Joe Kulle\’s Blog

By: Carrie Bay, DSNEWS.com

At the national level, the inventory of for-sale single-family homes, condominiums, townhouses, and co-ops dropped by 22.29 percent over the last year, according to new statistics released by Realtor.com.

The site concludes that at the close of 2011, there were 1.89 million single-family homes on the market, down 6 percent from just one month prior.

The median age of the inventory in December increased by 7.02 percent from November, but Realtor.com says the
bump is largely seasonal reflecting the end of the homebuying season.

The median age of existing inventory during December was 122 days, which is down nearly 4 percent when compared to a year ago.

Realtor.com notes that median list prices, which have remained essentially unchanged since June, are up by 5.03 percent nationally on a year-over-year basis.

Each of these developments can be viewed as “a positive sign that the housing market is holding its own at the national level,” according to Realtor.com.

Patterns differed across the 146 metropolitan statistical areas (MSAs) monitored by Realtor.com. Over the past several months, the site reports an increasing number of markets have registered year-over-year increases in median list prices while fewer markets have experienced year-over-year declines.

Still, markets remain fragile, according to Realtor.com, particularly in light of the large number of potential foreclosures and the recent uptick in delinquency rates in November.

By: Krista Franks, DSNEWS.com

Principal reductions – the merits of which have been debated strongly in recent years – are gaining some support from lawmakers.

Two congressmen are pushing to subpoena the Federal Housing Finance Agency (FHFA) for its analysis of the potential effects of principal reductions by the GSEs.

Rep. Elijah E. Cummings (D-Maryland) and Rep. John F. Tierney (D-Massachusetts) sent a letter Wednesday to Chairman Darrell Issa (R-California) urging him to issue a subpoena after several failed attempts to procure the desired information from the FHFA themselves.

Tierney first requested the FHFA’s principal reduction analysis at a congressional committee hearing in mid-November when FHFA Acting Director Edward DeMarco stated that the FHFA had determined “the use of principal reduction within the context of a loan modification is not going to be the least-cost approach for the taxpayer.”
DeMarco also testified that the FHFA is not permitted to allow principal reductions from the GSEs. Tierney also requested DeMarco provide “the statutory authority” for this claim.

After the hearing, Tierney sent a letter to DeMarco requesting the information by December 9. However, DeMarco “has failed to provide even a single document,” states the letter sent to Issa Wednesday.

Meanwhile, “over the past several months, officials with the Federal Reserve have made strong public statements supporting principal reduction,” Cummings and Tierney state in their letter.

For example, Federal Reserve Chairman Ben Bernanke stated in a recent white paper, “Principal reduction has the potential to decrease the probability of default (and thus the deadweight costs of foreclosure) and to improve migration between labor markets.”

Furthermore, Bernanke stated that principal reduction could lead to lower default rates, especially among homeowners at risk of strategic default.

Cummings and Tierney also pointed to comments from William Dudley, president of the New York Federal Reserve Bank, who stated in December, “[we] think that you can devise a program that, for home buyers that have mortgages that are underwater, to incent them to continue to pay on those mortgages by giving them some program of principal reduction.”

With no response from DeMarco and growing support for principal reductions, Cumming and Tierney say it is time to “compel Mr. DeMarco’s compliance.”

New data released by Lender Processing Services (LPS) shows mortgage delinquencies at the end of November 2011 were nearly 25 percent below their January 2010 peak.

LPS says over that period, the number of noncurrent mortgages was slashed by nearly a quarter simply because fewer borrowers were falling behind on their payments – a trend which dominated 2010 and the first quarter of 2011.

Unfortunately, the company says that trend has come to an end. LPS puts the national delinquency rate at 8.15 percent as of the end of November.

The trend toward fewer loans becoming delinquent appears to have halted, according to LPS. At the same time, the company says new problem loans – those loans seriously delinquent as of the end of November that were current six months prior – have not improved significantly in the last year.

“This degree of stagnation indicates that while the situation is not getting markedly worse, it is not improving either, and inventories of troubled loans remain significantly higher than pre-crisis levels across the board,” LPS explained in its November Mortgage Monitor report.

LPS’ mortgage performance data also showed both new and repeat foreclosure starts dropped sharply in November, down nearly 30 percent from the month prior.

As late-stage delinquencies in the pipeline still number close to 2 million, LPS says the sharp drop is more indicative of the impact of ongoing document reviews, additional state legislation, and new regulatory requirements rather than a shift in trend.

The Federal Housing Administration (FHA) is extending the temporary waiver of its property anti-flipping rule through the end of 2012.

FHA rules typically prohibit insuring a mortgage on a home owned by the seller for less than 90 days. In 2010, however, the agency waived this regulation, and later extended the waiver through 2011.

The new extension announced late last week will permit buyers to continue to use FHA-insured financing to purchase HUD-owned and bank-owned properties, no matter how long the homeowner has held the title, through December 31, 2012.

FHA says the waiver will allow homes to resell as quickly as possible, helping to stabilize real estate prices and revitalize communities experiencing high foreclosure activity.

“This extension is intended to accelerate the resale of foreclosed properties in neighborhoods struggling to overcome the possible effects of abandonment and blight,” said Carol Galante, FHA’s Acting Commissioner. “FHA remains a critical source of mortgage financing and
stability and we must make every effort that to promote recovery in every responsible way we can.”

According to FHA, the waiver contains strict conditions and guidelines to prevent the predatory practice of property flipping, in which properties are quickly resold at inflated prices to unsuspecting borrowers.

Among these conditions, all transactions must be arms-length, with no link between the buying and selling parties.

In addition, in cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the waiver will apply only if the lender meets specific conditions, and documents the justification for the increase in value.

FHA’s property-flipping waiver is limited to forward mortgages, and does not apply to the agency’s Home Equity Conversion Mortgage (HECM) for purchase program.

Since the original waiver went into effect on February 1, 2010, FHA has insured nearly 42,000 mortgages worth more than $7 billion on properties resold within 90 days of acquisition.

The agency says its own research has found that in today’s market, acquiring, rehabilitating, and reselling foreclosed properties to prospective homeowners often takes less than 90 days.

As a result, FHA says prohibiting the use of its mortgage insurance for a subsequent resale within 90 days would adversely impact the willingness of sellers to consider offers from potential FHA buyers, namely because they would be required to cover holding costs and the risk of vandalism that comes with allowing a property to sit vacant over a 90-day period of time.

By: Krista Franks, DSNEWS.com

The Occupy Oakland group is starting a new wave of occupations. They intend to occupy vacant properties.

The Occupy Oakland group announced on Twitter earlier this week that its general assembly “just passed a proposal to encourage the occupation of bank-owned/foreclosed and abandoned properties across #Oakland.”

On Wednesday, a group of Occupy Oakland members took a first step in this direction by entering a vacant building formerly used by the Traveler’s Aid Society.

The group “hoped to use the national spotlight on Oakland to encourage other occupations in colder, more northern climates to consider claiming spaces and moving indoors in order to resist the repressive force of the weather,” states a blog post on the Occupy Everything! Blog.

“None of this should be that surprising, in any case, as talk of such an action has percolated through the movement for months now, and the GA [General Assembly] recently voted to support such occupations materially and otherwise,” states the blog post.
This is not the first time the idea of occupying or squatting in foreclosed and vacant properties has been endorsed.

In fact, the group, Homes Not Jails of San Francisco, has promoted the use of vacant properties by the homeless since 1992. The group recently partnered with Occupy San Francisco to convert several vacant properties into homeless shelters, according to the Huffington Post.

Rep. Marcy Kaptur (D-Ohio) has been telling homeowners facing foreclosure not to leave their homes since 2009. “I say to the American people, you be squatters in your homes. Don’t you leave,” she said in a February 2009 press release.

If squatting in foreclosed and vacant properties becomes a widespread trend, “it would definitely slow down the market,” says Melva Wagner, owner of Sellstate Island Properties in Florida, and government relations representative for the National Association of Women REO Brokerages (NAWRB).

“The recovery market is already slowed down because of tenants in properties,” she adds.

“Each state has their own guidelines for squatters,” she says, so the process of evicting squatters and preparing homes for sale would vary throughout the country.

As for the Occupy Oakland action Wednesday – the evening ended in violence and about 100 arrests. Protestors broke windows and set fires, according to the Wall Street Journal.

On Thursday, Occupy Oakland said in a public statement they do support the occupation of vacant buildings but “Occupy Oakland does not advocate violence and has no interest in supporting actions that endanger the community and possibilities that it has worked to build,” according to the Journal.

By: Carrie Bay, DSNEWS.com

The industry’s four largest mortgage servicers all say they will be taking part in the revamped Home Affordable Refinance Program (HARP).

Bank of America, Chase, Citigroup, and Wells Fargo have each expressed their support of the program and the changes that will allow more underwater homeowners to refinance at today’s lower interest rates.

Government officials expect the program’s revisions – particularly the GSEs’ waiver on representations and warranties – to increase competition for mortgage refinancing.

An executive with JPMorgan Chase told the company’s investors this week that HARP 2.0 will facilitate “cross-servicing refinancing” because with the rep and warranty waiver, the new lender is not required to assume responsibility for underwriting deficiencies that may have occurred with the original loan.

Chase explains that HARP may be used to replace an adjustable-rate or interest-only loan with a standard fixed interest rate loan, and typically reduces the borrower’s monthly payment.

Frank Bisignano, CEO of mortgage banking at Chase, estimates that with the new HARP guidelines, thousands of Chase customers could lower their mortgage payments by an average of $2,500 a year.

Citi said in an emailed statement that it “supports the program and expects to participate.”

Wells Fargo, likewise, said in a statement that it “welcomes the addition of the new HARP features.”
Veronica Clemons, a spokesperson for Wells Fargo Home Mortgage, says the company is waiting for specific guidelines and requirements from Fannie Mae and Freddie Mac in order to put the changes into practice.

She adds that once the company’s mortgage servicing team has the guidelines in hand, “it will take us some time – depending on the complexity of the guidelines – to make the necessary systems changes to begin offering the new enhancements to our customers.”

The GSEs’ regulator, the Federal Housing Finance Agency (FHFA), says Fannie and Freddie plan to issue guidance with operational details about the HARP changes by November 15th.

“Since industry participation in HARP is not mandatory, implementation schedules will vary as individual lenders, mortgage insurers, and other market participants modify their processes,” FHFA said.

Bank of America says it will participate in the enhanced Home Affordable Refinance Program announced by the administration, and it expects the new guidelines and eligibility criteria to go into effect after December 1st.

“Despite ongoing economic challenges, nearly 90 percent of our customers remain current on their mortgage,” BofA spokesperson Rick Simon said. “HARP helps these homeowners who remain current on their mortgage with options to lower their monthly payment when, otherwise, conventional funding options are limited.”

The GSEs have removed the 125 percent loan-to-value (LTV) cap under the program. Now any borrower with an LTV ratio above 80 percent is eligible for a HARP refinance, as long as the loan was sold to Fannie or Freddie prior to May 31, 2009, and the borrower is not delinquent on their payments.

Since HARP was launched in 2009, nearly 900,000 loans have been refinanced through the program. Government officials estimate that an additional 1 million homeowners will receive assistance under the new guidelines.

In its announcement of the program changes, FHFA encouraged borrowers to “contact their existing lender or any other mortgage lender offering HARP refinances.”

By: Carrie Bay, DSNEWS.com

The monthly home price index from the Federal Housing Finance Agency (FHFA) has recorded its first decline since March.

FHFA reported Tuesday that home prices in the U.S. fell 0.1 percent on a seasonally adjusted basis from July to August. In addition, the previously reported 0.8 percent increase recorded for July was revised to reflect no change.

The federal agency’s index is calculated using purchase prices of houses backing mortgages that have been sold to or guaranteed by Fannie Mae and Freddie Mac, which in today’s marketplace constitutes the lion’s share of new mortgages.

Data released the very same day by Standard & Poor’s showed a 0.2 percent increase between July and August for the Case-Shiller home price index, which tracks sales transactions in 20 major cities.
It should be noted that FHFA’s numbers are seasonally adjusted, while S&P’s are not. After adjusting for seasonal factors S&P’s reading flatlines, with absolutely no change in home prices between July and August, however, S&P stresses that its measurements should be assessed using the non-seasonally adjusted data given the volatility of today’s market.

In addition, Patrick Newport, U.S. economist for IHS Global Insight, points out that the FHFA index incorporates the latest month of data, while the Case-Shiller index is a three-month moving average. According to Newport, FHFA’s single-month analysis makes it the “better barometer.”

For the 12 months ending in August, FHFA’s index shows U.S. prices fell 4.0 percent. The Case-Shiller index recorded an annual decline of 3.8 percent for the same period. Seasonal shifts are not factored into year-over-year price changes.

FHFA says home prices are at roughly the same level seen in February 2004. S&P’s Case-Shiller index puts home prices at circa mid-2003.

Paul Ashworth, chief U.S. economist at Capital Economics says FHFA’s index now suggests that even if the housing market did muster a little upward momentum in the spring, that rally has faded quickly over the summer.

“Anyone expecting a rapid recovery in prices will be very disappointed,” Ashworth said. “At best, house prices will be unchanged next year and in 2013 too.”

By: Carrie Bay, DSNEWS.com

Help for underwater homeowners has moved from principal writedowns to refinancing in the settlement negotiations between state attorneys general and the nation’s five largest mortgage servicers.

According to a widely circulated Wall Street Journal report, the proposal was put on the table at a meeting last week between representatives from both sides.

DSNews.com has received confirmation from a source involved in the negotiations that the parties are indeed considering a proposal to incorporate refinancing for underwater homeowners into an agreement to settle allegations of robo-signing and improper foreclosure practices.

While the Journal concedes that discussions are ongoing and “any final outcome is uncertain,” reporters Nick Timiraos, Ruth Simon, and Dan Fitzpatrick lay out the framework for who would qualify for such assistance.

Borrowers who are current on their mortgage payments but unable to take out a new loan due to the equity constraints of a typical refinance would fit the bill.

The main caveat is that the borrower’s loan must be owned directly by one of the five banks involved in the
settlement talks – Bank of America, Citigroup, Ally’s GMAC, JPMorgan Chase, or Wells Fargo – and not have been packaged into a mortgage-backed security and resold.

The impact of such a proposal would be limited, considering some 80 percent of mortgages are securitized and owned by investors.

While the agreement between states and servicers is intended to settle allegations of wrongful foreclosures and faulty paperwork, early on in the negotiations, attorneys general were demanding mortgage relief also be extended to underwater borrowers in the form of principal-reducing loan modifications.

Principal writedowns became a key sticking point for the settlement talks with even some attorneys general openly expressing their reservations about the moral hazard such a move might carry.

Officials are hoping to advance negotiations with a refinancing compromise, which also could be leveraged to win back the support of those attorneys general who have dropped out of the discussions, such as California Attorney General Kamala Harris.

Harris excused herself from the negotiations late last month, calling the settlement proposal at that time “inadequate” for homeowners in her state – a state where the dive in home prices has left millions underwater.

Litigation liability has also been a stumbling block in reaching an agreement. The banks want some sort of assurance that the settlement will protect them from future litigation, but some AGs say any joint agreement should not prevent them from pursuing their own actions.

Geoff Greenwood, a spokesperson for the states’ lead negotiator, Iowa Attorney General Tom Miller, told DSNews.com, “It’s hard to say exactly how close we are. We’re getting closer and we’re cautiously optimistic we’ll reach an agreement in principle.”

By: Carrie Bay, DSNEWS.com

The analysts at Barclays Capital say a “triple-dip” in home prices will likely materialize by early next year.

The term “triple-dip” emerged in a Clear Capital report a couple of weeks ago, and Barclays says its analysis corroborates the idea.

The research firm warns that home prices will likely slip another 6 to 7 percent over the coming winter months. That would put median prices at a new low for this cycle, in fact about 3 percent below the double-dip measurement of last spring.

Following the probable “triple-dip” in the first quarter of next year, Barclays says home prices will “rise very gradually.”

“While the likelihood of a negative tail scenario in housing has increased, the probability of a 15-20 percent decline from current levels is still low, in our view,” Barclays’ residential credit analysts said in their report.
“Long-run home price measures suggest that prices are close to equilibrium,” they added.

Barclays notes that delays associated with foreclosures have, for the moment, prevented an overcorrection in home prices by limiting the amount of REO inventory on the market.

Still, REO inventory levels have remained elevated, and Barclays says close to 4 million homes are seriously delinquent or in foreclosure and will eventually need to be sold.

“We expect 90+ to foreclosure and foreclosure to REO roll rates to improve in the coming quarters. That said, the timelines of defaulting loans should continue to ramp up,” Barclays said.

As foreclosure to REO roll rates improve, the number of distressed homes placed on the market will increase. Barclays says although REO supply and demand are currently evenly matched, the glut of foreclosed homes in the pipeline should eventually cause REO supply to far exceed REO demand.

This supply-demand imbalance could remain well into 2013 and 2014, according to the research firm.

Barclays says price gains will be constrained by the amount of REO supply that will be placed on the market in the next few years. At the same time demand for these homes will be “highly dependent” on the state of the economy, the firm stressed.

By: Carrie Bay, DSNEWS.com

The industry’s shadows are shrinking, according to CoreLogic. The residential shadow inventory of unlisted REOs and soon-to-be REOs stood at 1.6 million units as of July 2011, based on the analytics firm’s calculations.

CoreLogic says that tally represents a supply of five months and is down from 1.7 million units in April and 1.9 million units in July of 2010.

“The moderate decline in shadow inventory is being driven by a pace of new delinquencies that is slower than the disposition pace of distressed assets,” CoreLogic said in a report released Tuesday.

CoreLogic estimates the current stock of properties in the shadow inventory by calculating the number of distressed properties not currently listed on multiple listing services
that are seriously delinquent (90 days or more), in foreclosure, and real estate owned (REO) by lenders.

Of the 1.6 million properties currently in the shadow inventory, CoreLogic’s study shows that 770,000 units are seriously delinquent (2.2-months’ supply), 430,000 are in some stage of foreclosure (1.2-months’ supply) and 390,000 are already in REO (1.1-months’ supply).

As of July 2011 the shadow inventory is 22 percent lower than its peak level, reported by CoreLogic to be 2 million units, or an 8.4-months’ supply, in January 2010.

The company also highlighted the fact that the aggregate current mortgage debt outstanding of the shadow inventory was $336 billion in July 2011, down 18 percent from $411 billion a year earlier.

“The steady improvement in the shadow inventory is a positive development for the housing market,” said Mark Fleming, chief economist for CoreLogic. “However, continued price declines, high levels of negative equity, and a sluggish labor market will keep the shadow supply elevated for an extended period of time.”

Based on CoreLogic’s market assessment, the total housing inventory – including both the shadow inventory and visible inventory listed for sale – was 5.4 million units in July of this year, down from 6.1 million units 12 months earlier.

The shadow inventory accounts for 29 percent of the combined shadow and visible inventories.