Sedona/ Verde Valley Real Estate Insider Holly Grigaitis-Svercl Kenneth Svercl

(August 13, 2009)   Edition 111

In This Week's "Good News":

Home Purchase Activity Pointing toward Recovery

Although rising interest rates contributed to a declining Mortgage Bankers Association Market Composite Index (MCI) for the week ended Aug. 7, when compared with the previous week -- continued increases in purchase activity numbers suggest that we could see a housing recovery going forward.

The MCI is calculated from the MBA's Weekly Mortgage Applications Survey, and showed a Purchase Index increase of 1.1%, from one week earlier.  This is the third gain in the Purchase Index in the past four weeks, according to the MBA.

Looking at the Purchase Index's seasonally adjusted, four-week moving average gain of 0.8%, MBA said this behavior is consistent with the view that home sales may now be in a gradual recovery.

In This Week's "Take It How You Will" News:

Second Quarter Loss of $15 Billion Reported by Fannie Mae

Fannie Mae reports a $14.8 billion loss for the second quarter, compared to a $2.3 billion loss a year ago, and the mortgage giant is asking for a $10.7 billion infusion from the Treasury Department to maintain a zero net worth.

The government sponsored enterprise, which as you know is in government conservatorship, absorbed $18.8 billion in credit expenses due to defaults and foreclosures.

The company did, however, benefit from a change in the accounting rules and recorded a $753 million impairment charge on its Alt-A and subprime private-label securities.

In the first quarter, Fannie recognized a $5.7 billion "other than temporary impairment" charge, which contributed to a $23.2 billion loss for that quarter. The Government Sponsored Enterprise (GSE) also increased its reserves by $13 billion and ended the second quarter with a $54 billion single-family loss reserve.

FNMA's Guaranty fee income fell 5% to $1.7 billion in the second quarter from the previous quarter while net interest income rose 15% to $3.7 billion. Fannie said it is experiencing increasing default rates across its entire guaranty book of business and the serious delinquency rate on its $270 billion Alt-A portfolio hit 11.9% in the second quarter. Overall, 3.9% of the GSE's single-family mortgages are 90 days or more past due, up from 1.7% a year

Freddie Mac Forcing Mortgage Buybacks

I will start this article by defining what a "buyback" is:  it is a request (demand) that mortgage sellers/servicers that sell loans to a major servicer, i.e. Freddie Mac or Fannie Mae, that do not perform (typically, go into default within the first 12 months of closing), be re-purchased from the agency holding the note by the seller/servicer that sold the note to them.  This has become a fairly common practice over the past 12 months, because it alleviates the need for the agencies to carry ‘bad' debt on their books, thus (at least in theory) allowing them to be more aggressive in regards to future mortgage lending.

In numbers just released by Freddie Mac, it is showing that Freddie Mac is forcing some of its seller/servicers to buy back $951 million of bad mortgages during the second quarter, a 21% increase from the first quarter.

On top of this, Fannie Mae also saw its outstanding buyback requests continue to increase in the second half of 2009 - but the GSE, unlike Freddie, does not disclose the dollar amount in its securities filings.

What does this mean to the mortgage lending community overall?  In the long run for consumers, this will continue to, and has tended to lead to ‘stricter' underwriting guidelines - often lenders guidelines are so strict that they exceed the necessary guidelines required for the two major mortgage backed securities purchasers/holders Fannie Mae/Freddie Mac.

Lender Program Changes:

As many of you know, a borrowers ability to obtain Private Mortgage Insurance on most high loan-to-value (LTV) mortgages (or those mortgages requiring a down payment of less than 20%) has become increasingly difficulty to acquire due to minimum credit scores required.

One way for the borrower to get around this, was to get Lender Paid Mortgage Insurance (LPMI), but as you may recall most lenders abolished this policy about a month ago.  Good news, albeit not great news, most of the major lenders have brought back a borrower option of LPMI. 

I will note here that lenders are willing to take on this burden because they charge the borrower a bump in their interest rate paid.  However, I will also note, this option is, typically, cheaper for the borrower overall versus the normal Private Mortgage Insurance route.

The downside to this new change by the investors is the fact that the majority of them require a mid credit score of 740. 

It is hoped by mortgage professionals that this required mid score will be decreased over the next few months - regardless, this is a step in the right direction by offering mortgage borrowers more choices.

In This Week's "Wait and See" News:

Wall Street numbers are up somewhat for the week.  Thursday's markets ‘skyrocketed' until news regarding Initial Jobless Claims and Retail Sales numbers was released late in the morning.

Initial Jobless Claim numbers rose +4,000 this week to end at 558,000.  An overwhelming number of economists thought that this number would come in significantly lower than last week.

According to the Commerce Department retail sales numbers dipped -.1%, excluding automobiles, retail sales dropped -.6%.  Dow Jones Newswire expected a gain of +.8%.

Markets ended Thursday like this: DOW up @ 9398.13 (+36.58), NASDAQ up @ 2009.35 (+10.63) and the S&P up @ 1012.73(+6.92). 

Next week's Economic Calendar:

Week of August 17 - August 21

(August 9, 2009)   Edition 110

In This Week's "Good News":

Is the First-Time Home Buyer Tax Credit Working?

Over the past few weeks, I have received numerous telephone calls, faxes and e-mails in regards to the 2009 firs-time homebuyer tax credit regarding how does it work, and is it really helping the real estate market place, so I thought that I would begin this week's "MMW" by answering these questions.

As most of you know, the government sponsored purchase tax credit for first-time homebuyers, termed the American Recovery and Reinvestment Act of 2009hasbeen in effect for sometime and homebuyers can qualify for up to an $8,000 tax credit.

How Does It Work?  Typically, the tax credit will be claimed by First-Time homebuyers' on their 2009 Federal Tax Return.  However read below for several U.S. state exceptions, that may allow you to get your tax credit now.

Here is a general overview of the program:

Who Qualifies for the Program?

First-time home buyers who purchase homes between January 1, 2009 and December 1, 2009 may qualify for this program.

To qualify as a "first-time home buyer" the purchaser or his/her spouse may not have owned a residence within three years prior to the purchase of new property.

Which Properties Are Eligible?

The tax credit may be applied to primary residences, which include the following: single-family homes, condos, townhomes, and co-ops.

How Much Will the Credit Be?

The maximum allowable credit for home buyers is $8,000. Each home buyer's tax credit is determined by the following two factors:

The price of the home-the credit is equal to 10% of the purchase price of the home, up to $8,000.

The buyer's income-single buyers with incomes up to $75,000 and married couples with incomes up to $150,000-may receive the maximum tax credit.

If the Buyer(s)' Income Exceeds These Limits, Can He/She Still Get a Credit?

Yes, some buyers may still be eligible for the credit.

The credit decreases for buyers who earn between $75,000 and $95,000 for single buyers and between $150,000 and $170,000 for home buyers filing jointly. The amount of the tax credit decreases as his/her income approaches the maximum limit. Home buyers earning more than the maximum qualifying income-over $95,000 for singles and over $170,000 for couples are not eligible for the credit.

Will the Tax Credit Need to Be Repaid?

No. The buyer does not need to repay the tax credit, if he/she occupies the home for three years or more. However, if the property is sold during the three-year period, the credit will be recouped upon the sale of the property.

Is the Tax Credit Working?

Although the tax credit is expected to greatly stimulate the home sales market, statistics for the 2009 homebuyer tax credit in regards to home sales is somewhat sketchy, however, according to statistics, Orange County posted its first year-over-year increase in sales of detached, single-family homes in more than two years, according to Ann Garti, CEO of the Orange County Association of Realtors (OCAR).

It is reported by numerous sources that many realtors in the major metropolitan areas have seen a surge in purchase activity as the Nov. 30, 2009, deadline for the $8,000 first-time-buyer tax credit draws nearer.

"It seems like the deadline for the tax credit is taking hold for people," said Harris Safier, principal broker of Westwood Metes & Bounds in Ulster County, NY.

It appears that the seeming surge of first-time buyers is also being reflected in the mix of homes that are selling, according to Ken Davies, general manger of John J. Lease Realtors; "We're getting a fair amount of activity in the entry-level price range, and that's boosted sales considerably."

I will note here that there are several states have state agencies that are offering the tax credit upfront to aid the first-time homebuyers' purchase their primary residence.  These states are: DE, ID, IL, KY, GA, MA, MO, NE, NJ, NM, OH, PA, TX, TN and VA.*

* On the whole, these upfront, or ‘bridge loans' are required to be paid back at the point the tax credit is paid to the buyer by the IRS (see your states housing finance agency for specifics).  I will also note here, that the upfront costs cannot be used for required loan program down payments (i.e. the 3.5% for FHA still must come from borrower's own funds), but can be used for closing costs and additional down payment.

Signs of a Housing Thaw

It appears that there may be signs of a housing upturn.  According to numbers released last Tuesday, in regards to Pending Home Sales numbers, more Americans signed sales contracts to buy homes in June than in May, which represents a fifth consecutive month of increases.

The National Association of Realtors said its Pending Home Sales Index rose 3.6% during the month. That was 6.7% higher than June 2008. It was the fifth straight month of increases, and represents the first time that has happened since July 2003.

This report followed several other recent pieces of good news for the housing industry, including a substantial rise in New Home Sales numbers, a jump in Existing Home Sales and the first home price increase in nearly three years.

Of particular interest, the jump in numbers was much higher than forecasted. A consensus of industry experts put together by Briefing.com had estimated an increase of just 0.7%

According to Lawrence Yun, National Association of Realtors chief economist, this rise in overall numbers may be attributed to; "Historically low mortgage interest rates, affordable home prices and large selection are encouraging buyers who've been on the sidelines."

In This Week's "Take It How You Will" News:

UPDATE -- New Arizona Law Changes Borrower Liability for Foreclosure:

As you may recall from my last MMW newsletter, there was a law recently passed by the Arizona State Legislature that makes homeowners liable for tens of thousands of dollars on homes lost to foreclosure.

This amendment to the state's foreclosure laws, passed in a recent legislative session, was designed to protect small community banks from people buying ‘speculative' new homes they cannot sell for a profit.  But, recent information shows that this argument was most likely brought into play by the larger nationwide institutional banks.

Specifically, the new law, which goes into effect this September 30^th, would affect any Arizona homeowner in foreclosure who has not lived in the home for six straight months. This might include landlords, vacation home owners, second-home owners and investors who bought homes hoping for quick re-sales and big profits. Once the home is sold in foreclosure, the homeowner would have to pay back the remaining value of the loan, minus the proceeds from the foreclosure sale.

So, what is the update?  There is a new proposed bill being led by state Senator Steve Pierce, which is part of a Republican budget-balancing package that contains a provision to repeal the new law.

The new budget package was expected to be passed this past Friday, but will be dealt with in the coming week due to Gov. Jan Brewer calling a "special" budget session.

In This Week's "Wait and See" News:

Wall Street numbers last week skyrocketed early in the week and maintained all time highs for the year.  These gains across U.S. markets are mainly being attributed to better than expected Unemployment Numbers, as well as better than expected news in the Housing sectors.

Markets ended the week like this: DOW up @ 9370.07 (+113.81), NASDAQ up @ 2000.25 (+27.09) and the S&P up @ 1010.48(+13.40). 

Next week's Economic Calendar:

Week of August 10 - August 14

* Remember, typically, weaker than expected news is beneficial to a mortgage rate decrease and an increase in bond yields,  and more positive than expected news will cause mortgage rates to increase and stocks to increase in value.

In This Week's "Not So Good Right Now" News:

Obama Administration Mortgage Plan Shown to Be Aiding Banks, Not Homeowners

As you may remember, the Obama administration's home mortgage modification program, launched with great fanfare earlier this year, but to date has only assisted a mere fraction of homeowners in danger of losing their homes -- and the outrage of homeowners is growing.

According to a U.S. Treasury report just released regarding the Home Affordable Modification Program (which was estimated to help 3 to 4 million homeowners), mortgage servicers have offered to change 406,500 loans and in actuality have actually modified (on a three-month trial basis), only some 235,000 - or about 9 percent of delinquent homeowners.

Obviously, the main reason for such ire by delinquent homeowners, is the fact that a number of banks that have received billions in taxpayers' money, such as Wells Fargo, Wachovia and Bank of America (the majority of the ‘Big 10' banks), and have modified even a smaller percentage of mortgages (6 percent or less).

These derisory figures come on top of what a representative of the National Consumer Law Center (NCLC), in testimony before a Senate committee in late July, called "a foreclosure tsunami, which threatens to destabilize our entire economy, devastate entire communities, and destroy millions of families."

The National Consumer Law Center's Alys Cohen noted; Goldman Sachs estimates that starting from the end of the last quarter of 2008 through 2014 some 13 million foreclosures will be initiated.

The Center for Responsible Lending "predicts 2.4 million foreclosures in 2009, and a total of 9 million foreclosures between 2009 and 2012."

Not helping is the fact that an estimated 15.4 million homeowners in the U.S. are currently "underwater"-i.e., they owe more than their houses are worth.  This number is growing by the tens of thousands every month.

Currently, according to Equifax and Moody's Economy.com, they calculate that 1.8 million foreclosures have already been tallied in the first half of this year, and Realtytrac reports that 300,000 homes go into foreclosure every month. Banks have repossessed 386,800 properties this year, 64 percent more than the total of mortgages modified under the government program!

Even if the Obama administration met its goal, under Home Affordable Modification Program (HAMP), of assisting in 3 million to 4 million mortgage modifications by 2012, which would mean doing some 20,000 a week, and it is not close to being on target, that would "address no more than one-third of all foreclosures," Cohen commented.  She went on to note that the HAMP loan modifications, in any case, "are still only trial modifications, with no assurance that they will lead to permanent modifications [by the lenders]."

So, what is the problem you say besides foreclosures dragging down property values across the U.S.?  The HAMP program, under which certain borrowers who are at risk or in default may lower their monthly payments to no more than 31 percent of their pre-tax income, was never designed to resolve the foreclosure crisis. Like all the current administration's "reform" measures, the program was crafted with the interests of corporate profits carefully in mind. Nothing could be done to impinge on the earnings of the banks, mortgage companies and other financial institutions whose reckless policies created the crisis in the first place.

Probably the biggest problem with the administrations HAMP program is the fact that the program is entirely voluntary, and as commentators (and many angry homeowners) point out, the various mortgage servicers are consistently ignoring government guidelines, stalling and, in some cases, deceiving borrowers, and generally doing what they can to obstruct the loan modifications process.  Why would the banks and servicers do this? Because they profit by these tactics.

The Times observes that mortgage companies are paid to manage pools of loans owned by investors and typically collect a percentage of the value of the loans they service. "They extract their share regardless of whether borrowers are current on their payments. Indeed, their percentage often increases on delinquent loans."

As Cohen of the NCLC indicated in her Senate testimony, "Their [the mortgage servicers'] entire business model is predicated on making money by skimming profits from what they are collecting.... Servicers make their money largely through lucky or strategic investment decisions: purchases of the right pool of mortgage servicing rights and the correct interest hedging decisions. Performing large numbers of loan modifications would cost servicers upfront money in fixed overhead costs, including staffing and physical infrastructure."

A former governance project manager at Countrywide Financial and Bank of America, Rich Miller, told the Times that "Bank of America had been reluctant to modify loans, which hurt the bottom line. The company has been waiting and hoping the economy will improve and delinquent customers will resume making payments, he said."

In regard to the operations of the HAMP program, the NCLC has pointed to numerous abuses committed by the mortgage servicers, including charging upfront fees, incorrectly telling homeowners that they must already be in default before qualifying for a modification, and initiating foreclosure proceedings even when a homeowner is still being considered for assistance.

The Center's Diane Thompson told another Senate committee July 16, "Servicers' compliance with HAMP is, at best, erratic. There is widespread violation of the HAMP guidelines across many servicers. The lack of compliance arises in part from obvious and persistent shortfalls in staffing and training. Yet some of the violations of HAMP are embodied in form documents, perhaps reflecting a more conscious attempt to evade the HAMP requirements. Lack of transparency prevents homeowners from identifying violations. Lack of accountability prevents homeowners from obtaining any redress when violations are identified."

Thompson even suggested that HAMP might be causing "a drop-off in loan modifications." She referred to various stalling practices by the banks and other financial institutions. Advocates and homeowners "have been told...that their servicer is participating but that the servicer does not yet have a program to evaluate homeowners for HAMP. Ocwen, for example, told an advocate on July 1 that it did not know when it would be rolling out its HAMP modifications. Ocwen signed a contract as a participating servicer on April 16, two and a half months earlier."

Meanwhile, the banks are making money hand over fist.

Interestingly, the U.S. Treasury issued a complacent press release last Tuesday, headlined "Making Home Affordable Program on Pace to Offer Help to Millions of Homeowners." It called servicer performance "uneven," but cited "rapid progress" in "its comprehensive plan to stabilize the U.S. housing market." I do not think that at this juncture the majority of the population, by and large, is being fooled anymore.

Mortgage Rate Trends:

This week will be very volatile for markets overall, both U.S. and abroad.  Remember, as market numbers show increases, i.e. the DOW, it is typically bad news for long term interest rates (they will likely increase).

The Week's Conforming Loan Averages for the National Average (overnight averages):

30 year fixed: 5.47% Up

15 year fixed: 4.89% Up

5/1 ARM: 4.61% Up

30 year Jumbo: 6.65% Up

15 year Jumbo: 5.96% Up

* Remember, keep in mind that these rates are national averages', rates may be lower in your region of the country.  If you would like a ‘real time' quote, give me a call, or drop me an e-mail.

FHA/VA 30 year fixed interest rates rose slightly this week, but remain in the "good" range - expect rates to be in the range of 5.50 to 5.75 percent.

Rural Housing rates continue to stay in the "good" range.  Look for the 30 year fixed to be in the range of 5.625 to 5.875 percent.

If you or your clients need purchase or refinancing assistance, or if you need a quick prequalification, I would be happy to assist.

Also, if you have questions/comments regarding any information contained in this newsletter, please feel free to contact me via telephone or e-mail. 

Sincerely,                               

Richard Shreeve, Editor

Direct: 480-332-4547

Toll Free Direct: 1-800-466-1809 (Your AZ Lender of Choice)

The purpose of this newsletter is to help all real estate professionals, their potential clients and current mortgage borrowers stay up-to-date with current market news.  So, feel free to post this newsletter to your website (all I would ask is that you post it in its entirety).

The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, there is no guarantee it is not without errors.