Disputed advice: Making payments on 2nd loan can discourage bank from helping on the first one

By Kenneth R. Harney

Are you delinquent on your first mortgage but still making monthly payments on your home-equity credit line or second mortgage?

If so, a finance and real estate professor from DePaul University has some controversial advice for you: Stop paying on your second immediately.

Rebel Cole believes you are simply throwing good money after bad. If you are seriously delinquent on the first mortgage, you're likely headed for foreclosure unless both of your lenders agree on a modification or principal-reduction plan. But because you continue to make payments on the second, the bank that holds that revenue-producing note might have minimal motivation to participate in a workout, he thinks. Cole estimates that between 1 million and 3 million homeowners are in this position nationwide -- making it a big problem.

By abruptly stopping payments, according to Cole, you will force the bank that owns your second mortgage to set aside significant additional capital for loss reserves. Contrast that with that bank's current situation: It gets to report your home equity loan as "performing" for accounting purposes, requiring no extra capital allocations, he claims. This is despite the fact that the delinquent first mortgage -- which takes payoff priority over the second and which could well be underwater -- probably renders the true market value of your home equity loan around zero in any foreclosure.

Once the bank is forced to set aside additional capital -- as high as 100 percent of the face amount of your equity line -- "it starts to really feel pain," Cole said in an interview. Now you should find it more willing to negotiate with you and your first mortgage holder to work out a loan modification, principal reduction or short sale. And if not, simply bank the money you'd otherwise be paying on the second mortgage. It could take a year until a foreclosure filing, and 350 days or more, depending upon your location, before you actually have to vacate the house. Meanwhile, you'll be saving money every month.

Sound like a smart financial strategy? Cole has been pushing the idea in analysis and opinion articles, but what are the real pros and cons for consumers?

Start with the core idea that banks will be vulnerable to big hits to capital for loss reserves if you stop paying on your second mortgage -- thereby softening them up for principal reductions later. That's not likely to happen, according to banking executives and financial regulators, because current federal loss-reserve rules already require institutions to proactively set aside additional reserves on seconds once there is any hint that the associated first mortgage is in distress -- whether through delinquency, a loan modification or other indications.

Also, Cole's estimate of as many as 3 million homeowners with paid-up seconds but delinquent firsts appears to be far overstated, according to new data from the Office of the Comptroller of the Currency. Recent bank examinations found that about 235,000 second liens may be in that position -- a substantial number, officials concede, but nowhere near Cole's estimate of the size of the problem.

Even more important, the personal impact on you when you stop paying a second lien could be severe. Your credit scores will definitely take a hit. Since you're behind on the first loan, your scores are probably depressed already. But stiffing the lender on your second mortgage will push them down even more, further limiting your access to credit in the future.

Worse yet, in some states, even if you go through foreclosure, the bank could legally pursue you for full payment on the face amount on the unpaid second. The bigger the outstanding home equity loan, the more likely the pursuit.

Asked for comment, federal financial regulators bristled at Cole's proposals. Timothy Long, senior deputy comptroller of the currency, called the professor's recommendations misguided.

"That kind of advice to borrowers is dangerous," Long said in an interview.

Top officials of major banks generally were reluctant to talk on the record about Cole's ideas, but Dan Frahm, a Bank of America spokesman, said his company's "approach has been not to let second lien issues prevent us from modifying" mortgages, including "making principal reductions, even when the second lien is owned by a third-party investor and has not been modified." The bank also said stopping payment on a second would not enhance a borrower's chances of a modification or principal reduction.

So follow Professor Cole's advice at your own peril. There is little evidence that it will be effective in convincing your lender to do anything.

URL to Original Article: http://www.washingtonpost.com/wp-dyn/content/article/2010/09/24/AR2010092400126.html

Enough is enough: It's time for mortgage rates to rise

by JACOB GAFFNEY

Testimony Wednesday at the House Financial Services Committee called together a nice range of mortgage finance players. From the big-time originators and secondary market players, to academics and finally the trade groups, the industry was fairly represented.

It is something HousingWire follows very closely, especially in determining the future of the government-sponsored entities — those institutions charged with keeping housing affordable.

Lately, keeping housing affordable is equated to keeping mortgage rates low.

But there is little policy basis to this. The star of the show so far is undoubtedly Ed Pinto, the former chief credit officer of Fannie Mae, someone whom most readers of this column may know.

Pinto's comments proved to be some of the more valuable information being presented: "Rates go up and down all the time. Over my career, mortgage rates have gone from 9% in 1974 to 18% in 1981 to near 4% today," he said.

Demand for homes in 1974 and 1981 was not as low as it is currently — though granted prices were.

Additionally, keeping rates low may keep housing more affordable, but it's clearly to the detriment to the private-label secondary market.

Consistently maintaining low costs to the borrower is not encouraging home sales, as an article in USA Today notes. But keeping mortgage rates low does reduce any chance of profitability in the RMBS market.

Further, Dodd-Frank prohibits pre-payment penalties. However, these penalties serve as a risk hedge in private label RMBS. Pinto also suggested that these fees should be reinstated to help ensure the 30-year mortgages take 30-years to amortize.

Let's not forget the big four in all of this. They would like nothing more than to restart their RMBS series from years back. As far as they are concerned, mortgages originated during the homebuyer tax credit do not carry nearly the same risk as loans from the housing boom.

They are no doubt looking to monetize those loans, in order to free up private liquidity to perhaps originate more loans. But at some point interest rates will have to show a clear profit — an incentive to bundle into securitzation.

After all, as seen with the recent UK RMBS RBS master trust Arran, a single deal can help to respark an industry.

But there needs to be clear support for this. When asked if the GSEs should be dissolved tomorrow – and told to answer 'yes' or 'no' – Pinto responded that he would be in favor of that as long as "Congress' feet are held to the fire so that you won't back down from your commitments."

But in a healthy private securitization market, with a foundation of higher interest rates and more stable performance, we won't need to hold Congress, or anyone else's, feet to the fire.

URL to Original Article: http://www.housingwire.com/2010/09/29/enough-is-enough-its-time-for-mortgage-rates-to-rise

Significant drawbacks to US dependence on 30-year, fixed mortgage: MBA survey

by JASON PHILYAW

The over reliance on 30-year, fixed mortgages in the U.S. during the past year has significant drawbacks and contrasts sharply with the rest of the world, according to a new study sponsored by the Mortgage Bankers Association.

Some 95% of new home loans written in America in 2009 were long-term, fixed rate products. This compares to just 1% in Spain, 2% in Korea, 10% in Canada, 19% in the Netherlands and 22% in Japan, said Michael Lea, director of the real estate center at San Diego State University, who lead the study.

"We see that many countries are experiencing lower default rates than the U.S., despite having a significant share of products such as adjustable-rate mortgages and interest-only loans," Lea said. "This indicates the problem with loan design in the U.S. during the crisis was one of a mismatch between borrowers and particular loan designs – not the existence of the loan features themselves. In addition, the lower default rates may reflect stricter enforcement of lender rights as all countries in the survey have recourse lending."

Lea expects lenders in the U.S. to continue writing long-term, fixed-rate mortgages, as rates remain at historical lows and new guidelines under Dodd-Frank and Basel 3 are implemented.

"By focusing regulation on loan-product design, borrower choice will be deeply impacted as products that are commonplace in other countries will be considered 'unqualified' for American borrowers," he said.

The study also found the U.S. is unusual in banning or restricting prepayment penalties on fixed-rate mortgages. Most countries impose these penalties to compensate lenders for loss, and rates in those countries don't include a significant premium for pre-payments making other financing techniques, such as covered bonds, more common.

The cost of pre-payment options in the U.S. "is socialized, with everyone paying a premium in the mortgage rate for the option…this contrasts with the European view that only borrowers who exercise the option for financial advantage should pay the cost," Lea said.

Additionally, the study showed the dominance of fixed-rate mortgages and subsequent loan securitization is a byproduct of the government-sponsored entities in the secondary market that "lower the relative price of this type of mortgage."

URL to Original Article: http://www.housingwire.com/2010/09/27/significant-drawbacks-to-us-dependence-on-30-year-fixed-mortgage-mba-survey

Monday Morning Cup of Coffee

by JON PRIOR

A look at stories across HousingWire’s weekend desk…with more coverage to come on bigger issues:

Sales of distressed properties will peak in 2011 at 2.3 million transactions before falling to more normal levels at 850,000 in 2016, according to a report from John Burns Real Estate Consulting.

Because lenders are transferring more of the shadow inventory of foreclosed and defaulted mortgages into real property ready for the market, analysts at John Burns estimate these properties will account for more than 40% of the all resale activity through 2012.

Many market analysts have predicted home sales and prices to trend downward again without the homebuyer tax credit. How fast and deep the market falls depends on how financial institutions manage the flow of these foreclosed and REO homes onto the market.

According to John Burns, a typical market shoulders 6% to 7% of distressed sales taking up the resale market. "We are closely tracking an increase in REO activity this year, which will result in a peak for distressed sales next year. This forecast significantly impacts our belief that prices will fall 8% to 11% (depending on the index) through 2012," according to the report.

California Attorney General Jerry Brown ordered Ally Financial, formerly GMAC Mortgage, to suspend foreclosures in the state until it can prove it is in compliance with state law.

Last week, GMAC suspended evictions on foreclosure cases where faulty affidavits were detected. The suspension came across 23 states including New York, Illinois and Florida. GMAC did admit however that some personnel were signing foreclosure documents without knowledge of what was in them and without a notary signature.

Moody's, on Friday, put the GMAC servicer rating up for review.

Lenders cannot file a notice of default in California on mortgages originated between Jan. 1, 2003 and Dec. 31, 2007 without first reaching out to the borrower with a loan modification offer.

"Prior to resuming foreclosures here, the company must prove that it's following the letter of the law," Brown said.

In the second quarter, 87.3% of active mortgages were current and performing, down from 88.6% a year ago, according to a mortgage metrics report released by the Office of the Comptroller of the Currency and the Office of Thrift Supervision on Friday.

The OCC and the OTS monitor 34 million mortgages, representing 65% of the mortgages on the market.

More than a 1 million mortgages were delinquent in the second quarter, up 10.6% from the previous quarter but 3.7% less than a year ago. Meanwhile, lenders initiated more than 292,000 new foreclosures in the second quarter, the lowest number in the previous five quarters.

Dubai Islamic Bank, the largest lender in the United Arab Emirates, took a 57.33% stake in the troubled mortgage-lender Tamweel Sunday, up from 21%, according to a Dubai government statement.

It is a move to improve property lending in the region and will allow Tamweel to resume providing credit as a subsidiary under DIB.

"This strategic move is the culmination of intensive efforts over the past few months to resolve the stalemate at Tamweel that will allow the company to resume its core activity of providing mortgages and real estate financing," according to the Dubai government.

In May, Bank of America Merrill Lynch analysts said prime property in Dubai reached a floor after dropping as much as 45%.

There were two bank closings over the weekend, totaling 128 for the year. The Federal Deposit Insurance Corp. estimated a total $104.7 million cost to the Deposit Insurance Fund.

The Florida Office of Financial Regulation closed Haven Trust Bank in Florida. First Southern Bank in Boca Raton agreed to assume all $133.6 million in deposits and to purchase essentially all $148.6 million in assets.

The FDIC estimates the closing to cost $31.9 million to the DIF.

The Washington Department of Financial Institutions closed North County Bank, and Whidbey Island Bank agreed to assume all $276.1 million in assets and purchase essentially all $288.8 million in assets.

The FDIC estimates the closing to cost the DIF $72.8 million.

URL to Original Article: http://www.housingwire.com/2010/09/27/monday-morning-cup-of-coffee-66

The Debate Over Broker Standards

By Susanne Craig

Is one standard better than two, or will something in between suffice?

For a window into just how complicated it will be for regulators like the Securities and Exchange Commission to sort out the Dodd-Frank legislation, one need look no further than the debate raging over the regulation of stock brokers at the fall conference of state securities regulators, known as the North American Securities Administrators Association or Nasaa, which began in Baltimore on Sunday.

At the heart of the issue: Investors typically get advice from either a broker dealer or an investment adviser. Broker dealers are not considered fiduciaries, meaning they may sell their clients products that are suitable but not necessarily the most advantageous. In some cases these products can offer higher fees for the broker. But investment advisers have an obligation to act in their customer’s best interest. Some state regulators want one standard, rules that hold broker dealers to a higher standard closer to that of a fiduciary.

House prices heading to a new low at end of 2010: Radar Logic

by JON PRIOR

House prices held a very slight decline in July, possibly a marked transition toward a new trough at the end of 2010 or the start of 2011, according to Radar Logic, an analytics firm based in New York.

Quinn Eddins, director of research at Radar Logic, told HousingWire prices will follow the declining trends in demand for house purchases. In July, the National Association of Realtors reported a 27% drop in sales activity, which then rebound in August 7.6%. But the last time prices were as flat as they were from June to July, was in 2006, at the height of the housing peak.

From there, rapid price growth transitioned into rapid price decline.

Radar Logic anticipates the Standard & Poor's/Case-Shiller Home Price Index to remain at the same level in July that it reached in June.

A large inventory of homes continues to contribute to the lack of demand, according to Radar Logic. Most of it has been REO. The sale of foreclosed homes and those sold at country foreclosure auctions increased to almost 25% of total transactions.

"The trend suggests buyers are focused on distressed assets, undoubtedly as a result of steep relative discounts," according to the report.

Eddins said how these lenders and financial institutions manage the amount of REO hitting the market will determine the trend in prices.

If those companies flood the market, prices would have a huge decline that would probably outweigh the shortened timeline of a flattened, more drawn-out recovery if those companies kept the REO flow to a trickle, Quinn said.

URL to Original Article: http://www.housingwire.com/2010/09/23/house-prices-heading-to-a-new-low-at-end-of-2010-radar-logic

Right to Rent could change the nation's foreclosure crisis: CEPR

by CHRISTINE RICCIARDI

In the wake of reform enacted to promote homeownership, analysts at the Center for Economic and Policy Research are saying that ownership may not be the smartest option. In a report released today, The Gains from Right to Rent in 2010, the CEPR suggests that giving homeowners the right to rent their house at a fair market price could be a game changer in the nation's foreclosure crisis.

The report dissects the benefits of a drafted bill, H.R. 5028, also known as The Right to Rent. Under the legislation, homeowners entering the foreclosure process would be able to occupy their homes for up to five years, while paying rent to a lender. Rent would be based on fair market price as determined by an independent appraiser and adjusted annually.

"This would give homeowners an important degree of security, since they could not simply be thrown out on the streets," wrote Dean Baker and Hye Jin Rho, co-director of and research assistant at CEPR. "This policy should also benefit neighborhoods in the most hard-hit areas, since they would not have large numbers of vacant homes following foreclosures."

The CEPR report, which compares the costs of owning a home and renting in 16 major metropolitan statistical areas around the U.S., found that homeowners would see substantial reductions in costs by becoming renters if they rented in a bubble-inflated market. Savings are much less, however, if the market was not affected by the housing bubble.

For example, in the Los Angeles MSA, homeowners would save $1,586 per month by becoming a tenant. The median home price in 2006 and 2007 was $608,600. Based on that number, CEPR found the monthly cost of ownership as $3,128 versus $1,420 to rent.

New York/New Jersey, Sacramento, San Diego and San Francisco savings are all over $1,000.

In Detroit, however, the marginal saving is only $89 between owning and renting home. MSAs including Baltimore, Chicago, Cleveland, Minneapolis, Philadelphia, Phoenix, and Tucson had a difference of less than $500.

“With roughly one-in four mortgages underwater, the loan modification plans put forth so far have done little to help homeowners facing foreclosure,” said Baker. “Right to Rent, on the other hand, would benefit millions, provide families with real housing security, and could go into effect immediately.”

And it could fill adequate demand. According to a survey done recently by Apartments.com, 60% of respondents said they prefer renting to buying a home. Almost 30% said they had never rented before but are currently looking for an apartment.

The CEPR report includes an appendix with cost analysis for 100 MSAs around the country. Amounts for houses are based on costs for a house that sells at 75% of the median house price. The basis for rental costs is the Department of Housing and Urban Development's Fair Market Rent for a two-bedroom apartment. The calculations used assume the homeowner faces a marginal tax rate of 15%. View the full report here.

URL to Original Article: http://www.housingwire.com/2010/09/22/right-to-rent-could-change-the-nations-foreclosure-crisis-cepr

The Chances Of A Double Dip

by John Mauldin

I am on a plane (yet again) from Zurich to Mallorca, where I will meet with my European and South American partners, have some fun, and relax before heading to Denmark and London. With the mad rush to finish my book and a hectic schedule this week, I have not had time to write a letter. But never fear, I leave you in the best of hands. Dr. Gary Shilling graciously agreed to condense his September letter, where he looks at the risk of another recession in the U.S.

I look forward at the beginning of each month to getting Gary’s latest letter. I often print it out and walk away from my desk to spend some quality time reading his thoughts. He is one of my “must-read” analysts. I always learn something quite useful and insightful. I am grateful that he has let me share this with you.

If you are interested in getting his letter, his Web site is down being redesigned, but you can write for more information at insight@agaryshilling.com. Click here if you want to subscribe and since you read about it here you’ll get one month extra added on your subscription. And now, let’s turn to Gary.

Investor attitudes have reversed abruptly in recent months. As late as last March, most translated the year-long robust rise in stocks, foreign currencies, commodities and the weakness in Treasury bonds that had commenced a year earlier into robust economic growth—the “V” recovery.

As a result, investors early this year believed that rapid job creation and the restoration of consumer confidence would spur retail spending. They also saw the housing sector’s evidence of stabilization giving way to revival, and strong export growth also propelling the economy. Capital spending, led by high tech, was another area of strength, many believed.

Not So Fast

A funny, or not so funny, thing happened on the way to super-charged, capacity-straining growth. In April, investors began to realize that the eurozone financial crisis, which had been heralded at the beginning of the year by the decline in the euro, was a serious threat to global growth. Stocks retreated (see chart 1 ), commodities fell and Treasury bonds rallied and the dollar rose. It is, after all, just one big trade among these four markets, so their correlated actions on the down as well as the upsides aren’t surprising.

Furthermore, investors began to worry about the health of the U.S. economy and the prospects for a second dip in the Great Recession that started in December 2007. The gigantic 2009 fiscal stimuli of close to $1 trillion was running out, threatening a relapse in an economy that was running on government life support.

The $8,000 tax rebate for new home buyers expired April 30 and might be followed by a drop in house sales as had its predecessor that expired in November 2009 as the spike in activity early this year only borrowed from future sales. The outlook for exports had turned negative with the robust buck, sagging European economies and the current “stop” phase of China’s “stop-go” monetary and fiscal policies. With unemployment remaining high last spring, investors began to fret that consumer spending would falter as fiscal stimuli was exhausted.

Deleveraging

Although investor views of the economy have reversed in the last five months, the reality probably hasn’t. The good life and rapid growth that started in the early 1980s was fueled by massive financial leveraging and excessive debt, first in the global financial sector, starting in the 1970s and in the early 1980s among U.S. consumers. That leverage propelled the dot com stock bubble in the late 1990s and then the housing bubble. But now those two sectors are being forced to deliver and in the process are transferring their debts to governments and central banks.

This deleveraging will probably take a decade or more—and that’s the good news. The ground to cover is so great that if it were traversed in a year or two, major economies would experience depressions worse than in the 1930s. This deleveraging and other forces will result in slow economic growth and probably deflation for many years. And as Japan has shown, these are difficult conditions to offset with monetary and fiscal policies.

Special Offer: Gary Shilling called the housing crash in 2006 and his readers have made a killing in bonds. Click here for his latest advice…in Gary Shilling’s Insight newsletter.

The deleveragings of the global financial sector and U.S. consumer arena are substantial and ongoing. Household debt is down $374 billion since the second quarter of 2008. The credit card and other revolving components as well as the non-revolving piece that includes auto and student loans are both declining. Total business debt is down, as witnessed by falling commercial and industrial loans.

Meanwhile, federal debt has exploded from $5.8 trillion on Sept. 30, 2008 to $8.8 trillion in late August. Many worry about the inflationary implications of this surge, but the reality is that public debt has simply replaced private debt. The federal deficit has leaped as consumers and business retrenched, which curtailed federal tax revenues, while fiscal stimulus, aimed at replacing private sector weakness, has mushroomed.

Servicers: Sometimes leasing makes sense

by KERRY CURRY

As inventory increases, servicers are seeing themselves more and more in the role of landlord, according to panelists in a discussion, "From Lender to Landlord," at this week's Five Star default servicing conference in Dallas.

Servicers are beginning to see the benefits of keeping properties occupied with cost-savings such as lower property preservation expenses. Rentals allow the servicer to have more control over when they decide to release the property onto the market for sale because property deterioration that comes with vacancies becomes less of a concern.

Miguel Gutierrez, director, REO Rental with Fannie Mae, said the GSE hasn't suffered execution-wise in the sale of occupied properties. While it is more complicated at the front-end to get an agreement with the tenant, it can be better in the long-run as the property will sell better if it is occupied, he said.

"For the most part, our experiences with tenants have been good," Guiterrez said. "Sometimes it's great when we are able to help people who are in extreme hardship. For example, we are able to help people who are terminally ill stay in their homes."

Professional property managers provide good discipline to make sure tenants are complying with Fannie Mae rules, or vacating the property when necessary, he said.

Denia Graham, with TenantAccess, said it sometimes takes longer to handle an REO property with tenants. She said TenantAccess has found 94% of its tenants to be cooperative, but the 6% who are not can take up to 80% of the time.

TenantAccess considers a tenant to be "cooperative," if they are letting someone into the home to assess its condition and providing timely information about the lease.

Mark Paniccia, with SunTrust Mortgage, who has about 400 occupied properties that he's managing, said times have changed from the mindset in place as little as a year ago of evicting tenants as quickly as possible. Now servicers aren't looking for a one-size-fits-all scenario, he said.

Especially with multitenant properties, like condos, keeping a property occupied proves to investors that there is cash flow, Paniccia said.

"It lessens the stigma to see lights on and grass cut, and it leaves a different impression in the buyer's mind, especially in the investor's," Paniccia said.

Paniccia said about 70% of SunTrust's properties are purchased by owner-occupants.

Peter Kuclo, operations manager with Freddie Mac, said it is important to balance the concerns of keeping the property occupied with getting market value.

"What surprised all of us was the high percentage of owner-occupied purchases," Kuclo said. People may come into the Freddie Mac program as a month-to-month tenant and then ultimately buy the property, he said. Freddie Mac also allows former owners to be tenants and that can sometimes be troublesome, especially when a former borrower/owner sees what the property is being marketed for compared to what they paid for the property.

Karen Riffe, with Meridan Asset Services, said occupants add a whole new level of complexity to REOs. But brokers can earn BPOs and inspection fees and will continue to be an important part of the equation during the leasing period, all the way through to the transaction.

David Tiberio with National Residential Rental Services, a division of First American, who served as the panel moderator, said his company also keeps the real estate broker involved as the front-end connection with the tenant during the rental process.

URL to Orginal Article: http://www.housingwire.com/2010/09/20/servicers-sometimes-leasing-makes-sense

2.5 million homes in foreclosure, shadow inventory rising: John Burns

by CHRISTINE RICCIARDI

As the approximate 2.5 million homes in foreclosure complete the process, national delinquencies will fall, and REO inventory and short sales are expected to trend upward, according to a report released today by John Burns Real Estate Consulting.

There are currently 562,000 bank-owned homes and 2.5 million mortgages more than 90 days delinquent in the market.

Single-family starts as well as single-family and multi-family permits were down in August, leaving total completions last month 33% lower than July, at 587,000 units. Foreclosures grew by 4% month-over-month.

Shadow inventory is inevitably growing and affecting the market already hit hard by high levels of distressed mortgages, such as Stockton, Calif. and Orlando, Fla., which have an excess supply of inventory already. According to John Burns' data, the two cities have a 27 shadow months supply of homes, 22,344 and 81,309 homes, respectively.

CoreLogic reported that national home prices in July remained steady, but existing home sales decreased 2.6% in August compared to July, according to the National Association of Realtors. New home sales dropped 12% over the same period.

URL to Original Article: http://www.housingwire.com/2010/09/17/2-5-million-homes-in-foreclosure-shadow-inventory-rising-john-burns

Expected rise in home sales may show a stabilizing market

By Courtney Schlisserman

Home sales probably increased in August, a sign the U.S. real estate market is stabilizing after the expiration of a tax credit might have caused demand to plunge, economists said before reports on the housing market this week.

Purchases of new and previously owned homes rose 7.1 percent, to a combined 4.395 million annual pace, according to the median forecast in a Bloomberg News survey. A separate report could show orders for long-lasting goods, excluding transportation equipment, rebounded last month.

"Housing is in a fragile bottoming process," said Aaron Smith, a senior economist at Moody's Analytics in West Chester, Pa. Projected gains in home sales and durable goods are "consistent with stabilizing growth, albeit it at a slower" pace than earlier this year, he said.

Builders such as Hovnanian Enterprises face a housing market depressed by unemployment close to 10 percent and rising foreclosures, making it difficult for mortgage rates near record lows to stoke demand. Combined with growth in manufacturing, the figures underscore the Federal Reserve's view that the economy, while decelerating, will avoid slipping back into a recession.

Fed Chairman Ben S. Bernanke and his fellow U.S. central bankers are to meet Tuesday to determine whether the economy needs additional stimulus. The Fed's benchmark interest rate is already in a range from zero to 0.25 percent, where it has been since 2008. Economists surveyed by Bloomberg this month forecast that the Fed's Open Market Committee will keep the rate unchanged until late next year.

The central bank said in its Beige Book survey of regional Fed banks this month that there were "widespread signs of a deceleration" in the economy from mid-July through the end of August. Most areas of the United States reported "very low or declining home sales."

Sales of previously owned homes rose to a 4.1 million annual rate in August from a 3.83 million pace, according to the median estimate of economists ahead of the National Association of Realtors' report on Thursday in Washington. The 7.1 percent gain would follow the record 27 percent plunge in July.

The next day, the Commerce Department will release the new-home sales figures. The median forecast calls for purchases to rise to a 295,000 pace, up 6.9 percent from a month earlier.

Existing-home sales account for more than 80 percent of the market and are counted when a deal is closed. New-home sales are recorded when a contract is signed.

The government's credit of as much as $8,000 for first-time home buyers required contracts be signed by April 30. The credit provided temporary relief for the industry that precipitated the worst recession since the 1930s.

The end of that credit, along with joblessness and sagging consumer confidence, prompted a decline in orders at Hovnanian, the largest home builder in New Jersey said on Sept 1. The company said net orders dropped 37 percent in the quarter ended July 31 from a year earlier.

"Job creation is the key to a housing recovery, which makes it difficult to predict how improvements in the economy and housing market play out," chief executive Ara Hovnanian said.

Another report on housing, due Tuesday from the Commerce Department, will show that starts of homes rose to a 550,000 annual rate in August, from 546,000 a month earlier, according to the median forecast in the Bloomberg survey.

Builders and sellers are competing with rising foreclosures, which means homes stay on the market longer and prices are restrained. Home seizures reached a record for the third time in five months in August, RealtyTrac, the forclosure-listing company, said last Thursday.

The weakness in housing is making the economy more dependent on gains in manufacturing. The Commerce Department is scheduled to release the durable goods report on Friday. Bookings including those for transportation equipment probably fell 1 percent in August after a 0.4 percent gain, according to the median forecast.

Excluding transportation, orders probably rose 1 percent last month, the survey showed. Bookings for nondefense capital goods excluding aircraft, a proxy for future business investment, might have increased 4 percent.

URL to Original Article: http://www.washingtonpost.com/wp-dyn/content/article/2010/09/19/AR2010091904235.html

Home sales level off in August after recent plunge: RE/MAX

by JON PRIOR

August home sales dropped 0.5% after plummeting in July, according to real estate franchise RE/MAX.

Home sales are still down 17.9% from August of last year. While some real estate agents reported increased showings, few have translated into closed transactions after the expiration of the homebuyer tax credit at the end of April.

"This summer’s market is still recovering from the number of buyers who bought earlier to take advantage of the Tax Credit," Margaret Kelly, CEO of RE/MAX, said. “It may take a couple of months to regain its footing, but we are expecting an increase in sales for September as the final deadline for the Tax Credit nears, and we’re very pleased that prices are holding steady."

Going forward though, homebuilder pessimism in newly built single-family market remained unchanged in September from its 17-month low in August, according to the National Association of Home Builders.

The median sales price reached $205,655 in August, down 1.7% from July and 1.3% above levels last year. California cities such as San Francisco (11.8%), Los Angeles (7.6%) and San Diego (3.5%) are leading price appreciations across the country. According to RE/MAX, if inventory levels remain stable, prices should still continue upward for the next few months.

In August, it has. The inventory of homes on the market dropped 1.1% from the previous month and remains 1.4% below last year. For the 54 metropolitan statistical areas (MSAs) there is a 9.2 months worth of supply. A six-month supply is considered a healthy and balanced market.

URL to Original Article: http://www.housingwire.com/2010/09/20/home-sales-level-off-in-august-after-recent-plunge-remax

10 Reasons To Buy a Home

By Brett Arends , The Wall Street Journal

Enough with the doom and gloom about homeownership. Sure, maybe there's more pain to come in the housing market. But when Time magazine starts running covers that declare "Owning a home may no longer make economic sense," it's time to say: Enough is enough. This is what "capitulation" looks like. Everyone has given up.

After all, at the peak of the bubble five years ago, Time had a different take. "Home Sweet Home," declared its cover then, as it celebrated the boom and asked: "Will your house make you rich?"

But it's not enough just to be contrarian. So here are 10 reasons why it's good to buy a home.

1. You can get a good deal. Especially if you play hardball. This is a buyer's market. Most of the other buyers have now vanished, as the tax credits on purchases have just expired. We're four to five years into the biggest housing bust in modern history. And prices have come down a long way– about 30% from their peak, according to Standard & Poor's Case-Shiller Index, which tracks home prices in 20 big cities. Yes, it's mixed. New York is only down 20%. Arizona has halved. Will prices fall further? Sure, they could. You'll never catch the bottom. It doesn't really matter so much in the long haul. Where is fair value? Fund manager Jeremy Grantham at GMO, who predicted the bust with remarkable accuracy, said two years ago that home prices needed to fall another 17% to reach fair value in relation to household incomes. Case-Shiller since then: Down 18%.

2. Mortgages are cheap. You can get a 30-year loan for around 4.3%. What's not to like? These are the lowest rates on record. As recently as two years ago they were about 6.3%. That drop slashes your monthly repayment by a fifth. If inflation picks up, you won't see these mortgage rates again in your lifetime. And if we get deflation, and rates fall further, you can refi.

3. You'll save on taxes. You can deduct the mortgage interest from your income taxes. You can deduct your real estate taxes. And you'll get a tax break on capital gains–if any–when you sell. Sure, you'll need to do your math. You'll only get the income tax break if you itemize your deductions, and many people may be better off taking the standard deduction instead. The breaks are more valuable the more you earn, and the bigger your mortgage. But many people will find that these tax breaks mean owning costs them less, often a lot less, than renting.

4. It'll be yours. You can have the kitchen and bathrooms you want. You can move the walls, build an extension–zoning permitted–or paint everything bright orange. Few landlords are so indulgent; for renters, these types of changes are often impossible. You'll feel better about your own place if you own it than if you rent. Many years ago, when I was working for a political campaign in England, I toured a working-class northern town. Mrs. Thatcher had just begun selling off public housing to the tenants. "You can tell the ones that have been bought," said my local guide. "They've painted the front door. It's the first thing people do when they buy." It was a small sign that said something big.
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5. You'll get a better home. In many parts of the country it can be really hard to find a good rental. All the best places are sold as condos. Money talks. Once again, this is a case by case issue: In Miami right now there are so many vacant luxury condos that owners will rent them out for a fraction of the cost of owning. But few places are so favored. Generally speaking, if you want the best home in the best neighborhood, you're better off buying.

6. It offers some inflation protection. No, it's not perfect. But studies by Professor Karl "Chip" Case (of Case-Shiller), and others, suggest that over the long-term housing has tended to beat inflation by a couple of percentage points a year. That's valuable inflation insurance, especially if you're young and raising a family and thinking about the next 30 or 40 years. In the recent past, inflation-protected government bonds, or TIPS, offered an easier form of inflation insurance. But yields there have plummeted of late. That also makes homeownership look a little better by contrast.

7. It's risk capital. No, your home isn't the stock market and you shouldn't view it as the way to get rich. But if the economy does surprise us all and start booming, sooner or later real estate prices will head up again, too. One lesson from the last few years is that stocks are incredibly hard for most normal people to own in large quantities–for practical as well as psychological reasons. Equity in a home is another way of linking part of your portfolio to the long-term growth of the economy–if it happens–and still managing to sleep at night.

8. It's forced savings. If you can rent an apartment for $2,000 month instead of buying one for $2,400 a month, renting may make sense. But will you save that $400 for your future? A lot of people won't. Most, I dare say. Once again, you have to do your math, but the part of your mortgage payment that goes to principal repayment isn't a cost. You're just paying yourself by building equity. As a forced monthly saving, it's a good discipline.

9. There is a lot to choose from. There is a glut of homes in most of the country. The National Association of Realtors puts the current inventory at around 4 million homes. That's below last year's peak, but well above typical levels, and enough for about a year's worth of sales. More keeping coming onto the market, too, as the banks slowly unload their inventory of unsold properties. That means great choice, as well as great prices.

10. Sooner or later, the market will clear. Demand and supply will meet. The population is forecast to grow by more than 100 million people over the next 40 years. That means maybe 40 million new households looking for homes. Meanwhile, this housing glut will work itself out. Many of the homes will be bought. But many more will simply be destroyed–either deliberately, or by inaction. This is already happening. Even two years ago, when I toured the housing slump in western Florida, I saw bankrupt condo developments that were fast becoming derelict. And, finally, a lot of the "glut" simply won't matter: It's concentrated in a few areas, like Florida and Nevada. Unless you live there, the glut won't have any long-term impact on housing supply in your town.

URL to original article: http://www.housingwire.com/2010/09/15/10-reasons-to-buy-a-home

BofA's Moynihan sees 25% chance of double dip recession

by CHRISTINE RICCIARDI

In his speech today at the San Francisco Investor Conference, CEO of Bank of America (BAC: 13.3993 -1.11%), Brian Moynihan said he expects to see growth at his bank beat GDP projections as the risks of the economy sliding into a double dip recession decline.

Moynihan said BofA will likely see growth in 2010 of 4.6%, and in 2011, 3.9%, while "our economists are forecasting a 2.6% growth rate in 2010, with a slower second half, and a 1.8% U.S. GDP growth rate in 2011.

"We remain in a recovery… and that recovery looks likely to continue, albeit not with the strength or speed we all might like," he said. "The discussion now is whether we might have a so-called double dip recession – although our experts think the chance of that is low… we’re now putting the chances of a double-dip at around 25%."

Moynihan took some time to dedicate a section of his speech to the performance of the mortgage portfolio at BofA. He said that while 22% of all of the bank's mortgage loans have negative equity, the majority of those are concentrated in the four Sand States. In 2009 BofA was the second-largest mortgage originator, behind Wells Fargo (WFC: 26.10 +0.15%), with nearly 22% of market share ($391 billion).

The rate of underwater mortgages is 32% in California, 48% in Florida, 62% in Nevada and 46% in Arizona.

The average rate of underwater mortgages around the rest of the country is only 14%.
The data "gives us some hope that the market is stabilizing across the country," said Moynihan. "We need to continue to focus on those localized affected areas."

Bank of America plans to do this by putting increased emphasis on mortgage modifications. Since 2008, the bank has modified nearly 650,000 home loans. Mortgages modified under the Home Affordable Modification Program (HAMP) totaled 76,300 as of July.

URL to original post: http://www.housingwire.com/2010/09/13/bofas-moynihan-sees-25-chance-of-double-dip-recession

California foreclosures up four-straight months with 16.6% rise in August

by JASON PHILYAW

Notice of default filings in California rose for the fourth-straight month in August climbing another 16.6%, according to ForeclosureRadar, which also began issuing data on foreclosure rates in four more states and unveiled new search functions on its website.

The firm has been tracking foreclosure rates in California since March 2007, and will now offer data for Arizona, Nevada, Oregon and Washington, as well, after tracking those states for a year. Executives expect the added search capabilities to allow readers "to dynamically drill down to the state, county, city and ZIP code level of their choice."

Foreclosures fell 12.2% in Arizona last month after rising 28.8% in July, but are down 20.3% from the year earlier. Banks took back more properties at auction than they resold in August in Arizona, pushing the inventory of REO homes, up 4.79% from July and 60.48% from the year ago, according to ForeclosureRadar.

In California, foreclosures are down 16.3% from a year earlier, and fewer homeowners found foreclosure relief as cancellations fell 11.2% and 15.6% more homes were lost in foreclosure sales, the firm said.

The number of foreclosures in Nevada in August was 6,682, down 41.8% from the year ago and 7.5% below 7,223 in July.

In the Northwest, foreclosures in Oregon rose 10.7% in August from the month earlier and are up 12.5% from last year. Washington saw a 15.8% decline in the monthly rate but the August level of 3,598 foreclosures is 82% higher than the year earlier.

"Real estate markets are local, not national, and like other real estate trends foreclosure trends vary a great deal by location” said Sean O'Toole, ForeclosureRadar founder and chief executive. "We are excited to be able to bring timely, accurate, in-depth and location-specific foreclosure data to the Arizona, California, Nevada, Oregon and Washington markets."

URL to Original Post: http://www.housingwire.com/2010/09/14/california-foreclosures-up-four-straight-months-with-16-6-rise-in-august

Breaking mortgage news via the Twitterati

by RICK GRANT

I remember working in New York as part of a news team covering the mortgage space during the historic refinance boom in the early years of this century.

Working in that bullpen was electric. When news would break in one corner of the office, you could watch it travel over the cube walls as it made it's way across the room.

In the far corner of the room, a row of television monitors hung close to the ceiling, giving us a window into the coverage provided by the cable news programs. Of course, their content was a bit different back in those days.

Today, I wouldn't consider putting the cable news networks up in my office. In the rare instances when they do report news (instead of making news through creative editing of recent political speeches), they're not the first to carry the story. The stories we see on TV today have already broken on the Web.

This publication was originally a blog, before the publisher wisely bowed to advertiser pressure to create a new print publication. Paul Jackson routinely broke news here, and his reporters and editors are doing the same thing today. The print publication, which I'm proud to say carries my work, is not about breaking news but rather about going in depth into the stories that really matter in our industry.

Except for getting on the phone with trusted sources, which is still hands-down the best way to break news, the industry does it in a new way now. Today, if you want to know the very latest word on the street, you need to tweet, or at least monitor them.

I've been using Twitter for some time now and I've found it to be a very valuable resource for researching industry trends. Until recently, I didn't spend much time watching the tweet stream for recent news, but new tools are making that easier to do.

For instance, I recently downloaded Tweetdeck for the desktop and now I can open up a full screen view into Twitter, Facebook and LinkedIn. I can see all of the recent activity in all of my key social media platforms. While I don't monitor it constantly, I am considering getting a few iPads, downloading Tweetdeck for iPad and nailing them to walls around the office, one by the water cooler, one in the breakroom. I don't think there's currently a better way to know what's going on.

What does this suggest for companies operating in the space? If you ever hope to break news, you better figure out how to package it for delivery in 140 characters or less. Social media should be part of the distribution plan for all company news and someone in the firm should routinely monitor these channels for feedback. Obviously, having a company branded blog where those conversations could take place would be quite helpful.

Contact me if you need a list of HousingWire reporters and editors who are already on Twitter. It's a great place to start.

Rick Grant is veteran journalist covering mortgage technology and the financial industry.
Follow him on Twitter: @NYRickGrant

URL to Original Article: http://www.housingwire.com/2010/09/14/breaking-mortgage-news-via-the-twitterati

Credit union mortgage originations down 43% from last year

by JON PRIOR

Credit unions originated $31.4 billion in mortgages through the first half of 2010, down 43% from the $55.3 billion completed in the same time last year, according to data compiled for HousingWire from research firm Callahan & Associates.

Credit unions are cooperative financial institutions controlled by its members. The latest total is also down more than 20% from the second half of 2009. According to the research, 82% of credit unions are now in the mortgage lending business. But these companies account for only 3.9% of the origination market share, down from 5.2% last year.

"After a refi-fueled boom in 2009, first mortgage originations are back to historical average levels," according to Callahan & Associates. As a result, "sales to the secondary market have declined in tandem with the origination slowdowns."

By the second quarter of 2010, credit unions sold $15.1 billion of mortgages to the secondary market, less than half of the $30.8 billion sold in the first half of last year.

More than 42% of the $314.8 billion in credit union's real estate portfolio consist of first-mortgage fixed-rate loans. The rest is fairly evenly spread among various other fixed and adjustable-rate mortgages.

The delinquency rate on the real estate portfolios reached 2.03% through the first half of 2010, up from roughly 1.5% last year.

By comparison, the Federal Deposit Insurance Corp. (FDIC) reported more than $258 billion in loans on its insured institutions' balance sheets were more than 30 days delinquent. That's roughly 5.9% of the total loans backed by real estate those institutions hold.

URL to Original Article: http://www.housingwire.com/2010/09/09/credit-union-mortgage-originations-down-43-from-last-year

GSE foreclosures and short sales rising, despite loss mit efforts

by Austin Kilgore

Fannie Mae and Freddie Mac continue an aggressive push to modify mortgages and refinance loans in their respective portfolios, boosting the volume of Home Affordable Modification Program (HAMP) and Home Affordable Refinance Program (HARP) workout plans.

But completed and initiated foreclosures and third-party sales are back on the rise in the second quarter of 2010 and short sale volume is up more than 150% from volume in 2Q09, according to the Federal Housing Finance Agency’s second quarter government-sponsored enterprise (GSE) “Foreclosure Prevention & Refinance Report.”

During 2Q10, the volume of permanent modifications under HAMP increased 65% and refinancing of existing GSE loans through HARP increased 30%.

New foreclosure starts totaled 275,095 in 2Q10, an increase of nearly 12% from 1Q10 and brings the total for the first half of 2010 to 521,368. That’s down from the first half of 2009 (1H09), when there were 543,032 foreclosure starts. Foreclosure starts peaked in 2Q09, declining for the rest of last year. But starts are back up, as seen in the chart below (click to expand):

Foreclosure sales increased 12.65% to 104,497, from 92,760 in 1Q10 — a combined 197,257 sales in 1H10 compared to 93,969 sales in 1H09.

Third-party and foreclosure sales totaled 112,353 in 2Q10, up 14.7% from 97,931 in 1Q10, 210,284 for the 1H10, compared to 98,225 during 1H09.

Nonforeclosure home forfeitures were also up at the GSEs, the result of a surge in short sales. There were 29,375 short sales in 2Q10, up 25.6% from 23,379 in 1Q10 and up 150% from 11,705 in 2Q09. Short sales volume in 1H10 totaled 52,754, up 167% from 19,759 during 1H09.

The report also said the rate of modified loans that become delinquent 60 days after modification are taking a smaller share of the pool. In 1Q10, 8% of modified loans were delinquent three months after modification (down from the 4Q08 peak of 16%) and 16% were delinquent six months after modification (down from a peak of 38% in 3Q08).

Modified loans that are current and performing are also on the rise. GSE mortgages still current three months after modification totaled 81% (up from a bottom of 47% in 3Q08) and six months after modification, 69% are still current (up from a bottom of 34% in 2Q08). The remaining modified loans in the GSE books are not accounted for in the charts below (click to expand).

An FHFA spokesperson said the remaining 11% of loans three months after modification and 15% six months after modification are mostly 30-59 days delinquent, and in some cases, loans that are paid off.

URL to original article: http://www.reoi.com/news/gse-foreclosures-and-short-sales-rising-despite-loss-mit-efforts

Home mortgage modification snags spark lawsuits

By Stephanie Armour, USA TODAY

Anthony and April Soper's financial troubles were only starting last October when they applied for a mortgage adjustment through the Obama administration's Home Affordable Modification Program.

Bank of America, their mortgage servicer, put them on a HAMP trial payment plan in December that cut their monthly payments from about $4,000 a month to about $3,130 a month.

They say they made their reduced monthly payments early and did everything else that was asked of them. But they didn't get a permanent modification, and they say they don't know why.

Instead, according to a lawsuit they've brought against Bank of America, they are now more than $8,000 behind on a mortgage that had been current 12 months ago. Each of their credit scores has dropped by nearly 100 points. And, they allege, Bank of America has threatened them with foreclosure.

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"We jumped through all their hoops, and they did nothing but cause us heartache," says April, 41.

Whether the Lake Stevens, Wash., couple keep their home may hinge on the outcome of a legal strategy that aims to join struggling homeowners with similar experiences in the HAMP program in a class-action lawsuit against the nation's largest bank. On Sept. 30 in Nashville, a federal court hearing is scheduled to consider consolidating the Sopers' case with more than a dozen others against Bank of America.

Similar lawsuits, also seeking class-action status, are pending against other major servicers such as JPMorgan Chase and Wells Fargo. Taken together, the cases threaten to amplify a growing public frustration with mortgage servicers' treatment of HAMP borrowers and HAMP's modest results. Permanent modifications, which lower mortgage payments to 31% of a borrower's pretax monthly income for five years, have been given to only about a third of the 1.3 million borrowers in trial plans since the program's launch in April 2009.

Most of the lawsuits allege that the three- or four-month trial payment plans are contracts, and that Bank of America and other servicers broke them by not giving permanent modifications to homeowners who made their trial payments on time and provided the necessary documentation.

Servicers have asked courts to dismiss some of the cases, saying the trial plans are not contracts.

Bank of America, which says it plans to seek dismissal of the Soper case, argues in a court filing in a similar case that it must consider borrowers for a HAMP modification, but that it has discretion in granting permanent modifications.

The bank also argues that homeowners have no case because courts have dismissed earlier HAMP-related lawsuits against mortgage servicers. Those cases claimed that in denying some homeowners modifications, the servicers had breached the contracts they made with the Treasury Department when they agreed to participate in HAMP. Courts said homeowners could not sue on those grounds because they weren't parties to the contracts between the government and the servicers.

Lawyers for homeowners say they are now making a different legal argument: that Bank of America and others broke contracts made directly with homeowners.

"Borrowers have said we should be able to enforce the contract between Treasury and mortgage servicers, and many courts have rejected that. Our cases are the first filed that touch on a contract between servicers and borrowers," says Kevin Costello, a lawyer with Roddy Klein & Ryan in Boston, which represents homeowners in cases against Bank of America, JPMorgan Chase and Wells Fargo.

"This litigation is spreading all across the country. People have been relying on a promise all along, and then they get a denial. Then they find themselves in that much worse of a hole," he says.

Many homeowners could be affected: Nearly 620,000 trial modifications since spring 2009 have been canceled, according to an Aug. 20 Treasury report.

Chronicles of delays

The lawsuits allege servicers are purposely denying permanent modifications and keeping loans in default so lenders can profit from heftier late fees and other charges. Court filings provide detailed chronologies of borrowers who allege that over periods of months, they repeatedly sent banks requested documents that the banks said they didn't receive, made inquiries that went unanswered, and received promises of help that were later contradicted or denied by other representatives.

"Bank of America has serially strung out, delayed, and otherwise hindered the modification processes that it contractually undertook to facilitate when it accepted" billions of dollars in government bailout funds in 2008, the Sopers' complaint alleges.

By failing to live up to its obligations, according to the court filing, "Bank of America has left thousands of borrowers in a state of limbo — often worse off than they were before they sought a modification from Bank of America."

The Sopers' complaint alleges that Bank of America customer service representatives are instructed to mislead homeowners who call to inquire about loan modifications they've applied for. The complaint, citing information provided by unnamed former employees, says "representatives regularly inform homeowners that modification documents were not received on time or not received at all when, in fact, all documents have been received."

When homeowners are denied permanent modifications, even those who were current before going on reduced-payment trials are considered in default, and servicers tell them they must immediately pay the difference between their trial payments and their higher former payments to avoid foreclosure, according to the Sopers' complaint and others.

Borrowers' mortgage debt in default rises further the longer they stay in trial plans.

By making trial payments during and after the plan's scheduled end, the Sopers' complaint alleges, they "forgo other remedies that might be pursued to save their homes" such as restructuring their debt by filing for bankruptcy, or pursuing other ways to deal with their default, such as selling their homes.

Foreclosure proceedings have started against some borrowers while they were on trial plans, violating a Treasury directive, according to the lawsuits. Homeowners' credit scores have also been damaged when servicers cancel trial plans, then report the amounts in default to credit bureaus.

Some court filings claim bank employees have demanded upfront fees to start consideration of a modification — in violation of HAMP rules — or told homeowners to stop paying mortgages in order to start a trial modification. The Sopers' complaint alleges an unnamed homeowner was illegally asked to pay $1,400 upfront to Bank of America to be considered for a modification.

In another case, Alex Lam of New York alleges he was told he could only be considered for a HAMP trial modification if he stopped paying his mortgage for several months, according to a lawsuit filed in U.S. District Court in Brooklyn against JPMorgan. He skipped two months of payments in 2009 and says he was denied a permanent modification. JPMorgan declined to comment.

Homeowners' lawyers say there is no effective way to appeal mortgage servicers' decisions because Treasury has no ability to overturn a decision.

Watchdogs' criticisms

Government watchdogs, too, have raised similar criticisms about the HAMP program, as well as about servicers' performance and Treasury's oversight.

The Congressional Oversight Panel, which oversees the government fund that pays for HAMP, said in an April report it "is deeply concerned about the unacceptable quality of the denial and cancellation reasons, and strongly urges Treasury to take swift action."

A Government Accountability Office report in June found servicers were erroneously denying permanent modifications to some homeowners because servicers were inaccurately applying a formula used to determine if the value of modifying the mortgage was greater than the proceeds from foreclosing. The number of homeowners who had been wrongly denied could "range from a handful to thousands."

When errors have been found, Treasury says, it has made servicers go back and fix problems, and re-do their work as a check on their decision-making. It also says that 45% of those who started trials but were ineligible for permanent adjustments received an alternative modification through their servicer. Fewer than 2% have gone to foreclosure sale, according to Treasury.

Some homeowners say they've already lost their homes to foreclosure because a permanent HAMP modification was denied to them.

Jennifer Voltaire, 33, of Medford, Mass., alleges Wells Fargo approved her for a trial HAMP modification, which lowered her payments starting in December 2009, according to court filings in U.S. District Court in Massachusetts. Voltaire is a co-plaintiff in the case.

But after making regular payments, Voltaire was told in May that she was being taken out of the HAMP program and was $40,000 in default, the lawsuit alleges. After she protested, Wells Fargo agreed to reconsider her for a HAMP modification, according to the complaint, but in July, the bank took possession of the home.

"I was literally crying my eyes out," Voltaire says. "I put everything I have into this house, into getting my kids out of the projects. That's the part that really hurts. My kids could look at me like I failed."

Wells Fargo agreed not to sell her house pending further court action. Voltaire is still staying there and making her trial plan payments.

In its motion to dismiss the lawsuit brought by Voltaire and others, Wells Fargo said the plaintiffs have not adequately shown that their trial modifications were contracts to enter into permanent modifications. It says homeowners benefited from being able to make reduced monthly payments while staying in their homes.

Treasury Department officials say homeowners in HAMP trial plans are not promised permanent modifications.

But the Soper lawsuit and others quote language from some trial plan agreements that states:

"If I am in compliance with this trial period plan and my representations ... continue to be true in all material respects, then the servicer will provide me with a Home Affordable Modification Agreement ... that would amend and supplement the mortgage on the property, and the note secured by the mortgage."

"They get a letter from the bank that says, 'If I comply, I'm entitled to a HAMP modification.'

That's a contract. The bank has not performed under the contract," says Steve Berman, a lawyer with Hagens Berman Sobol and Shapiro in Seattle, who represents the Sopers and other homeowners in HAMP cases.

Evolving rules

The Obama administration's rapid launch of HAMP and its changing guidelines since then may have contributed to the program's administrative confusion. When HAMP began in 2009, servicers enrolled borrowers in trial modifications without verifying income or financial hardship.

That brought immediate financial relief to more people, but ineligible homeowners were not weeded out until they completed trial plans. In June, the government began requiring participating servicers to verify applicants' income and financial hardship before starting trials.

Treasury says that has improved the rate of conversions to permanent modifications.

"The HAMP program was an unprecedented response to an enormous crisis in this country's housing market. The administration needed to act quickly." says Phyllis Caldwell, Treasury's chief of the homeownership preservation office.

Meanwhile, the number of homeowners claiming improper denials of HAMP modifications is climbing.

One is Peter Salinas, 52, who struggled to pay his mortgage after the economy collapsed and his wife developed cancer. He appealed to his lender for help.

Salinas says he felt elated last year when he received a HAMP trial modification slashing $500 off his monthly payments. But later, he was told he made too much money to qualify for permanently reduced payments, he says. Wells Fargo threatened foreclosure if he didn't pay $9,000, the difference between his original mortgage and what he paid during the trial.

His servicer, Wells Fargo, declined to comment on his situation. Salinas is working with Gulfcoast Legal Services, a not-for-profit civil legal aid office, that says it is preparing a lawsuit against the lender.

"I was convinced I was doing everything right," says Salinas, a reporter for an automotive trade publication who lives near Bradenton, Fla. "I wasn't trying to walk away from this mortgage. It's just infuriating."

URL to Original Article: http://www.usatoday.com/money/economy/housing/2010-09-10-mortgagemods10_CV_N.htm

EU law to crack down on abusive short selling

By Huw Jones

(Reuters) - European Union regulators would be able to ban abusive short selling of shares and naked selling of credit default swaps and sovereign debt for three months or more under a draft EU law seen by Reuters on Wednesday.

The bloc's financial services chief, Michel Barnier, has already flagged the measure he is due to publish on September 15.

It follows calls from some member states to crack down on what they saw as speculators -- typically politicians' code for hedge funds -- causing mayhem in Greek and other euro zone sovereign debt markets earlier this year.

Experts said a bloc-wide law will have a good chance of being approved to avoid a repeat of patchwork national measures that caused confusion among investors.

After the collapse of Lehman Brothers bank in September 2008, Britain and other EU states introduced varying short selling bans on financial shares.

In May, Germany introduced a ban on all naked short selling of 10 German stocks, euro government bonds and credit default swaps on euro government bonds, shaking global markets and upsetting its EU partners who refused to follow suit.

Short selling is "naked" when sellers have not arranged to borrow the assets.

Following these two episodes, Barnier wants a pan-EU law on short-selling to ensure consistent, proportionate actions across the bloc in emergencies.

"The regulation aims at addressing the identified risks without unduly detracting from the benefits that short selling provides to the quality and efficiency of markets," the draft law obtained by Reuters said.

The measure will cover all financial instruments such as shares, sovereign bonds, derivatives relating to sovereign bonds and credit default swaps linked to government bonds.

The new European Securities and Markets Authority (ESMA), due to be in place from January, will be given powers to introduce emergency measures, such as bans for up to three months, renewable for a further three months at a time.

AIMA, the hedge fund lobby, said a pan-EU approach to short selling would end uncertainty and confusion and keep compliance costs down but that position disclosures should be done on an aggregated and anonymous basis.

It opposed bans at any time, however.

"The crisis experience has shown that imposing such bans does little to calm a market panic," AIMA CEO Andrew Baker said.

COOLING ACTION

ESMA would also be able to overrule unilateral emergency actions by states, such as Germany's ban.

"Any action taken by ESMA in such emergency situations would take precedence over action by competent authorities if there is any inconsistency," the measure says.

The law would ban all naked short selling of shares and sovereign debt.

In addition, if any short or naked selling of financial instruments is sparking significant falls -- 10 percent or more from the previous day -- ESMA could seek to cool markets by imposing a one-day ban on "persons" short-selling a financial instrument.

"Such a 'circuit breaker' power should enable competent authorities to intervene if appropriate to ensure that short selling does not contribute to a disorderly price fall in the instrument concerned," the draft law says.

Simon Gleeson of Clifford Chance law firm said the very short-term powers could be used to support prices of particular instruments during a crisis.

"This may or may not be useful, but it is certainly better for it to happen in a coordinated fashion than for the market to have to grapple with multiple conflicting national regimes," Gleeson said.

EXEMPTIONS

Outside emergency periods, market participants would be required to report to regulators and in some cases to markets their significant net short positions in shares, government debt and sovereign credit default swaps.

The thresholds for reporting short positions in shares to regulators and the public follow the model already published by the Committee of European Securities Regulators (CESR).

Only disclosure to regulators would be required in sovereign debt positions and this will also apply to short positions built up by trading on and off an exchange and those built up by using options, futures, contracts for difference and spread bets.

Traders may also have to flag to the stock exchange if their share sell orders are part of a short sale.

Short sellers in shares and government debt will have to make prior arrangements to borrow the assets so they can settle the trade on time, otherwise face a daily penalty, the draft law says.

The measure foresees exemptions from position reporting, pre-borrowing requirements and late settlement penalties for the shares of a company where the main market is outside the EU.

Market making activities and primary market operations performed by dealers who help to issue sovereign debt would also have similar exemptions.

The measure, which needs approval from EU states and the European Parliament to become law, is expected to become effective some time in 2011 or 2012.

URL to Original Article: http://www.reuters.com/article/idUSTRE68030V20100901

Strongest jobs recovery in decades. Seriously

By Chris Isidore

By historical standards, the labor market is recovering nicely -- job growth has started earlier than in past recessions.

But the unemployment problem isn't going away. An especially tough recession has raised the bar on the amount of job growth needed to recover, magnifying the pain of the struggling labor market.

"If you had a severe recession, you tend to have a strong recovery," said Robert Brusca of FAO Economics. "So far that hasn't happened."

The unemployment rate hit a high-water mark of 10.1% in October 2009 and has since fallen to 9.5%. Payrolls began growing in November and, excluding the impact of temporary census jobs, the economy has added jobs every month since January.

That's a much quicker peak than previous job market recoveries.

After the 1990-91 recession ended, the economy lost nearly 300,000 additional jobs in the 11 months that followed. And the 2001 recession was followed by a so-called jobless recovery that lasted for nearly two more years.

"Sustained, positive job formation began earlier in this recovery than in the prior two recoveries," said Lakshman Achuthan, managing director of Economic Cycle Research Institute.

But today's economy is different. The problem is that the damage done during the Great Recession was so severe, it will take a lot more growth than normal to dig the job market out of its hole.

There were 8.4 million jobs lost in 2008 and 2009 -- roughly 7% of all jobs at the start of the recession. That compares to a loss of 3.1% of all jobs during the 2001 recession and the jobless recovery that followed, and only 1.9% of jobs lost during and after the 1990-91 recession.

And there are concerns about the fact that job growth has slowed dramatically from the spring of this year when employers were adding about 200,000 workers a month to payrolls. Even at that pace of hiring, it would take more than three years to get jobs back to pre-recession levels.

Right now, it's not even close. Overall payrolls, excluding the temporary boost from census jobs, have increased by an average of just 12,000 jobs a month over the last three months.

And as the government prepares to release its August jobs report on Friday, economists, employers and job seekers are all watching with bated breath.

Brusca said given the fact that job losses took place throughout 2008 and 2009, it's still too soon to conclude whether the recovery is going to come up short. He's still hoping growth picks up in the fall as businesses start to gear up for the holiday shopping period.

"The summer is not the time you want to be taking the temperature of the economy," he said. "Come September and October, if the data is still weak, I'll sing a different song."

But the weaker numbers of late have sparked fears that the nascent jobs recovery could stall out and the economy could topple into a double-dip recession.

Heidi Shierholz, labor economist for the Economic Policy Institute, thinks another shot of stimulus spending by the federal government is called for in order to avoid more job losses.

"We owe the growth we have seen to the measures that the Fed and Congress took in early 2009," she said. "It's great to put the brakes on the jobs losses of last year, but we need to do more."

URL to Original Article: http://money.cnn.com/2010/09/02/news/economy/jobs_recovery/index.htm

Secondary mortgage market bracing for more declines in housing

by JACOB GAFFNEY

The recent bond rally is good news for the secondary market, but it may be an unsustainable trend, as analysts predict more declines in the housing industry, potentially sapping mortgage-backed bonds.

Last Friday's speech by Ben Bernanke outlining the possibility of additional stimulus, helped sentiment amid a week of negative macroeconomic news. For example, National Association of Realtors home sales for July dropped 27% (3.83 million annually) to its lowest rate since NAR began tracking, after the push-forward demand from the homebuyer tax credit began to show pull-through.

Economists across the board are currently bearish on housing now that incentives provided by the government, while temporarily helpful to the market, did little to help the overall economy.

"The bottom line is that housing demand has dropped sharply due to sales being moved forward, still high unemployment, and tighter lending standards," said Econoday economist Mark Rogers. "This sector likely will remain soft until employment improves. However, sales likely will come off the anemic July pace as we get further away from this period of stolen sales."

Analysts at JPMorgan support Rogers claim of a softening of the recovery. In a research note from Abhishek Mistry, Edward Reardon, Asif Sheikh and John Sim, the analysts say home prices are now likely to surprise to the downside.

"The street is already running scenarios that consider another 10% decline in housing," they write.

"We maintain our bias towards 2006/2007 fixed-rate paper where the coupon helps offset market price volatility," they said. "This is on top of an aging delinquent-loan population that is expected to push severities even higher."

Celia Chen, a senior housing economist for Moody’s Investors Service predicts imbalances in the market will continue until 2012. In her view, the impaired credit of consumers, mixed with a glut of supply, will weigh negatively on home-ownership demand. A self-correcting recovery lasting several quarters will likely reverse these trends moderately, she adds.

"In the meantime the lingering excess supply will weigh on house-price appreciation until supply and demand conditions are better balanced," Chen said. "While the national house price index will reach bottom early next year, price appreciation will be soft for the next couple of years."

Quantitative Easing Tempered

Secondary market analysts at Deutsche Bank pointed to fundamentals improving in the market as prices and interest rates begin to move more and more in concert with one another.

According to an August MBS outlook report, Deutsche analysts say that the impact of economic crises elsewhere, mainly in Europe, provided some drag on the market. The result of a return to the correlation of house price as a driver of interest rate means the Fed will not necessarily buy much more Treasuries in a rally.

"This will, however, be tempered by the fact that the Fed owns mostly new production 4.5% and 5% MBS, which are backed by mortgage loans that are better quality in terms of credit and loan-to-value ratios, and thus will be less affected by a modest decline in home prices than older MBS," the report notes.

URL to Original Article: http://www.housingwire.com/2010/08/30/secondary-mortgage-market-bracing-for-more-declines-in-housing

Zillow: 30-year mortgage rates drop to another record low

by CHRISTINE RICCIARDI

The national, 30-year fixed-mortgage rate (FRM) slightly decreased from a week earlier, setting a new record low average of 4.26%, according to the Zillow Mortgage Marketplace weekly update. This is down 0.03% from last week and 0.02% below the previous record low.

Regionally, 30-year rates vary, but the majority of states witnessed a deflation. Most large states saw a decline in rates: California's current rate of 4.28% is down from 4.3% last week; Texas' at 4.23% is down from 4.28%, and Massachusetts' at 4.26% is down from 4.27%.

Rates substantially decreased in New York to 4.24% from 4.31% and New Jersey to 4.19% from 4.27%. Rates increased in Washington to 4.33% from 4.29% as well as Colorado, up to 4.3% from 4.17%. Rates remained flat in Florida and Pennsylvania at 4.2% and 4.37%, respectively.

Zillow reported the national average rate for 15-year fixed home loans remained flat at 3.82%, while the rate for a 5-1 adjustable-rate mortgage (ARM) is 3.29%.

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/2010/08/31/zillow-30-year-mortgage-rates-drop-to-another-record-low