by JACOB GAFFNEY
By now you've probably seen the news — quarterly sequential home prices are finally going up! What a relief. For a moment, I thought we were in trouble.
In a much less rosy conversation today with Radar Logic CEO Michael Feder, we talked about indices such as the above and the ultimate usefulness provided in today's market. Radar Logic provided a great deal of groundwork for a Morgan Stanley report featured in the September issue of the print edition of HousingWire.
Basically, the research states that not only do properties need frequent, real-time data (quarterly reports today mean information is one month of new news, two months of old), but also data on changes to local economics and the actual size of property. They refer to it as the 'shift-in-mix' scenario. In our feature we break out the four major MSAs from Morgan Stanley and Radar Logic.
So while housing indices are getting much smarter, so are homebuyers.
At this point, the psychological damage is done and first time homebuyers are, well, simply being logical. According to a Gallup poll, one in four Americans are worried about the status of their jobs. So even if they don't fear unemployment, they still fear wage cuts.
At this point, buyers get that if they purchase a home, they will likely be underwater soon thereafter. They know that they can likely get short sales and REOs cheaper than new builds.
They know that without the tax credit they can push for lower and lower prices.
And considering that riding the coattails of the homebuyer tax credit turned out to be misguided because there is little "pull-through" effect, there seems to be only one option to stimulating the market: bring back the homebuyer tax credit.
Perish the thought. The tax credit should be considered one of the most misguided attempts on stimulus by a government bent on spending its way out of recession. In fact, opinion in our space for a very long time has been that the homebuyer tax credit has done more harm than good.
Analysts estimated that July home sales would be bad, turns out they were actually too conservative.
"New home sales are getting to the stage where the distortions caused by the tax credit are fading, and as the smoke clears it is becoming blindingly obvious that underlying conditions are very weak," said Paul Dales, an economist who focuses on the US residential markets for Capital Economics.
In this schizophrenic economy, people would rather pay down their unsecured debt than spend money, and the last thing people want is a mortgage, unless they will get some money out of it.
So, I will make the argument that since bringing back the tax credit is such a fundamentally terrible idea, one that's proven to be a Pyrrhic victory — by that fact alone — it is even more likely to return.
Case in point, a note from Amherst Securities yesterday points out that the Home Affordable Refinancing Program was not as effective as it could have been. This, amid calls for a universal refinance program. The Fed is going forward with quantitative easing in the form of Treasury purchases, which in one way is likely to create volatility through duration risk in the MBS market.
This is based on the observation that within the mix of everything, the last thing the government wants to be is the bearer of bad news. Echoes of the tax credit — this money is well spent; think of how bad it could've been.
Therefore, why not revisit policy?
After all this housing market is stabilizing, according to the Obama administration, so what's the worst that can happen?
URL to Original Article: http://www.housingwire.com/2010/08/25/miss-the-homebuyer-tax-credit-yet
Tuesday, August 31, 2010
Housing Opportunity Index Nears Record High in Q210
by CHRISTINE RICCIARDI
The National Association of Home Builders' (NAHB) Housing Opportunity Index (HOI), compiled in conjunction with Wells Fargo, reported near-record highs for the sixth consecutive quarter. The news follows July home sales data that shows home buying activity at its lowest level in more than ten years.
The index came in at 72.3%, signifying that percentage of all new and existing home sales in Q210 was affordable to families earning the national median income of $64,400.
The index all-time high is set at 72.5% from home opportunity index in Q109. Until 2009, the HOI rarely topped 67% and never reached 70%.
Although this sounds like a benefit for consumers and borrowers, the index also signifies that home asking prices are near the lowest they've may have ever been nationwide. The National Association of Realtors began tracking home sales data in 1999, in comparison. And as HousingWire reported yesterday, homebuyers are evaluating the increase of circumstantial cost.
Syracuse, N.Y. was the most affordable major housing market in the country last quarter, with 97.2% of all homes sold designated in the affordable range (as described above). Syracuse replaced Indianapolis-Carmel, Ind., which was the most affordable market for nearly five years.
Also near the top of the list of the most affordable major metro housing markets were Detroit, Mich.; Youngstown-Warren-Boardman, Ohio-Pa.; and Buffalo-Niagara Falls, N.Y.
With regard to smaller housing markets, Springfield, Ohio topped out the list as the most affordable with an HOI of 96.6%. Other smaller housing markets near the top of the index included Mansfield, Ohio; Bay City, Mich.; Monroe, Mich.; and Lansing-East Lansing, Mich., respectively. These markets were affordable to affordable to families earning a median income of $54,800.
Prices were still competitive in New York-White Plains-Wayne, N.Y.-N.J., as NAHB reported an HOI of only 19.9% for Q210. This was the ninth consecutive quarter that the New York metropolitan division has occupied this position. San Luis Obispo-Paso Robles, Calif., was the least affordable of the smaller metro housing markets in the country during the second quarter.
URL to Original Article: http://www.housingwire.com/2010/08/24/housing-opportunity-index-nears-record-high-in-q210
The National Association of Home Builders' (NAHB) Housing Opportunity Index (HOI), compiled in conjunction with Wells Fargo, reported near-record highs for the sixth consecutive quarter. The news follows July home sales data that shows home buying activity at its lowest level in more than ten years.
The index came in at 72.3%, signifying that percentage of all new and existing home sales in Q210 was affordable to families earning the national median income of $64,400.
The index all-time high is set at 72.5% from home opportunity index in Q109. Until 2009, the HOI rarely topped 67% and never reached 70%.
Although this sounds like a benefit for consumers and borrowers, the index also signifies that home asking prices are near the lowest they've may have ever been nationwide. The National Association of Realtors began tracking home sales data in 1999, in comparison. And as HousingWire reported yesterday, homebuyers are evaluating the increase of circumstantial cost.
Syracuse, N.Y. was the most affordable major housing market in the country last quarter, with 97.2% of all homes sold designated in the affordable range (as described above). Syracuse replaced Indianapolis-Carmel, Ind., which was the most affordable market for nearly five years.
Also near the top of the list of the most affordable major metro housing markets were Detroit, Mich.; Youngstown-Warren-Boardman, Ohio-Pa.; and Buffalo-Niagara Falls, N.Y.
With regard to smaller housing markets, Springfield, Ohio topped out the list as the most affordable with an HOI of 96.6%. Other smaller housing markets near the top of the index included Mansfield, Ohio; Bay City, Mich.; Monroe, Mich.; and Lansing-East Lansing, Mich., respectively. These markets were affordable to affordable to families earning a median income of $54,800.
Prices were still competitive in New York-White Plains-Wayne, N.Y.-N.J., as NAHB reported an HOI of only 19.9% for Q210. This was the ninth consecutive quarter that the New York metropolitan division has occupied this position. San Luis Obispo-Paso Robles, Calif., was the least affordable of the smaller metro housing markets in the country during the second quarter.
URL to Original Article: http://www.housingwire.com/2010/08/24/housing-opportunity-index-nears-record-high-in-q210
Monday, August 30, 2010
Devalued Homes Anchor Prospective Job Seekers
by Yuki Noguchi
With unemployment high and jobs scarce, work is hard enough to find. But in today's economy, there's an even bigger barrier for some: their home.
Many people can't afford to sell their homes; as many as one-third of homeowners owe more than their home is now worth, and there are few buyers. Americans who once expected mobility now find themselves grounded, with their careers and lives fixed in place. They can't move to better job markets without taking a huge financial hit.
Among them are Melissa Brooks and her husband. They had planned to move from Lansing, Mich., to Atlanta, to be closer to family and more available jobs. But for the past year — even at a steep discount — their home hasn't found a buyer.
"Everything's kind of just centered around selling this house here in Michigan," Brooks says.
It has complicated her life. On the one hand, she has enrolled her child in school in Lansing.
But Brooks herself, a teacher, is keeping her career on hold in case they can move — she's not looking for a job, nor is she pursuing her graduate studies. She's also kept the house on the market, which is now a short sale — meaning it's listed for less than what they owe on the mortgage.
The experience of buying a home has scarred her, she says, and she often feels angry.
"Recently, I guess, I've been angry at the people looking to buy my home, which sounds crazy, because I want to sell the home," she says. But after renovating her 19th century home with money she'll never recover, she's appalled that prospective buyers ask her whether she plans to paint the deck or replace the wallpaper.
"I feel like, 'Don't ask me anything,' because we're short-selling this house, we're not doing anything else to it," Brooks says.
On a national level, this phenomenon is hurting the efficiency of the labor market, says real estate professor Joe Gyourko at the Wharton School at the University of Pennsylvania. With these constraints, employers and employees aren't finding their best match.
"Outside of outright foreclosure itself and the loss of wealth, it's probably the most important impact of overleveraging the housing market that we're going to have in this cycle," Gyourko says.
Some parts of the country — namely the East and West Coast markets — are likely to recover more quickly. But not everyone will be able to wait for home prices to recover and continue to forgo better jobs. In other words: At some point, people will abandon their houses.
"If you need a job and you need to improve your life chances, you know, why not?" Gyourko says. "I mean, it's not that it's free and it's not that it doesn't cost you, but it may be worth paying that price."
Tony Abrom has considered that.
His workplace has been downsizing, so he has been looking for work elsewhere, including out of state. Two years ago, he and his wife prepared to sell their house in Douglasville, Ga.
"We were really ready to leave," Abrom says. "We were painting the walls and everything and getting everything done, and that assessment just took the wind out of everything we were doing."
Now, Abrom can't afford to drive far from his home, but he also cannot afford to sell it.
Being stuck also forced Abrom to defer his dream of joining the Air Force, which would also require a move. And it appears he won't be free to leave for some time. "My father's buying a house four down from me — same floor plan that I have for half the price that I paid for mine.
And when I saw that, it gave me the feeling that, 'Oh my God, I'm never going to be able to get out of this neighborhood.' "
URL to Original Article: http://www.npr.org/templates/story/story.php?storyId=129427659
With unemployment high and jobs scarce, work is hard enough to find. But in today's economy, there's an even bigger barrier for some: their home.
Many people can't afford to sell their homes; as many as one-third of homeowners owe more than their home is now worth, and there are few buyers. Americans who once expected mobility now find themselves grounded, with their careers and lives fixed in place. They can't move to better job markets without taking a huge financial hit.
Among them are Melissa Brooks and her husband. They had planned to move from Lansing, Mich., to Atlanta, to be closer to family and more available jobs. But for the past year — even at a steep discount — their home hasn't found a buyer.
"Everything's kind of just centered around selling this house here in Michigan," Brooks says.
It has complicated her life. On the one hand, she has enrolled her child in school in Lansing.
But Brooks herself, a teacher, is keeping her career on hold in case they can move — she's not looking for a job, nor is she pursuing her graduate studies. She's also kept the house on the market, which is now a short sale — meaning it's listed for less than what they owe on the mortgage.
The experience of buying a home has scarred her, she says, and she often feels angry.
"Recently, I guess, I've been angry at the people looking to buy my home, which sounds crazy, because I want to sell the home," she says. But after renovating her 19th century home with money she'll never recover, she's appalled that prospective buyers ask her whether she plans to paint the deck or replace the wallpaper.
"I feel like, 'Don't ask me anything,' because we're short-selling this house, we're not doing anything else to it," Brooks says.
On a national level, this phenomenon is hurting the efficiency of the labor market, says real estate professor Joe Gyourko at the Wharton School at the University of Pennsylvania. With these constraints, employers and employees aren't finding their best match.
"Outside of outright foreclosure itself and the loss of wealth, it's probably the most important impact of overleveraging the housing market that we're going to have in this cycle," Gyourko says.
Some parts of the country — namely the East and West Coast markets — are likely to recover more quickly. But not everyone will be able to wait for home prices to recover and continue to forgo better jobs. In other words: At some point, people will abandon their houses.
"If you need a job and you need to improve your life chances, you know, why not?" Gyourko says. "I mean, it's not that it's free and it's not that it doesn't cost you, but it may be worth paying that price."
Tony Abrom has considered that.
His workplace has been downsizing, so he has been looking for work elsewhere, including out of state. Two years ago, he and his wife prepared to sell their house in Douglasville, Ga.
"We were really ready to leave," Abrom says. "We were painting the walls and everything and getting everything done, and that assessment just took the wind out of everything we were doing."
Now, Abrom can't afford to drive far from his home, but he also cannot afford to sell it.
Being stuck also forced Abrom to defer his dream of joining the Air Force, which would also require a move. And it appears he won't be free to leave for some time. "My father's buying a house four down from me — same floor plan that I have for half the price that I paid for mine.
And when I saw that, it gave me the feeling that, 'Oh my God, I'm never going to be able to get out of this neighborhood.' "
URL to Original Article: http://www.npr.org/templates/story/story.php?storyId=129427659
Nearly 1m More Mortgages Go From Current to Delinquent: LPS
by CHRISTINE RICCIARDI
Almost 900,000 loans that were current at the beginning of the year are at least 60 days delinquent or in foreclosure as of July, according to the July 2010 month-end report released by Lender Processing Services'(LPS).
Although delinquency volume fell 2.3% month-over-month in July to 9.3%, it remains near historically elevated levels — and record high numbers of delinquent loans are still entering the system, according to LPS. The volume of delinquencies increased 1.4% year-over-year.
The volume of cured loans, those going from six months delinquent to current, declined to about 10%, down from this year's peak of 14% in March, sparking an increase in foreclosure starts to the fourth highest level ever recorded by LPS.
Mortgage servicers moved more than 280,000 loans into the foreclosure process in July, the fourth highest month on record, according to Lender Processing Services’ (LPS) mortgage monitor report.
LPS monitors data on 53.9 million mortgages in the U.S. In July, 0.52% were rolled into the foreclosure process. Further, GSE foreclosure starts are accelerating with increased cancellations in the Home Affordable Modification Program (HAMP).
In July, the Treasury Department reported 616,839 canceled HAMP trial modifications, which surpassed the 434,716 converted into permanent status. In order to be moved into a permanent modification, borrowers must make three monthly payments in the trial. Trials can be canceled for many reasons, such as insufficient documentation or dramatic change in credit scores.
“Foreclosure starts increased to the fourth highest level on record with rebounds in the portfolio and private markets compounding the recent acceleration in agency foreclosure starts leading to a significant jump in rates,” according to LPS.
How long these loans are staying in the foreclosure process is stretching out as well. The average number of days a loan spends delinquent before it is finally forecloses reached 469 days in July, about a year and three months. In July of last year, the average was 351, more than three months shorter.
The total amount of loans in the foreclosure inventory passed 2 million in July, a 3.5% increase from a year ago, and 2.1% more than the previous month. The amount of foreclosures making it to REO status is picking up after diving earlier in the year. LPS reported nearly 100,000 REO properties in July.
URL to Original Article: http://www.housingwire.com/2010/08/26/nearly-1m-more-mortgages-go-from-current-to-delinquent-lps
Almost 900,000 loans that were current at the beginning of the year are at least 60 days delinquent or in foreclosure as of July, according to the July 2010 month-end report released by Lender Processing Services'(LPS).
Although delinquency volume fell 2.3% month-over-month in July to 9.3%, it remains near historically elevated levels — and record high numbers of delinquent loans are still entering the system, according to LPS. The volume of delinquencies increased 1.4% year-over-year.
The volume of cured loans, those going from six months delinquent to current, declined to about 10%, down from this year's peak of 14% in March, sparking an increase in foreclosure starts to the fourth highest level ever recorded by LPS.
Mortgage servicers moved more than 280,000 loans into the foreclosure process in July, the fourth highest month on record, according to Lender Processing Services’ (LPS) mortgage monitor report.
LPS monitors data on 53.9 million mortgages in the U.S. In July, 0.52% were rolled into the foreclosure process. Further, GSE foreclosure starts are accelerating with increased cancellations in the Home Affordable Modification Program (HAMP).
In July, the Treasury Department reported 616,839 canceled HAMP trial modifications, which surpassed the 434,716 converted into permanent status. In order to be moved into a permanent modification, borrowers must make three monthly payments in the trial. Trials can be canceled for many reasons, such as insufficient documentation or dramatic change in credit scores.
“Foreclosure starts increased to the fourth highest level on record with rebounds in the portfolio and private markets compounding the recent acceleration in agency foreclosure starts leading to a significant jump in rates,” according to LPS.
How long these loans are staying in the foreclosure process is stretching out as well. The average number of days a loan spends delinquent before it is finally forecloses reached 469 days in July, about a year and three months. In July of last year, the average was 351, more than three months shorter.
The total amount of loans in the foreclosure inventory passed 2 million in July, a 3.5% increase from a year ago, and 2.1% more than the previous month. The amount of foreclosures making it to REO status is picking up after diving earlier in the year. LPS reported nearly 100,000 REO properties in July.
URL to Original Article: http://www.housingwire.com/2010/08/26/nearly-1m-more-mortgages-go-from-current-to-delinquent-lps
Thursday, August 26, 2010
House deposit top reason to apply to Bank of Mom and Dad
By: Kay McLellan
One in five parents readying themselves for retirement anticipate giving their adult children financial help, while 30% of their offspring are relying on it, according to Aviva.
Research by Aviva showed that helping with a deposit for a house is the top reason for giving or receiving financial support, with 62% of parents expecting to help out their kids to buy a home, while 44% of children are relying on it.
However, financial help does not come without its issues, with half of all parents who plan to support their children feeling worry, concern or anger at the thought of doing so into retirement.
In addition, 29% are worried about how these financial handouts will affect their own retirement income, with 16% concerned they may have to continue to work as a result.
Children are also concerned about their retired parents with four in ten worried about how they will cope in general and 16% anxious they will need to support them financially.
However, discussing retirement finances is a taboo subject for many, with 41% of parents saying they would never broach the topic with their children, despite 76% saying they would like to and 53% of adult children wanting to talk to their parents about pensions.
Clive Bolton, ‘at retirement' director for Aviva, said: "The financial landscape and the pressures on the modern family have massively changed over the last decade, as has the profile of a typical retiree.
"Rather than inheriting from their parents, our research suggests many adult children now expect financial help from their parents at a time of life when they may struggle to give it. By discussing plans sooner rather than later, families can avoid confusion and disappointment later on."
URL to Original Article: http://www.mortgagesolutions-online.com/mortgage-solutions/news/1729355/house-deposit-reason-apply-bank-mum-dad
One in five parents readying themselves for retirement anticipate giving their adult children financial help, while 30% of their offspring are relying on it, according to Aviva.
Research by Aviva showed that helping with a deposit for a house is the top reason for giving or receiving financial support, with 62% of parents expecting to help out their kids to buy a home, while 44% of children are relying on it.
However, financial help does not come without its issues, with half of all parents who plan to support their children feeling worry, concern or anger at the thought of doing so into retirement.
In addition, 29% are worried about how these financial handouts will affect their own retirement income, with 16% concerned they may have to continue to work as a result.
Children are also concerned about their retired parents with four in ten worried about how they will cope in general and 16% anxious they will need to support them financially.
However, discussing retirement finances is a taboo subject for many, with 41% of parents saying they would never broach the topic with their children, despite 76% saying they would like to and 53% of adult children wanting to talk to their parents about pensions.
Clive Bolton, ‘at retirement' director for Aviva, said: "The financial landscape and the pressures on the modern family have massively changed over the last decade, as has the profile of a typical retiree.
"Rather than inheriting from their parents, our research suggests many adult children now expect financial help from their parents at a time of life when they may struggle to give it. By discussing plans sooner rather than later, families can avoid confusion and disappointment later on."
URL to Original Article: http://www.mortgagesolutions-online.com/mortgage-solutions/news/1729355/house-deposit-reason-apply-bank-mum-dad
Americans Continue to Deleverage with Credit Card Debt Below $5k per Person
by CHRISTINE RICCIARDI
The average national credit card borrower debt slid downward for the fifth consecutive quarter by 4.1% to $4,951, marking the first time the average has been below $5,000 since 2002, according to a report released today by TransUnion.
This, coupled with the fact the national credit card delinquency rate for borrowers 90-plus days delinquent plummeted to 0.92% in Q210 (down 17.1% from the first quarter and 21.3% from last year) suggests that borrowers are saving more and spending more responsibly.
"It appears that consumers have come to realize that material improvement in unemployment is unlikely in the short-term, and now is the time to balance saving versus spending," said Ezra Becker, director of consulting and strategy at the credit and information management and research firm. "It remains to be seen whether this dynamic will be short term or a new paradigm for consumer behavior."
In July, Citi, in collaboration with Hart Research Associates, found that consumer spending decreased as most Americans said they didn't expect the recession anytime soon. Pat Conroy, vice president of Deloitte financial consulting firm, attributed that lull in spending, not to the halt of consumer shopping, but to consumers shopping in a smarter way.
On the Citi survey, 9% of respondents said their credit card debt was "a major challenge or unbearable to manage."
According to TransUnion, Alaska had the highest average credit card debt amount of $7,148 followed by Tennessee at $5,654 and Hawaii at $5,594. Iowa, North Dakota and West Virginia had the lowest debt averages at $3,792, $4,097 and $4,104 respectively.
Almost 90% of national metropolitan statistical areas (MSAs) showed a decline in the the amount of 90-day delinquent credit card payments since Q110. The area with the largest decrease was the Lewiston, Idaho-Wash. with a quarterly drop of 52.9%.
Nevada had the highest incidence of credit card delinquency, 1.5%, followed by Florida, 1.24%, and Arizona, 1.11%. States with the lowest delinquency rates were North Dakota (0.54%), South Dakota (.055%) and the District of Columbia (0.61%).
National credit card originations dropped almost 6.5% year-over-year, although 12 states showed an increase in originations quarter-over-quarter.
Becker noted in the report that consumers are changing the way they look at credit cards.
"Many consumers view available credit as a liquidity reserve that can be drawn upon in the event of a personal hardship," Becker said. "The last five quarters of consecutive decreases in credit card balances show that consumers continue to pay down their credit cards in response to economic uncertainty and high unemployment."
URL to Original Article: http://www.housingwire.com/2010/08/25/americans-continue-to-deleverage-as-average-credit-card-debt-slides-below-5k-per-person
The average national credit card borrower debt slid downward for the fifth consecutive quarter by 4.1% to $4,951, marking the first time the average has been below $5,000 since 2002, according to a report released today by TransUnion.
This, coupled with the fact the national credit card delinquency rate for borrowers 90-plus days delinquent plummeted to 0.92% in Q210 (down 17.1% from the first quarter and 21.3% from last year) suggests that borrowers are saving more and spending more responsibly.
"It appears that consumers have come to realize that material improvement in unemployment is unlikely in the short-term, and now is the time to balance saving versus spending," said Ezra Becker, director of consulting and strategy at the credit and information management and research firm. "It remains to be seen whether this dynamic will be short term or a new paradigm for consumer behavior."
In July, Citi, in collaboration with Hart Research Associates, found that consumer spending decreased as most Americans said they didn't expect the recession anytime soon. Pat Conroy, vice president of Deloitte financial consulting firm, attributed that lull in spending, not to the halt of consumer shopping, but to consumers shopping in a smarter way.
On the Citi survey, 9% of respondents said their credit card debt was "a major challenge or unbearable to manage."
According to TransUnion, Alaska had the highest average credit card debt amount of $7,148 followed by Tennessee at $5,654 and Hawaii at $5,594. Iowa, North Dakota and West Virginia had the lowest debt averages at $3,792, $4,097 and $4,104 respectively.
Almost 90% of national metropolitan statistical areas (MSAs) showed a decline in the the amount of 90-day delinquent credit card payments since Q110. The area with the largest decrease was the Lewiston, Idaho-Wash. with a quarterly drop of 52.9%.
Nevada had the highest incidence of credit card delinquency, 1.5%, followed by Florida, 1.24%, and Arizona, 1.11%. States with the lowest delinquency rates were North Dakota (0.54%), South Dakota (.055%) and the District of Columbia (0.61%).
National credit card originations dropped almost 6.5% year-over-year, although 12 states showed an increase in originations quarter-over-quarter.
Becker noted in the report that consumers are changing the way they look at credit cards.
"Many consumers view available credit as a liquidity reserve that can be drawn upon in the event of a personal hardship," Becker said. "The last five quarters of consecutive decreases in credit card balances show that consumers continue to pay down their credit cards in response to economic uncertainty and high unemployment."
URL to Original Article: http://www.housingwire.com/2010/08/25/americans-continue-to-deleverage-as-average-credit-card-debt-slides-below-5k-per-person
Wednesday, August 25, 2010
Weekly Jobless Claims Rise to 500,000, Nine Month High
by JASON PHILYAW
Initial weekly jobless claims continued their recent upward trend, posting a 2.4% increase for the week ended Aug. 14, marking the third-consecutive week of gains in the number of people filing for unemployment.
The Labor Department said seasonally adjusted initial claims for the week reached 500,000, up 12,000 from the previous week's revised figure. The gain was a surprise to financial markets, as economists were expecting a slight decline according to most consensus estimates.
The four-week moving average of 482,500 claims is up roughly 1.7% from the prior week's revised average of 474,500 and is now at its highest level since December, according to the Labor Department data. The weekly claims level of 500,000 is the highest since the middle of November last year, and at a pace most economists see as indicative of overall contraction in the economy.
Claims figures from one week earlier, Aug. 7, were revised upward from an original estimate of 484,000.
Last week, HousingWire reported that finance and housing regulators are preparing a combined $3bn of financial assistance to aid mortgage borrowers in states most affected by unemployment.
In July, President Obama signed a bill to extend a cutoff for an extension of benefits to Nov. 30 from June 2 and increase the number of weeks the unemployed can collect benefits.
URL to Original Article: http://www.housingwire.com/2010/08/19/weekly-jobless-claims-rise-2-4-2
Initial weekly jobless claims continued their recent upward trend, posting a 2.4% increase for the week ended Aug. 14, marking the third-consecutive week of gains in the number of people filing for unemployment.
The Labor Department said seasonally adjusted initial claims for the week reached 500,000, up 12,000 from the previous week's revised figure. The gain was a surprise to financial markets, as economists were expecting a slight decline according to most consensus estimates.
The four-week moving average of 482,500 claims is up roughly 1.7% from the prior week's revised average of 474,500 and is now at its highest level since December, according to the Labor Department data. The weekly claims level of 500,000 is the highest since the middle of November last year, and at a pace most economists see as indicative of overall contraction in the economy.
Claims figures from one week earlier, Aug. 7, were revised upward from an original estimate of 484,000.
Last week, HousingWire reported that finance and housing regulators are preparing a combined $3bn of financial assistance to aid mortgage borrowers in states most affected by unemployment.
In July, President Obama signed a bill to extend a cutoff for an extension of benefits to Nov. 30 from June 2 and increase the number of weeks the unemployed can collect benefits.
URL to Original Article: http://www.housingwire.com/2010/08/19/weekly-jobless-claims-rise-2-4-2
Zillow: Rate on 30-Year Mortgage Remains Flat on Average
by CHRISTINE RICCIARDI
The national, 30-year fixed-mortgage rate (FRM) remained relatively flat from a week earlier, at a near-record low average of 4.29%, according to the Zillow Mortgage Marketplace weekly update. This is up 0.01% from last week and up from the all-time record low set three weeks ago.
Regionally, 30-year rates vary, but the majority of states witnessed an inflation. Rates substantially increased in New York to 4.31% from 4.25%, Pennsylvania to 4.37% from 4.32% and Texas to 4.28% from 4.19%. Rates increased in Massachusetts to 4.27% from 4.25% and New Jersey to 4.27% from 4.26%.
Most western states saw a decline in rates: California's current rate of 4.3% is down from 4.33% last week; Colorado's at 4.17% is down from 4.19%; Washington's at 4.29% is down from 4.33%; Illinois' at 4.24% is down from 4.3%, and Florida's at 4.2% is down from 4.21%.
Zillow reported the national average rate for 15-year fixed home loans barely decreased at 3.85%, while the rate for a 5-1 adjustable-rate mortgage (ARM) is 3.26%.
Zillow's rates are based on real-time mortgage quotes from lenders registered with, but not exclusively bound to the company. The national average comes from thousands of daily quotes given to anonymous borrowers through their website. State averages are also available.
URL to Original Article: http://www.housingwire.com/2010/08/24/zillow-rate-on-30-year-mortgage-remains-flat-on-average
The national, 30-year fixed-mortgage rate (FRM) remained relatively flat from a week earlier, at a near-record low average of 4.29%, according to the Zillow Mortgage Marketplace weekly update. This is up 0.01% from last week and up from the all-time record low set three weeks ago.
Regionally, 30-year rates vary, but the majority of states witnessed an inflation. Rates substantially increased in New York to 4.31% from 4.25%, Pennsylvania to 4.37% from 4.32% and Texas to 4.28% from 4.19%. Rates increased in Massachusetts to 4.27% from 4.25% and New Jersey to 4.27% from 4.26%.
Most western states saw a decline in rates: California's current rate of 4.3% is down from 4.33% last week; Colorado's at 4.17% is down from 4.19%; Washington's at 4.29% is down from 4.33%; Illinois' at 4.24% is down from 4.3%, and Florida's at 4.2% is down from 4.21%.
Zillow reported the national average rate for 15-year fixed home loans barely decreased at 3.85%, while the rate for a 5-1 adjustable-rate mortgage (ARM) is 3.26%.
Zillow's rates are based on real-time mortgage quotes from lenders registered with, but not exclusively bound to the company. The national average comes from thousands of daily quotes given to anonymous borrowers through their website. State averages are also available.
URL to Original Article: http://www.housingwire.com/2010/08/24/zillow-rate-on-30-year-mortgage-remains-flat-on-average
Tuesday, August 24, 2010
The Costs of Homeownership Drive First-time Buyers Away
by CHRISTINE RICCIARDI
The costs of owning a home can substantially outweigh the benefits because of issues such minimal home equity retention and an owners desire to "flip" a home on the market quickly, researchers Wenli Li and Fang Yang said in their report American Dream or American Obsession? The Economic Benefits and Costs of Homeownership, published Friday by the Federal Reserve Bank of Philadelphia.
"One thing that is certain," the two analysts said, "is that homeownership is not for everyone, and thus, based on economic benefits, the case for trying to achieve a nation of homeowners needs to be rethought."
Many borrowers agree with them, especially ones that have never owned a home before. According to a Monthly Survey of Real Estate Market Conditions by Campbell Surveys and Inside Mortgage Finance, first-time homebuyer activity accounted for 39.1% last month, down from a peak of 48.2% in March to the lowest level seen in the past year.
First-time homebuyers are critical to the housing market because they soak up excess existing inventory, including distressed properties that continue to infiltrate the market. Campell said the decrease in first-time buyers will likely put more downward pressure on home prices in the coming months. Prices remained flat throughout July.
Campbell attributed the falter from first-time homebuyers to the expiration of the tax-credit option a few months ago.
"The end of the tax credit has clearly had an effect,” stated Thomas Popik, research director for Campbell Surveys. “First-time homebuyer participation is continuing to drop. We expect a further decline in first-time homebuyer activity, perhaps reaching as low as 30-35% of the market by the fall months.”
But there's another element added to the mix. The Philadelphia Fed's report stated that loan applications for non-owner-occupied homes — second homes, investment properties, etc. — have increased over the past decade, reaching its peak in 2006 at 13% of all loan applications.
The report also said that non-owner-occupied houses rarely yield consumption value to the owner and cause many of the properties to foreclose.
"This makes the purchase of investment properties more of a short- to medium-term investment strategy, similar to buying stocks," said the report. "In other words, owners are more likely to be constrained or have more incentives to walk away from their investment properties in times of difficulty… even for second homes, foreclosure rates have also exceeded those for primary homes in recent months." (See chart below.)
URL of original article: http://www.housingwire.com/2010/08/23/the-costs-homeownership-drive-first-time-buyers-away
Mortgage rates at record lows: Refinances are up. Sales are not.
By Mark Trumbull
Steadily dropping mortgage rates, which hit a record low 4.42 percent in numbers released this week, appear to be stimulating housing-market activity. Loan applications rose 13 percent in the week that ended last Friday, compared with the week before, says the Mortgage Bankers Association.
But the low rates so far are generating more interest in refinancing existing loans than in home-purchase transactions. The association's index of refinance activity rose 17 percent for the week, while an index of purchasing activity actually fell a bit.
Two factors could be holding back home buyers. First, many already pushed to make their purchases earlier this year, when they could tap a temporary $8,000 federal tax credit designed to spur home sales. Second, the weak job market and some signs of cooling in the economy this summer are affecting consumer purchasing power and confidence.
For people who can qualify for loans, moving forward now has a lot of appeal, some economists say.
"Houses are incredibly attractive buys now," says Paul Kasriel, director of economic research at the Northern Trust Co. in Chicago. But "a low mortgage rate doesn't mean anything if you can't qualify for it."
One reason it's tough to qualify is tighter lending standards by banks. Getting a loan requires navigating some hurdles. Another reason, affecting many who seek to refinance, is the number of US mortgages that are "under water," with the borrowers owing more to the lender than their homes are now worth.
Of course, real estate conditions vary a lot by locality. And many housing analysts say home values could fall a bit more before stabilizing.
Mr. Kasriel bases his general assessment of the market on a calculation of economic value: He uses interest rates as a gauge of the cost to buy a home, and he looks at numbers on implied rental yields as an indicator of the payback. (He divides national figures on "space rent" of housing by the market value of household real estate.)
For the first time since the mid-1960s, the yield on housing is higher than the typical mortgage rate on a single-family home, Kasriel finds. In the first quarter of this year, the implied yield on housing was 6 percent, while mortgage interest was about 5 percent.
Since then, mortgage rates have been falling steadily, to 4.42 percent in the latest weekly survey by Freddie Mac, released Thursday. That rate (for a fixed, 30-year mortgage) would come with fees and points equaling 0.7 percent of the loan amount.
Kasriel's calculation doesn't mean that homes have been a "bad buy" since the 1960s. But it's an indicator of affordability.
Another measure, the National Association of Realtors' affordability index, also shows that the financial appeal of housing may be at a four-decade peak. The affordability index blends data on home prices, household incomes, and interest rates into one number. The index shows that US homes were generally attractive buys in the 1990s and early 1970s, but much less affordable around 2005 (when home prices were soaring) or 1981 (when interest rates were sky-high).
Can you get a loan? Many banks that were handing out loans too easily during the boom five years ago may be overly reluctant to lend now. But the latest Federal Reserve survey of bank loan officers shows some improvement in lending conditions.
URL to Original Article: http://www.csmonitor.com/Business/2010/0820/Mortgage-rates-at-record-lows-Refinances-are-up.-Sales-are-not.
Steadily dropping mortgage rates, which hit a record low 4.42 percent in numbers released this week, appear to be stimulating housing-market activity. Loan applications rose 13 percent in the week that ended last Friday, compared with the week before, says the Mortgage Bankers Association.
But the low rates so far are generating more interest in refinancing existing loans than in home-purchase transactions. The association's index of refinance activity rose 17 percent for the week, while an index of purchasing activity actually fell a bit.
Two factors could be holding back home buyers. First, many already pushed to make their purchases earlier this year, when they could tap a temporary $8,000 federal tax credit designed to spur home sales. Second, the weak job market and some signs of cooling in the economy this summer are affecting consumer purchasing power and confidence.
For people who can qualify for loans, moving forward now has a lot of appeal, some economists say.
"Houses are incredibly attractive buys now," says Paul Kasriel, director of economic research at the Northern Trust Co. in Chicago. But "a low mortgage rate doesn't mean anything if you can't qualify for it."
One reason it's tough to qualify is tighter lending standards by banks. Getting a loan requires navigating some hurdles. Another reason, affecting many who seek to refinance, is the number of US mortgages that are "under water," with the borrowers owing more to the lender than their homes are now worth.
Of course, real estate conditions vary a lot by locality. And many housing analysts say home values could fall a bit more before stabilizing.
Mr. Kasriel bases his general assessment of the market on a calculation of economic value: He uses interest rates as a gauge of the cost to buy a home, and he looks at numbers on implied rental yields as an indicator of the payback. (He divides national figures on "space rent" of housing by the market value of household real estate.)
For the first time since the mid-1960s, the yield on housing is higher than the typical mortgage rate on a single-family home, Kasriel finds. In the first quarter of this year, the implied yield on housing was 6 percent, while mortgage interest was about 5 percent.
Since then, mortgage rates have been falling steadily, to 4.42 percent in the latest weekly survey by Freddie Mac, released Thursday. That rate (for a fixed, 30-year mortgage) would come with fees and points equaling 0.7 percent of the loan amount.
Kasriel's calculation doesn't mean that homes have been a "bad buy" since the 1960s. But it's an indicator of affordability.
Another measure, the National Association of Realtors' affordability index, also shows that the financial appeal of housing may be at a four-decade peak. The affordability index blends data on home prices, household incomes, and interest rates into one number. The index shows that US homes were generally attractive buys in the 1990s and early 1970s, but much less affordable around 2005 (when home prices were soaring) or 1981 (when interest rates were sky-high).
Can you get a loan? Many banks that were handing out loans too easily during the boom five years ago may be overly reluctant to lend now. But the latest Federal Reserve survey of bank loan officers shows some improvement in lending conditions.
URL to Original Article: http://www.csmonitor.com/Business/2010/0820/Mortgage-rates-at-record-lows-Refinances-are-up.-Sales-are-not.
Monday, August 23, 2010
Death of the 'McMansion': Era of Huge Homes Is Over
By: Cindy Perman CNBC.com Writer
They’ve been called McMansions, Starter Castles, Garage Mahals and Faux Chateaus but here’s the latest thing you can call them — History.
In the past few years, there have been an increasing number of references made to the “McMansion glut” and the “McMansion backlash,” as more towns pass ordinances against garishly large homes, which are generally over 3,000 square feet and built very close together.
What sets a McMansion apart from a regular mansion, according to Wikipedia, are a few characteristics: They’re tacky, they lack a definitive style and they have a “displeasingly jumbled appearance.”
Well, count 2010 as the year the last nail was hammered into the McCoffin: In its latest report on home-buying trends, real-estate site Trulia declares: “The McMansion Era Is Over.”
Just 9 percent of the people surveyed by Trulia said their ideal home size was over 3,200 square feet. Meanwhile, more than one-third said their ideal size was under 2,000 feet.
“That’s something that would’ve been unbelievable just a few years back,” said Pete Flint, CEO and co-founder of Trulia. “Americans are moving away from McMansions.”
The comments echoed those made in June by Kermit Baker, the chief economist at the American Institute of Architects.
“We continue to move away from the McMansion chapter of residential design, with more demand for practicality throughout the home,” Baker said. “There has been a drop off in the popularity of upscale property enhancements such as formal landscaping, decorative water features, tennis courts, and gazebos.”
“McMansions just look and feel out of place today, given the more cautious environment everyone’s living in,” said Paul Bishop, vice president of research for the National Association of Realtors.
And homebuilders are heeding the call: In a survey of builders last year, nine out of 10 said they planned to build smaller or lower-priced homes.
URL to Original Article: http://www.cnbc.com/id/38757287
They’ve been called McMansions, Starter Castles, Garage Mahals and Faux Chateaus but here’s the latest thing you can call them — History.
In the past few years, there have been an increasing number of references made to the “McMansion glut” and the “McMansion backlash,” as more towns pass ordinances against garishly large homes, which are generally over 3,000 square feet and built very close together.
What sets a McMansion apart from a regular mansion, according to Wikipedia, are a few characteristics: They’re tacky, they lack a definitive style and they have a “displeasingly jumbled appearance.”
Well, count 2010 as the year the last nail was hammered into the McCoffin: In its latest report on home-buying trends, real-estate site Trulia declares: “The McMansion Era Is Over.”
Just 9 percent of the people surveyed by Trulia said their ideal home size was over 3,200 square feet. Meanwhile, more than one-third said their ideal size was under 2,000 feet.
“That’s something that would’ve been unbelievable just a few years back,” said Pete Flint, CEO and co-founder of Trulia. “Americans are moving away from McMansions.”
The comments echoed those made in June by Kermit Baker, the chief economist at the American Institute of Architects.
“We continue to move away from the McMansion chapter of residential design, with more demand for practicality throughout the home,” Baker said. “There has been a drop off in the popularity of upscale property enhancements such as formal landscaping, decorative water features, tennis courts, and gazebos.”
“McMansions just look and feel out of place today, given the more cautious environment everyone’s living in,” said Paul Bishop, vice president of research for the National Association of Realtors.
And homebuilders are heeding the call: In a survey of builders last year, nine out of 10 said they planned to build smaller or lower-priced homes.
URL to Original Article: http://www.cnbc.com/id/38757287
Obama Administration Scorecard Rates Housing Market as "Stabilizing"
by JON PRIOR
Housing prices are finally stabilizing but the market remains fragile as foreclosure rates climb and serious delinquencies work through the pipeline, according to the Obama Administration’s third monthly housing scorecard, which records housing activity through August.
July housing prices remained flat after 30 months of declines but foreclosures rose slightly from June, placing additional stress on the market, according to the Department of Housing and Urban Development (HUD) and the Treasury Department.
The government bases these numbers off of the Standard & Poor's (S&P)/Case-Shiller home price index and the Federal Housing Finance Agency (FHFA) index. But according to the Altos Research, 10-city composite price index, prices have fallen "significantly" from a recent high in the summer of last year. Morgan Stanley analysts also recently questioned the power of these indices.
The report also points to low mortgage rates, which have helped 7.1m homeowners refinance since April 2009, according to the report. This resulted in more than $12.7bn in total borrower savings.
But according to the report, new home sales are down 25% from last year and new mortgage-purchase originations are down 7.2% from a year ago.
The report also claimed there has been twice as many "modification arrangements" compared to foreclosure completions. Since April 2009, there were 1.3m modifications started through the Home Affordable Modification Program (HAMP), 1.4m modifications through proprietary programs, and 472,000 loss mitigation and early delinquency interventions by the Federal Housing Administration (FHA).
These have outnumbered the 1.24m foreclosures completed in the same period, according to the report, which bases those numbers off data from RealtyTrac.
But more work is still on the way. Rick Sharga, senior vice president at RealtyTrac said 3.8m households could receive a foreclosure filing by the end of 2010. These don't necessarily mean foreclosure completions, as RealtyTrac data covers filings from a notice of default (NOD) through REO.
"Despite these positive indicators, some data in the August report underscores continued market fragility, suggesting recovery will take place over time," according to the report.
URL to Original Article: http://www.housingwire.com/2010/08/20/obama-administration-scorecard-rates-housing-market-as-stabilizing
Housing prices are finally stabilizing but the market remains fragile as foreclosure rates climb and serious delinquencies work through the pipeline, according to the Obama Administration’s third monthly housing scorecard, which records housing activity through August.
July housing prices remained flat after 30 months of declines but foreclosures rose slightly from June, placing additional stress on the market, according to the Department of Housing and Urban Development (HUD) and the Treasury Department.
The government bases these numbers off of the Standard & Poor's (S&P)/Case-Shiller home price index and the Federal Housing Finance Agency (FHFA) index. But according to the Altos Research, 10-city composite price index, prices have fallen "significantly" from a recent high in the summer of last year. Morgan Stanley analysts also recently questioned the power of these indices.
The report also points to low mortgage rates, which have helped 7.1m homeowners refinance since April 2009, according to the report. This resulted in more than $12.7bn in total borrower savings.
But according to the report, new home sales are down 25% from last year and new mortgage-purchase originations are down 7.2% from a year ago.
The report also claimed there has been twice as many "modification arrangements" compared to foreclosure completions. Since April 2009, there were 1.3m modifications started through the Home Affordable Modification Program (HAMP), 1.4m modifications through proprietary programs, and 472,000 loss mitigation and early delinquency interventions by the Federal Housing Administration (FHA).
These have outnumbered the 1.24m foreclosures completed in the same period, according to the report, which bases those numbers off data from RealtyTrac.
But more work is still on the way. Rick Sharga, senior vice president at RealtyTrac said 3.8m households could receive a foreclosure filing by the end of 2010. These don't necessarily mean foreclosure completions, as RealtyTrac data covers filings from a notice of default (NOD) through REO.
"Despite these positive indicators, some data in the August report underscores continued market fragility, suggesting recovery will take place over time," according to the report.
URL to Original Article: http://www.housingwire.com/2010/08/20/obama-administration-scorecard-rates-housing-market-as-stabilizing
Wednesday, August 18, 2010
Special report: Flipping, flopping and booming mortgage fraud
By Nick Carey
(Reuters) - The house on the 53rd block of South Wood Street in Chicago's Back of the Yards doesn't look like a $355,000 home. There is no front door and most of the windows are boarded up.
Public records show it sold in foreclosure for $25,500 in January 2009, then resold for $355,000 in October. In between, a $110,000 mortgage was taken out on the home, supposedly for renovations. This June, the property went back into foreclosure.
To Emilio Carrasquillo, head of the local office of non-profit lender Neighborhood Housing Services of Chicago (NHS), the numbers don't add up. He believes this is a case of mortgage fraud.
It may not make the blood boil like murder or rape, but mortgage fraud is a crime that cost an estimated $14 billion in 2009 and could be hampering an already fragile recovery in the housing market. The FBI has been fighting back, assembling its largest ever team to fight it. They have their work cut out for them, though, as a tsunami of foreclosures is making classic scams easier and spawning new ones to boot.
"There's no way any property in this neighborhood should sell for that kind of money," said Carrasquillo, standing outside the house on Wood Street in this poor, predominantly black area of Chicago's South Side. "Even if it was in great condition."
Carrasquillo has identified a number of properties in Back of the Yards that sold for between $5,000 and $30,000 last year and then came back on the market for up to $385,000. He said property prices are being artificially inflated, allowing fraudsters to walk away with vast profits and making it harder for honest local people to buy a home.
Mortgage fraud takes many forms, but a well-organized scam frequently involves a limited liability company (LLC) or a "straw buyer." In this scheme, fraudsters use a fake identity or that of someone else who allows them to use their credit status in return for a fee. The seller pockets the money the buyer borrows from a lender to pay for the home. The buyer never makes a mortgage payment and the property goes into foreclosure.
In other words, the money simply disappears, leaving the lender with a large loss. Since the U.S. government is now backing much of the mortgage market in the absence of private investors, that means "taxpayers are ultimately on the hook for fraud," said Ann Fulmer, vice president of business relations at fraud-prevention company Interthinx.
Back of the Yards was hit by fraud during the housing boom and Carrasquillo says the glut of foreclosures is now making it easier for scammers to pick up properties for a song and flip them for phenomenal profits.
Drug dealers and gang members have taken over abandoned houses, many adorned with spray-painted gang signs. Prior to touring the area, Carrasquillo attached two magnetic signs touting the NHS logos on his minivan's doors to show he is not a police officer. He said he also prefers touring in the morning, as drug dealers and "gangbangers" tend not to be early risers.
"These properties are just going to sit there, boarded up, broken into and a magnet for crime," he said. "And that makes our job of trying to stabilize this neighborhood so much harder."
CRACKDOWN NETS MORE REPORTS OF FRAUD
The U.S. Federal Bureau of Investigation said in a report released on June 17 that suspicious activity reports (SARs) related to mortgage fraud rose 5 percent in 2009 to around 67,200, up from 63,700 the year before. The number had tripled from 22,000 in 2005 and the number of SARs for the first three months of 2010 hit nearly 38,000.
"We don't see the number declining while foreclosures remain so high," said Sharon Ormsby, section chief of the FBI's financial crimes section.
Robb Adkins, executive director of the Financial Fraud Enforcement Task Force, is known as U.S. President Barack Obama's financial fraud czar. He describes mortgage fraud as "pervasive" and fears it is exacerbating the nation's real estate woes. "That, in turn, could act as an anchor on the economic recovery," he said.
For the housing market to recover, potential homeowners need confidence in home prices and investors need confidence to get back into the secondary mortgage market, Adkins explained.
Since the subprime meltdown, a wide variety of scams have come to the fore. They include big cases like that of Lee Farkas, the former head of now bankrupt mortgage lender Taylor, Bean & Whitaker Mortgage Corp, charged in June with fraud that led to billions of dollars of losses. The scheme involved the misappropriation of funds from multiple sources, including a lending facility that had received funding from Deutsche Bank and BNP Paribas.
That appears to be the scam of choice. On July 22, for instance, seven defendants were indicted in Chicago in a $35 million mortgage fraud scheme involving 120 properties from 2004 to 2008 using straw buyers. Of the half dozen properties listed in the indictment, two were in Back of the Yards.
In the mid-2000s, the availability of easy money, poor due diligence by lenders and low- or no-documentation loans, acted as a magnet for fraudsters, who used identity theft and other scams to bag large sums of cash.
"During the boom it was almost like people in the real estate market could do no wrong," said Ohio Attorney General Richard Cordray. "As ever more money rushed in, it attracted a lot of people who engaged in shady behavior."
Instead of leaving them without a market, the crash has instead provided fraudsters with a glut of foreclosures, stricken borrowers and desperate lenders to take advantage of.
"There were plenty of opportunities for fraud on the way up and there are plenty on the way down," said Clifford Rossi, a former chief credit officer at Citigroup and now a teaching fellow at the University of Maryland in College Park.
Alongside familiar scams like property flipping, the crash has added new terms to the lexicon: short sale fraud, builder bailouts and flopping. Rescue scams targeting struggling homeowners with false promises of help are also on the rise.
If some of the mechanisms are new, a lot of the fraudsters are not: in many cases, they turn out to be mortgage brokers, appraisers, real estate agents or loan officers. "Because they're insiders, they see exactly what's happening and they're able to stay one step ahead of the game," said Todd Lackner, a fraud investigator in San Diego. "They're the same people who were committing fraud during the boom and they were never caught or prosecuted."
BACK TO THE YARDS
Just a stone's throw from downtown Chicago, Back of the Yards is the setting for Upton Sinclair's classic 1906 novel "The Jungle," a tale of grueling hardship and worker exploitation at the city's stockyards. The book includes an act of mortgage fraud against an unsuspecting Lithuanian family.
"Mortgage fraud is nothing new," said Christopher Wagner, co-managing attorney of the Ohio Attorney General's Cincinnati office. "It's been around for a long time."
Saul Alinsky, considered the founder of modern community organizing, started out in Back of the Yards in the 1930s. Decades later, a young community organizer named Obama got his start near here.
The neighborhood has always been poor, but south of the old railway tracks at W 49th St, the housing crisis' legacy of empty lots and boarded-up homes is evident on every block. There are few stores and services available -- in four separate visits for this story, no police vehicles were sighted.
"This is what we refer to as a 'resource desert,'" Carrasquillo said. "When no one pays attention to an area like this, it makes it easier to get away with fraud."
Marni Scott, executive vice president for credit at Troy, Michigan-based lender Flagstar Bancorp, says there are virtually no untainted sales in the area. "There are no cases of Mr and Mr Jones selling to Mr and Mrs Smith."
"We see cases of mortgage fraud around the country," she added. "But there's nothing out there that could match the mass-production, assembly-line fraud that's going on here."
In 2008 Flagstar instituted a rule whereby any loan applications here and in parts of Atlanta -- another fraud hot spot -- must be approved by Scott and the lender's chief appraiser. In a Webex presentation, Scott rattles through a number of properties snapped up for pennies on the dollar in 2009 and then sold for around $360,000.
She provides an underwriter's-eye-view of one property, on the 51st block of South Marshfield Avenue, sold in foreclosure in July 2009 for $33,000. In January of this year Flagstar received a loan application to buy the house for $355,000.
The property appraisal -- compiled by an appraiser who Scott believes never visited the area -- showed four nearby comparable properties of around the same age (100 plus years) sold recently for around $360,000. The trick to this kind of scheme is engineering the sale of the first few fraudulently overvalued properties to get "comps" -- comparable values -- to fool appraisers and underwriters alike.
"Miraculously, all of these properties were all within a very narrow price range," Scott said with weary sarcasm. "This is a perfect appraisal for an underwriter. If you are an underwriter sitting in Kansas or California it all looks fairly straightforward so you can just hit the button and approve it."
Using a $5 product called LoanIQ from U.S. title insurer First American Financial Corp called LoanIQ, Flagstar determined the application itself was fraudulent and there was a foreclosure rate in the area of nearly 60 percent. What is more, property prices here spiked 84 percent last year after 44 percent and 26 percent declines in 2008 and 2007.
"No neighborhood should look like this," said Scott, who declined the application.
Last April, however, another lender approved a loan application for $335,000 on the same property from the same people.
FORECLOSURE MAGNET
Reports this year from Interthinx, CoreLogic Inc and the Mortgage Asset Research Institute (MARI) -- which all provide fraud prevention tools for lenders -- show foreclosure hotspots Florida, California, Arizona and Nevada are also big mortgage fraud markets.
MARI said in its April report that reported mortgage fraud and misrepresentation rose 7 percent in 2009, adding fraud "continues to be a pervasive issue, growing and escalating in complexity."
Denise James, director of real estate solutions at LexisNexis Risk Solutions and one of the author's reports, said reported fraud will continue to rise throughout 2010.
In its first-quarter report, Interthinx said its Mortgage Fraud Risk Index rose 4 percent to 151, the first time it had passed 150 since 2004. A figure of 100 on the index would indicate virtually no risk of fraud.
According to various estimates, the 30310 ZIP code in Atlanta is one of the worst in the country.
An analysis of that ZIP prepared for Reuters by Interthinx showed a fraud index of 414, making it the eighth worst ZIP code in the country. Back of the Yards -- ZIP code 60609 -- had an index of 309.
"In some neighborhoods in Atlanta there hasn't been a clean transaction in 10 years," Interthinx's Fulmer said.
In 2005 local residents here formed the 30310 Fraud Task Force. Members sniff out potential signs of fraud -- such as repeated property flipped -- and report them directly to the FBI and local authorities. Information from the task force led to the arrest of a 12-member mortgage fraud ring on September 15, 2008 -- better known in the annals of the financial crisis as the day Lehman Brothers filed for Chapter 11 bankruptcy protection.
Brent Brewer, a civil engineer and task force member, said the arrests had a noticeable impact on fraud in the area. "It made a statement that if you come here to commit fraud there's a good chance you'll get caught," he said.
But Brewer harbors no illusions the fraudsters are gone. "There's no way they can catch everyone who's involved in fraud. But if you're dumb, greedy or desperate, you're going to get caught."
FBI GETTING INTERESTED
Law enforcement has come a long way in combating mortgage fraud, though officials freely admit that's not saying much.
Ben Wagner, U.S. attorney for the eastern district of California, said as mortgages are regulated at the state and local level, for years there was little federal interference. Prior to the recent boom, he said, fraud simply "was not identified as a huge problem."
"There has been a little bit of a learning curve," Wagner said. "This was not something federal prosecutors had much familiarity with. Now we're getting pretty good at it."
Half of Wagner's 50 or so criminal prosecutors focus on white-collar crime including fraud. Two new prosecutors will be dedicated solely to mortgage fraud.
Now mortgage fraud is a known quantity, Wagner said all U.S. prosecutors tackling it are linked by Internet groups. The May edition of the bi-monthly "United States Attorneys' Bulletin" (published by the Executive Office for United States Attorneys) was devoted entirely to mortgage fraud.
The FBI has more than 350 out of its 13,000 agents devoted to mortgage fraud. There are also now 67 regular mortgage fraud working groups and 23 task forces at the federal, state and local level. "This is the broadest coalition of law enforcement ever brought together to fight fraud," Adkins said. He admitted, however that limited resources to fight fraud still pose a challenge.
In June U.S. authorities said 1,215 people had been charged in a joint crackdown on mortgage fraud. Many of the charges were for crimes committed years ago.
Latour "LT" Lafferty, the head of the white-collar crimes practice at law firm Fowler White Boggs in Tampa, Florida, said fraud in the boom was so pervasive that many crimes will go undetected and unprosecuted. "Everyone had their hands in the cookie jar during the boom," he said. "Lenders, brokers, Realtors, homeowners ... everyone."
OLD DOG, NEW TRICKS
A new mortgage scam born out of the housing crisis is short sale fraud. Short sales are a way for stricken homeowners to get out of their homes, whereby in agreement with their lender they sell their home for less than they paid for it and are forgiven the remainder.
But they have also proven a tempting target for fraudsters, usually involving the Realtor in the deal. Lackner, the fraud investigator in San Diego, described a typical scheme: "Let's say you have a property up for short sale that you know as a Realtor you can get $350,000 for," he said.
"But you arrange a low-ball appraisal of $200,000 and have someone make an offer of that amount."
"The Realtor says to the bank this is the best offer you're going to get, take it or leave it," he added. "Then they turn around and flip it immediately for $350,000. In cases like this, the lender is probably already stuck with a lot of foreclosed properties and doesn't want more. So they go for it."
Where the process of fraudulent appraisals overvaluing a property for sale is "flipping," deliberately undervaluing them has become known as "flopping."
Bob Hertzog, a designated real estate broker at Summit Home Consultants in Scottsdale, Arizona, says he gets emails from unknown firms offering to act as a "third-party negotiator" between the seller and the bank with what turns out to be a grossly undervalued bid.
Hertzog has tried tracing some of the LLCs, but describes a chain of front companies leading nowhere.
"The problem is it is so cheap and easy to set up an LLC online that sometimes they are set up for just one transaction," Flagstar's Scott said. "And if they're set up using fake information or a stolen identity, it's very hard to trace who's behind them."
Many web sites boast they can help you form an LLC online for under $50.
Another common target for fraud is the reverse mortgage. Designed for seniors to release equity from a property, according to financial fraud czar Adkins, they have been used to commit a "particularly egregious type of fraud."
Fraudsters commonly forge their victims' signatures and, without their knowledge or consent, divert funds to themselves. The scam is worst in Florida, a magnet for American retirees.
"Unfortunately it is often not until the death of the victim that their heirs realize that all of the equity has been stripped out of the property by fraudsters," Adkins said.
But Arthur Prieston, chairman of the Prieston Group, which sells mortgage fraud insurance and has launched a patented system to rate lenders on the quality of their loans, said most mortgage fraud he comes across consists of ordinary people fudging figures to get a loan. "The vast majority of the fraud we see is where people intend to occupy a property, but can't qualify for a loan," he said. "They'll do anything to get that loan approved."
He added this is achieved with the active collusion of Realtors, brokers and lenders looking to make a sale and keep the market moving. Before his firm issues fraud insurance it reviews a lender's loans and between 20 percent and the 30 percent of the loans reviewed so far have had "red flags."
The problem with assessing the extent of the damage caused by mortgage fraud is that it's not just the dollar amount of the fraud itself. It also hits property values, property taxes and often causes crime to rise.
"Most people interpret white collar crime as a victimless crime, where the bank pays the price and no one else," said Andrew Carswell, associate professor of housing and consumer economics, University of Georgia. "This is a mistaken perception ... neighborhoods and homeowners pay the price."
UNCOVERING THE SCAMS
Companies like Interthinx, CoreLogic and DataVerify all have data-driven fraud prevention tools for lenders. Interthinx's program, for instance, identifies some 300 "red flags" including a buyer's identity and recent sales in a neighborhood, while CoreLogic uses pattern recognition technology. CoreLogic also aims to bring a short sale fraud product to the market soon.
Interthinx's Fulmer said regardless of the source, on average solid fraud prevention tools can be had for as little as $10 to $15 per loan. "The tools out there enable us to see what's going on out there right now in real time," she said.
Apart from fraud insurance, Prieston Group's new credit rating system for lenders should have enough data within the next year to start providing valid ratings.
Prieston said the firm's insurance product is growing at more than 100 percent per month, while CoreLogic's Tim Grace said the firm's fraud prevention tool business was booming.
Many lenders are also sharing more information about bad loans, though LexisNexis' James said it is not nearly enough. "If lenders don't start to share more information then fraudsters will continue to go from bank to bank to bank until they're caught," she said.
The University of Maryland's Rossi said what the industry needs is a "central data warehouse" to combat fraud. "There has been a failure of collective data warehousing across the industry," he said.
Mortgage Bankers Association (MBA) spokesman John Mechem said members have no plans for a central database, but added "we view our role as being to facilitate and encourage information sharing in the industry."
The U.S. Patriot Act of 2001 allows lenders a safe harbor to share information, but does not mandate it. "We always encourage more information sharing," said Steve Hudak, a press officer at the U.S. Treasury Department's Financial Crimes Enforcement Network, or FinCen. "As of now, however, this is an entirely voluntary process."
But Rossi said the government should step in. "The Federal government is probably going to have to take the initiative because I don't see the industry doing this one on its own," he said. "I am personally not a fan of big government, but we need more information sharing."
Ultimately, the expectation is lenders will be forced either to improve due diligence, or face being pushed out of business as investors burned by sloppy underwriting during the boom urge them to adopt fraud prevention tools.
"Investor scrutiny is going to be higher than it ever has been," Rossi said. "The days of a small amount of due diligence are gone."
Many investors are also investigating their losses and forcing lenders to repurchase bad loans. This is resulting in "thousands of repurchases a month," according to Prieston.
"When it comes to small lenders with only a few million dollars of loans, ten repurchases will absolutely put some of them out of business," he said.
The government now guarantees more than 90 percent of the mortgage market and forms almost the entire secondary mortgage market, as private investors have not returned. The FHA, Fannie Mae and Freddie Mac are thus seen as playing an instrumental role in pushing improved due diligence to clean up the government's multi-trillion dollar portfolio.
FHA commissioner David Stevens was appointed in July 2009. Since then the FHA has shut down 1,100 lenders, after decades in which the government closed an average of 30 lenders annually. He says most lenders he deals with are of a "very high quality," but that "there are still lenders that either don't have controls in place or are proactively engaging in practices that pose a risk to the FHA."
Stevens does not expect to shut down lenders at the same rate as the past year, but added "the number will be much higher than the historical average."
CoreLogic's Grace said most large lenders have the tools in place to combat mortgage fraud, but admitted he was concerned about some smaller lenders. "The next shakeout of weak lenders will take place over the next 12 to 24 months," he said.
The MBA's Mechem said the U.S. mortgage market must be cleaned up if it is ever to return to normal. "The one thing private investors need to get back into the secondary market is confidence," he said. "And investors won't risk buying mortgages if they don't have confidence in the quality of the loans. Restoring that confidence is going to play a pivotal role in restoring the markets."
In the meantime, mortgage fraud is expected to cause more problems in areas like Back of the Yards in Chicago.
Three doors down from the boarded-up, foreclosed property that has aroused Carrasquillo's suspicions, father-of-three Oti Cardoso says he and his neighbors try to cut the grass at the abandoned properties on his block and to keep thieves out. But he has heard most empty houses end up occupied by gang members.
"I want my children to be safe, I don't want drug dealers here," he said. "I have tried to find the owner of these houses so I can work with them to help keep their homes clean."
"If they only knew what was happening here," he added, "I'm sure they would want to do what was right."
URL to Original Article: http://www.reuters.com/article/idUSTRE67G1S620100817
(Reuters) - The house on the 53rd block of South Wood Street in Chicago's Back of the Yards doesn't look like a $355,000 home. There is no front door and most of the windows are boarded up.
Public records show it sold in foreclosure for $25,500 in January 2009, then resold for $355,000 in October. In between, a $110,000 mortgage was taken out on the home, supposedly for renovations. This June, the property went back into foreclosure.
To Emilio Carrasquillo, head of the local office of non-profit lender Neighborhood Housing Services of Chicago (NHS), the numbers don't add up. He believes this is a case of mortgage fraud.
It may not make the blood boil like murder or rape, but mortgage fraud is a crime that cost an estimated $14 billion in 2009 and could be hampering an already fragile recovery in the housing market. The FBI has been fighting back, assembling its largest ever team to fight it. They have their work cut out for them, though, as a tsunami of foreclosures is making classic scams easier and spawning new ones to boot.
"There's no way any property in this neighborhood should sell for that kind of money," said Carrasquillo, standing outside the house on Wood Street in this poor, predominantly black area of Chicago's South Side. "Even if it was in great condition."
Carrasquillo has identified a number of properties in Back of the Yards that sold for between $5,000 and $30,000 last year and then came back on the market for up to $385,000. He said property prices are being artificially inflated, allowing fraudsters to walk away with vast profits and making it harder for honest local people to buy a home.
Mortgage fraud takes many forms, but a well-organized scam frequently involves a limited liability company (LLC) or a "straw buyer." In this scheme, fraudsters use a fake identity or that of someone else who allows them to use their credit status in return for a fee. The seller pockets the money the buyer borrows from a lender to pay for the home. The buyer never makes a mortgage payment and the property goes into foreclosure.
In other words, the money simply disappears, leaving the lender with a large loss. Since the U.S. government is now backing much of the mortgage market in the absence of private investors, that means "taxpayers are ultimately on the hook for fraud," said Ann Fulmer, vice president of business relations at fraud-prevention company Interthinx.
Back of the Yards was hit by fraud during the housing boom and Carrasquillo says the glut of foreclosures is now making it easier for scammers to pick up properties for a song and flip them for phenomenal profits.
Drug dealers and gang members have taken over abandoned houses, many adorned with spray-painted gang signs. Prior to touring the area, Carrasquillo attached two magnetic signs touting the NHS logos on his minivan's doors to show he is not a police officer. He said he also prefers touring in the morning, as drug dealers and "gangbangers" tend not to be early risers.
"These properties are just going to sit there, boarded up, broken into and a magnet for crime," he said. "And that makes our job of trying to stabilize this neighborhood so much harder."
CRACKDOWN NETS MORE REPORTS OF FRAUD
The U.S. Federal Bureau of Investigation said in a report released on June 17 that suspicious activity reports (SARs) related to mortgage fraud rose 5 percent in 2009 to around 67,200, up from 63,700 the year before. The number had tripled from 22,000 in 2005 and the number of SARs for the first three months of 2010 hit nearly 38,000.
"We don't see the number declining while foreclosures remain so high," said Sharon Ormsby, section chief of the FBI's financial crimes section.
Robb Adkins, executive director of the Financial Fraud Enforcement Task Force, is known as U.S. President Barack Obama's financial fraud czar. He describes mortgage fraud as "pervasive" and fears it is exacerbating the nation's real estate woes. "That, in turn, could act as an anchor on the economic recovery," he said.
For the housing market to recover, potential homeowners need confidence in home prices and investors need confidence to get back into the secondary mortgage market, Adkins explained.
Since the subprime meltdown, a wide variety of scams have come to the fore. They include big cases like that of Lee Farkas, the former head of now bankrupt mortgage lender Taylor, Bean & Whitaker Mortgage Corp, charged in June with fraud that led to billions of dollars of losses. The scheme involved the misappropriation of funds from multiple sources, including a lending facility that had received funding from Deutsche Bank and BNP Paribas.
That appears to be the scam of choice. On July 22, for instance, seven defendants were indicted in Chicago in a $35 million mortgage fraud scheme involving 120 properties from 2004 to 2008 using straw buyers. Of the half dozen properties listed in the indictment, two were in Back of the Yards.
In the mid-2000s, the availability of easy money, poor due diligence by lenders and low- or no-documentation loans, acted as a magnet for fraudsters, who used identity theft and other scams to bag large sums of cash.
"During the boom it was almost like people in the real estate market could do no wrong," said Ohio Attorney General Richard Cordray. "As ever more money rushed in, it attracted a lot of people who engaged in shady behavior."
Instead of leaving them without a market, the crash has instead provided fraudsters with a glut of foreclosures, stricken borrowers and desperate lenders to take advantage of.
"There were plenty of opportunities for fraud on the way up and there are plenty on the way down," said Clifford Rossi, a former chief credit officer at Citigroup and now a teaching fellow at the University of Maryland in College Park.
Alongside familiar scams like property flipping, the crash has added new terms to the lexicon: short sale fraud, builder bailouts and flopping. Rescue scams targeting struggling homeowners with false promises of help are also on the rise.
If some of the mechanisms are new, a lot of the fraudsters are not: in many cases, they turn out to be mortgage brokers, appraisers, real estate agents or loan officers. "Because they're insiders, they see exactly what's happening and they're able to stay one step ahead of the game," said Todd Lackner, a fraud investigator in San Diego. "They're the same people who were committing fraud during the boom and they were never caught or prosecuted."
BACK TO THE YARDS
Just a stone's throw from downtown Chicago, Back of the Yards is the setting for Upton Sinclair's classic 1906 novel "The Jungle," a tale of grueling hardship and worker exploitation at the city's stockyards. The book includes an act of mortgage fraud against an unsuspecting Lithuanian family.
"Mortgage fraud is nothing new," said Christopher Wagner, co-managing attorney of the Ohio Attorney General's Cincinnati office. "It's been around for a long time."
Saul Alinsky, considered the founder of modern community organizing, started out in Back of the Yards in the 1930s. Decades later, a young community organizer named Obama got his start near here.
The neighborhood has always been poor, but south of the old railway tracks at W 49th St, the housing crisis' legacy of empty lots and boarded-up homes is evident on every block. There are few stores and services available -- in four separate visits for this story, no police vehicles were sighted.
"This is what we refer to as a 'resource desert,'" Carrasquillo said. "When no one pays attention to an area like this, it makes it easier to get away with fraud."
Marni Scott, executive vice president for credit at Troy, Michigan-based lender Flagstar Bancorp, says there are virtually no untainted sales in the area. "There are no cases of Mr and Mr Jones selling to Mr and Mrs Smith."
"We see cases of mortgage fraud around the country," she added. "But there's nothing out there that could match the mass-production, assembly-line fraud that's going on here."
In 2008 Flagstar instituted a rule whereby any loan applications here and in parts of Atlanta -- another fraud hot spot -- must be approved by Scott and the lender's chief appraiser. In a Webex presentation, Scott rattles through a number of properties snapped up for pennies on the dollar in 2009 and then sold for around $360,000.
She provides an underwriter's-eye-view of one property, on the 51st block of South Marshfield Avenue, sold in foreclosure in July 2009 for $33,000. In January of this year Flagstar received a loan application to buy the house for $355,000.
The property appraisal -- compiled by an appraiser who Scott believes never visited the area -- showed four nearby comparable properties of around the same age (100 plus years) sold recently for around $360,000. The trick to this kind of scheme is engineering the sale of the first few fraudulently overvalued properties to get "comps" -- comparable values -- to fool appraisers and underwriters alike.
"Miraculously, all of these properties were all within a very narrow price range," Scott said with weary sarcasm. "This is a perfect appraisal for an underwriter. If you are an underwriter sitting in Kansas or California it all looks fairly straightforward so you can just hit the button and approve it."
Using a $5 product called LoanIQ from U.S. title insurer First American Financial Corp called LoanIQ, Flagstar determined the application itself was fraudulent and there was a foreclosure rate in the area of nearly 60 percent. What is more, property prices here spiked 84 percent last year after 44 percent and 26 percent declines in 2008 and 2007.
"No neighborhood should look like this," said Scott, who declined the application.
Last April, however, another lender approved a loan application for $335,000 on the same property from the same people.
FORECLOSURE MAGNET
Reports this year from Interthinx, CoreLogic Inc and the Mortgage Asset Research Institute (MARI) -- which all provide fraud prevention tools for lenders -- show foreclosure hotspots Florida, California, Arizona and Nevada are also big mortgage fraud markets.
MARI said in its April report that reported mortgage fraud and misrepresentation rose 7 percent in 2009, adding fraud "continues to be a pervasive issue, growing and escalating in complexity."
Denise James, director of real estate solutions at LexisNexis Risk Solutions and one of the author's reports, said reported fraud will continue to rise throughout 2010.
In its first-quarter report, Interthinx said its Mortgage Fraud Risk Index rose 4 percent to 151, the first time it had passed 150 since 2004. A figure of 100 on the index would indicate virtually no risk of fraud.
According to various estimates, the 30310 ZIP code in Atlanta is one of the worst in the country.
An analysis of that ZIP prepared for Reuters by Interthinx showed a fraud index of 414, making it the eighth worst ZIP code in the country. Back of the Yards -- ZIP code 60609 -- had an index of 309.
"In some neighborhoods in Atlanta there hasn't been a clean transaction in 10 years," Interthinx's Fulmer said.
In 2005 local residents here formed the 30310 Fraud Task Force. Members sniff out potential signs of fraud -- such as repeated property flipped -- and report them directly to the FBI and local authorities. Information from the task force led to the arrest of a 12-member mortgage fraud ring on September 15, 2008 -- better known in the annals of the financial crisis as the day Lehman Brothers filed for Chapter 11 bankruptcy protection.
Brent Brewer, a civil engineer and task force member, said the arrests had a noticeable impact on fraud in the area. "It made a statement that if you come here to commit fraud there's a good chance you'll get caught," he said.
But Brewer harbors no illusions the fraudsters are gone. "There's no way they can catch everyone who's involved in fraud. But if you're dumb, greedy or desperate, you're going to get caught."
FBI GETTING INTERESTED
Law enforcement has come a long way in combating mortgage fraud, though officials freely admit that's not saying much.
Ben Wagner, U.S. attorney for the eastern district of California, said as mortgages are regulated at the state and local level, for years there was little federal interference. Prior to the recent boom, he said, fraud simply "was not identified as a huge problem."
"There has been a little bit of a learning curve," Wagner said. "This was not something federal prosecutors had much familiarity with. Now we're getting pretty good at it."
Half of Wagner's 50 or so criminal prosecutors focus on white-collar crime including fraud. Two new prosecutors will be dedicated solely to mortgage fraud.
Now mortgage fraud is a known quantity, Wagner said all U.S. prosecutors tackling it are linked by Internet groups. The May edition of the bi-monthly "United States Attorneys' Bulletin" (published by the Executive Office for United States Attorneys) was devoted entirely to mortgage fraud.
The FBI has more than 350 out of its 13,000 agents devoted to mortgage fraud. There are also now 67 regular mortgage fraud working groups and 23 task forces at the federal, state and local level. "This is the broadest coalition of law enforcement ever brought together to fight fraud," Adkins said. He admitted, however that limited resources to fight fraud still pose a challenge.
In June U.S. authorities said 1,215 people had been charged in a joint crackdown on mortgage fraud. Many of the charges were for crimes committed years ago.
Latour "LT" Lafferty, the head of the white-collar crimes practice at law firm Fowler White Boggs in Tampa, Florida, said fraud in the boom was so pervasive that many crimes will go undetected and unprosecuted. "Everyone had their hands in the cookie jar during the boom," he said. "Lenders, brokers, Realtors, homeowners ... everyone."
OLD DOG, NEW TRICKS
A new mortgage scam born out of the housing crisis is short sale fraud. Short sales are a way for stricken homeowners to get out of their homes, whereby in agreement with their lender they sell their home for less than they paid for it and are forgiven the remainder.
But they have also proven a tempting target for fraudsters, usually involving the Realtor in the deal. Lackner, the fraud investigator in San Diego, described a typical scheme: "Let's say you have a property up for short sale that you know as a Realtor you can get $350,000 for," he said.
"But you arrange a low-ball appraisal of $200,000 and have someone make an offer of that amount."
"The Realtor says to the bank this is the best offer you're going to get, take it or leave it," he added. "Then they turn around and flip it immediately for $350,000. In cases like this, the lender is probably already stuck with a lot of foreclosed properties and doesn't want more. So they go for it."
Where the process of fraudulent appraisals overvaluing a property for sale is "flipping," deliberately undervaluing them has become known as "flopping."
Bob Hertzog, a designated real estate broker at Summit Home Consultants in Scottsdale, Arizona, says he gets emails from unknown firms offering to act as a "third-party negotiator" between the seller and the bank with what turns out to be a grossly undervalued bid.
Hertzog has tried tracing some of the LLCs, but describes a chain of front companies leading nowhere.
"The problem is it is so cheap and easy to set up an LLC online that sometimes they are set up for just one transaction," Flagstar's Scott said. "And if they're set up using fake information or a stolen identity, it's very hard to trace who's behind them."
Many web sites boast they can help you form an LLC online for under $50.
Another common target for fraud is the reverse mortgage. Designed for seniors to release equity from a property, according to financial fraud czar Adkins, they have been used to commit a "particularly egregious type of fraud."
Fraudsters commonly forge their victims' signatures and, without their knowledge or consent, divert funds to themselves. The scam is worst in Florida, a magnet for American retirees.
"Unfortunately it is often not until the death of the victim that their heirs realize that all of the equity has been stripped out of the property by fraudsters," Adkins said.
But Arthur Prieston, chairman of the Prieston Group, which sells mortgage fraud insurance and has launched a patented system to rate lenders on the quality of their loans, said most mortgage fraud he comes across consists of ordinary people fudging figures to get a loan. "The vast majority of the fraud we see is where people intend to occupy a property, but can't qualify for a loan," he said. "They'll do anything to get that loan approved."
He added this is achieved with the active collusion of Realtors, brokers and lenders looking to make a sale and keep the market moving. Before his firm issues fraud insurance it reviews a lender's loans and between 20 percent and the 30 percent of the loans reviewed so far have had "red flags."
The problem with assessing the extent of the damage caused by mortgage fraud is that it's not just the dollar amount of the fraud itself. It also hits property values, property taxes and often causes crime to rise.
"Most people interpret white collar crime as a victimless crime, where the bank pays the price and no one else," said Andrew Carswell, associate professor of housing and consumer economics, University of Georgia. "This is a mistaken perception ... neighborhoods and homeowners pay the price."
UNCOVERING THE SCAMS
Companies like Interthinx, CoreLogic and DataVerify all have data-driven fraud prevention tools for lenders. Interthinx's program, for instance, identifies some 300 "red flags" including a buyer's identity and recent sales in a neighborhood, while CoreLogic uses pattern recognition technology. CoreLogic also aims to bring a short sale fraud product to the market soon.
Interthinx's Fulmer said regardless of the source, on average solid fraud prevention tools can be had for as little as $10 to $15 per loan. "The tools out there enable us to see what's going on out there right now in real time," she said.
Apart from fraud insurance, Prieston Group's new credit rating system for lenders should have enough data within the next year to start providing valid ratings.
Prieston said the firm's insurance product is growing at more than 100 percent per month, while CoreLogic's Tim Grace said the firm's fraud prevention tool business was booming.
Many lenders are also sharing more information about bad loans, though LexisNexis' James said it is not nearly enough. "If lenders don't start to share more information then fraudsters will continue to go from bank to bank to bank until they're caught," she said.
The University of Maryland's Rossi said what the industry needs is a "central data warehouse" to combat fraud. "There has been a failure of collective data warehousing across the industry," he said.
Mortgage Bankers Association (MBA) spokesman John Mechem said members have no plans for a central database, but added "we view our role as being to facilitate and encourage information sharing in the industry."
The U.S. Patriot Act of 2001 allows lenders a safe harbor to share information, but does not mandate it. "We always encourage more information sharing," said Steve Hudak, a press officer at the U.S. Treasury Department's Financial Crimes Enforcement Network, or FinCen. "As of now, however, this is an entirely voluntary process."
But Rossi said the government should step in. "The Federal government is probably going to have to take the initiative because I don't see the industry doing this one on its own," he said. "I am personally not a fan of big government, but we need more information sharing."
Ultimately, the expectation is lenders will be forced either to improve due diligence, or face being pushed out of business as investors burned by sloppy underwriting during the boom urge them to adopt fraud prevention tools.
"Investor scrutiny is going to be higher than it ever has been," Rossi said. "The days of a small amount of due diligence are gone."
Many investors are also investigating their losses and forcing lenders to repurchase bad loans. This is resulting in "thousands of repurchases a month," according to Prieston.
"When it comes to small lenders with only a few million dollars of loans, ten repurchases will absolutely put some of them out of business," he said.
The government now guarantees more than 90 percent of the mortgage market and forms almost the entire secondary mortgage market, as private investors have not returned. The FHA, Fannie Mae and Freddie Mac are thus seen as playing an instrumental role in pushing improved due diligence to clean up the government's multi-trillion dollar portfolio.
FHA commissioner David Stevens was appointed in July 2009. Since then the FHA has shut down 1,100 lenders, after decades in which the government closed an average of 30 lenders annually. He says most lenders he deals with are of a "very high quality," but that "there are still lenders that either don't have controls in place or are proactively engaging in practices that pose a risk to the FHA."
Stevens does not expect to shut down lenders at the same rate as the past year, but added "the number will be much higher than the historical average."
CoreLogic's Grace said most large lenders have the tools in place to combat mortgage fraud, but admitted he was concerned about some smaller lenders. "The next shakeout of weak lenders will take place over the next 12 to 24 months," he said.
The MBA's Mechem said the U.S. mortgage market must be cleaned up if it is ever to return to normal. "The one thing private investors need to get back into the secondary market is confidence," he said. "And investors won't risk buying mortgages if they don't have confidence in the quality of the loans. Restoring that confidence is going to play a pivotal role in restoring the markets."
In the meantime, mortgage fraud is expected to cause more problems in areas like Back of the Yards in Chicago.
Three doors down from the boarded-up, foreclosed property that has aroused Carrasquillo's suspicions, father-of-three Oti Cardoso says he and his neighbors try to cut the grass at the abandoned properties on his block and to keep thieves out. But he has heard most empty houses end up occupied by gang members.
"I want my children to be safe, I don't want drug dealers here," he said. "I have tried to find the owner of these houses so I can work with them to help keep their homes clean."
"If they only knew what was happening here," he added, "I'm sure they would want to do what was right."
URL to Original Article: http://www.reuters.com/article/idUSTRE67G1S620100817
Economic impact of California homebuilding down in 2009; 2010 sales struggle
By Austin Kilgore
The direct influence of the California homebuilding industry contributed $13.8bn to the state economy and supported nearly 77,000 jobs in 2009, according to a new study (download here) commissioned by the California Homebuilding Foundation and conducted by the Center for Strategic Economic Research, institutions both based in the California capitol of Sacramento.
The decline in new home construction in recent years has impacted the sector and accounted for 0.4% of the state’s total domestic output, down from recent years. But the indirect activity the sector supports — remodeling, repair, brokerage, property management and financing — contributes an additional $347.3bn of economic output and supports 1m jobs in the Golden State — 11% of the state’s economy.
The report projects that new household formation and population growth creates a demand of 220,000 new residential properties each year. But new housing construction has lagged behind that estimated demand since the late 1990s, and permit levels have fallen well short in recent years — down 83% between 2005 and 2009, the report said.
“An annual production level closer to the statewide need would significantly increase the economic benefits of new housing construction in California,” the report said.
When California housing construction peaked in 2005, permit levels topped 205,000 units, and the industry contributed $67.7bn to the state economy and supported nearly 487,000 jobs. In 2009, permits totaled 35,000, with the aforementioned $13.8bn economic impact and 77,000 jobs.
The report projects increased permit levels this year, along with increased economic output and more jobs than in 2009. “However, the forecast for 2010 still shows new housing activity well below the long-term average,” the report said. “Overall, the declines in new housing construction’s contribution to the state’s economy are considerable, and the impacts affect a wide range of linked sectors.”
The impact of the residential real estate market couldn’t be more pronounced than in the San Francisco area, among one of the largest housing markets in the state and an area that recently, has been subject to market swings.
Multiple home price indices put San Francisco among the best performing markets in terms of home values. But a recent report by the San Francisco Association of Realtors shows sales volume is down this summer.
Completed home sales in the San Francisco area during the month of July are down 18% from the same month in 2009. Meanwhile, the median single-family home sales price increased 0.6% from July 2009 to $785,000 in July 2010.
That decrease in sales was attributed to consumer concerns over job creation, and a double dip in the economy, the association said.
When online real estate listing service Zillow reported a 3.6% year-over-year dip in home prices for Q210, the report noted that San Francisco had the second highest increase in prices, up 5.9% from 2009, second only to San Diego (which experienced a 7.3% increase.) A July report on June 2010 sales prices by the brokerage chain RE/MAX showed San Francisco prices were also up 18% from June 2009. Those increases could be the result of more higher-priced homes for sale on the market.
“While the sale of higher-priced homes has gained traction in recent months,” said John Lee, president of the San Francisco Association of Realtors, “moderately priced homes continue to make up a considerable portion of sale activity in San Francisco, especially in comparison to historical levels.”
URL to Original Article: http://www.reoi.com/news/economic-impact-of-calif-homebuilding-down-in-2009-2010-sales-struggle
The direct influence of the California homebuilding industry contributed $13.8bn to the state economy and supported nearly 77,000 jobs in 2009, according to a new study (download here) commissioned by the California Homebuilding Foundation and conducted by the Center for Strategic Economic Research, institutions both based in the California capitol of Sacramento.
The decline in new home construction in recent years has impacted the sector and accounted for 0.4% of the state’s total domestic output, down from recent years. But the indirect activity the sector supports — remodeling, repair, brokerage, property management and financing — contributes an additional $347.3bn of economic output and supports 1m jobs in the Golden State — 11% of the state’s economy.
The report projects that new household formation and population growth creates a demand of 220,000 new residential properties each year. But new housing construction has lagged behind that estimated demand since the late 1990s, and permit levels have fallen well short in recent years — down 83% between 2005 and 2009, the report said.
“An annual production level closer to the statewide need would significantly increase the economic benefits of new housing construction in California,” the report said.
When California housing construction peaked in 2005, permit levels topped 205,000 units, and the industry contributed $67.7bn to the state economy and supported nearly 487,000 jobs. In 2009, permits totaled 35,000, with the aforementioned $13.8bn economic impact and 77,000 jobs.
The report projects increased permit levels this year, along with increased economic output and more jobs than in 2009. “However, the forecast for 2010 still shows new housing activity well below the long-term average,” the report said. “Overall, the declines in new housing construction’s contribution to the state’s economy are considerable, and the impacts affect a wide range of linked sectors.”
The impact of the residential real estate market couldn’t be more pronounced than in the San Francisco area, among one of the largest housing markets in the state and an area that recently, has been subject to market swings.
Multiple home price indices put San Francisco among the best performing markets in terms of home values. But a recent report by the San Francisco Association of Realtors shows sales volume is down this summer.
Completed home sales in the San Francisco area during the month of July are down 18% from the same month in 2009. Meanwhile, the median single-family home sales price increased 0.6% from July 2009 to $785,000 in July 2010.
That decrease in sales was attributed to consumer concerns over job creation, and a double dip in the economy, the association said.
When online real estate listing service Zillow reported a 3.6% year-over-year dip in home prices for Q210, the report noted that San Francisco had the second highest increase in prices, up 5.9% from 2009, second only to San Diego (which experienced a 7.3% increase.) A July report on June 2010 sales prices by the brokerage chain RE/MAX showed San Francisco prices were also up 18% from June 2009. Those increases could be the result of more higher-priced homes for sale on the market.
“While the sale of higher-priced homes has gained traction in recent months,” said John Lee, president of the San Francisco Association of Realtors, “moderately priced homes continue to make up a considerable portion of sale activity in San Francisco, especially in comparison to historical levels.”
URL to Original Article: http://www.reoi.com/news/economic-impact-of-calif-homebuilding-down-in-2009-2010-sales-struggle
Monday, August 16, 2010
42,000 of California's jobless will get help with mortgages
By Jim Wasserman of The Sacramento Bee
The U.S. Treasury Dept. announced yesterday it is providing additional funding to a California program to help homeowners struggling to make their mortgage payments due to unemployment. The program, administered through the California Housing Finance Agency (CalHFA) will assist struggling borrowers make up to six months of mortgage payments. Lenders will be asked to match the government contribution.
MAKING SENSE OF THE STORY FOR CONSUMERS
The program aims to help 19,000 unemployed borrowers in California between its November launch and next July. An additional 23,000 borrowers will receive help over the next two years, according to CalHFA estimates.
To qualify for the program, borrowers must be unemployed and eligible for unemployment benefits, and live in the home tied to the mortgage. Borrowers must be fewer than 90 days behind on mortgage payments and meet low- and moderate-income guidelines. Income requirements can be found at http://keepyourhomecalifornia.com/income.pdf.
CalHFA is focusing on providing aid to unemployed borrowers struggling with purchase loans, excluding refinanced loans. According to CalHFA officials, it is too difficult to decide who “cashed out for a good reason and who didn’t.”
More information about the CalHFA program, including eligibility, program summary, income requirements, and frequently asked questions, can be found at http://keepyourhomecalifornia.com.
URL to Original Article:
http://www.sacbee.com/2010/08/12/2953229/42000-of-californias-jobless-will.html
The U.S. Treasury Dept. announced yesterday it is providing additional funding to a California program to help homeowners struggling to make their mortgage payments due to unemployment. The program, administered through the California Housing Finance Agency (CalHFA) will assist struggling borrowers make up to six months of mortgage payments. Lenders will be asked to match the government contribution.
MAKING SENSE OF THE STORY FOR CONSUMERS
The program aims to help 19,000 unemployed borrowers in California between its November launch and next July. An additional 23,000 borrowers will receive help over the next two years, according to CalHFA estimates.
To qualify for the program, borrowers must be unemployed and eligible for unemployment benefits, and live in the home tied to the mortgage. Borrowers must be fewer than 90 days behind on mortgage payments and meet low- and moderate-income guidelines. Income requirements can be found at http://keepyourhomecalifornia.com/income.pdf.
CalHFA is focusing on providing aid to unemployed borrowers struggling with purchase loans, excluding refinanced loans. According to CalHFA officials, it is too difficult to decide who “cashed out for a good reason and who didn’t.”
More information about the CalHFA program, including eligibility, program summary, income requirements, and frequently asked questions, can be found at http://keepyourhomecalifornia.com.
URL to Original Article:
http://www.sacbee.com/2010/08/12/2953229/42000-of-californias-jobless-will.html
Wednesday, August 11, 2010
U.S. Wholesale Inventories Rise Less-Than-Estimated 0.1%; Sales Fall 0.7%
Source: Bloomberg
Inventories at U.S. wholesalers rose less than forecast in June as companies kept stockpiles in line with slowing demand.
The 0.1 percent increase in the value of inventories followed a 0.5 percent gain the prior month, the Commerce Department said today in Washington. Sales at distributors dropped 0.7 percent, the most since March 2009, after a 0.5 percent decrease.
The amount of goods on hand compared with sales held close to a record low, a sign manufacturing will be sustained in coming months. Inventory rebuilding, after helping the economy recover from the worst recession since the 1930s, may contribute less to growth in coming months.
“The surge in ordering and production earlier in the year has replenished inventories to a more desirable level, and we should expect to see a far more modest contribution to growth coming from inventory accumulation,” Richard DeKaser, chief economist at Woodley Park Research in Washington, said before the report.
Economists forecast inventories would increase 0.4 percent, following a previously reported 0.5 percent gain in May, according to the median of 31 projections in a Bloomberg News survey. Estimates ranged from no change to an increase of 0.7 percent.
A separate report today from the Labor Department showed worker productivity unexpectedly fell in the second quarter and labor costs rose less than forecast. Productivity dropped at a 0.9 percent annual rate, the first decline since the end of 2008. The 0.2 percent gain in labor costs compared with a projected 1.5 percent rise, based on the median estimate in a Bloomberg survey.
Factory Inventories
Wholesalers make up about 30 percent of all business stockpiles. Factory inventories, which comprise more of the total, declined 0.1 percent in June, the Commerce Department said last week. Retail stockpiles, which make up the rest, will be included in the Aug. 13 business inventories report.
Today’s report showed wholesalers’ stockpiles of durable goods, or those meant to last several years, increased 0.3 percent in June, led by automobiles and electrical equipment.
The value of unsold non-durable goods fell 0.2 percent, while sales decreased 1.1 percent. Sales and inventories of petroleum products declined in June from the previous month.
At the current sales pace, wholesalers had enough goods on hand to last 1.15 months in June, up from 1.14 months in May. The inventory-to-sales ratio reached a record low of 1.13 months in April.
Contribution to Growth
The Commerce Department’s latest figures on gross domestic product showed the economy is getting less of a boost from inventories. Stockpiles added 1.1 percentage points to growth in the second quarter, less than the 2.64 percentage points contribution in the prior three months and 2.83 percentage points in the fourth quarter.
July data suggest companies are still adding to inventory. The Institute for Supply Management said last week that its factory inventory gauge rose to 50.2 while its headline manufacturing index fell to 55.5.
Manufacturers that export to China and other emerging economies remain optimistic.
Caterpillar Inc., the world’s largest maker of earthmoving equipment, on July 22 announced it was boosting its sales and revenue outlook, making it more likely dealers will want to increase inventories.
“Inventories have remained relatively flat all year long,” Mike DeWalt, director of investor relations, said on a conference call. “The higher sales are in our outlook range, the more likely it is that dealers will want to add some inventory.”
Carmakers may be keeping leaner inventories as demand has been slow to pick up. Ford Motor Co. reported U.S. sales in July that trailed analysts’ estimates as consumers limited large purchases.
“We are running with tighter inventories, and that is a positive for our dealers and it is a positive for us,” George Pipas, Ford’s chief sales analyst, said on a Aug. 3 conference call. “We certainly don’t want to get into an overstock position.”
URL to Original Article:
http://www.bloomberg.com/news/2010-08-10/u-s-wholesale-inventories-rise-less-than-estimated-0-1-sales-fall-0-7-.html
Inventories at U.S. wholesalers rose less than forecast in June as companies kept stockpiles in line with slowing demand.
The 0.1 percent increase in the value of inventories followed a 0.5 percent gain the prior month, the Commerce Department said today in Washington. Sales at distributors dropped 0.7 percent, the most since March 2009, after a 0.5 percent decrease.
The amount of goods on hand compared with sales held close to a record low, a sign manufacturing will be sustained in coming months. Inventory rebuilding, after helping the economy recover from the worst recession since the 1930s, may contribute less to growth in coming months.
“The surge in ordering and production earlier in the year has replenished inventories to a more desirable level, and we should expect to see a far more modest contribution to growth coming from inventory accumulation,” Richard DeKaser, chief economist at Woodley Park Research in Washington, said before the report.
Economists forecast inventories would increase 0.4 percent, following a previously reported 0.5 percent gain in May, according to the median of 31 projections in a Bloomberg News survey. Estimates ranged from no change to an increase of 0.7 percent.
A separate report today from the Labor Department showed worker productivity unexpectedly fell in the second quarter and labor costs rose less than forecast. Productivity dropped at a 0.9 percent annual rate, the first decline since the end of 2008. The 0.2 percent gain in labor costs compared with a projected 1.5 percent rise, based on the median estimate in a Bloomberg survey.
Factory Inventories
Wholesalers make up about 30 percent of all business stockpiles. Factory inventories, which comprise more of the total, declined 0.1 percent in June, the Commerce Department said last week. Retail stockpiles, which make up the rest, will be included in the Aug. 13 business inventories report.
Today’s report showed wholesalers’ stockpiles of durable goods, or those meant to last several years, increased 0.3 percent in June, led by automobiles and electrical equipment.
The value of unsold non-durable goods fell 0.2 percent, while sales decreased 1.1 percent. Sales and inventories of petroleum products declined in June from the previous month.
At the current sales pace, wholesalers had enough goods on hand to last 1.15 months in June, up from 1.14 months in May. The inventory-to-sales ratio reached a record low of 1.13 months in April.
Contribution to Growth
The Commerce Department’s latest figures on gross domestic product showed the economy is getting less of a boost from inventories. Stockpiles added 1.1 percentage points to growth in the second quarter, less than the 2.64 percentage points contribution in the prior three months and 2.83 percentage points in the fourth quarter.
July data suggest companies are still adding to inventory. The Institute for Supply Management said last week that its factory inventory gauge rose to 50.2 while its headline manufacturing index fell to 55.5.
Manufacturers that export to China and other emerging economies remain optimistic.
Caterpillar Inc., the world’s largest maker of earthmoving equipment, on July 22 announced it was boosting its sales and revenue outlook, making it more likely dealers will want to increase inventories.
“Inventories have remained relatively flat all year long,” Mike DeWalt, director of investor relations, said on a conference call. “The higher sales are in our outlook range, the more likely it is that dealers will want to add some inventory.”
Carmakers may be keeping leaner inventories as demand has been slow to pick up. Ford Motor Co. reported U.S. sales in July that trailed analysts’ estimates as consumers limited large purchases.
“We are running with tighter inventories, and that is a positive for our dealers and it is a positive for us,” George Pipas, Ford’s chief sales analyst, said on a Aug. 3 conference call. “We certainly don’t want to get into an overstock position.”
URL to Original Article:
http://www.bloomberg.com/news/2010-08-10/u-s-wholesale-inventories-rise-less-than-estimated-0-1-sales-fall-0-7-.html
Tuesday, August 10, 2010
Freddie Posts $4.7bn Net Q2 Loss, Asks Treasury for $1.8bn
by DIANA GOLOBAY
Freddie Mac reported a $4.7bn net loss in the second quarter of 2010 (Q210), narrowed from a $6.7bn net Q110 loss.
The Federal Housing Finance Agency (FHFA), acting as Freddie's conservator, will submit a request to draw down an additional $1.8bn through the senior preferred stock purchase agreement with the Treasury Department to cover a net worth deficit at the company.
Freddie had a $1.7bn net worth deficit as of the end of the quarter, reflecting a total comprehensive loss of $400m and the dividend payment of $1.3bn to the Treasury on the senior preferred stock. The $400m loss attributable to Freddie reflects accumulated other comprehensive income (AOCI) of $4.3, which partially offset the $4.7bn net loss.
"Freddie Mac continues to support the still-fragile housing market by providing America's families with access to affordable home financing and foreclosure alternatives," said Freddie CEO Charles Haldeman Jr. "We helped more than 150,000 struggling borrowers avoid foreclosure and provided funding that enabled more than 865,000 American families to buy or rent a home in the first half of 2010 — during which the GSEs again supplied the majority of all the liquidity to the US mortgage market."
Haldeman added: "At the same time, we are promoting sustainable homeownership by helping families buy homes that they can afford and keep for the long term. We recognize that high unemployment and other factors still pose very real challenges for the housing market, and with that in mind, we continue to focus on the quality of the new business we are adding to our book to be responsible stewards of taxpayer funds as we support the nation's housing market."
Freddie reported higher credit quality of new single-family business due to tightened underwriting standards. The single-family delinquency rate of 3.96% at the end of the quarter was down from 4.13% at the end of the previous quarter.
As of June 30, 30% of Freddie's single-family credit guarantee portfolio consisted of mortgages originated in 2009 and the first half of 2010. The company said these loans have shown better delinquency trends at this stage of their life cycle than loans acquired from 2006 through 2008:
The increase was driven not only by continued weakness in the housing market, but by a backlog at Freddie servicers. Freddie identified a backlog at its servicers related to the processing of foreclosure alternatives like loan modifications and short sales. The backlog resulted in erroneous loan data within the company's reporting systems, it said.
A $5bn provision for credit losses and $3.8bn of derivative losses offset $4.1bn of net interest income in the quarter. The data indicate Freddie was "closer to breakeven operations than it first appears" from the net $4.7bn loss, according to FTN Financial strategist Jim Vogel.
"Lower rates brought $3.8b of GAAP derivatives losses that will come back in over time via improved net interest income, while credit losses were amplified by a $900m correction for faulty loan data submitted by servicers in 2009 (out of a total accounting update of $1.2b)," Vogel said in commentary today. "'Normal' derivatives erosion should be less than $1b as rate changes balance out over time."
URL of original article:
http://www.housingwire.com/2010/08/09/freddie-mac-posts-4-7bn-net-q2-loss-asks-treasury-for-1-8bn
Freddie Mac reported a $4.7bn net loss in the second quarter of 2010 (Q210), narrowed from a $6.7bn net Q110 loss.
The Federal Housing Finance Agency (FHFA), acting as Freddie's conservator, will submit a request to draw down an additional $1.8bn through the senior preferred stock purchase agreement with the Treasury Department to cover a net worth deficit at the company.
Freddie had a $1.7bn net worth deficit as of the end of the quarter, reflecting a total comprehensive loss of $400m and the dividend payment of $1.3bn to the Treasury on the senior preferred stock. The $400m loss attributable to Freddie reflects accumulated other comprehensive income (AOCI) of $4.3, which partially offset the $4.7bn net loss.
"Freddie Mac continues to support the still-fragile housing market by providing America's families with access to affordable home financing and foreclosure alternatives," said Freddie CEO Charles Haldeman Jr. "We helped more than 150,000 struggling borrowers avoid foreclosure and provided funding that enabled more than 865,000 American families to buy or rent a home in the first half of 2010 — during which the GSEs again supplied the majority of all the liquidity to the US mortgage market."
Haldeman added: "At the same time, we are promoting sustainable homeownership by helping families buy homes that they can afford and keep for the long term. We recognize that high unemployment and other factors still pose very real challenges for the housing market, and with that in mind, we continue to focus on the quality of the new business we are adding to our book to be responsible stewards of taxpayer funds as we support the nation's housing market."
Freddie reported higher credit quality of new single-family business due to tightened underwriting standards. The single-family delinquency rate of 3.96% at the end of the quarter was down from 4.13% at the end of the previous quarter.
As of June 30, 30% of Freddie's single-family credit guarantee portfolio consisted of mortgages originated in 2009 and the first half of 2010. The company said these loans have shown better delinquency trends at this stage of their life cycle than loans acquired from 2006 through 2008:
The increase was driven not only by continued weakness in the housing market, but by a backlog at Freddie servicers. Freddie identified a backlog at its servicers related to the processing of foreclosure alternatives like loan modifications and short sales. The backlog resulted in erroneous loan data within the company's reporting systems, it said.
A $5bn provision for credit losses and $3.8bn of derivative losses offset $4.1bn of net interest income in the quarter. The data indicate Freddie was "closer to breakeven operations than it first appears" from the net $4.7bn loss, according to FTN Financial strategist Jim Vogel.
"Lower rates brought $3.8b of GAAP derivatives losses that will come back in over time via improved net interest income, while credit losses were amplified by a $900m correction for faulty loan data submitted by servicers in 2009 (out of a total accounting update of $1.2b)," Vogel said in commentary today. "'Normal' derivatives erosion should be less than $1b as rate changes balance out over time."
URL of original article:
http://www.housingwire.com/2010/08/09/freddie-mac-posts-4-7bn-net-q2-loss-asks-treasury-for-1-8bn
Brochure to help jobless track their finances
Source: FINRA
WASHINGTON — The Financial Industry Regulatory Authority (FINRA), in partnership with the National Association of State Workforce Agencies (NASWA), announced today a nationwide initiative to deliver an educational resource to help workers make better financial decisions during periods of unemployment. The resource, a brochure titled Job Dislocation, Making Smart Financial Choices after a Job Loss, offers specific tips on keeping finances on track while unemployed, asking the right questions about company benefit plans, checking out financial advisers and avoiding job scams.
FINRA will deliver up to 300,000 copies of this brochure to state unemployment agencies free of charge. In addition to helping workers avoid pitfalls when handling their retirement funds and other severance pay during periods of unemployment, Job Dislocation also provides unemployed workers with information on claiming unemployment insurance and the procedures they should follow to notify state unemployment agencies once they start a new job.
"This is a great resource for workers who have lost their jobs and want to claim unemployment insurance," said Richard A. Hobbie, NASWA's Executive Director. "By connecting with state unemployment insurance agencies, workers also will be connecting with state and local workforce agencies that can help them with their job search and career decisions. And, as they search for work, they will be guided to jobs by the JobCentral National Labor Exchange, operated by DirectEmployers Association in alliance with the National Association of State Workforce Agencies and its member states."
"Unemployment is affecting millions of workers across the country," said John Gannon, FINRA Senior Vice President for Investor Education. "This information may be able to help ease the financial impact of job loss on unemployed workers and their families. FINRA is proud to work with NASWA to deliver this important information to workers throughout the United States."
FINRA is the largest independent regulator for all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business - from registering and educating all industry participants to examining securities firms, writing and enforcing rules and the federal securities laws, informing and educating the investing public, providing trade reporting and other industry utilities, and administering the largest dispute resolution forum for investors and registered firms. For more information, please visit www.finra.org.
NASWA, the National Association of State Workforce Agencies, is an organization of state administrators of unemployment insurance laws, employment services, training programs, employment statistics and labor market information and other programs and services provided through the publicly-funded state workforce system. For more information, please visit, www.workforceatm.org
URL to Original Article:
http://www.finra.org/Newsroom/NewsReleases/2010/P121787
WASHINGTON — The Financial Industry Regulatory Authority (FINRA), in partnership with the National Association of State Workforce Agencies (NASWA), announced today a nationwide initiative to deliver an educational resource to help workers make better financial decisions during periods of unemployment. The resource, a brochure titled Job Dislocation, Making Smart Financial Choices after a Job Loss, offers specific tips on keeping finances on track while unemployed, asking the right questions about company benefit plans, checking out financial advisers and avoiding job scams.
FINRA will deliver up to 300,000 copies of this brochure to state unemployment agencies free of charge. In addition to helping workers avoid pitfalls when handling their retirement funds and other severance pay during periods of unemployment, Job Dislocation also provides unemployed workers with information on claiming unemployment insurance and the procedures they should follow to notify state unemployment agencies once they start a new job.
"This is a great resource for workers who have lost their jobs and want to claim unemployment insurance," said Richard A. Hobbie, NASWA's Executive Director. "By connecting with state unemployment insurance agencies, workers also will be connecting with state and local workforce agencies that can help them with their job search and career decisions. And, as they search for work, they will be guided to jobs by the JobCentral National Labor Exchange, operated by DirectEmployers Association in alliance with the National Association of State Workforce Agencies and its member states."
"Unemployment is affecting millions of workers across the country," said John Gannon, FINRA Senior Vice President for Investor Education. "This information may be able to help ease the financial impact of job loss on unemployed workers and their families. FINRA is proud to work with NASWA to deliver this important information to workers throughout the United States."
FINRA is the largest independent regulator for all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business - from registering and educating all industry participants to examining securities firms, writing and enforcing rules and the federal securities laws, informing and educating the investing public, providing trade reporting and other industry utilities, and administering the largest dispute resolution forum for investors and registered firms. For more information, please visit www.finra.org.
NASWA, the National Association of State Workforce Agencies, is an organization of state administrators of unemployment insurance laws, employment services, training programs, employment statistics and labor market information and other programs and services provided through the publicly-funded state workforce system. For more information, please visit, www.workforceatm.org
URL to Original Article:
http://www.finra.org/Newsroom/NewsReleases/2010/P121787
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