“We first make our habits, and then our habits make us.”

John Dryden

LEG 1 NEWS

• JPMorgan Chase Driving a Harder Bargain in Mortgage Short Sales

JPMorgan Chase & Co. is taking a hard line with some borrowers who want to sell their homes for less than they owe on the mortgage and avoid foreclosure. Last month the third-largest mortgage servicer began notifying certain borrowers in preapproval letters for the so-called short sales that they will remain on the hook for the amount of debt not covered by the proceeds.

• Residential Mortgage Revenue Plunges at B of A

Bank of America lost $1.5 billion on its residential mortgage business in the second quarter with credit charges remaining high and loan production barely rising from the first quarter.

• Private-Label Securities Could Fix Jumbo Illiquidity

Credit shortages in parts of the market such as the jumbo sector are a strong argument for finding a way to make private-label securitizationeconomically viable again, a panelist told attendees at a securities conference in New York.

• Home Sales: Banks Now Outselling Builders

In a further sign that the housing market is in the tank, banks have been outselling home builders for the last 18 months, according to a new report from Housing Intelligence, an independent research and analytical firm.

• Citigroup Mortgage Buybacks Top $210 Million

Citigroup paid out $210 million for loan buybacks in both the first and second quarters, according to company executives.

• GE Capital’s RE Segment Loses $524 Million

The real estate segment at GE Capital lost $524 million in the second quarter of 2010, about twice as much as a loss of $237 million for the same period one year ago.

• Industry Gets Chance to Comment on FHA Changes

The FHA is seeking public comment on mortgage underwriting changes it plans to implement soon to reduce defaults and losses to the federal mortgage insurance fund.

• FDIC Picks Colony Capital as Winning Bidder

The FDIC closed on a sale of 40% equity interest in a limited liability company created to hold assets with an unpaid principal balance of around $1.85 billion …

• Mortgage Stocks Follow Market Down

Most mortgage stocks are following the same market trends that have pushing the Dow Jones Industrial Average down by an average of 200 points this morning.

• Goldman Settles Subprime CDO Case with SEC

A few minutes after the Senate passed historic legislation to reform Wall Street, the Securities and Exchange Commission announced that Goldman Sachs had agreed to a record $550 million settlement of civil charges that the firm misled clients that lost $1 billion on a subprime CDO known as ABACUS.

• House Passes Flood Insurance Bill

The House late Thursday passed legislation to extend the National Flood Insurance Program for five years, increasing coverage on residential and commercial properties.

• REIT Exploring Strategic Options

Prime Group Realty Trust, Chicago, said it is in the process of considering various financing and other capitalization and strategic alternatives for the company.

• Senate Passes Landmark Regulatory Reform Bill

The Senate late Thursday afternoon passed the Dodd-Frank Wall Street Reform bill by a 60-39 vote, clearing the way for the president to sign the historic measure next week.

LEG 2 Article

Mortgage Overhaul & What is Means for You

The new 2300 page financial reform bill is making the headlines. Despite the fact that many of the provision related to specific regulations have yet to even be written, if that sounds faintly disturbing, don’t worry…your concern is noted and shared by many experts through the nation. However, there are sweeping changes that are already apparent despite the lack of specific details.

Although broad in scope, homebuyers and sellers are likely to be among the first impacted by the new provisions. They represent one of the most comprehensive – top to bottom changes to the finance, valuation, types of mortgage products offered and how lenders are compensated to take place in decades. In fact, there are even new rules for investors that provide capital for the purchase of mortgages.

A few of the most important points likely to make immense impact to buyers, sellers and investors is the language dealing with any type of mortgage outside of the “traditional” or “plain vanilla” category. Unfortunately, regulators have yet to fully define what will constitute a “traditional” mortgage under the new plan but it is clear that the line will be drawn to reduce the number of sub-prime borrowers as well as offerings of owner finance and other alternative forms of finance.

Experts predict an immediate severe impact on many minority and lower income borrowers; many who have already been impacted by far less severe measures. For example, according to FHA, rejection rates for African American and Latino borrowers have substantially increased among non-FHA loans.

The new FDIC and other regulatory oversight standards contained in the bill are expected to provide safer mortgage(s) instruments but at a higher cost and more stringent requirements for both banks and individuals. It is estimated that only five banks currently control more than 65% of the current mortgage market; the new bill is expected to further consolidate this trend by favoring big banks over small. In part, this is due to the belief that big banks are easier to regulate. However, at the same time, new controls and rules regulating private investors are also expected to take another two to three years to fully define…leading many to believe the bulk of mortgages will still be backed by the United States government for the foreseeable future.

LEG 3 Opportunity Link

http://mandelman.ml-implode.com/2010/07/california-court-rules-mers-can’t-foreclose-citibank-can’t-collect/

http://finance.yahoo.com/news/Real-Estate-Market-is-Already-etfguide-1834383141.html

http://www.doctorhousingbubble.com/fha-insured-defaults-spike-200-percent-bofa-deed-in-lieu-of-foreclosure-trend-fines-for-foreclosed-properties-3-stories

http://www.cnbc.com/id/38340007

http://www.cnbc.com/id/38344834

LEG 4 Tools

HUD is seeking public comments for the next 30 days

Last week HUD came out with laser focused ways of addressing its impending insolvency because of defaulting FHA insured loans. Now some of you were under the impression that something was already done to tighten lending standards given the precarious situation the housing bubble brought to our economy. Yet that is not the case and incredibly, what passes for basic due diligence today seems excessive because only a few years ago loans were given out to people making $14,000 a year and financing their $720,000 home purchase. FHA insured loans have become the staple of moving properties especially in areas like California. The 3.5 percent minimum down payment is all people can muster up and apparently this has caused further deterioration in this market.

Loan Officer Pay Restrictions Could Be Immediate
As the Senate moves closer to final passage of the Dodd-Frank Wall Street Reform bill, it appears several provisions–including restrictions on mortgage originator compensation and prepayment penalties—will go into effect shortly after the president signs the bill.

Some Backing Insurance Wrap Model for GSEs
One area of consensus in Fannie Mae/Freddie Mac reform that is emerging in at least one of the two main political camps eyeing the issue could be an entity or entities that provide an explicit guarantee and insurance wrap on mortgage-backed securities

Connecticut’s TMS Plans Further Expansion of Wholesale
Internet retail lender Total Mortgage Services, Milford, Conn., said the TMS Funding wholesale division it has formally opened up to select brokers in 17 states plans to slowly and carefully expand to all but a handful of others in this country over a period of more than a year.

ABA Strikes Mortgage Correspondent Deal with Wells
The American Bankers Association has opened the door for more of its members to sell residential mortgages to Wells Fargo Funding under a special pricing arrangement.

Purchase Applications Hit Low Not Seen Since December 1996
The home purchase application component of the Mortgage Bankers Association’s Market Composite Index reached its lowest point since December 1996 during the week ended July 9

Regulators Provide BP Oil Disaster Guidance
Federal banking regulators are pledging to go easy on lenders in the Gulf Coast States that work with and assist their customers—including mortgagors—that have been adversely impacted by the British Petroleum oil spill disaster

Buyer Interest Strong on AmTrust Receivables
The Federal Deposit Insurance Corp. will begin taking final bids on the $23 billion AmTrust Bank residential servicing portfolio by the end of July with a winner picked shortly thereafter, investment banking sources said Wednesday

REIT Raising $1.1 Billion to Buy MBS
Annaly Capital Management, New York, hopes to raise $1.1 billion through an additional stock offering, using the proceeds to buy mortgage-backed securities.

LEG 2 Article

Homeowners Associations: The New Foreclosure

Diana Olick

“I had no idea that they could foreclose,” Tony Goodman tells me.
Neither did I, but Goodman’s homeowners association did just that in April because he owed $769 in back dues. ”I owed the HOA very little money in comparison to what I owed my mortgage company and my mortgage company, which is Chase , bent over backwards to help me,” Goodman adds. Even as he was working on a loan modification, Goodman’s HOA, Lookout Canyon Creek in San Antonio, TX took title to his home on the steps of the Bexar County Courthouse. They purchased the home for $2,019, about the amount of the dues plus attorneys fees. Apparently this is not at all uncommon these days, as struggling borrowers let the dues slide, thinking it’s more important to throw all their cash into their mortgage payments.

Thirty-four states allow for judicial foreclosures by HOAs, although the rules and redemption periods differ. The redemption period is the amount of time that a homeowner has to pay up all the dues and fees after the HOA has officially taken title to the home. Texas has a 180 day redemption period. Florida’s is just 10 days.

People don’t understand that by failing to pay the association dues they can lose their home and be put in the street,” says Florida attorney Robert Tankel. He represents HOAs in Florida and his business is positively booming. ”I hear the words Nazi and Communist used interchangeably probably twice a week,” he adds, but he’s gone from a staff of one paralegal and a receptionist just a few years ago to 17 paralegals and a much larger support staff. Tankel makes no apologies for what he does.
“The associations and their boards of directors have a duty to the people who pay and the duty is to collect the assessments.”
He does have a point, cruel though it sounds, when you know Tony Goodman’s story. But the fact is that there are plenty of homeowners who pay extra to be in these communities specifically for the amenities they offer. It’s not just about mowing the lawns and shoveling the snow, these communities are often safer and cleaner and appreciate in value faster because of that.
Andrew Fortin of the Community Associations Institute makes a compelling argument, saying that in some cases now, where HOA’s are having serious delinquency problems with dues, new buyers are having trouble getting mortgages. Apparently big banks want to see healthy HOAs. Also, the HOAs have to pay their own bills to the service providers in the community. If they don’t get the dues, then they fall behind as well.
This is not to say that Tony Goodman hasn’t been going through hell, trying to negotiate a repayment plan with the HOA. He says the attorney for the HOA doesn’t return calls, and he’s unsure, even if he is able to pay the HOA back, that he’ll eventually get his house back. Texas redemption rules favor the homeowner a bit more than in Florida. Tankel says that in Florida, with just a ten-day redemption period, HOAs can actually profit on foreclosures for a short time.

“We call that the race to the courthouse steps because if there’s a first mortgage foreclosure pending and the first mortgage foreclosure beats us to the courthouse steps, then they wipe out the association’s claim of lien,” says Tankel.
Since the big banks on average can take over a year to foreclose on a home, the HOAs can swoop in, take title, boot the borrower, and either rent or sell the home for a good six to twelve months before the bank comes in with the far bigger lien and forecloses again. Most regular real estate investors don’t touch HOAs because the risk is high and the time for profit short, but Tankel says there is a new breed of investor in Florida, wading into these waters.
Tony Goodman now has a job again and is trying to pay back the HOA. He has three more months on his 180 days. ”Not a day goes by that I don’t think about it because it’s my responsibility to take care of my family and I don’t have any answers.”

LEG 3 Opportunity Link

http://finance.yahoo.com/news/Home-Sellers-Slashing-Prices-cnbc-3365853413.html

http://www.latimes.com/news/custom/scimedemail/la-me-derelict-homes-20100711,0,6945778.story

http://www.npr.org/templates/story/story.php?storyId=128488695&ft=1&f=1003

http://foreclosuredefensenationwide.com/?p=264

http://www.walb.com/global/story.asp?s=12800887

LEG 4 Tools

Do banks hold on to foreclosure inventory?

Of course they do, but in Los Angeles at least, they’re getting a big incentive to dump it fast. L.A. last week passed a new city ordinance that fines banks, servicers, whoever owns the foreclosed property, up to $100,000 for letting the property fall into disrepair. It is the city’s latest attempt to deal with neglect at many of the 27,000 foreclosed homes in Los Angeles. It allows the city to levy fines of up to $100,000 against financial institutions that seize homes and allow them to fall into disrepair.

It starts by addressing the limbo period between when a lender issues a mortgage default notice and the point that the title transfers to the lender. Banks often don’t consider the properties their responsibility until after they take the title. The ordinance now makes them responsible as soon as they issue a default notice.

The ordinance also allows the city to fine bank owners $1,000 a day per code violation. “The banks are responsible for taking over the properties,” Parks said. “They need to be responsible for taking care of the properties.”

We’ve heard and seen plenty of stories about run-down, stripped homes littering the landscape, with their overgrown lawns and broken front fences standing as glaring examples of what is not recovering in the housing market. I wouldn’t be surprised if more big cities do the same, and I’d encourage them to do so.
Let’s face it, banks don’t want to be homeowners, and they certainly don’t want to shell out even more of their dwindling cash on lawn services and handymen. Whatever incentives there are out there to turn these properties over to homeowners who can actually afford them are certainly welcome.
The trouble is that there appears to be a dangerous disconnect in the housing market right now: Housing starts are at an all-time low and yet the home vacancy rate is rising. The only way that can happen is if the number of households is shrinking more than we know. Add bank repossessed homes to that mix, and I’m guessing home prices will dip more than some are expecting.

• FDIC Sells $1B of AmTrust NPLs
Two private investors have teamed up to buy a roughly $1.2 billion pool of mostly non-performing residential whole loans offered by the Federal Deposit Insurance Corp., investment banking officials and sources close to the deal confirmed to National Mortgage News.

• Change in FHA Rules Creates Demand for Brokers
The Federal Housing Administration’s efforts to shift the burden of supervising mortgage brokers to actual funders is creating a mini-boom in demand for brokers to bring in homebuyers and refinancing customers.

• Senate Extremely Close on Final Passage of Reg Reform
Senate Democratic leaders have rounded up three Republican votes and are close to securing passage of the Dodd-Frank Wall Street Reform bill.

• MI Startup Secures $100MM in Additional Capital
Essent Guaranty, which wrote its first mortgage insurance policy in the second quarter, said it has lined up $100 million of fresh capital, bringing its total equity commitments to $600 million.

• FHA Giving State and Locals First Crack at Foreclosure Sales
The Federal Housing Administration is giving states, cities and nonprofit housing groups participating in HUD’s Neighborhood Stabilization Program first crack at bidding on its newly foreclosed properties before they are placed on the market.

• South Florida Home Repossessions Could Set Record
Lenders took back an average of 4,000 properties per month during the first half of 2010 in the tri-county South Florida market, a pace that, if it continues, could see nearly 50,000 properties repossessed by year’s end, according to a new report from consulting firm CondoVentures.

• Post-Bubble, Alternatives to Credit Scores in Greater Demand
Banks and mortgage funders are looking for more data to help them make lending decisions, beyond the simple matter of whether prospective borrowers pay their bills on time.

• Somewhat Positive News on Home Prices
U.S. home prices rose 0.9% in May after a 1.3% monthly increase in April, according to the CoreLogic housing price index.

• Lawsuit Claims Investors Were ‘Misled’ to Buy REO
A group of investors is suing Fortuno, Inc., a Lodi, Calif.-based buyer of foreclosed homes and its outside marketing executives, alleging they illegally “enticed” the group to invest in the purchase and re-sale of REOs in Ohio and Michigan with the promise of high returns upon flipping the properties.

• Study: Renters Still Want to Buy
A substantial percentage of consumers who are becoming new renters are actually still in the market to purchase a home, according to a survey conducted by Relocation.com.

• FDIC Sues Former IndyMac ADC Officials
The Federal Deposit Insurance Corp. has filed a $300-million negligence lawsuit against four former executives at IndyMac Bank FSB, accusing them of granting loans to homebuilders who were unlikely to repay the loans.

LEG 2 Article

Subprime Lending Is Back Again: Volume Small, but Profits Large

By Paul Muolo

Subprime residential lending is in vogue again, except that none of the firms funding the loans call the product “subprime.” Oh, and there’s one other catch: loan volumes are extremely small, but the profit margins are through the roof.
Take, for example, some of the recent loans made by Excelsior Management Group, Lake Oswego, Ore., a firm managed by mortgage “hard money” veteran Rick Baldwin. On average, the notes originated by EMG carry yields of 12% with five points.
As for the “risk factor” inherit in the loans, Baldwin isn’t losing much sleep at night. EMG’s maximum loan-to-value ratio is 65%, which means if the borrower doesn’t pay, his firm can seize the house and sell it, more than recouping the investment.
But Baldwin is quick to point out that although all this sounds nice on paper, this specialized niche isn’t poised for a boom any time soon, though for the right lender, it’s a way to make a living while home prices slowly, but surely, improve from the Depression-like crater they’ve been in the past three years.
The chief problem he faces is raising new investor money. All of the active participants in the “new subprime”—at least the ones I interviewed for this column—are nonbanks that raise money from a mix of wealthy individuals, investment clubs/funds and institutional money. “I’m a mortgage banker,” said Baldwin. “Raising money is something we’re not so good at.”
So, why would a somewhat wealthy individual put his money at risk?

As Mark Mozilo of Calcap Advisors, Pasadena, Calif., pointed out, “Just look at the yield you can get on CDs these days. It’s nonexistent.” EMG is currently living off of two funds that are used to originate loans: a $50 million pool, which is in wind-down mode, and a new one just gearing up. Baldwin would be happy to do $1 million a quarter in new product. (Most of the new “hard money” loans are short term, five years or less.)

Mozilo, the son of Countrywide Home Loans founder Angelo Mozilo and a seasoned mortgage banker himself, has facilitated about 20 loans during the two years Calcap has been in business. Calcap’s paper carries a note rate of 10% with two points up front.
Again, the production volume numbers are not overwhelming, but the profit-margin figures look enticing enough that there’s been plenty of industry chatter about new entrants.”I see other people looking at doing what I’m doing,” said Mozilo. “But the nice thing about it is that banks won’t be getting in this any time soon,” which leaves the business wide open for the nonbanks.
One firm that is posting decent “private money” volume (decent compared to Calcap and EMG) is UniTrust Mortgage of San Diego. Ilan Awerbach, a partner in the firm, said the lender has produced $15 million in new loans this year, after doing almost $30 million in 2009. UniTrust, he added, is looking at expanding into other Western states and is currently going through the licensing process. His company, like those managed by Baldwin and Mozilo, relies on private investors and concentrates on only making loans in the company’s home state.
All three executives told me the same thing: that demand is strong and the quality of borrowers is exemplary.
“The loans are excellent,” said Baldwin, whose past companies have included Meritage Mortgage and Financial Center Mortgage, the latter of which was merged into Bill Dallas’ First Franklin many moons ago.
“The loans are out there,” said Baldwin. “Our borrowers have FICOs of 700 but for one reason or another can’t get a mortgage. The other problem is that borrowers don’t even know there’s a source of funding out there for them.”
As for semantics, none of the three men like the word “subprime,” feeling it doesn’t accurately describe the underlying paper. “We like to call it ‘private money’ because that’s what it is,” said Awerbach. “The LTVs are very low.”
Also, the loans these companies make aren’t always totally residential in nature. “We’re making loans to borrowers who can’t get credit because they’re an investor—or they own too many properties and a bank won’t touch them,” said Mozilo. “
There’s this growing segment out there of people who won’t or can’t qualify.”
Or as Baldwin noted, “Thanks to this downturn, the job losses and everything else, we have more nonprime borrowers than ever before.”

LEG 3 Opportunity Link

http://www.cnbc.com/id/38199287

http://rismedia.com/2010-07-12/op-ed-the-role-of-appraisal-inflation-in-loan-securitization

http://www.clearonmoney.com/dw/doku.php?id=investment:commentary:2010:07:10-why_the_coasts_are_blue&source

http://www.clearonmoney.com/dw/doku.php?id=investment:commentary:2010:07:10-why_the_coasts_are_blue

LEG 4 Tools

Fannie & Freddie are the continued bailout of the banks, with our money. They have $5 trillion in debt before this bailout money! Their total debt is around $8 trillion now. Funny how Congress seems to think our money is their money to do whatever they want with.
F & F are selling foreclosures at 39% average loss. Fiscal responsibility?! F & F provide liquidity so the banks can gamble more. They will evolve into something new-probably private. They’re quasi-public/private enterprises existing only because of the taxpayers but they’re not beholding to the taxpayers-only the banks.
Spend baby spend is like drill baby drill-reckless with highly toxic results that spill over into every aspect of life with no ready cure. All possible scenarios should have been planned for & solutions made before the plans were put into action. Who builds a house by the river without blueprints & seeing if the river overflows?
Their foresight is blinded by the lack of will to be prudent in a rush for riches.

FDIC Starts Peddling MBS Backed by Performing Loans
The Federal Deposit Insurance Corp. hopes to sell a mortgage-backed security collateralized by at least $500 million of performing residential whole loans by the end of this month through a private placement deal, investment banking sources told National Mortgage News.

Average Fannie/Freddie Guarantee Fee Fell Last Year
The guarantee fee that Fannie Mae and Freddie Mac charge to their seller/servicers fell to 22 basis points last year from 25 the year before, according to a new study conducted by the Federal Housing Finance Agency.

GSEs Still Concerned About ‘Ability to Repay’ Underwriting
More than three years after the mortgage crisis began, some lenders are still selling loans to Fannie Mae and Freddie Mac without properly verifying borrowers’ ability to pay

Florida Brokers Vote to Rejoin NAMB
The Florida Association of Mortgage Professionals has voted to “pursue re-affiliation” with the National Association of Mortgage Brokers.

Private Money Firm Looking for Investors for Second Fund
Excelsior Management Group of Oregon hopes to attract more investors to a fund dedicated to making private money loans.

CoreLogic: 1Q Foreclosure Run-Rate at 1.23 Million Units
Residential foreclosures could top 1.23 million units this year, according to figures compiled by CoreLogic, Los Altos, Calif

Wells Top Ranked FHA Funder in the First Quarter
Wells Fargo & Co. originated $20.8 billion of FHA-backed mortgages in the first quarter, ranking first nationwide, according to new survey figures compiled by National Mortgage News.

With Business Increasing, PMI Adds MI Staff
PMI Mortgage Insurance Co., the nation’s second largest MI in terms of policies-in-force, said it is expanding its sales staff nationwide, adding executives to four key regions in response to improving market conditions.

U.S. Investors Largest Buyer Group in New Benchmark Issue
Investors from the U.S. bought more of Fannie Mae’s latest new issue three-year bullet Benchmark Notes than investors from any other nation or region. Still, more than half of the transaction went to foreign investors.

Former FNF Executive Has Big Plans for Title Unit
The former president and chief operating officer of Fidelity National Financial, Patrick Stone, has returned to an active role in the title insurance business and is looking to turn WFG National Title Insurance Co., Lake Oswego, Ore., into a national player.

LEG 2 Article

Home Price Data is Very Misleading

John Burns

There are great home price tools today to help you with the decision you are making. However, Case Shiller (CS) and median prices are not the right ones.
Executive decision makers want to know whether prices are trending up or down, and that question has never been harder to answer. When forced to answer the question, we say that most home prices are reverting to 2003 prices – some areas have overcorrected and some have not fully corrected. While that covers our butt nationally, we know the truth is much different depending on what submarket or pool of homes you are talking about. This email will be longer than usual because I want to show you a few things:

The “Best” Free Data Stinks
If you read the newspapers, you would think prices are appreciating, whether it is the Case Shiller price index or median resale prices – the two price measures that used to be the most reliable measures. Just look at recent price trends for Southern California.

According to CS, prices are up 6% in LA (includes Orange Co.) and 11% in San Diego since March of 2009. According to the median price, prices are up 12% in LA, 17% in Orange County, 12% in Riverside and 18% in San Diego since April of 2009. Neither is correct if you are talking about most homes in those markets.

Case Shiller is Particularly Wild
While we love the CS methodology, both CS and the median price are wildly impacted when the mix of what is transacting shifts dramatically from the norm. We set five price measures equal to 100 in the year 2000, and look at what happened in 2005 / 2006. CS showed 20% price appreciation over those 2 years, while the median price and most other measures showed only 6%. The truth was somewhere in between, but closer to the median than to CS.
Why? Because the mix of what was transacting shifted to the lower priced homes in the worst neighborhoods. That mix shift pulled the median price down, but those low-priced homes were appreciating rapidly, so CS (an index that compares price appreciation on the same house from when it last sold) went up. In response to this problem, CS developed sub-indexes showing trends by price tier, but most people I know don’t look at them and most don’t even know they exist.
If you have been relying on either of these measures for pricing, you have made some big mistakes. Just ask the rating agencies.

Why 2003?

Home prices have appreciated about 18% since 2000, which was the end of the last economic expansion. Assuming we are at the end of the next expansion, the price appreciation should be about in line with income growth and mortgage payment growth during that time. Incomes have grown approximately 16% since 2000. Since mortgage rates have fallen from 8.06% to 4.78% during that time, the mortgage payment has fallen 13%. Putting these two together, we believe 2003 prices are a reasonable estimate for most home values today. Obviously, this is a very back-of-the-envelope analysis and our work with clients is more targeted toward the decisions they are trying to make.
Any further price correction from here will likely either be due to rising mortgage rates, or an overcorrection (possible driven by Shadow Inventory), or because consumers took on so much other debt over the last 10 years that a 31% debt-to-income ratio is too high going forward (note that Borrowers who have received “permanent mods” have 30%+ of their income going to additional debt service on top of their primary mortgage!).

Go Invest Millions, But Spend the Time and Money to Know What You are Doing
Billions of dollars of decisions are made every day by people who don’t spend the money to know what is going on, and home prices are clearly just one example of this. Most of these decision makers are investing other people’s money, and are constrained by a budget process that says “You have no budget to know what is going on, but you have the authority to make huge investment decisions.” Here are some recent personal examples:
• Government: I met with a government agency involved in hundreds of billions of dollars of mortgages that didn’t have the budget to buy the same price data that firms who are investing in mortgage-backed securities buy
• Investment Banks: I had a phone call with a household name that was investing other people’s money and wagering on what the next CS news would be, but was devoting no more than a few hours of time to the research
• Bank: I met with a bank who was setting strategy to determine the right time to sell REO using CS data because it was free
• Home Builder: A home builder asked if I thought CS futures were the right metric to use for the assumptions in their impairment analysis

The Right Way
Automated Valuation Model (AVM) programs appraise every house every month. These models started off as being pretty inaccurate, but that is changing. We have found that AVM programs have been more accurately reporting home prices by MSA. The most famous of these can be pretty inaccurate per house, but the MSA measure is very good due to the tremendous sample size. One of the AVM’s shows that prices bottomed in LA (includes Orange County) and San Diego in April 2009 and are up slightly since then. However, in Riverside, prices are still falling. Our Consulting team doing work in all of these markets have similar conclusions. Other markets across the U.S. also seem to be correct. There is a big variance by neighborhood and price range too, which is correct. Unfortunately for most of you, the most reliable AVM models start at $100K/year!

Even Surveys Are Working Better Today
It might surprise you to know that there are some price measures that are in direct contradiction of CS and median prices, and we believe they are more accurate.
• Realtor Survey of Existing Home Prices. We have been scrubbing the data by MSA on a national realtor survey of several thousand realtors for years. We were highly suspect when we started this, but we have generally found that the survey is quite accurate. According to the survey, prices only recently started appreciating in Orange County, and they are still trending down very slightly in the rest of Southern California. Other markets around the country seem to coincide with our in the field research as well.
• Our Survey of New Home Prices. We get 250+/- industry executives who manage 2000+/- new home communities to reply to our monthly survey and comment on new home price trends, net of incentives. These are all clients and friends who tell us the truth, and they have been reporting that prices have generally been flat or very slightly down since September. Our Consulting team has found the same. June should be an interesting survey.
In addition to the above, there are tools to get to the right answer at a much more granular level (zip code and even neighborhood). These tools are new.

Conclusion
To understand home prices (and all else housing-related for that matter), you need to look at everything. If you are making a decision based on headline data or a regression to the mean, you are taking a lot of risk.
Most execs don’t have the time or budget to look at everything, so that is how we created a business out of this. The next time someone in your organization uses headline price data to make a point or to support an investment thesis, be sure to challenge that data to make sure it is an accurate representation of what is going on in the investment you are considering. Don’t make bad decisions because of misleading information!

LEG 3 Opportunity Link

http://www.nytimes.com/2010/07/09/business/economy/09rich.html

http://www.cisionwire.com/media-intelligence-partners-ltd/a-giant-government-sanctioned-ponzi-scheme–how-wall-street-and-bad-policy-conspired-to-create-the-financial-crisis

http://finance.yahoo.com/news/Mortgage-rates-drop-to-new-apf-1792715558.html

http://www.csmonitor.com/Money/Paper-Economy/2010/0709/Foreclosure-double-standard-Why-the-rich-get-away-with-defaulting

LEG 4 Tools

Facts, Figures & Other Tidbits That Make a Real Difference

Admit it. Most people don’t have a head for facts, figures and statistics. Except for a few special people that seem to thrive on data and obscure calculations, just the mere mention of facts and figures tends to cause people to start shifting in their seat and looking for the nearest exit. This is NOT one of those situations. Today we are going to cover a few facts and figures that make a very real difference in your real estate and investing career. Things you can put to work and take straight to the bank. Try these out and see for yourself.

1. Establish a ratio. Not just any ratio…a ratio that has been proven effective. Burn this number into your brain and use it as a foundation for growth and maintenance. Research conducted by top agents and businessmen indicated a 34:1 ratio to successfully close one transaction. Notice, these are successful agents so novice investors may need to use a higher ratio when first starting however, nothing says that each contact must be time consuming or made in person.  Bottom line: make contact with an average of 34 buyers/sellers for every deal you close….but worker smarter not harder

2. Increase your odds. One of the biggest mistakes most people make when investing in real estate is to think the little things don’t matter. They do. Take the above ratio as an example. It’s tempting to believe that making contact with only 25 people instead of 34 is sufficient. Don’t believe it. Do the math and you will soon realize the impact on your business at the end of the year is likely to be a full 30 percent less than the person who maintained the 34:1 ratio instead! Take away…to grow your business you must not just meet the standard ratio but rather exceed it. Instead of retaining the 34:1 ratio you might need to adopt a 45:1 ratio.

3. Focus on one skill and delegate the rest. Veteran real estate professionals have learned the fine art of delegation but there is one skill that you should NEVER delegate…do you know what it is? Not only is it one of the most crucial skills to business success but it’s where the money is. In fact, it’s probably not an overstatement to say this is the single most important part of your business…yet the majority of real estate professionals are unable to identify this skill when asked. Even worse, many actually delegate this to others…a practice akin to handing over their business.

Have you guessed yet? Plan and simple…lead generation.

FHA Production Falls 3% in May
Mortgage bankers originated $22.3 billion of Federal Housing Administration backed single-family loans in May, down 3% from April, according to new figures released by the government.

Wells’ Finance Unit Exits ‘Non Prime’ Portfolio Loans
Wells Fargo & Co. is pulling the plug on its consumer finance division, and will cease production of all nonprime mortgage loans funded through the unit.

OCC’s Dugan Makes it Official and Resigns
Comptroller of the Currency John Dugan said he will step down August 14 after nearly completing his five-year term as the top supervisor of national banks.

Average 30-Year Rate Falls Slightly to Another Record Low
The latest average weekly rate for a Freddie Mac 30-year fixed-rate mortgage beat the previous week’s survey-record low by a hair, but the average 15-year FRM rate rose slightly.

Connecticut Nonbank Lender Expanding Presence in Reverses
Total Mortgage Services, Milford, Conn., is expanding its presence in reverse mortgages, and has hired a new executive to spearhead the effort.

Home Equity Survey: Delinquencies on Credit Lines, Loans Fall
The delinquency rate of home equity lines of credit fell for the second consecutive quarter and missed payments on closed-end home equity loans fell in the first quarter for the first time in two years, according to an American Bankers Association survey.

FHA Tightens Multifamily Underwriting Standards
After months of raising standards for single-family lenders, the Federal Housing Administration tightened guidelines for multifamily mortgages for the first time in the 40 years it has insured such loans.

Ross, Others Investing in N.J. Depository
Sun Bancorp Inc. of Vineland, N.J. said billionaire investor Wilbur Ross’ private equity firm, Sun’s founding Brown family and others will invest $100 million in equity in the bank, news that sent its stock soaring 37% on Thursday.

It’s Official: Fannie and Freddie are Now on the OTC Exchange
Fannie Mae and Freddie Mac’s common and preferred stock began trading on the over-the-counter market Thursday morning, as directed by their regulator.

HUD Selling Cleveland Homes for $100
The Department of Housing and Urban Development is selling some seized homes in the Cleveland area for as little as $100.

New Auction Site Offers $60M of Commercial Assets
RealtyBid.com, Rainbow City, Ala., has partnered with a division of national commercial real estate broker Marcus & Millichap, to develop a bidding site for commercial real estate assets.

LEG 2 Article

Fannie’s Appraisal Policies Updated

Fannie Mae updated its selling guide to provide additional appraisal-related guidance. The new policy addresses issues identified with appraisals after reviewing many mortgage loan files. Fannie will now require interior photographs of specific rooms and areas of the house in the appraisal report.

The GSE provided guidance on when an appraisal is considered deficient and when a lender can make changes to the opinion of market value based on underwriter judgment, automated valuation models or other methodology. The policy changes take effect for all mortgage loan applications dated on or after Sept. 1, 2010.

Additionally, the GSE provided guidance on appraisers’ use of foreclosures, short sales and builder sales as comparable. Fannie clarified that appraisers must be selected based on knowledge of specific geographical markets, access to appropriate data and sufficient experience. Specifically, Fannie said, a qualified employee of the lender may contact the appraiser to provide additional information or explanation about the basis for a valuation.

LEG 3 Opportunity Link

http://www.nytimes.com/2010/07/04/business/economy/04econ.html?pagewanted=1&_r=1&th&emc=th

http://finance.yahoo.com/tech-ticker/richard-suttmeier-home-prices-could-fall-another-50-515409.html

http://online.wsj.com/article/SB10001424052748704178004575351072635845474.html

http://www.cnbc.com/id/38110678

http://www.calculatedriskblog.com/2010/07/investors-buying-foreclosures-in.html

LEG 4 Tools

Swinging Short Sale Discounts

Short sale discounts from regular retail home prices are varying widely from market to market in the US, according to RealtyTrac, an online foreclosure marketplace. This week, RealtyTrac released a report that foreclosure sales took up 31% of all home sales in the US through Q110.

According to the report, there were 88,000 pre-foreclosure sales, often short sales, in Q110, for an average discount from retail home prices of 14.7%. By comparison, REO discounts in the US averaged 34%. But while some are seeing large short sale deals above the 14.7%, others are not.

Bill Gassett, a broker with RE/MAX Executive Realty in Hopkinton, Mass., said he’s seeing slightly different numbers, suggesting that short sale discounts vary differently even within states. “There are amazing discounts right now for buyers in the Bluffton/Hilton Head Island market if they are willing to pursue a short sale,” said Tisha Chafer, a real estate agent with Century 21 Southern Lifestyle Properties in Bluffton, S.C. Bluffton is on the very southern-most tip of South Carolina. “If you are patient and can handle dealing with the time it takes for the bank to process the file then you will be rewarded at the end with a property that you were able to purchase at a great price,” she added.

Walter Mueller, a broker at Exit Realty Charleston Group said the listing price is set differently depending on which lender a broker is working for. Some want the listing price set at market value. Others want it listed at the amount of the mortgage balance, while others still have no preference. But Mueller said buyers are becoming more aware of the opportunities short sales and REO provide.

“Show me a man who cannot bother to do little things, and I’ll show you a man who cannot be trusted to do big things.” Lawrence D. Bell

LEG 1 Noteworthy

Analyst: GSE AU Systems Worth $500MM
The automated underwriting systems of Fannie Mae and Freddie Mac could be worth up to $500 million, according to one veteran mortgage technology analyst.

Citibank Making Inroads on Jumbos
Citibank’s strategy to increase its presence in the jumbo mortgage market appears to be working — applications in the sector are up 60% in the past 60 days, according to sources familiar with the lender’s operations

PennyMac Selling NPLs on its Website
PennyMac Mortgage Investment Trust, a publicly traded vulture fund, is now offering nonperforming notes to investors through its website but is using three outside firms to facilitate sales.

Anti-Government Militia Members Charged in Bizarre CU Extortion
Three anti-government zealots were indicted by a federal grand jury in connection with an alleged scheme to extort money from public officials and top executives of Mid-Hudson Valley Federal Credit Union, after the lender foreclosed on one of their homes.

LPS: 90-Plus Day Delinquencies Up Slightly
The percentage of residential loans in default beyond 90 days increased slightly during May, while both delinquency and foreclosure rates remained relatively stable at historically high levels, according to new figures compiled by Lender Processing Services

More Assistance for Jobless Mortgagors
The government is extending more relief to unemployed homeowners who are struggling to pay their mortgages

Pentagon FCU Acquires Texas Realtors
A unit of Pentagon Federal Credit Union, Alexandria, Va., has acquired Exit Slater Realtors in San Antonio to provide real estate services in the Texas market.

Freddie Lays Blame for Buybacks on Lenders
Freddie Mac recently listed five ways that lenders can avoid loan repurchases, laying plenty of blame for underwriting defects squarely on the shoulders of management at banks and mortgage lenders.

Former Treasury Official Steel Departs Wells Fargo’s Board
Robert Steel is resigning his seat on Wells Fargo & Co.’s board of directors, the company said in a filing with the Securities and Exchange Commission on Friday

RCS Rated as ‘Proficient’ Servicer
Fitch Ratings has upgraded the servicing status of Residential Credit Solutions, Ft. Worth, Texas, saying the firm can “effectively manage and liquidate” nonperforming loans and real estate.

LEG 2 Article

Replacing Fannie and Freddie’s $1.5 Trillion Balance Sheet

Fannie Mae and Freddie Mac–the Congressionally chartered mortgage giants that provide liquidity for 70% of all residential loans funded in the U.S.–are done. They have no friends in Congress and Republicans (and plenty of Democrats) blame them for creating the housing bubble.
Even their regulator at the Federal Housing Finance Agency, Ed DeMarco, thinks they have no future. Otherwise, he would never have pulled their shares off the New York Stock Exchange while refusing to answer questions about a reverse stock split. (It worked for AIG. Why not the GSEs?)
In six months the White House is scheduled to release its plan on what to do with Fannie and Freddie with a nod toward creating a housing finance system for the 21st century. All eyes will be on the Obama administration, which is already being tarred and feathered by bankers who expect to see their future earnings snipped by 20% or so thanks to the new regulatory reform bill. (If you think that piece of legislation was contentious, wait until you see GSE reform. I’m sure there are plenty of banks that would like to see the value of their GSE preferred stock come back to them in full.)
It might be said that the Fannie/Freddie “question” looms on the horizon, not unlike the BP oil slick, waiting to reach land and destroy what it hasn’t already. And you can pretty much guess that in the fall, the GSEs will be part of a political litmus test where politicians running for office try to prove how tough they tried to be on FanFred in the past, but were blocked by housing liberals, read: Democrats.
It’s easy to kick the GSEs when they’re down. After all, unlike the auto companies, AIG and the megabanks, the billions Fannie and Freddie have received to maintain a positive net worth position won’t eventually be recouped by Uncle Sam, at least it sure doesn’t look that way. But while it’s easy to stick your thumb in their eyes, a central question needs to be addressed: If the two eventually disappear, which firms will fill the void? At last check, Fannie and Freddie had a combined balance sheet of $1.6 trillion, mostly whole loans and MBS. They guarantee $5.5 trillion in residential product, or 55% of all housing debt in the U.S. If they go away, who takes their place?

It’s not a disingenuous question. As mortgage MBS co-inventor Lewis Ranieri once quipped, “Mortgages are about math.” You can’t replace $1.6 trillion of balance sheet capacity overnight. In fact, you can’t replace it within three years either. Those assets must reside somewhere. And if you think that our nation’s megabanks, the regionals and what’s left of the thrifts and credit unions will gladly sweep in to fill the void you’re mistaken.
The profit margin between a residential lender’s cost of funds and the yield on the mortgages they write is quite strong right now and looks to stay that way for 12 to 18 months, maybe even longer. The yield on the 10-year Treasury is in the basement but so is a lender’s cost of funds. (When’s the last time you checked CD rates?) But all this doesn’t mean that it’s safe for a depository to borrow short (deposit accounts) and lend long (30-year fixed-rate loans.) Actually, an argument might be made that borrowing short and lending long is a heck of a lot safer than anyone really thinks, but that doesn’t mean banks will do it or their regulators will it. If you recall your financial services history, the S&L crisis was caused by borrowing short and lending long (followed by unfettered asset deregulation).
But getting back to Fannie and Freddie. The balance sheet issue is only one part of the equation. It’s likely the White House and Congress will allow for some type of successor GSE, mandating that the institution have a small balance sheet for mortgage products that are less liquid. As for whether that GSE will be “on balance” for budget deficit calculations, that’s a different matter. If you put the GSEs’ guarantees “on budget” the potential obligations of the U.S. government just increased by $5.2 trillion. Our creditors may have something to say about that. Or maybe not.
But the guarantees on Fannie/Freddie MBS are a key issue because they account for half of all consumer housing debt. If a covered bond market for housing debt replaces the GSEs the issue of balance sheet capacity for the issuing commercial banks doesn’t go away. Holding residential mortgage assets still requires capital. One former Fannie Mae executive suggested to me that a new housing GSE could issue MBS guarantees and the money would be set aside in an insurance fund. “It would function like deposit insurance,” he said.
One thing the government is not likely to do is fire sale Fannie and Freddie’s assets, namely their MBS. If they do, it would cause MBS prices to crater while creating massive mark-to-market losses at banks, thrifts, insurance companies, pension funds, take your pick. The one asset the government could sell is their automated underwriting systems, Loan Prospector and Desktop Underwriter.
Technology consultant Jeff Lebowitz estimates that revenue at DU and LP averages $200 million to $250 million a year. “You could sell them for one to two times revenue more or less,” he said. Of course, the money raised would be a drop in the bucket compared to the $140 billion Treasury has pumped into the two. Yes, Fannie and Freddie are done, politically speaking. But for now, they are here to stay.

LEG 3 Opportunity Link

http://www.mortgage-technology.com/newsletter/garritano/?story_id=1128

http://www.nytimes.com/2010/07/03/your-money/03compare.html?th&emc=th

http://www.cnbc.com/id/38020841

http://www.nytimes.com/2010/07/04/business/energy-environment/04solar.html?th&emc=th

LEG 4 Tools

Foreclosures sell at 30% discount

Foreclosures accounted for a third of all sales — and sold at a nearly 30% discount — during the first three months of 2010. According to a new report from RealtyTrac, the marketer of foreclosed properties, 31% of all sales were foreclosures. And homebuyers purchasing those properties paid a whopping 27% less, on average, compared to sales of non-distressed homes.

These foreclosure sales include properties sold in short sales or after a bank repossession, known as REOs in industry terms. It does not include transfers from borrowers to banks, as in a sheriff’s auction.

Foreclosures have become a dominant feature of many real estate markets, finding willing buyers among young bargain hunters and savvy housing market veterans. Foreclosure sales were highest, expectedly in the bubble states of Nevada, Massachusetts, Rhode Island and Florida.

Lenders have been trying to manage their inventories of foreclosed homes to prevent them from flooding the market and dragging down prices. The impact of foreclosure sales on the home sales market can have a depreciating effect on the entire inventory out there.

Yesterday doesn’t matter. The only thing that stays the same is change. Work smarter but hard. Follow your transaction in every aspect to close. Persistence will get the job done!

LEG 1 Noteworthy

FHA Watching For Excessive TPO Fees
The Federal Housing Administration is closely monitoring all fees charged by mortgage brokers and other third-party originators who are sponsored by FHA-approved lenders, agency officials said during an unusual industry conference call this week.

Lenders Lay Off 700 As Workforce Reductions Slow
The mortgage companies shed only 700 full-time employees in May despite a gloomy third quarter outlook for originations and home sales.

Kislak Returns to the Mortgage Business
J. I. Kislak Mortgage, the Miami-based company is re-entering the residential mortgage space and it is taking a two-pronged approach to the business.

Flood Insurance and Home Tax Credit Extensions Approved
The mortgage industry can feel a little more patriotic this 4th of July holiday now that President Obama has signed two bills to re-start the flood insurance program and extend the closing deadline for homebuyers seeking a tax credit.

Appropriators Provide $150 Million in Credit Subsidies for HECMs
The FHA reverse mortgage program may be spared from deeper cuts this year thanks to a decision by a House Appropriations subcommittee to provide a $150 million credit subsidy for the Home Equity Conversion Mortgage program.

Reverse Mortgage Lender Acquired by Knight Capital
Knight Capital Group Inc. has purchased Urban Financial Group Inc., a Tulsa, Okla.-based originator of reverse mortgage loans, making it an origination through securitization player in the sector.

Foreclosed Homes Hit Auction Block in 4 States
Hudson & Marshall plans to auction nearly 250 bank-owned homes July 13th-17th in cities throughout Indiana, Illinois, Minnesota and Wisconsin.

M&I Bank Extends Foreclosure Moratorium
Moratoriums are once again the foreclosure prevention tool of choice for Marshall & Ilsley Bank, which has given an additional three-month leeway to distressed borrowers.

Potential MSR Writedowns Could Hurt PHH 2Q Results
PHH Corp. could have to writedown the value of its mortgage servicing rights by between $150 million and $200 million in the second quarter of 2010, according to an analyst’s report from FBR Capital Markets.

LEG 2 Article

Freddie Mac Short Sales Up 600% from 2 Years Ago

Freddie Mac CEO Ed Haldeman said the company has seen the number of its short sales increase 600% from 2008 as lenders look to dampen the impact of foreclosures hitting the marketplace. In a statement put out this week, Haldeman said Freddie Mac is doing everything it can to prevent more foreclosures, and that short sales are becoming an ever-popular tool in situations where foreclosure is imminent and modifications have failed. That number could increase as the Home Affordable Foreclosure Alternatives (HAFA) program takes hold. The Treasury Department launched it in April to provide cash incentives to servicers for conducting short sales and deeds-in-lieu of foreclosure.

RealtyTrac, an online foreclosure marketplace, is even preparing a short sale report to go long with its usual foreclosure report every month. It won’t be available until the end of 2010 however. “Foreclosure alternatives like short sales and deeds-in-lieu help borrowers to avoid the stigma of foreclosure, shorten the waiting period before they can buy a new home, and may inflict less damage on their credit reports,” Haldeman said. While short sales still add to the housing supply and can put pressure on local home values, they often avoid the lack of maintenance or damage foreclosed homes often display. Since the middle of 2008, Freddie Mac reported total losses of $84.4bn, according to its quarterly reports. The company’s plight has forced a directive from the Federal Housing Finance Agency (FHFA), its conservator, to de-list its and Fannie Mae’s common stock from the New York Stock Exchange.

LEG 3 Opportunity Link

http://blogs.wsj.com/developments/2010/06/28/how-far-underwater-do-borrowers-sink-before-walking-away

http://www.nytimes.com/2010/07/02/business/economy/02econ.html?th&emc=th

http://www.marketwatch.com/story/pending-home-sales-plunge-30-in-may-2010-07-01

http://www.businessinsider.com/case-schiller-foreshadows-a-crash-in-new-york-real-estate-and-consumer-spending-2010-6#ixzz0sGYMf5w3

http://www.bloomberg.com/news/2010-07-01/fed-s-maiden-lane-made-taxpayers-junk-bond-buyers-without-congress-knowing.html

LEG 4 Tools

STAY ABOVE THE LINE

Wake up every day with a smile and the attitude that you’re going to have a positive influence on everyone you come in contact with and try to change someone’s life today for the better. Start your day with a 100% commitment to stay “above the line” instead of dipping “below the line”…
ABOVE THE LINE means taking personal ownership of your situation…
Being 100% responsible for everything that happens to you and
Being held accountable for all the decisions you make and for everything you do or say.
BELOW THE LINE conversely, is what others do everyday…
Blaming others for every bad thing in their life,
Making excuses for “this and for that”,
Being in denial about their situation and how they got there.

Ask your co-workers, family and friends to point out to you anytime you dip “below the line” and just watch how your life and attitude will change for the better!

The greatest accomplishments in life are not achieved by individuals alone, but by proactive people pulling together for a common good. – John Murphy

LEG 1 Noteworthy

Long-Term Rates Hit More Record Lows
Long-term primary market mortgage rates tracked by Freddie Mac have hit more record lows and with the benchmark 10-year Treasury yield just above 2.9% shortly after noon Thursday there could be more ahead—depending on what employment numbers set for release on Friday are like.

Senate Approves Flood, Tax Credit Bills
The Senate has passed two bills, one to re-start the National Flood Insurance Program and the other to extend the closing deadline for the homebuyers tax credit.

House Passes Reform Bill
The House of Representatives has passed the Dodd-Frank Wall Street Reform by a 229-198 vote, but the sweeping regulatory reform bill still has to clear a 60-vote hurdle in the Senate before it becomes law.

Future Home Sales Indicator Down for May
The National Association of Realtors’ gauge of future home sales plunged 30% in May following the expiration of the homeowner tax credit on April 30

GAO: Investors Eyeing New FHA Aid for Underwater Loans
Mortgage investors are very interested in a refinancing program the Federal Housing Administration plans to roll out this fall to help underwater borrowers with non-FHA loans, according to a Government Accountability Office report

MI Cures Continue to Outpace Defaults
Private mortgage insurers had some good news in May as for the fourth consecutive month, there were more cures than defaults, plus they had their best month of the year in terms of primary new insurance written.

Small Decline in COFI for May
Even though other indicators are seeing record lows, the Eleventh Federal Home Loan District Cost of Funds Index for May is still 53 basis points higher than its all-time low point set last October

Fortress to Purchase Commercial Servicer
Fortress Investment Group LLC, New York, has agreed to acquire CW Financial Services, a servicer, special servicer and originator of commercial and multifamily real estate loans, from majority shareholder Otéra US Holding Inc.

Recoveries Look Modest into 2011, But Then Could Improve
Many housing markets could see stronger recoveries two years from now even though the latest forecast for the coming year shows only modest ones, according to one company’s forecast.

REIT Repays Credit Facility
NorthStar Realty Finance Corp., a real estate investment trust that originates commercial debt, has fully repaid and extinguished its $304 million credit facility with Wells Fargo NA.

Stewart Merges Underwriting Units
Stewart Information Services Corp, Houston, has merged three of its subsidiaries into its main underwriting unit.

ING Discounting Closing Costs as Part of Sale
As part of its Financial Independence Days Sale taking place today and tomorrow, ING Direct USA will give prospective homeowners who apply for an Easy Orange or Orange Mortgage $776 off closing costs.

LEG 2 Article

Housing’s Powerful Lobby Surges Ahead

Diana Olick

You need look no further than this morning’s news. Congress, at the eleventh hour, passes an extension of the closing date on the home buyer tax credit. It was supposed to expire at midnight last night.
Last week, at the monthly lockup for the existing home sales report, the Realtors’ chief economist, Lawrence Yun, told reporters that if the closing date wasn’t extended, 180,000 home buyers who signed contracts by April 30th, would lose the tax credit due to delays in closing. He blamed these delays on the tough mortgage market, new appraisal rules and the still-complicated short sale process (when a home is sold for less than the value of the loan).
So Congress tried to attach a three month extension on the closing date to other legislation last week, but those bills never passed. But the powerful troika of Realtors, builders and mortgage bankers pushed full speed ahead, rallying the troops.
I can’t tell you how many calls we got here in the CNBC DC bureau from Realtors claiming there would be “rioting in the streets” (I’m not kidding—and that was a Connecticut Realtor) and PR reps for industry types offering endless “experts” to discuss the “vital” need for the extension.You can imagine what was going on a block up from my office on Capitol Hill.
So, lo and behold, before midnight last night, a stand-alone measure made its way through the Senate, as the House had passed it the day before. In yesterday’s blog I discussed the ramifications of said extension, but today I want to stick to the power behind it, which is the subject of my final piece today in CNBC’s “Housing Fix” series.

The Realtors alone are one of the most powerful lobbying forces in Washington, number one in spending in the real estate industry and 13th out of all industry lobbyists. Add the National Association of Home Builders and the Mortgage Bankers Association, and you get a force that spent $5 million in just the first quarter of this year and is on pace to break last years $27 million tab.
“The real estate industry is a powerful force across the country,” notes Sheila Krumholz of the Center for Responsive Politics. “Not just at the federal level but at the state and local level. A very politically active group of people.”
Many Realtors also moonlight as state legislators, city council members, mayors and school board presidents; if you think members of Congress don’t understand that, think again. ”Certainly we have been talking to more people in the past number of years than ever before,” admits NAR’s chief economist Lawrence Yun. “We are fortunate in terms of members of Congress willing to listen to our members.”

Housing represents a lot of jobs, plain and simple, and now is a critical time for the industry. “Right now is where the rubber meets the road,” says Krumholz.
The home buyer tax credit and its extension and its closing extension were all the result of this powerful lobby. Now, as Congress looks forward to tackling mortgage behemoths Fannie Mae and Freddie Mac, you can bet these three associations will be buying their lobbyists new shoes for walking the hill.
“We have worked for over a year on a model [for Fannie and Freddie] that we introduced late last year, and its gotten really a very good reception,” says the Mortgage Bankers Association’s CEO John Courson. “We have been with the administration, we have been to the hill, other trade associations, consumer groups, in fact, I must say not to be too immodest, but there have been a number of plans that have come out since then, that look very similar to ours.”
Government may be trying to extricate itself from the business of housing subsidies, but the industry has no such plan. Get ready for a surge in K Street spending, as housing builds itself back from the ground up.

LEG 3 Opportunity Link

http://www.npr.org/templates/story/story.php?storyId=128078864&sc=emaf&source

http://www.bloomberg.com/news/2010-06-30/foreclosed-homes-in-u-s-sell-at-27-discount-as-distressed-supply-grows.html

http://www.cnbc.com/id/38037896

http://www.news-press.com/article/20100630/RE/100629059/1014

http://dailybail.com/home/busted-goldman-finally-admits-firm-made-secret-bets-against.html

LEG 4 Tools

“The leaders who work most effectively, it seems to me, never say “I.” And that’s not because they have trained themselves not to say “I.” They don’t think “I.” They think “we;” they think “team.” They understand their job to be to make the team function. They accept responsibility and don’t sidestep it, but “we” gets the credit…This is what creates trust, what enables you to get the task done.”
Peter Drucker

“Courage does not always roar. Sometimes courage is that quiet voice at the end of the day that says…I will try again tomorrow.”

-Mary Anne Radmacher

LEG 1 Noteworthy

2009 Highly Profitable Year for Mortgage Banking Firms
Small mortgage companies benefited from higher loan production in 2009 and posted healthy profits for the year, according to a Mortgage Bankers Association report

Mortgage Stocks Drop
Most mortgage stock prices dropped Tuesday morning amidst overall renewed fears of a global slowdown that led to a 252-point drop in the Dow Jones Industrial Average by mid-day

Tax Credit Sales Pushes Case Shiller HPI Up
House prices got a push from the homebuyer tax credit and rose 0.8% in April — the first month-to-month price increase in seven months, according to the Standard & Poor’s/Case-Shiller house price index

More States Offer Foreclosure Mediation Programs
Over the past year, the number of states with programs offering foreclosure mediation has nearly doubled, from 11 to 21 states, according to the Center for American Progress

Flight To Quality Drives Down Treasury Yields
The benchmark 10-year Treasury yield as of Thursday morning had dropped below 3% for the first time in more than a year due to global financial market concerns, putting downward pressure on long-term mortgage rates

Company Offers Protection Against Inaccurate Appraisals
DartAppraisal.com is offering a warranty that guarantees mortgage lenders and investors against potential loss for default and disclosure due to valuation inaccuracy.

California CU Hires New Mortgage Executive
Kinecta Federal Credit Union has named Dennis Kuncas vice president, mortgage lending operations

Russell 3000 Adds GSE Stock to Index
Farmer Mac’s Class C non-voting common stock is now part of the Russell 3000 Index.

Reform Bill Vote Likely to be Postponed
The death of Sen. Robert Byrd, D-W.Va., is likely to postpone a final vote on the sweeping regulation reform bill until the governor of West Virginia appoints a new Democratic senator.

Field Service Veterans Launch CAP
Marc Insul, former president/COO of Fidelity National Field Services Inc. and Alan Bunker, president/CEO-Spectrum Field Services Inc., recently started a national property preservation company for abandoned and nearly vacant commercial and industrial real estate.

LEG 2 Article

Is Home Ownership an American Right?

Diana Olick

Today we begin a series on CNBC called The Housing Fix. To be honest, it grew out of our need to look at the biggest elephant in the home today: Fannie Mae and Freddie Mac.
Maybe the government doesn’t want to deal with them just yet, but that doesn’t mean we should all just ignore the fact that these two ticking time bombs continue to support more than half of the mortgages in this country and the bulk of new originations.
So like any good essay, we had to start with the thesis statement, which really comes down to: Is home ownership an American right?
The government appears to say yes.
In my piece on CNBC today, I relate through the history of just how we got to this ownership society…the politics, policies and politicians behind home ownership. But here I’d like to take the conversation forward. We know how we got here, and we know what happened when home ownership went completely haywire. Now the politicians are calling for “responsible” home ownership, and yet government continues to pour billions of dollars into programs and incentives that push more borrowers into homes that may not be the best fit.
Today the S&P Case Shiller Home Price Index showed an improvement in home prices over the same period last year. California is leading the way in recovery. But in an interview with David Blitzer of S&P, you would have thought prices fell through the floor again. Blitzer’s claim is that prices should be recovering far better and faster than they are. He cites the disappointing fact that nine of the top twenty cities hit new price lows at some point since the beginning of this year. And then there’s the concern that the gains are artificially boosted by the home buyer tax credit which expired April 30th.
“Other housing data confirm the large impact, and likely near-future pullback, of the federal program. Recently released data for May 2010 show sharp declines in existing and new home sales and housing starts. Inventory data and foreclosure activity have not shown any signs of improvement. Consistent and sustained boosts to economic growth from housing may have to wait to next year,” write Blitzer.
And the bulk of housing analysts weighing in express the same concern:
Patrick Newport, IHS Global Insight: “The Case-Shiller house price indices (HPIs) are three-month moving averages, so April’s readings reflect transactions in 20 markets that closed in February, March, and April. These were months in which demand was picking up because of the second homebuyers’ tax credit. April’s broad-based increase in prices, the first in seven months, thus, is without a doubt related to this credit.”
Peter Boockvar, Miller Tabak and Co.: “Bottom line, with the housing industry now left to its own natural supply/demand dynamic, the real test comes and while we look to the homebuilding stocks and other material suppliers and home retailers to gauge market reaction, don’t ignore US banks who have mostly assumed no double dip in housing and thus a hoped for stabilization is reflected in the pricing of mortgage related securities on their books.”

Which all brings me back to my original thesis: Government gets involved in the housing market, the housing market surges and then that same housing market inevitably pays the price when government pulls out.
This is not to say that there aren’t some good, long-term programs out there to spur home ownership for deserving, low-income buyers, but the idea that the government was somehow going to jump start home buying with a tax credit, and then that car would just keep on driving, really couldn’t work in this market.
Today’s housing market is so out of whack with the usual fundamentals and, let’s face it, the historical attitudes toward home ownership have been turned on our collective American heads.

Government, yes, has a responsibility to save the banking system from a total meltdown due to bad mortgage debt, but the future of housing, of home ownership, needs to reinvent itself without artificial stimuli.
Americans have to get back to basics, and by basics I mean affordability, responsibility, and plain common sense. Government is not famous for any of those.

LEG 3 Opportunity Link

http://www.cnbc.com/id/37982580

http://blogs.forbes.com/investor/2010/06/28/home-prices-could-drop-50-as-the-great-recession-resumes

http://www.businessinsider.com/14-scary-facts-about-the-the-us-real-estate-nightmare-2010-6#record-low-new-home-sales-in-may

http://finance.yahoo.com/banking-budgeting/article/109948/the-mortgage-market-is-rigged-against-borrowers

LEG 4 Tools

800,000 mortgages in California are 30+ days late or in foreclosure. Only 132,000 show up in the MLS. Why there will be no housing bottom for California until at least 2012.

The latest data on new and existing home sales shows us evidence that housing has benefited from a bear market bounce but that has now come to an end. The drop in existing home sales was sizable but the drop in new home sales came in at a record breaking figure. The difference here comes from the large amount of distress inventory still moving at lower prices. The amount of troubled mortgages still filtering through the system is large and gives us pause for caution. Much of the boost can be said to have come from massive government intervention.

In California there is now money going to banks to match a principal reduction for those homeowners in distress. In other words, the focus is on problems and not having a more stable market for housing. Over the last year, we also saw many people moving off the sidelines spurred by low interest rates, tax credits, and the perception that housing had hit bottom. For California, the data signifies that there will not be a bottom until at least 2012 and that is what we will examine in this article.
This is probably one of the most important questions going forward. First let us examine California as it stands today:

Let us go through each category above to make things more clear. The for sale column is pulling data from the MLS. This is data that the public can view either through a realtor or through one of the many sites available online. The next column for distress properties includes all notice of defaults, properties scheduled for auction, and those that are in foreclosure. As you can see between the differences from the “for sale” item to “distress properties” a large part of this real estate never makes its way to public view. Finally, we know from banking and current mortgage data that 15 percent of California mortgage holders are at least 30+ days late or are in the process of foreclosure. This is the most troubling data of all. Nearly 800,000 properties show up here.

What this tells us is that we have a few years of working through this mess before finding any sign of stability. Keep in mind a large amount of troubled mortgages have yet to be dealt with in the state. The above should give you a sense of what we have today in California.

Let us continue the math. Last month statewide, California had 40,965 home sales. At the same time, 24,669 new notice of defaults were filed. So let us do the math here:
40,965 – 24,669 = 16,296 homes cleared out of the massive inventory

Now depending on your perspective, if we only look at MLS data we have roughly 3 months of inventory in the state. Looking at distress data we have over 6 months of inventory. If we look at the broadest measure we have 19 months of inventory.

However, we are only looking at the current sales rate and keep in mind this is high because of tax breaks and also the current part of the selling season. We also have to take into account that last month nearly 25,000 more properties are being put into the pipeline for future distress (not counting regular homeowners who want to sell). Subtracting this out, we really cleared out about 16,000 properties for the month.

Assuming no new foreclosures (not likely) at the very earliest it will be mid to late 2012 before we have any semblance of a bottom in California. Keep in mind that California is also battling a troubled state budget. This will require new revenues (higher taxes) or more cuts (higher unemployment). Both options are bad for housing going forward.

Double dip recession
I’m surprised that many in California are talking about a double dip recession. In this state at least, we never got out of the recession to begin with. All we need to do is look at the unemployment data to show us this:

Does that look like we double dipped? Unemployment is still sky high for the state. Without a solid economy there is little prospect that real estate in California will somehow enter another golden era. We have lost over 1 million jobs in the state since the recession started. Even last month when we added 28,000 workers it will take us 35 months before getting back to pre-recession unemployment at this rate. And looking at the data carefully, we see that the bulk of employment growth came from the government sector. This provides more evidence that we are still at least two years away from any housing bottom.

Drag of shadow inventory
Looking at the first chart you realize that there is a tremendous amount of distress property on the market that is hidden from the public. This large amount of shadow inventory will be a drag on California real estate prices going forward. Nearly 800,000 mortgages in California are at least 30+ days late or are in the process of foreclosure. Yet only 132,000 homes are listed on the MLS. That is why it is hard for any honest realtor to tell you with a straight face that there is “only” 3 months of inventory so you need to move fast. Most understand that the real market is full of troubled properties. Plus, you realize that we still have thousands of homeowners not keeping up with their mortgages and many more being added per month.
We all realize the issues with Alt-A and option ARM products. These are still out there and will not finish resetting/recasting until 2012 (at least the bulk). But now, the bigger problem revolves around the larger prime market having major problems. Fannie Mae and Freddie Mac are losing money left and right (which means we as taxpayers are losing money left and right). FHA insured loans are plagued with sharply rising defaults and these make up about 4 out of 10 loans in California (this trend has held for nearly a year).
The massive drag of shadow inventory will keep a lid on real estate prices going forward. Throw in the fact that higher priced properties have yet to adjust significantly and we have another market that will take a hit.

2012 bottom?
Predictions in this market are a losing game. With the government intervention it is creating an artificial buffer to the correction. Yet prices have fallen. So things get dragged out. When we look at the data as a whole it looks like 2012 at the earliest will be a bottom. This doesn’t necessarily mean a bottom in prices but a time when we will work through this massive amount of shadow inventory. There is little reason to buy right now in many cities and renting is a much better option for many. Until we work through these 800,000 properties, California is going to have a highly volatile market. Buyer beware.

Industry Gets Big Win on Risk Retention and ‘QM’ Test
Mortgage bankers will be allowed to securitize FHA and VA guaranteed loans without a risk retention requirement and certain GSE loans will be exempt as well, according to final provisions of the regulatory reform bill worked out late Thursday night.

Banking Regulators Get Oversight of AMCs
Federal regulators will oversee appraisal management companies that are affiliated with federally insured banks under the Dodd-Frank regulatory reform bill

Industry Mostly Pleased with Bill but Not All
Mortgage bankers are mostly happy with details of the financial regulatory reform bill but it all depends on which faction of the industry you belong to.

Loan Purchases by Freddie Hit Yearly Low in May
Freddie Mac acquired $25 billion of home mortgages in May, its weakest purchase month of the year, and yet another sign that originations in the primary market are slowing.

Final Reg Reform Draft Hammered Out
After a marathon final day of debate, the regulatory reform process ended in the early hours of Friday in the same dramatic manner it had been conducted for more than a year: with a near breakdown followed eventually by a miraculous save.

Treasury IG Slams OTS on Oversight of POA Lender
The Office of Thrift Supervision’s watchdog said the agency was ineffective in regulating BankUnited — a major player in the payment option ARM market — before the thrift’s 2009 failure and improperly allowed the Florida lender to backdate a capital infusion

Morgan Agrees to Pay $102MM in Mass. B&C Settlement
Morgan Stanley & Co. Thursday afternoon agreed to pay $102 million to Massachusetts homeowners and the state, settling allegations that it aided and abetted subprime lender New Century Financial Corp. in taking advantage of consumers

PennyMac Signs up Impac as a Correspondent Lender?
PennyMac Mortgage Investment Trust, a mortgage vulture fund that also is working on a new conduit, has signed up Impac Mortgage Holdings as a correspondent lender, according to industry officials.

LEG 2 Article

Home Tax Credit Closing Extension Dead

Diana Olick

The proposal was simple and necessary: Extend the closing date for the home buyer tax credit from June 30th to September 30th — not the tax credit itself, which required buyers to sign a contract by April 30th, just the closing date.
Anybody who has ventured into the real estate market in the past year knows that tighter lending standards, new appraisal rules and general banking backlogs are making a two month contract-to-closing period very difficult.
This week the chief economist for the National Association of Realtors said 25 to 30 percent of the buyers who signed in April will not get to closing by June 30th; that translates into roughly 180,000 home purchases. The credit is $8000 for first time buyers and $6500 for repeat buyers. This is not to say that all those buyers will pull out of the deals, but they will lose the incentive that may have gotten them to the table in the first place.
The closing date extension was added to a tax extenders bill backed by Democrats in the Senate. That bill has failed three times already, in the face of Republican opposition to adding to the federal deficit.
But it ain’t over ’til it’s over.
Yes, it’s dead now, but Senate sources say they are looking into “other options.” The point is they can add it to whatever they want and try passing it again and making it retroactive. But June 30th is still the current deadline, and that means an awful lot of buyers will not get what the government promised, and many will likely pull out of deals.
I did speak to some builder types, and they tell me that many home builders put a closing guarantee into the contracts, so those buyers may be protected. The builders may have to pony up some kind of $8000 upgrade, or the actual cash, to keep the buyers at the table, which of course I’m sure they’re thrilled to give up out of their already bleeding builder bank accounts.
It’s just so typical.
Here you have a federal tax break, designed to stimulate a housing market in total freefall, but it somehow fails to recognize just how bad the current market conditions are.
The housing industry spent millions and millions of dollars lobbying Congress for said stimulus and its extension.

So how is it that nobody mentioned that in today’s market it can often take longer than 8 weeks to close on a house?

LEG 3 Opportunity Link

http://www.cnbc.com/id/37920178

http://www.cnbc.com/id/37919572

http://www.cnbc.com/id/37921136

http://money.cnn.com/2010/06/21/news/economy/what_can_fed_do

http://www.housingwatch.com/2010/06/18/lenders-chase-borrowers-for-money-lost-in-foreclosures

LEG 4 Tools

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