal checking account. Before your business begins accepting credit or debit cards, make sure you know the ins and outs of each. Read Accepting Credit Cards vs. Debit Cards to determine which forms of payment are best suited for your business.
Step 3:
Understand Applicable Laws and Regulations
Businesses that accept card payments must comply with certain privacy laws that aim to protect customers:
The Fair Credit Reporting Act is the federal law that is the foundation of consumer credit rights. This law regulates the collection and use of consumer credit information by businesses.
Many states have laws that dictate what kind of information businesses can and cannot ask for or write down when a customer makes a transaction using a credit card. For more information on your state’s regulations, visit your state attorney general’s website and read more about state merchant laws.
Step 4:
Open a Merchant Account
For a business to accept credit and debit card payments, it must set up a Merchant Account. A Merchant Account directs funds into a designated “bank” account where all credit and debit card transactions are verified and approved. This process allows your businesses to accept card payments directly from customers.
If you’re already in business and have a reliable sales history, you should be able to get a Merchant Account from your personal bank or through another financial institution that specializes in e-commerce. If you’re just starting up or don’t have a sales history, you may need to work with an independent sales organization (ISO) that acts a reseller, or middleman, between your business and the account processor.
Step 5:
Install Processing Equipment
Next, you’ll need to install the necessary processing equipment, such as a credit card terminal, that will enable you to physically make card transactions. Rates and features often vary from product to product so it’s important to research the best equipment for your business needs.
Older equipment models, like manual processors that imprint card data on carbon paper, are still used by many businesses. It’s important to remember that manual processors are also susceptible to security risks. You are equally responsible for protecting consumer data whether you use older models or the newest technology.
Once you identify the right products and have them installed at your business location, you’re ready to start accepting card payments.
Step 6:
Begin Accepting Credit Cards
When you’re ready to accept credit cards, make sure your customers know about it! Place stickers for accepted credit card companies on the door of your business and inform your customers of their new payment options through a marketing campaign.
The author and owner of this site are providing the information on this web site for general information only. The information on this site does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind nor should it be construed as such. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action on this information, you should consult a qualified professional adviser to whom you have provided all of the facts applicable to your particular situation or question. None of the tax information on this web site is intended to be used nor can it be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer. The information is provided as is, with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose
the “rate” of new home sales paints a realistic picture of the market. I think this holds especially true when we have artificial forces affecting the housing market such as tax credits and other incentives. This can create unseasonal bursts or declines in sales that don’t really have anything to do with the underlying fundamentals of the housing market.
Today, TransUnion had more sobering news for the real estate market; the mortgage loan delinquency rate (the ratio of borrowers 60 or more days past due) increased for the 12th straight quarter, hitting an all-time national average high of 6.89 percent for the fourth quarter of 2009. The fourth quarter marks the first time the mortgage delinquency rate increase did not decelaerate after doing so in the three prior quarters.
According to the video, One West Bank received a cushy, “sweetheart deal” and implied it was related to the fact that the owners of One West Bank include Goldman Sachs VP, Steven Mnuchin, billionaires George Soros and John Paulsen, and that “it’s good to have friends in high places.” Here is a recap of some of the “facts” of the deal they gave on the video:
Valentine’s Day is a time for love…Are you feeling left out because you haven’t found Mr or Mrs Right? 
RealtyTrac®
According to a report released today by
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