MBA (4/28/2008 ) Palaparty, Vijay
ValuFinders Upgrades Appraisal System
ValuFinders Inc., Culver City, Calif., a provider of valuation services to lenders and government agencies, upgraded its web-based appraisal ordering system, Appraisal CONCEIRGE. The development anticipates the proposed Home Valuation Protection Code that will go into effect January 1, 2009.
Appraisal CONCEIRGE will comply with code requirements of making a copy of the appraisal report available to the borrower. When the appraiser delivers the report to the lender, at the request of the lender, the system will automatically generate and send the borrower an email with the appraisal report as an attachment. ValuFinders will offer this service at no cost.
Appraisal CONCIERGE is an outsourcing database that places appraisal orders online. Appraisals can be ordered through an integrated system, which is independent and acts as the firewall in the process—avoiding communication between the requestor and the appraiser.
Lydian Announces Partnerships with Financial Crossing, MRG
Financial Crossing Inc., Palo Alto, Calif., a provider of liability management and Lydian Data Services LLC, Boca Raton, Fla., a mortgage fulfillment and delivery outsourcing center, announced a partnership to provide products and services for their common clients.
The partnership creates the ability to analyze lending options from financial institutions and recommend deal structures. Once a borrower chooses a loan and submits it through the Liability Manager system, it is passed to the paperless Lydian environment for processing and fulfillment. The loan originator receives automatic updates in Liability Manager as it passes through each stage of Lydian’s processing.
Lydian Data Services also formed a partnership with MRG Document Technologies, Dallas, a provider of compliance and documentation services. The alliance enables MRG to extend its Miracle document preparation system to Lydian's origination fulfillment center customers who use Lydian’s outsource capabilities to supplement or replace their own internal processes.
Through a custom interface created by MRG, Lydian provides access to MRG’s Miracle up-front and interim disclosures and closing documentation through the Lydian Exchange Network, Lydian’s networking platform uniting lenders and industry service providers.
Custom Credit Systems Offers Document Retrieval
Custom Credit Systems, Richardson, Texas, partnered with Hyland Software Inc., Cleveland, Ohio, developer of the OnBase enterprise document management software suite. CCS will provide its customers with document retrieval capabilities to increase efficiency in the lending process.
Custom Credit Systems’ product suite allows financial institutions to manage the lending process from the sales/lead generation stage through post-close and document retention. The integration with OnBase will provide Custom Credit Systems’ customers the ability to work within Custom Credit Systems products and services and retrieve customer information such as scanned and imported documents in any file format from the OnBase repository.
SearchMyLoan.com Partners with Strategic Information Resources
SearchMyLoan.com, Port Washington, N.Y., a provider of loan search and pricing services for the mortgage industry, announced an alliance with Strategic Information Resources, Springfield, Mass., a provider of credit reports, mortgage reports and background screening services.
SIR’s database of credit reports and related information integrates into SML’s search and pricing engine, enabling originators to pull credit and re-issue credit data for loan decisioning. Lenders also have access to SIR’s mortgage reports, background screenings and credit products and services, allowing lenders to evaluate attributes of potential customers.
Pro-Teck Services Selects Rackspace to Host ProValue
Pro-Teck Services, Waltham, Mass., a residential property valuation and risk management provider, selected Rackspace, San Antonio, a provider of hosted IT services, to support its ProValue platform.
Pro-Teck’s ProValue connects financial institutions with real estate data and modeling to manage real estate collateral. The system also connects vendor and client partners in real time and provides archiving, retrieval and data stream capabilities.
Xerox Mortgage Services Adds DataGlyphs Technology
Xerox Mortgage Services, Rochester, added Xerox’s DataGlyphs technology into its BlitzDocs Collaboration Suite. The BlitzDocs software creates integration between the multiple parties involved in the mortgage process by allowing them each to view, edit and share documents across one network.
The addition of DataGlyphs adds a level of security by embedding computer-readable data into individual documents. DataGlyphs offers automatic classification capabilities, stores large amounts of data and can be recreated when damaged or tampered.
Veros Offers Market Valuation Forecasts
Veros Real Estate Solutions, Santa Ana, Calif., released its quarterly review results of its forecasts for U.S. residential real estate markets, covering a period from March 1 through March 1, 2009. Veros is releasing an 18-month forecast with the same national coverage as the 12-month forecast of single family residences in major metropolitan areas and non-metro areas, covering 75 percent of the nation’s population.
The expanded also offers results of Veros’ HPI analysis, providing a historical basis option, allowing users to access historical and current trend analysis along with future forecasts. The 18-month forecast contains elements, detail and analysis of the 12-month forecasts, including the two validation metrics, R-squared and Mean Absolute Error.
iEmergent Introduces Mortgage Market Forecasts Analytic Tools
iEmergent, a Des Moines, Iowa-based market research, forecasting and advisory services firm for the financial services, mortgage and real estate industries, introduced its suite of Market Manager reports that enable lenders to better understand their primary markets, improve efficiency and increase market share.
iEmergent’s primary product lines are derived from market metrics that calculate where and what types of lending opportunities exist, enabling lenders and brokers to anticipate and forecast mortgage opportunity. Through iEmergent’s mortgage lending forecasts, market comparisons and measurements, financial institutions can identify and quantify the current potential lending opportunities in markets throughout the U.S., the growth rates of mortgage lending in the future and how those opportunities are changing in individual markets.
Northern Nevada Regional MLS Integrates DocCentral
Northern Nevada Regional Multiple Listings Service will be among the first associations to provide DocCentral, a new non-proprietary document management platform from Fidelity National Real Estate Solutions, Jacksonville, Fla.
DocCentral is a tool that allows real estate professionals to manage and organize their documents. Documents are stored on secure servers and are accessible online by agents and the clients and vendors they authorize.
DocuLex Updates Professional Capture
DocuLex, Winter Haven, Fla., creators of electronic document management software, updated its Professional Capture, enabling DocuLex PC-distributed, server-based Goby Capture integration. It allows for automated paper and native format electronic file capture, fostering knowledge management and workflow collaboration. Professional Capture converts paper to searchable electronic files in corporate and service bureau environments. It fulfills the demands of imaging projects, providing image processing and indexing capabilities.
Wolters Kluwer Forms Alliance with FNIS
Wolters Kluwer Financial Services, Minneapolis and Fidelity National Information Services, Jacksonville, Fla., announced plans to integrate Wolters Kluwer Financial Services’ loan modification document products and services and compliance content into the loss mitigation module of the FIS Desktop platform.
FIS Desktop is a workflow, document and expense management system that provides mortgage lenders, servicers and investors with business management technology to help manage the post-origination loan cycle. The loss mitigation module is available to all servicers and is integrated with FIS’ Mortgage Servicing Package platform, as well as other servicing platforms.
Online Service Boosts Collections, Settlement Rates
A new online service offered by SourcingPoint Solutions, Garden Grove, Calif., helps businesses track delinquent debtors and conduct efficient settlement processes. PersonLocate, the newest addition to SourcingPoint Solutions’ PowerScreen background screening services line, gives users the ability to access information that can help determine a person’s whereabouts. The new service automates a practice commonly referred to as skip tracing.
NeighborWorks Reports Difficulty in Tax Credit Market
An informal survey of members of the NeighborWorks Multifamily Initiative, a group of non-profit apartment developers and managers, suggests tough times for multifamily housing. Tax credit prices have fallen in the past year and major investors in tax credits have pulled back.
While most financing arrangements in today’s market still go to closing with fewer than 17 parts, the weakness in the low-income housing tax credit market has pushed up the cost of financing and led some investors to pull out of deals, NeighborWorks reported. Survey respondents noted that investors are coming back with reduced prices on tax credit projects or pulling out altogether. If a non-profit developer doesn’t have enough flexibility with its project, it may not close.
Freddie Mac Deploys $10.5 Million to Aid Borrowers
Freddie Mac announced $10.5 million in grants to housing counseling organizations to use for their outreach, education and foreclosure prevention efforts to help borrowers. The grants will enable the non-profit organizations to add and train staff, pay operational expenses and support outreach campaigns to borrowers having difficulty making their mortgage payments, especially subprime borrowers. The organizations were selected for their abilities to educate and advise borrowers about their foreclosure options and/or help them obtain workouts from their mortgage servicers.
The largest share of the funds will be administered through the HOPE NOW Alliance in grants totaling more than $6 million. Of that amount, nearly two-thirds is allocated for HOPE NOW's counseling, operations and outreach, with the remaining funds earmarked for organizations including Enterprise Community Partners, NeighborWorks America, the Metropolitan Washington Council of Governments and HomeFree USA.
Monday, April 28, 2008
Online Banking Lacks in Providing Consumer Confidence
MBA (4/28/2008 ) Palaparty, Vijay
Thirty-two million consumers either discontinued banking online or refused to begin online banking last year due to a lack of confidence, said research from Gartner Inc., Stamford, Conn. Their reluctance may be justified as some banks such as M&T Bank, Buffalo, reveal frequency of attacks increasing tenfold in the past three years.
“The volume of attacks has increased and they are specifically targeted toward consumers,” said Matt Speare, CTO of M&T Bank. “The biggest threat to the online channel is having a high level of assurance that the consumers are who they say they are while maintaining a user-friendly experience. What’s we’ve seen, as the internet fraud hackers moves from an egocentric model to a financially drive one, is that they’ve migrated from the traditional consumer type of hacks to those of commercial business as well.”
Avivah Litan, vice president and distinguished analyst at Gartner, reported the emergence of four attack vectors in 2007. “The first vector attacks directly against consumers through phishing and spyware,” she said. “Thieves are stealing financial and personal data, usernames and passwords.”
The other vector codes include hackers injecting malicious code into e-commerce sites. Card system breaches were reported as a significant development because companies tend to leave devices that are situated on network peripheries unsecured, Litan said.
“They gain access through wireless networks that are not secure or secured improperly," Litan said.
The fourth attack vector against companies involved internal fraud that was linked to external fraud—collaborations between “crooks” within companies who aid outside “crooks” to compromise data.
“Last year alone saw a $2 billion loss in sales transactions online,” Litan said. She suggested a layered approach to security because of the amount of uncertainty in the source of attacks, often occurring through email, data transfers, hackers entering using malware, database administrators making unauthorized changes or taking data outside the company.
“It requires many approaches,” Litan said, listing data protection through encryption, host intrusion prevention to stop hackers, email monitoring, application with source code scanners, application security scanners and even firewalls as possible mechanisms for protection and prevention.
“You have to be able to look inside the application to determine whether the user is a legitimate user," Litan said. "When thieves hijack accounts, you have to be able to detect that.”
The advances in malware still pose problems form companies to be able able to separate legitimate users versus imposters. Litan described a behavior monitoring approach to alert of fraudulent activity, monitoring users through access points. Access to banks is available through a branch, ATM, kiosk, phone and online. Fraud detection requires monitoring these channels from a physical location perspective and even closely through IP address monitoring.
“Look at channels and what we expect of the users,” Litan said. “Apply our own rules on what our enterprise considers suspicious and monitor and stop the transactions that are questionable. It requires going back to the consumer to verify activity.”
For example, Litan said, a user might make an online transactions on one coast of the U.S. with simultaneous activity at an ATM machine in another distant geographic location. She said that should raise a red flag to stop both transactions until the user is contacted and asked for verification.
“It’s a seamless, continuous method to monitor access behavior and compare that to what we expect of the user to ultimately stop unauthorized transactions,” Litan said.
Both Speare and Litan agreed that too much interference could also be troublesome, throwing off their "good" users. Consumers want a few questions to authenticate but are concerned mostly with efficiency, Litan said. Regardless, visible security measures seem highly important to most consumers—80 percent find them very important while only 5 percent said they do not care at all.
“The solution should catch 95 percent of fraud and you don’t want a high false positive rate,” Litan said. "It should also have a response team that is available 24/7 because criminals tend to strike on weekends and holidays. The system should provide ease of use for companies and also have a web portal. Most importantly, though, it should provide analysis and information from which companies can learn and constantly work to improve their systems."
“Risk-based authentication will be a cornerstone for our anti-fraud efforts,” Speare said. “While there is a lack of an available federated identity theft management model, risk-based authentication offers the best hope of assurance to prevent loss for both our institutions and consumers.”
Thirty-two million consumers either discontinued banking online or refused to begin online banking last year due to a lack of confidence, said research from Gartner Inc., Stamford, Conn. Their reluctance may be justified as some banks such as M&T Bank, Buffalo, reveal frequency of attacks increasing tenfold in the past three years.
“The volume of attacks has increased and they are specifically targeted toward consumers,” said Matt Speare, CTO of M&T Bank. “The biggest threat to the online channel is having a high level of assurance that the consumers are who they say they are while maintaining a user-friendly experience. What’s we’ve seen, as the internet fraud hackers moves from an egocentric model to a financially drive one, is that they’ve migrated from the traditional consumer type of hacks to those of commercial business as well.”
Avivah Litan, vice president and distinguished analyst at Gartner, reported the emergence of four attack vectors in 2007. “The first vector attacks directly against consumers through phishing and spyware,” she said. “Thieves are stealing financial and personal data, usernames and passwords.”
The other vector codes include hackers injecting malicious code into e-commerce sites. Card system breaches were reported as a significant development because companies tend to leave devices that are situated on network peripheries unsecured, Litan said.
“They gain access through wireless networks that are not secure or secured improperly," Litan said.
The fourth attack vector against companies involved internal fraud that was linked to external fraud—collaborations between “crooks” within companies who aid outside “crooks” to compromise data.
“Last year alone saw a $2 billion loss in sales transactions online,” Litan said. She suggested a layered approach to security because of the amount of uncertainty in the source of attacks, often occurring through email, data transfers, hackers entering using malware, database administrators making unauthorized changes or taking data outside the company.
“It requires many approaches,” Litan said, listing data protection through encryption, host intrusion prevention to stop hackers, email monitoring, application with source code scanners, application security scanners and even firewalls as possible mechanisms for protection and prevention.
“You have to be able to look inside the application to determine whether the user is a legitimate user," Litan said. "When thieves hijack accounts, you have to be able to detect that.”
The advances in malware still pose problems form companies to be able able to separate legitimate users versus imposters. Litan described a behavior monitoring approach to alert of fraudulent activity, monitoring users through access points. Access to banks is available through a branch, ATM, kiosk, phone and online. Fraud detection requires monitoring these channels from a physical location perspective and even closely through IP address monitoring.
“Look at channels and what we expect of the users,” Litan said. “Apply our own rules on what our enterprise considers suspicious and monitor and stop the transactions that are questionable. It requires going back to the consumer to verify activity.”
For example, Litan said, a user might make an online transactions on one coast of the U.S. with simultaneous activity at an ATM machine in another distant geographic location. She said that should raise a red flag to stop both transactions until the user is contacted and asked for verification.
“It’s a seamless, continuous method to monitor access behavior and compare that to what we expect of the user to ultimately stop unauthorized transactions,” Litan said.
Both Speare and Litan agreed that too much interference could also be troublesome, throwing off their "good" users. Consumers want a few questions to authenticate but are concerned mostly with efficiency, Litan said. Regardless, visible security measures seem highly important to most consumers—80 percent find them very important while only 5 percent said they do not care at all.
“The solution should catch 95 percent of fraud and you don’t want a high false positive rate,” Litan said. "It should also have a response team that is available 24/7 because criminals tend to strike on weekends and holidays. The system should provide ease of use for companies and also have a web portal. Most importantly, though, it should provide analysis and information from which companies can learn and constantly work to improve their systems."
“Risk-based authentication will be a cornerstone for our anti-fraud efforts,” Speare said. “While there is a lack of an available federated identity theft management model, risk-based authentication offers the best hope of assurance to prevent loss for both our institutions and consumers.”
Home Sales Continue to Contract
MBA (4/28/2008 ) Velz, Orawin
Recent data continue to support a notion that, if the economy is already in a recession, it should be mild and short.
Manufacturing activity has so far fared much better than during the 2001 recession, supported by strong exports. Initial jobless claims have trended higher but have remained below the 400,000 trend seen in the 2001 recession. There are two exceptions: home sales and consumer confidence, whose performances have been comparable to more severe recessions in the early 1980s.
Both total existing and new home sales fell in March. Since their peak in September 2005, single-family existing home sales have declined about 31 percent. Compared to peak-to-trough declines in six economic recessions since existing single-family home sale data collection began in 1968, the decline in the current cycle was the third largest, following the 1980 recession (40 percent drop) and the 1981-82 recession (45 percent drop).
New home sales have performed much worse than existing homes. The decline to date from the peak in July 2005 of 62 percent is already the largest on record since the inception of the series in 1963, surpassing the 58 percent drop in the 1980 recession.
The University of Michigan’s Consumer Sentiment Index for April was the lowest since March 1982, more than a point below its lowest level during the 1990 recession and was well below its lows during the 2001 recession. The forthcoming tax rebates should help lift confidence. Rising gasoline prices may temper the impact on spending as they act as a tax increase on consumers. In addition, according to the survey, only one-third of consumers said they planned to use the rebate on spending; most intended to use it to repay debt and add to their savings.
Treasury yields rose steadily this week despite bearish housing data. Fed funds futures pared down expectations for a rate cut at the Federal Open Market Committee meeting on Wednesday. The odds of a 25-basis point cut in the fed funds rate declined to about 70 percent, down from 100 percent in the previous week. The yield on the 10-year Treasury note rose to 3.88 percent by mid-Friday afternoon, 11 basis points higher than the closing rate on the previous Friday.
Housing and Mortgage Indicators:
Total existing home sales fell 2.0 percent in March to a seasonally-adjusted annualized rate of 4.93 million, as the drop in single-family home sales outweighed the increase in condo sales. Single-family home sales fell 2.7 percent, completely reversing the increase in February. Condo sales rose 3.6 percent, following a 3.7 percent increase in February and an 8.2 percent drop in January.
Sales of single-family homes during the first quarter of this year were down 20.0 percent from those during the same period last year. Condo sales have performed worse, with year-to-date condo sales 28.7 percent lower than those last year. Since their peak in September 2005, single-family existing home sales have declined about 32 percent, surpassing the peak-to-trough drop of about 30 percent seen in the 1990-91 recession.
Even with a drop in home sales for the month, sales’ performance improved considerably for the quarter as a whole. The decline in the first quarter—at a 3.7 percent annualized rate—moderated significantly from the drop of at least 25 percent in each of the previous three quarters.
Existing home sales rose in two regions: 2.3 percent in the Northeast and 2.2 percent in the West. Sales dropped 6.5 percent in the Midwest and 3.5 percent in the South.
New homes sales decreased 8.5 percent in March to a seasonally-adjusted annualized pace of 526,000, following a 5.3 percent drop in February (previously reported as a 1.8 percent drop). The March pace is the slowest since September 1991.
Sales of new homes during the first quarter of this year were down 33.6 percent from those during the same period last year. Sales have declined about 62 percent since their peak in July 2005.
On a regional basis, sales of new single-family homes fell in all four regions of the economy, with the Northeast posting a 19.4 percent drop, followed by 12.9 percent in the West, 12.5 percent in the Midwest and 4.6 percent in the South.
The number of homes available for sale dropped 1.1 percent to 468,000. This is the 12th consecutive month of decline to the lowest level since July 2005. The steady decline in inventory reflects considerable cutbacks in single-family home building.
A small drop in inventory but a huge decline in sales pace pushed up the months’ supply or the inventory-sales ratio to 9.8 months in March, the highest reading since September 1981.
Another indicator of sluggish housing demand is a sharp increase of the length of time on the market. The median number of months on the market picked up sharply this year, rising to 7.5 months in March, the largest since February 1992. The median number of months on the market averaged 5.7 months last year.
The median price for new homes fell 13.3 percent in March from a year ago, the fourth year-over-year decline in the past five months and the largest decline since July 1970.
The Office of Federal Housing Enterprise Oversight (OFHEO) Purchase-Only House Price Index (HPI) increased 0.6 percent in February from January, the first monthly increase in eight months. From a year ago, the purchase-only index fell 2.4 percent, slightly moderating from a year-over-year drop of 2.7 percent in January. Since peaking in April 2007, the monthly purchase-only index has declined 3.1 percent.
The OFHEO index portrays a more optimistic picture of home prices than other measures of home prices. It is based on data from Fannie Mae and Freddie Mac. Thus the index includes only conventional conforming loans, largely excluding high-priced homes, especially in areas of the country where home prices have weakened considerably over the past year. The OFHEO data also include relatively fewer subprime loans and adjustable rate mortgage loans, which have performed relatively worse over the past year.
Economic Indicators:
Durable goods orders declined 0.3 percent in March, following a 0.9 percent drop in February. This was the third consecutive monthly decline. For the first quarter, new orders fell at an 8.5 percent annualized rate, accelerating from a 5.9 percent drop in the fourth quarter. Excluding transportation, new orders rose a healthy 1.5 percent.
Nondefense capital goods orders excluding aircraft—a proxy for future business investment—were unchanged in March, after declining in January and February. Shipments for nondefense capital goods including aircraft—the proxy for equipment and software spending used in the calculation of economic growth in the current quarter—rose 1.2 percent following two consecutive monthly declines. On a quarterly basis, inflation adjusted shipments of non-defense capital goods excluding aircraft declined at an annual rate of 3.2 percent in the first quarter, compared with a 3.6 percent increase in fourth quarter of 2007.
One troubling sign in the report was that inventories of durable goods jumped 1.1 percent—the biggest this year—and shipments fell. The inventory-to-shipments ratio rose to 1.56 months, the highest since November 2001. That indicates companies will need to pare production in coming months.
The University of Michigan’s Consumer Sentiment Index declined 6.9 points to 62.6 in April from the March. The index measuring consumers' assessment of current conditions declined 7.2 points to 77. The expectations component declined 6.8 points to 53.3.
With rising food and energy prices, consumers reported they expect inflation of 4.8 percent a year from now, an increase from 4.3 percent reported in March. Their expectations for five years from now rose more modestly to 3.2 percent from 2.9 percent.
Recent data continue to support a notion that, if the economy is already in a recession, it should be mild and short.
Manufacturing activity has so far fared much better than during the 2001 recession, supported by strong exports. Initial jobless claims have trended higher but have remained below the 400,000 trend seen in the 2001 recession. There are two exceptions: home sales and consumer confidence, whose performances have been comparable to more severe recessions in the early 1980s.
Both total existing and new home sales fell in March. Since their peak in September 2005, single-family existing home sales have declined about 31 percent. Compared to peak-to-trough declines in six economic recessions since existing single-family home sale data collection began in 1968, the decline in the current cycle was the third largest, following the 1980 recession (40 percent drop) and the 1981-82 recession (45 percent drop).
New home sales have performed much worse than existing homes. The decline to date from the peak in July 2005 of 62 percent is already the largest on record since the inception of the series in 1963, surpassing the 58 percent drop in the 1980 recession.
The University of Michigan’s Consumer Sentiment Index for April was the lowest since March 1982, more than a point below its lowest level during the 1990 recession and was well below its lows during the 2001 recession. The forthcoming tax rebates should help lift confidence. Rising gasoline prices may temper the impact on spending as they act as a tax increase on consumers. In addition, according to the survey, only one-third of consumers said they planned to use the rebate on spending; most intended to use it to repay debt and add to their savings.
Treasury yields rose steadily this week despite bearish housing data. Fed funds futures pared down expectations for a rate cut at the Federal Open Market Committee meeting on Wednesday. The odds of a 25-basis point cut in the fed funds rate declined to about 70 percent, down from 100 percent in the previous week. The yield on the 10-year Treasury note rose to 3.88 percent by mid-Friday afternoon, 11 basis points higher than the closing rate on the previous Friday.
Housing and Mortgage Indicators:
Total existing home sales fell 2.0 percent in March to a seasonally-adjusted annualized rate of 4.93 million, as the drop in single-family home sales outweighed the increase in condo sales. Single-family home sales fell 2.7 percent, completely reversing the increase in February. Condo sales rose 3.6 percent, following a 3.7 percent increase in February and an 8.2 percent drop in January.
Sales of single-family homes during the first quarter of this year were down 20.0 percent from those during the same period last year. Condo sales have performed worse, with year-to-date condo sales 28.7 percent lower than those last year. Since their peak in September 2005, single-family existing home sales have declined about 32 percent, surpassing the peak-to-trough drop of about 30 percent seen in the 1990-91 recession.
Even with a drop in home sales for the month, sales’ performance improved considerably for the quarter as a whole. The decline in the first quarter—at a 3.7 percent annualized rate—moderated significantly from the drop of at least 25 percent in each of the previous three quarters.
Existing home sales rose in two regions: 2.3 percent in the Northeast and 2.2 percent in the West. Sales dropped 6.5 percent in the Midwest and 3.5 percent in the South.
New homes sales decreased 8.5 percent in March to a seasonally-adjusted annualized pace of 526,000, following a 5.3 percent drop in February (previously reported as a 1.8 percent drop). The March pace is the slowest since September 1991.
Sales of new homes during the first quarter of this year were down 33.6 percent from those during the same period last year. Sales have declined about 62 percent since their peak in July 2005.
On a regional basis, sales of new single-family homes fell in all four regions of the economy, with the Northeast posting a 19.4 percent drop, followed by 12.9 percent in the West, 12.5 percent in the Midwest and 4.6 percent in the South.
The number of homes available for sale dropped 1.1 percent to 468,000. This is the 12th consecutive month of decline to the lowest level since July 2005. The steady decline in inventory reflects considerable cutbacks in single-family home building.
A small drop in inventory but a huge decline in sales pace pushed up the months’ supply or the inventory-sales ratio to 9.8 months in March, the highest reading since September 1981.
Another indicator of sluggish housing demand is a sharp increase of the length of time on the market. The median number of months on the market picked up sharply this year, rising to 7.5 months in March, the largest since February 1992. The median number of months on the market averaged 5.7 months last year.
The median price for new homes fell 13.3 percent in March from a year ago, the fourth year-over-year decline in the past five months and the largest decline since July 1970.
The Office of Federal Housing Enterprise Oversight (OFHEO) Purchase-Only House Price Index (HPI) increased 0.6 percent in February from January, the first monthly increase in eight months. From a year ago, the purchase-only index fell 2.4 percent, slightly moderating from a year-over-year drop of 2.7 percent in January. Since peaking in April 2007, the monthly purchase-only index has declined 3.1 percent.
The OFHEO index portrays a more optimistic picture of home prices than other measures of home prices. It is based on data from Fannie Mae and Freddie Mac. Thus the index includes only conventional conforming loans, largely excluding high-priced homes, especially in areas of the country where home prices have weakened considerably over the past year. The OFHEO data also include relatively fewer subprime loans and adjustable rate mortgage loans, which have performed relatively worse over the past year.
Economic Indicators:
Durable goods orders declined 0.3 percent in March, following a 0.9 percent drop in February. This was the third consecutive monthly decline. For the first quarter, new orders fell at an 8.5 percent annualized rate, accelerating from a 5.9 percent drop in the fourth quarter. Excluding transportation, new orders rose a healthy 1.5 percent.
Nondefense capital goods orders excluding aircraft—a proxy for future business investment—were unchanged in March, after declining in January and February. Shipments for nondefense capital goods including aircraft—the proxy for equipment and software spending used in the calculation of economic growth in the current quarter—rose 1.2 percent following two consecutive monthly declines. On a quarterly basis, inflation adjusted shipments of non-defense capital goods excluding aircraft declined at an annual rate of 3.2 percent in the first quarter, compared with a 3.6 percent increase in fourth quarter of 2007.
One troubling sign in the report was that inventories of durable goods jumped 1.1 percent—the biggest this year—and shipments fell. The inventory-to-shipments ratio rose to 1.56 months, the highest since November 2001. That indicates companies will need to pare production in coming months.
The University of Michigan’s Consumer Sentiment Index declined 6.9 points to 62.6 in April from the March. The index measuring consumers' assessment of current conditions declined 7.2 points to 77. The expectations component declined 6.8 points to 53.3.
With rising food and energy prices, consumers reported they expect inflation of 4.8 percent a year from now, an increase from 4.3 percent reported in March. Their expectations for five years from now rose more modestly to 3.2 percent from 2.9 percent.
Free Credit Score Site to Offer a Modeling Tool
American Banker (04/28/08) P. 10; Launder, William
Users of Credit Karma will be able to see how paying down their debt or building a longer credit history impacts their credit score. The San Francisco-based start-up, which was launched in January, plans on adding features to the free site that will allow consumers to compare credit scores based on a number of factors, including one's age, hobby or whether they live in a "red" or "blue" state. Credit Karma, which makes its money by hosting targeted advertising to consumers based on their credit quality, counts home equity lenders among its partners. The Web site uses credit scores from the Chicago-based credit bureau TransUnion.
Users of Credit Karma will be able to see how paying down their debt or building a longer credit history impacts their credit score. The San Francisco-based start-up, which was launched in January, plans on adding features to the free site that will allow consumers to compare credit scores based on a number of factors, including one's age, hobby or whether they live in a "red" or "blue" state. Credit Karma, which makes its money by hosting targeted advertising to consumers based on their credit quality, counts home equity lenders among its partners. The Web site uses credit scores from the Chicago-based credit bureau TransUnion.
Estimates Are Key at Financial Firms
Washington Post (04/28/08) P. D1; Hilzenrath, David S.
Experts say it is difficult to gauge the financial health of Fannie Mae and Freddie Mac, as subjective estimates and differing accounting methods are used to calculate the level of reserves necessary to cover anticipated losses. Freddie Mac said in its 2007 annual report that calculating reserves "is a complex process that is subject to numerous estimates and assumptions requiring significant judgment." These calculations have been pushed to the forefront in recent months because the government-sponsored enterprises (GSEs) back at least three-quarters of new mortgage-backed securities, and substantial losses could make it more difficult for borrowers to obtain mortgages and further depress home prices. Both Fannie Mae and Freddie Mac wait up to 24 months to take problem loans off their books, delaying the negative mark on their earnings in the hopes that delinquencies are remedied without foreclosure. The underlying value of the properties serving as loan collateral was once viewed as a cushion against losses, but inflated appraisals have many experts concerned that borrowers do not have as much equity as originally thought and are more willing to abandon their mortgages--a scenario that would dramatically bolster losses for the GSEs.
Experts say it is difficult to gauge the financial health of Fannie Mae and Freddie Mac, as subjective estimates and differing accounting methods are used to calculate the level of reserves necessary to cover anticipated losses. Freddie Mac said in its 2007 annual report that calculating reserves "is a complex process that is subject to numerous estimates and assumptions requiring significant judgment." These calculations have been pushed to the forefront in recent months because the government-sponsored enterprises (GSEs) back at least three-quarters of new mortgage-backed securities, and substantial losses could make it more difficult for borrowers to obtain mortgages and further depress home prices. Both Fannie Mae and Freddie Mac wait up to 24 months to take problem loans off their books, delaying the negative mark on their earnings in the hopes that delinquencies are remedied without foreclosure. The underlying value of the properties serving as loan collateral was once viewed as a cushion against losses, but inflated appraisals have many experts concerned that borrowers do not have as much equity as originally thought and are more willing to abandon their mortgages--a scenario that would dramatically bolster losses for the GSEs.
Bank of America to Pledge Mortgage Aid
Los Angeles Times (04/28/08); Reckard, E. Scott
Bank of America plans to announce a mortgage aid plan during a two-day hearing at the Federal Reserve in Los Angeles, with hopes of speeding the approval of its effort to acquire Countrywide Financial and completing the deal in July. The bank plans to refinance or modify at least $40 billion in mortgages, which should help keep approximately 265,000 troubled borrowers in their homes over the next two years. Bank of America will waive fees for paying off loans early when legally permitted, and in some circumstances write down the principal on mortgages to keep borrowers from becoming discouraged and defaulting on loans that are "underwater." The bank also has plans to double its community development lending, which will have a significant impact on affordable housing.
Bank of America plans to announce a mortgage aid plan during a two-day hearing at the Federal Reserve in Los Angeles, with hopes of speeding the approval of its effort to acquire Countrywide Financial and completing the deal in July. The bank plans to refinance or modify at least $40 billion in mortgages, which should help keep approximately 265,000 troubled borrowers in their homes over the next two years. Bank of America will waive fees for paying off loans early when legally permitted, and in some circumstances write down the principal on mortgages to keep borrowers from becoming discouraged and defaulting on loans that are "underwater." The bank also has plans to double its community development lending, which will have a significant impact on affordable housing.
Fannie, Freddie Boosted Commitments in March
Inman News (04/28/08)
Freddie Mac reports a jump in its retained portfolio mortgage purchase and sales agreements to $43.5 billion in March from $14.8 billion in February, as a reduction in minimum capital requirements by the Office of Federal Housing Enterprise Oversight (OFHEO) enabled government-sponsored enterprises (GSEs) to boost mortgage purchases by $200 billion. Over the same period, Fannie Mae's retained portfolio mortgage purchase and sales agreements climbed to $31 billion from $25 billion. Overall, Freddie Mac's retained portfolio hit $712.5 billion, expanding at an annual rate of 5 percent, while Fannie Mae's retained portfolio grew at an annual rate of 2 percent to $722.8 billion. OFHEO reports that $2 trillion in mortgages likely will be bought or guaranteed by the GSEs in 2008 due to the lower capital requirements.
Freddie Mac reports a jump in its retained portfolio mortgage purchase and sales agreements to $43.5 billion in March from $14.8 billion in February, as a reduction in minimum capital requirements by the Office of Federal Housing Enterprise Oversight (OFHEO) enabled government-sponsored enterprises (GSEs) to boost mortgage purchases by $200 billion. Over the same period, Fannie Mae's retained portfolio mortgage purchase and sales agreements climbed to $31 billion from $25 billion. Overall, Freddie Mac's retained portfolio hit $712.5 billion, expanding at an annual rate of 5 percent, while Fannie Mae's retained portfolio grew at an annual rate of 2 percent to $722.8 billion. OFHEO reports that $2 trillion in mortgages likely will be bought or guaranteed by the GSEs in 2008 due to the lower capital requirements.
Presidential Candidates Call for Government to Rescue Homeowners
Dallas Morning News (04/28/08); Michaels, Dave
In response to falling home prices and soaring mortgage default rates in numerous states, the presidential candidates are touting homeowner rescue plans that call for increased involvement by the federal government. Sen. Hillary Rodham Clinton, D-N.Y., wants lenders to voluntarily institute 90-day moratoriums on foreclosures to ensure plenty of time for loan modifications or workouts; and both she and Sen. Barack Obama, D-Ill., support a proposal from House Financial Services Committee Chairman Barney Frank, D-Mass., that calls for lenders to lower mortgage balances by 15 percent so that struggling borrowers could refinance into FHA loans. Meanwhile, Sen. John McCain, R-Ariz., has proposed a refinancing plan to help as many as 400,000 homeowners. As for the foreclosure moratorium proposals, mortgage industry representatives insist they would boost fees charged to borrowers and delay inevitable foreclosures. According to Mortgage Bankers Association Chairman-Elect David Kittle, CMB, "An efficient foreclosure process actually benefits the borrower by stopping debt from continuing to accrue and giving the borrower a reasonably clean break from a mortgage loan he or she cannot afford."
In response to falling home prices and soaring mortgage default rates in numerous states, the presidential candidates are touting homeowner rescue plans that call for increased involvement by the federal government. Sen. Hillary Rodham Clinton, D-N.Y., wants lenders to voluntarily institute 90-day moratoriums on foreclosures to ensure plenty of time for loan modifications or workouts; and both she and Sen. Barack Obama, D-Ill., support a proposal from House Financial Services Committee Chairman Barney Frank, D-Mass., that calls for lenders to lower mortgage balances by 15 percent so that struggling borrowers could refinance into FHA loans. Meanwhile, Sen. John McCain, R-Ariz., has proposed a refinancing plan to help as many as 400,000 homeowners. As for the foreclosure moratorium proposals, mortgage industry representatives insist they would boost fees charged to borrowers and delay inevitable foreclosures. According to Mortgage Bankers Association Chairman-Elect David Kittle, CMB, "An efficient foreclosure process actually benefits the borrower by stopping debt from continuing to accrue and giving the borrower a reasonably clean break from a mortgage loan he or she cannot afford."
Scoring the Lenders: A Risky Affair
Roll Call (04/28/08); Ackley, Kate
Becky Walzak, owner of Boca Raton, Fla.-based Walzak Risk Analysis, is fighting to have an amendment included in the mortgage rescue bill up for consideration by the House Financial Services Committee that would institute a scoring system for banks and lenders to hold them accountable for the loans they underwrite. While the amendment has not yet been included, Walzak insists she has supporters in both the House and Senate. Regarding her scoring model, she states, "I have really been focusing on the underlying way that we create loans, and understanding that there is a relationship between the mistakes you make when you're creating the loans and how those loans perform. However, the lending industry opposes the amendment. According to Mortgage Bankers Association Senior Vice President for Legislative and Political Affairs Erick Gustafson, "We're hesitant to see anything adopted by the committee that would make the program less useful for lenders to help borrowers stay in their homes."
Becky Walzak, owner of Boca Raton, Fla.-based Walzak Risk Analysis, is fighting to have an amendment included in the mortgage rescue bill up for consideration by the House Financial Services Committee that would institute a scoring system for banks and lenders to hold them accountable for the loans they underwrite. While the amendment has not yet been included, Walzak insists she has supporters in both the House and Senate. Regarding her scoring model, she states, "I have really been focusing on the underlying way that we create loans, and understanding that there is a relationship between the mistakes you make when you're creating the loans and how those loans perform. However, the lending industry opposes the amendment. According to Mortgage Bankers Association Senior Vice President for Legislative and Political Affairs Erick Gustafson, "We're hesitant to see anything adopted by the committee that would make the program less useful for lenders to help borrowers stay in their homes."
Fed Might End Rate Cuts Soon as Inflation Concerns Take Stage
Investor's Business Daily (04/28/08) P. A1; Stoddard, Scott
Analysts expect the Federal Reserve to cut the federal funds rate by 0.25 percentage points to 2 percent at its upcoming meeting, but they think concerns about inflation could put a stop to the rate reductions. They point out that rate cuts have weakened the dollar and boosted oil and commodity prices. However, Moody's Investors Service chief economist John Lonski says, "The Fed would be making a mistake if it focused too intently on the price of oil and other commodities while assigning secondary importance to home price deflation and the continuing weakness of the U.S. economy." Experts note that rising food and oil prices have put a damper on consumers' purchasing power, while home-price declines eat into their wealth. Susan Phillips of George Washington University's business school believes the central bank could cut rates again if the economy declines further, noting that policymakers cannot step back before the housing and credit markets stabilize.
Analysts expect the Federal Reserve to cut the federal funds rate by 0.25 percentage points to 2 percent at its upcoming meeting, but they think concerns about inflation could put a stop to the rate reductions. They point out that rate cuts have weakened the dollar and boosted oil and commodity prices. However, Moody's Investors Service chief economist John Lonski says, "The Fed would be making a mistake if it focused too intently on the price of oil and other commodities while assigning secondary importance to home price deflation and the continuing weakness of the U.S. economy." Experts note that rising food and oil prices have put a damper on consumers' purchasing power, while home-price declines eat into their wealth. Susan Phillips of George Washington University's business school believes the central bank could cut rates again if the economy declines further, noting that policymakers cannot step back before the housing and credit markets stabilize.
Loan Industry Fighting Rules on Mortgages
New York Times (04/28/08); Labaton, Stephen
The lending industry submitted more than 5,000 comments to the Federal Reserve on its proposed rules to tighten mortgage underwriting standards, causing the central bank to make the rules applicable to a smaller number of loans. The rules would require mortgage lenders to provide loans that are affordable to borrowers, disclose hidden fees typically added to interest payments and ban misleading advertisements, applying only to new mortgages whose interest rates exceed Treasury rates by three percentage points. Numerous industry groups, including the Mortgage Bankers Association and the National Association of Realtors, have criticized the rules, which are expected to be finalized this summer. According to MBA Chairman Kieran Quinn, CMB, "We support many of the provisions in the proposed rule, but we do have concerns about the increased regulatory burden, liability and reputational risks that lenders might face." Meanwhile, Federal Deposit Insurance Corp. Chair Sheila Bair wants the central bank to make the rules stricter by prohibiting hidden fees paid to mortgage brokers, getting rid of a safe harbor provision that safeguards lenders who neglect to check borrowers' income or assets in certain situations and allow borrowers to file lawsuits against lenders without providing evidence that lenders were involved in "a pattern of abusive practices."
The lending industry submitted more than 5,000 comments to the Federal Reserve on its proposed rules to tighten mortgage underwriting standards, causing the central bank to make the rules applicable to a smaller number of loans. The rules would require mortgage lenders to provide loans that are affordable to borrowers, disclose hidden fees typically added to interest payments and ban misleading advertisements, applying only to new mortgages whose interest rates exceed Treasury rates by three percentage points. Numerous industry groups, including the Mortgage Bankers Association and the National Association of Realtors, have criticized the rules, which are expected to be finalized this summer. According to MBA Chairman Kieran Quinn, CMB, "We support many of the provisions in the proposed rule, but we do have concerns about the increased regulatory burden, liability and reputational risks that lenders might face." Meanwhile, Federal Deposit Insurance Corp. Chair Sheila Bair wants the central bank to make the rules stricter by prohibiting hidden fees paid to mortgage brokers, getting rid of a safe harbor provision that safeguards lenders who neglect to check borrowers' income or assets in certain situations and allow borrowers to file lawsuits against lenders without providing evidence that lenders were involved in "a pattern of abusive practices."
Friday, April 25, 2008
CMBS Tide Turning on Tighter Spreads
MBA (4/25/2008 ) Murray, Michael
Positive sentiment from Wall Street chief executives, synthetic spreads holding tight and a new deal in the commercial mortgage-backed securities (CMBS) market pipeline are giving a reason for some cautious optimism that the CMBS market could be gaining momentum to attract investors.
“If the bulk of asset writedowns may have occurred and the worst is behind us, as was recently indicated by several Wall Street CEOs, it should prove to provide a substantial layer of support for cash and synthetic spreads at the top of the capital structure,” said Alan Todd, head of CMBS research at JP Morgan Securities, New York, adding that there is cautious optimism at the top of the capital structure. “This, in fact, corresponds with our fundamental view that AAA CMBX were trading at spread levels that implied cumulative losses would be three to five times that which we viewed as likely to occur.”
“The spread tightening seen in the CMBS cash markets over the past few weeks is in response to the tightening move in synthetics [as measured by CMBX],” said Lisa Pendergast, managing director of CMBS at RBS Greenwich, Greenwich, Conn.
“This may give some indication that indeed the market fears are beginning to calm and investors are looking to establish a new equilibrium in this context,” Todd said.
He added that it could make sense to "tactically and selectively go long [on] some lower-rated bonds" since cash is trading so much wider than synthetics.
Most industry analysts viewed the CMBS deal from Lehman Brothers and UBS (LBUBS 2008-C1) as the most positive development in weeks—possibly months. The $1.007 billion offer—in the market with 62 loans on 75 properties—included 43.5 percent retail, 23.2 percent office, 13.4 percent hotel and 12.6 percent mixed-use properties.
The properties, in Maryland, Indiana, Alabama, North Carolina and Florida, have a total loan-to-value at nearly 64 percent. The top, AAA-rated class of $48 million priced at nearly 230 basis points over swaps but dropped to 190 bps over swaps, narrowing the gap by 35 bps during the past two weeks.
Informa Global Markets, New York, reported that last week's pricing of the LBUBS 2008-C1 CMBS "showed a level of demand not seen in the market in months."
“Tighter CMBS spreads and reduced volatility are the required elixirs to mend the primary CMBS marketplace,” Pendergast said.
“With the rally at the top of the capital structure fundamentally justified, the significant shift in market sentiment should provide support against any meaningful spread widening and we recommend that investors add AAA cash bond exposure,” Todd said.
Some industry analysts said the Federal Reserve’s assistance in JP Morgan Chase’s purchase of Bear, Stearns & Co. was an “inflection point” that provided corporate investors confidence that the federal government would protect them from a capital markets collapse.
“From a confidence point of view, I thought that it was an extraordinary step,” said Adam Schneider, principal of Deloitte Consulting LLP, New York.
Any celebration, however, could be premature as cap rates and CMBS delinquencies push upward, which could affect commercial property values and market sentiment.
RBS Greenwich expects a “moderate but steady” increase in the CMBS delinquency rate as it reported the fixed CMBS delinquency rate increased two basis points to 0.53 percent in February from 0.51 percent in January and 0.47 percent in February 2007—relatively historical lows.
“Historically, the fixed-rate conduit CMBS delinquency rate has responded to downturns in the U.S. economy, but with a lag,” Pendergast said. “We project the delinquency rate will close out 2008 around the 1 percent mark, still sharply lower than the recent peak in October 2003 of 2.48 percent.”
Moody's Investors Service, New York, said it continues to expect commercial property prices to fall nearly 15-20 percent before bottoming out, but added that the longer average holding time for property sales during the past year contributed to a slowdown in value depreciation.
Industry analysts continue to favor strong commercial real estate fundamentals based on less construction during the recent cycle and a relatively healthy job market. Despite an unemployment rate increase to 5.1 percent last month, U.S. jobless claims fell to their lowest level in two months, down 33,000 to 342,000.
Mary Sullivan Kelley, senior vice president at Meredith & Grew, Boston, said less new construction and overbuilding has helped keep the commercial real estate market, overall, on “firm enough footing.” For the Boston market, she said leasing fundamentals have been strong, particularly in downtown Boston.
“Owners don’t have to sell, and I think they’re comfortable with waiting out whatever uncertainty there is,” Kelley said. “But none of that is translating into a decrease in pricing—although there has certainly been a decrease in volume.”
Positive sentiment from Wall Street chief executives, synthetic spreads holding tight and a new deal in the commercial mortgage-backed securities (CMBS) market pipeline are giving a reason for some cautious optimism that the CMBS market could be gaining momentum to attract investors.
“If the bulk of asset writedowns may have occurred and the worst is behind us, as was recently indicated by several Wall Street CEOs, it should prove to provide a substantial layer of support for cash and synthetic spreads at the top of the capital structure,” said Alan Todd, head of CMBS research at JP Morgan Securities, New York, adding that there is cautious optimism at the top of the capital structure. “This, in fact, corresponds with our fundamental view that AAA CMBX were trading at spread levels that implied cumulative losses would be three to five times that which we viewed as likely to occur.”
“The spread tightening seen in the CMBS cash markets over the past few weeks is in response to the tightening move in synthetics [as measured by CMBX],” said Lisa Pendergast, managing director of CMBS at RBS Greenwich, Greenwich, Conn.
“This may give some indication that indeed the market fears are beginning to calm and investors are looking to establish a new equilibrium in this context,” Todd said.
He added that it could make sense to "tactically and selectively go long [on] some lower-rated bonds" since cash is trading so much wider than synthetics.
Most industry analysts viewed the CMBS deal from Lehman Brothers and UBS (LBUBS 2008-C1) as the most positive development in weeks—possibly months. The $1.007 billion offer—in the market with 62 loans on 75 properties—included 43.5 percent retail, 23.2 percent office, 13.4 percent hotel and 12.6 percent mixed-use properties.
The properties, in Maryland, Indiana, Alabama, North Carolina and Florida, have a total loan-to-value at nearly 64 percent. The top, AAA-rated class of $48 million priced at nearly 230 basis points over swaps but dropped to 190 bps over swaps, narrowing the gap by 35 bps during the past two weeks.
Informa Global Markets, New York, reported that last week's pricing of the LBUBS 2008-C1 CMBS "showed a level of demand not seen in the market in months."
“Tighter CMBS spreads and reduced volatility are the required elixirs to mend the primary CMBS marketplace,” Pendergast said.
“With the rally at the top of the capital structure fundamentally justified, the significant shift in market sentiment should provide support against any meaningful spread widening and we recommend that investors add AAA cash bond exposure,” Todd said.
Some industry analysts said the Federal Reserve’s assistance in JP Morgan Chase’s purchase of Bear, Stearns & Co. was an “inflection point” that provided corporate investors confidence that the federal government would protect them from a capital markets collapse.
“From a confidence point of view, I thought that it was an extraordinary step,” said Adam Schneider, principal of Deloitte Consulting LLP, New York.
Any celebration, however, could be premature as cap rates and CMBS delinquencies push upward, which could affect commercial property values and market sentiment.
RBS Greenwich expects a “moderate but steady” increase in the CMBS delinquency rate as it reported the fixed CMBS delinquency rate increased two basis points to 0.53 percent in February from 0.51 percent in January and 0.47 percent in February 2007—relatively historical lows.
“Historically, the fixed-rate conduit CMBS delinquency rate has responded to downturns in the U.S. economy, but with a lag,” Pendergast said. “We project the delinquency rate will close out 2008 around the 1 percent mark, still sharply lower than the recent peak in October 2003 of 2.48 percent.”
Moody's Investors Service, New York, said it continues to expect commercial property prices to fall nearly 15-20 percent before bottoming out, but added that the longer average holding time for property sales during the past year contributed to a slowdown in value depreciation.
Industry analysts continue to favor strong commercial real estate fundamentals based on less construction during the recent cycle and a relatively healthy job market. Despite an unemployment rate increase to 5.1 percent last month, U.S. jobless claims fell to their lowest level in two months, down 33,000 to 342,000.
Mary Sullivan Kelley, senior vice president at Meredith & Grew, Boston, said less new construction and overbuilding has helped keep the commercial real estate market, overall, on “firm enough footing.” For the Boston market, she said leasing fundamentals have been strong, particularly in downtown Boston.
“Owners don’t have to sell, and I think they’re comfortable with waiting out whatever uncertainty there is,” Kelley said. “But none of that is translating into a decrease in pricing—although there has certainly been a decrease in volume.”
Red Flags Rules Mandate Identity Risk Analysis, Management
MBA (4/25/2008 ) Palaparty, Vijay
Government issuance of Identity Theft Red Flags Rules requires all financial institutions and creditors to develop and implement an identity theft prevention program. The mandate presents an active opportunity for companies to assess risk areas and create a plan to combat risk.
Several government agencies including the Federal Trade Commission and the Federal Deposit Insurance Corp. jointly issued final rules and guidelines, section 114 of the Fair and Accurate Credit Transactions Act of 2003 (FACT Act) and final rules implementing section 315 of the FACT Act. Section 114 requires companies to detect, prevent and mitigate identity theft in connection with the opening of certain accounts or certain existing accounts. Additionally, agencies are issuing guidelines to assist financial institutions and creditors to formulate and maintain a program that satisfies the requirements of the rules.
“Banks, mortgage lenders, brokers, pay day lenders—any financial institution or creditor is affected by this rule and each of these entities has to do a risk assessment of covered accounts,” said Sai Huda, CEO of ComplianceCoach, San Diego. “They have to determine the level of risk of identity theft and then identify corresponding red flags.”
The rules provide five categories of red flags that make up 26 types of red flags. But the agencies also encourage companies to identify more red flags based on external red flag sources such as identity theft schemes.
“If you see red flag, then you have to do something about it,” Huda said. “You have to look for it, detect it and respond to it. Beyond identifying, a detection response mapping has to take place. This is not just a technical requirement; it’s an affirmative obligation to prevent identity theft for companies and their consumers.”
As part of the procedure, companies are required to train employees and also monitor changes in business and new risks, regularly updating the program. New products, accounts, lines of business and schemes all have to be accounted for in the system. The rules also require companies to conduct a self audit that is presented to the board. Federal or state regulators would also conduct an audit for compliance.
“The rules apply to covered accounts—accounts that are offered to personal, family or household purposes,” Huda said. “A mortgage loan is a good example. The general covered loan is a mortgage but there is a sleeper in the rule. Companies need to know if they have any other accounts that also have foreseeable chance of identity theft."
For example, Huda said commercial mortgage loans might not qualify for companies that have non-consumer accounts. "But what if there were identity theft on commercial mortgage borrower acocunts? As you see, there are risks and you need to bring them all into your coverage," he said. "Eventually, the effort is all about risk management and leads to an overall coverage. It’s a broad rule that’s affirmative."
ComplianceCoach offers a web-based tool, CompliancePal, targeted toward lenders to help them achieve compliance. The service provides a questionnaire for lenders to complete and the software produces an assessment. It includes the 26 red flags already included in the rules, but Huda said it will add 17 new red flags to the list this month. CompliancePal also provides training for employees in areas of risk management and identity theft.
“If a lender has a weak program, either external or internal identity theft could take place and result in negative publicity, loss of customers and high legal costs," Huda said. "What we’re telling the industry is that complying with the rule is not a cost of doing business. It’s goodwill and revenue enhancement.”
The rules could be seen as yet another demand and some may treat it like another requirement; Huda saw the measure as highly beneficial. “It’s goodwill-building. When identity theft takes place, no one wins and most importantly, the consumer is damaged and angry and will certainly blame the lender or broker—the person who has the information.”
The rules could also contribute to eliminating fraud in the industry—weeding out bad actors who take advantage of unsuspecting borrowers. “Identity theft happens knowingly or unknowingly," Huda said. "What the rules bring are higher standards and lenders will look at brokers for compliance and borrowers will look at both lenders and borrowers for compliance.”
Government issuance of Identity Theft Red Flags Rules requires all financial institutions and creditors to develop and implement an identity theft prevention program. The mandate presents an active opportunity for companies to assess risk areas and create a plan to combat risk.
Several government agencies including the Federal Trade Commission and the Federal Deposit Insurance Corp. jointly issued final rules and guidelines, section 114 of the Fair and Accurate Credit Transactions Act of 2003 (FACT Act) and final rules implementing section 315 of the FACT Act. Section 114 requires companies to detect, prevent and mitigate identity theft in connection with the opening of certain accounts or certain existing accounts. Additionally, agencies are issuing guidelines to assist financial institutions and creditors to formulate and maintain a program that satisfies the requirements of the rules.
“Banks, mortgage lenders, brokers, pay day lenders—any financial institution or creditor is affected by this rule and each of these entities has to do a risk assessment of covered accounts,” said Sai Huda, CEO of ComplianceCoach, San Diego. “They have to determine the level of risk of identity theft and then identify corresponding red flags.”
The rules provide five categories of red flags that make up 26 types of red flags. But the agencies also encourage companies to identify more red flags based on external red flag sources such as identity theft schemes.
“If you see red flag, then you have to do something about it,” Huda said. “You have to look for it, detect it and respond to it. Beyond identifying, a detection response mapping has to take place. This is not just a technical requirement; it’s an affirmative obligation to prevent identity theft for companies and their consumers.”
As part of the procedure, companies are required to train employees and also monitor changes in business and new risks, regularly updating the program. New products, accounts, lines of business and schemes all have to be accounted for in the system. The rules also require companies to conduct a self audit that is presented to the board. Federal or state regulators would also conduct an audit for compliance.
“The rules apply to covered accounts—accounts that are offered to personal, family or household purposes,” Huda said. “A mortgage loan is a good example. The general covered loan is a mortgage but there is a sleeper in the rule. Companies need to know if they have any other accounts that also have foreseeable chance of identity theft."
For example, Huda said commercial mortgage loans might not qualify for companies that have non-consumer accounts. "But what if there were identity theft on commercial mortgage borrower acocunts? As you see, there are risks and you need to bring them all into your coverage," he said. "Eventually, the effort is all about risk management and leads to an overall coverage. It’s a broad rule that’s affirmative."
ComplianceCoach offers a web-based tool, CompliancePal, targeted toward lenders to help them achieve compliance. The service provides a questionnaire for lenders to complete and the software produces an assessment. It includes the 26 red flags already included in the rules, but Huda said it will add 17 new red flags to the list this month. CompliancePal also provides training for employees in areas of risk management and identity theft.
“If a lender has a weak program, either external or internal identity theft could take place and result in negative publicity, loss of customers and high legal costs," Huda said. "What we’re telling the industry is that complying with the rule is not a cost of doing business. It’s goodwill and revenue enhancement.”
The rules could be seen as yet another demand and some may treat it like another requirement; Huda saw the measure as highly beneficial. “It’s goodwill-building. When identity theft takes place, no one wins and most importantly, the consumer is damaged and angry and will certainly blame the lender or broker—the person who has the information.”
The rules could also contribute to eliminating fraud in the industry—weeding out bad actors who take advantage of unsuspecting borrowers. “Identity theft happens knowingly or unknowingly," Huda said. "What the rules bring are higher standards and lenders will look at brokers for compliance and borrowers will look at both lenders and borrowers for compliance.”
New Residential Sales Hit 16-Year Low
MBA (4/25/2008 ) Sorohan, Mike
So much for the spring home-buying season.
Sales of new single-family homes in March reached a 16-year low, falling to a seasonally adjusted rate of just 526,000, according to the Bureau of the Census and HUD. The figure represented an 8.5 percent drop from the revised February rate of 575,000 and was 36.6 percent lower than a year ago, when the rate was 830,000. The last time sales were this low was October 1991.
The numbers for prices and inventory didn’t fare better: hampered by rising inventory, the median sales price of new single-family homes fell by 13.3 percent to $227,600 from $244,200, the highest single monthly drop since July 1970; the average sales price fell to $292,900 from $302,900.
Inventory of new houses for sale, despite cutbacks by home builders, rose to 468,000, representing a supply of 11.0 months at the current sales rate.
Sales fell in all regions of the country: by 19.4 percent in the Northeast; 12.9 percent in the West; 12.9 percent in the Midwest and 4.6 percent in the South.
The new home sales figures come on the heels of a 2 percent drop in existing home sales reported earlier this week by the National Association of Realtors.
So much for the spring home-buying season.
Sales of new single-family homes in March reached a 16-year low, falling to a seasonally adjusted rate of just 526,000, according to the Bureau of the Census and HUD. The figure represented an 8.5 percent drop from the revised February rate of 575,000 and was 36.6 percent lower than a year ago, when the rate was 830,000. The last time sales were this low was October 1991.
The numbers for prices and inventory didn’t fare better: hampered by rising inventory, the median sales price of new single-family homes fell by 13.3 percent to $227,600 from $244,200, the highest single monthly drop since July 1970; the average sales price fell to $292,900 from $302,900.
Inventory of new houses for sale, despite cutbacks by home builders, rose to 468,000, representing a supply of 11.0 months at the current sales rate.
Sales fell in all regions of the country: by 19.4 percent in the Northeast; 12.9 percent in the West; 12.9 percent in the Midwest and 4.6 percent in the South.
The new home sales figures come on the heels of a 2 percent drop in existing home sales reported earlier this week by the National Association of Realtors.
Bush Administration Opposes Democrats' Housing Rescue Plan
Associated Press (04/25/08); Davis, Julie Hirschfeld
HUD Deputy Secretary Roy Bernardi says the Bush administration opposes a proposal from House Financial Services Committee Chairman Barney Frank, D-Mass., that would ease FHA lending standards to enable $300 billion in mortgages to be refinanced through the agency. Bernardi says the plan is a "bailout" that poses significant risks for taxpayers, adding that a provision requiring lenders to write down a portion of the mortgages would restrict the number willing to participate in the program. In addition to the FHA legislation, Bernardi says a bill calling for $15 billion to be given to states to buy and rehabilitate foreclosed homes also would be vetoed by President Bush.
HUD Deputy Secretary Roy Bernardi says the Bush administration opposes a proposal from House Financial Services Committee Chairman Barney Frank, D-Mass., that would ease FHA lending standards to enable $300 billion in mortgages to be refinanced through the agency. Bernardi says the plan is a "bailout" that poses significant risks for taxpayers, adding that a provision requiring lenders to write down a portion of the mortgages would restrict the number willing to participate in the program. In addition to the FHA legislation, Bernardi says a bill calling for $15 billion to be given to states to buy and rehabilitate foreclosed homes also would be vetoed by President Bush.
U.S. Agency Helps Prop Up Housing Market
Wall Street Journal (04/25/08) P. A4; Radnofsky, Louise; Crittenden, Michael R.
The FHA reports a 61 percent jump in lender incentives paid from its insurance fund to prevent foreclosures to $158.6 million in 2007 from 2003. The percentage of homeowners able to keep their homes as a result rose above 60 percent from about 30 percent in 2000. A proposal by House Financial Services Committee Chairman Barney Frank, D-Mass., to refinance up to $300 billion in problem mortgages through the FHA could cost $3 billion to $6 billion, though it remains to be seen whether lender incentives would be raised. By orchestrating workouts with lenders, the agency says it saves $2 billion annually and safeguards entire neighborhoods, with FHA office of single-family asset management deputy director Laurie Maggiano noting that just 12 percent of workouts are unsuccessful. For every FHA-backed loan that goes into foreclosure, the agency's insurance fund pays $98,740 on average to mortgage servicers; in contrast, it gave incentives of $136 to $7,169 to lenders willing to modify loan terms.
The FHA reports a 61 percent jump in lender incentives paid from its insurance fund to prevent foreclosures to $158.6 million in 2007 from 2003. The percentage of homeowners able to keep their homes as a result rose above 60 percent from about 30 percent in 2000. A proposal by House Financial Services Committee Chairman Barney Frank, D-Mass., to refinance up to $300 billion in problem mortgages through the FHA could cost $3 billion to $6 billion, though it remains to be seen whether lender incentives would be raised. By orchestrating workouts with lenders, the agency says it saves $2 billion annually and safeguards entire neighborhoods, with FHA office of single-family asset management deputy director Laurie Maggiano noting that just 12 percent of workouts are unsuccessful. For every FHA-backed loan that goes into foreclosure, the agency's insurance fund pays $98,740 on average to mortgage servicers; in contrast, it gave incentives of $136 to $7,169 to lenders willing to modify loan terms.
Fannie, Freddie Get Relief on Affordable-Loan Quotas
Washington Post (04/25/08) P. D1; Hilzenrath, David S.
Fannie Mae and Freddie Mac recently informed HUD that market conditions prevented them from achieving affordable housing quotas for 2007, and the agency agreed with the government-sponsored enterprises (GSEs) and announced that they would not be penalized. As a result, Fannie Mae and Freddie Mac do not need to file plans indicating how the quotas will be met. Observers say HUD's decision showcases the government's willingness to accommodate the GSEs--a shift from its previous confrontational stance--in hopes that they will fuel a mortgage market rebound. Freddie Mac Chairman and CEO Richard Syron recently criticized the affordable housing quotas, insisting that they were responsible for the GSEs' investments in subprime mortgages. He noted, "It is not good public policy to have mission goals that encourage [Freddie Mac and Fannie Mae] to put people in homes that they end up losing."
Fannie Mae and Freddie Mac recently informed HUD that market conditions prevented them from achieving affordable housing quotas for 2007, and the agency agreed with the government-sponsored enterprises (GSEs) and announced that they would not be penalized. As a result, Fannie Mae and Freddie Mac do not need to file plans indicating how the quotas will be met. Observers say HUD's decision showcases the government's willingness to accommodate the GSEs--a shift from its previous confrontational stance--in hopes that they will fuel a mortgage market rebound. Freddie Mac Chairman and CEO Richard Syron recently criticized the affordable housing quotas, insisting that they were responsible for the GSEs' investments in subprime mortgages. He noted, "It is not good public policy to have mission goals that encourage [Freddie Mac and Fannie Mae] to put people in homes that they end up losing."
Inflation Concerns Drive 30-Year Mortgage to 6.30 Percent
Baltimore Sun (04/25/08)
Freddie Mac reports a jump in the 30-year fixed mortgage rate to 6.03 percent during the week ended April 24 from 5.88 percent the prior week, marking the first time in six weeks that mortgage rates rose above 6 percent. The 15-year fixed mortgage rate climbed during the same period, edging up to 5.62 percent from 5.40 percent. The five-year adjustable mortgage rate increased to 5.68 percent from 5.48 percent, while the one-year adjustable rate shot up to 5.28 percent from 5.10 percent. Freddie Mac chief economist Frank Nothaft attributes the gains to heightened inflationary concerns.
Freddie Mac reports a jump in the 30-year fixed mortgage rate to 6.03 percent during the week ended April 24 from 5.88 percent the prior week, marking the first time in six weeks that mortgage rates rose above 6 percent. The 15-year fixed mortgage rate climbed during the same period, edging up to 5.62 percent from 5.40 percent. The five-year adjustable mortgage rate increased to 5.68 percent from 5.48 percent, while the one-year adjustable rate shot up to 5.28 percent from 5.10 percent. Freddie Mac chief economist Frank Nothaft attributes the gains to heightened inflationary concerns.
Paulson to Lenders: Fix Has to Come From You
American Banker (04/25/08) P. 1; Hopkins, Cheyenne
Treasury Secretary Henry Paulson recently held a 90-minute private meeting with Treasury undersecretary of domestic finance Robert Steel and executives of Washington Mutual Inc., Citigroup Inc., Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Ocwen Financial Group, IndyMac Bancorp Inc. and Residential Capital LLC to discuss ongoing deterioration in the housing market. Paulson encouraged the lenders to develop a strategy to assist borrowers whose mortgage balances exceed their homes' value, noting that it will take too long to pass foreclosure relief legislation. Additionally, he underscored the importance of improving aggregate data to gauge the success of loan modifications, requesting that lenders offer more specific data, meet with him individually on their progress and establish working groups to create best practices for modifications. Participants say borrower psychology and its impact on modifications was discussed, with lenders contending that write downs--not interest rate reductions--are more likely to keep borrowers out of foreclosure.
Treasury Secretary Henry Paulson recently held a 90-minute private meeting with Treasury undersecretary of domestic finance Robert Steel and executives of Washington Mutual Inc., Citigroup Inc., Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Ocwen Financial Group, IndyMac Bancorp Inc. and Residential Capital LLC to discuss ongoing deterioration in the housing market. Paulson encouraged the lenders to develop a strategy to assist borrowers whose mortgage balances exceed their homes' value, noting that it will take too long to pass foreclosure relief legislation. Additionally, he underscored the importance of improving aggregate data to gauge the success of loan modifications, requesting that lenders offer more specific data, meet with him individually on their progress and establish working groups to create best practices for modifications. Participants say borrower psychology and its impact on modifications was discussed, with lenders contending that write downs--not interest rate reductions--are more likely to keep borrowers out of foreclosure.
Paulson to Lenders: Fix Has to Come From You
American Banker (04/25/08) P. 1; Hopkins, Cheyenne
Treasury Secretary Henry Paulson recently held a 90-minute private meeting with Treasury undersecretary of domestic finance Robert Steel and executives of Washington Mutual Inc., Citigroup Inc., Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Ocwen Financial Group, IndyMac Bancorp Inc. and Residential Capital LLC to discuss ongoing deterioration in the housing market. Paulson encouraged the lenders to develop a strategy to assist borrowers whose mortgage balances exceed their homes' value, noting that it will take too long to pass foreclosure relief legislation. Additionally, he underscored the importance of improving aggregate data to gauge the success of loan modifications, requesting that lenders offer more specific data, meet with him individually on their progress and establish working groups to create best practices for modifications. Participants say borrower psychology and its impact on modifications was discussed, with lenders contending that write downs--not interest rate reductions--are more likely to keep borrowers out of foreclosure.
Treasury Secretary Henry Paulson recently held a 90-minute private meeting with Treasury undersecretary of domestic finance Robert Steel and executives of Washington Mutual Inc., Citigroup Inc., Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Ocwen Financial Group, IndyMac Bancorp Inc. and Residential Capital LLC to discuss ongoing deterioration in the housing market. Paulson encouraged the lenders to develop a strategy to assist borrowers whose mortgage balances exceed their homes' value, noting that it will take too long to pass foreclosure relief legislation. Additionally, he underscored the importance of improving aggregate data to gauge the success of loan modifications, requesting that lenders offer more specific data, meet with him individually on their progress and establish working groups to create best practices for modifications. Participants say borrower psychology and its impact on modifications was discussed, with lenders contending that write downs--not interest rate reductions--are more likely to keep borrowers out of foreclosure.
Paulson to Lenders: Fix Has to Come From You
American Banker (04/25/08) P. 1; Hopkins, Cheyenne
Treasury Secretary Henry Paulson recently held a 90-minute private meeting with Treasury undersecretary of domestic finance Robert Steel and executives of Washington Mutual Inc., Citigroup Inc., Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Ocwen Financial Group, IndyMac Bancorp Inc. and Residential Capital LLC to discuss ongoing deterioration in the housing market. Paulson encouraged the lenders to develop a strategy to assist borrowers whose mortgage balances exceed their homes' value, noting that it will take too long to pass foreclosure relief legislation. Additionally, he underscored the importance of improving aggregate data to gauge the success of loan modifications, requesting that lenders offer more specific data, meet with him individually on their progress and establish working groups to create best practices for modifications. Participants say borrower psychology and its impact on modifications was discussed, with lenders contending that write downs--not interest rate reductions--are more likely to keep borrowers out of foreclosure.
Treasury Secretary Henry Paulson recently held a 90-minute private meeting with Treasury undersecretary of domestic finance Robert Steel and executives of Washington Mutual Inc., Citigroup Inc., Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Ocwen Financial Group, IndyMac Bancorp Inc. and Residential Capital LLC to discuss ongoing deterioration in the housing market. Paulson encouraged the lenders to develop a strategy to assist borrowers whose mortgage balances exceed their homes' value, noting that it will take too long to pass foreclosure relief legislation. Additionally, he underscored the importance of improving aggregate data to gauge the success of loan modifications, requesting that lenders offer more specific data, meet with him individually on their progress and establish working groups to create best practices for modifications. Participants say borrower psychology and its impact on modifications was discussed, with lenders contending that write downs--not interest rate reductions--are more likely to keep borrowers out of foreclosure.
New-Home Sales Fall to Low Last Seen in Early 1990s
New York Times (04/25/08); Grynbaum, Michael M.
The Commerce Department reports an 8.5 percent drop in new-home sales to an annual pace of 526,000 in March, with economists blaming the largest job cuts since the start of the year for the greater than expected decline. New-home sales have not seen such low levels since the 1990s housing recession, and the 11-month supply of unsold new homes marks a 27-year high. Regionally, new-home sales slipped 19.4 percent in the Northeast, 13 percent in both the West and Midwest and 5 percent in the South. During the year-over-year period ended in March, the median new-home price plunged 13.3 percent to $227,600. Meanwhile, the Commerce Department revised its February sales report, noting a decrease of 5.3 percent versus its original estimate of a 1.8 percent decline.
The Commerce Department reports an 8.5 percent drop in new-home sales to an annual pace of 526,000 in March, with economists blaming the largest job cuts since the start of the year for the greater than expected decline. New-home sales have not seen such low levels since the 1990s housing recession, and the 11-month supply of unsold new homes marks a 27-year high. Regionally, new-home sales slipped 19.4 percent in the Northeast, 13 percent in both the West and Midwest and 5 percent in the South. During the year-over-year period ended in March, the median new-home price plunged 13.3 percent to $227,600. Meanwhile, the Commerce Department revised its February sales report, noting a decrease of 5.3 percent versus its original estimate of a 1.8 percent decline.
Vacation and Investment Property Sales Strong Despite Market Troubles
Hundreds of thousands of American homeowners may be in desperate straits, facing crippling rate resets or worse, foreclosure, but others continued to purchase vacation homes and investment properties at a healthy rate.
According to a study released late last month by the National Association of Realtors® (NAR) such second-home sales declined with the overall market in 2007, but second home sales still accounted for 33 percent of all new and existing home sales. The combination of these two sales accounted for 36 percent of the total in 2006.
21 percent of all homes purchased in 2007 were for investment purposes compared to 22 percent the year before. An additional 12 percent of the home purchases were vacation homes, down from 14 percent in 2006.
In terms of numbers, the Investment and Vacation Home Buyers Survey showed that the total number of primary sales declined 10 percent to 4.34 million in 2007 from 4.82 million the year before. Vacation home sales dropped 30.6 to 740,000 from what had been a record-setting 1.07 million homes in 2006. Investment property sales accounted for 1.35 million transactions compared to 1.65 million in 2006, a drop of 18.1 percent.
The median price spent on a vacation home in 2007 was $195,000, 2.5 percent lower than the median of $200,000 in 2006. Investment property was purchased at a median price of $150,000, unchanged from 2006.
Vacation homes were most popular in the South where 41 percent of them were purchased; 25 percent were bought in the West, 19 percent in the Northeast, and 16 percent in the Midwest. 30 percent of the homes purchased were in rural areas, 20 percent each in resort areas or suburbs, and 14 percent in a city neighborhood.
Investment properties were also disproportionally located in the South (38 percent) with 23 percent in the Northeast, 21 percent in the West, and 19 percent in the Midwest; 39 percent were purchased in a suburb, 21 percent in a small town, and 20 percent in an urban area.
The typical vacation-home buyer in 2007 was 46 years old, had a median household income of $99,100, and purchased a property that was a median of 287 miles from his or her primary residence; while the typical investor was 42, earned an income of $92,900, and bought a home that was relatively close to his or her primary residence - a median distance of 27 miles. Sixty-five percent of vacation home buyers and 71 percent of investment home buyers purchased existing homes, while the remainder purchased new homes.
Lawrence Yun, NAR chief economist, said the findings suggest different cycles for each of the sectors over the past two years. "Investment-home sales declined sharply in 2006 as speculators disappeared, leaving the market to serious buyers, with the pattern continuing in 2007," he said. "Vacation-home sales rose to a new record in 2006 because there was a pent-up demand from buyers who couldn't find a property as a result of tight supplies in preceding years."
The overall sales decline in 2007 resulted from a combination of factors. "Certainly, second homes are discretionary purchases and there is a natural tendency to pull back from big-ticket items in periods of uncertainty," Yun said. "The other factor is the disruption in the mortgage market, with a significant tightening of credit during the second half of 2007. Some buyers simply adopted a wait-and-see attitude."
Yun said lifestyle factors and strong demographics remain positive for the vacation home market. "Investment considerations are secondary for vacation-home buyers, so there is some dormant underlying demand," he said. "A peak of population is moving through the prime years for buying recreational property. It is welcoming to see investment sales returning to pre-boom sales activity."
NAR's 2007 Investment and Vacation Home Buyers Survey, conducted in March 2008, includes answers from 1,965 usable responses. The survey controlled for age and income, based on information from the larger 2007 National Association of Realtors® Profile of Home Buyers and Sellers, to limit any biases in the characteristics of respondents.
According to a study released late last month by the National Association of Realtors® (NAR) such second-home sales declined with the overall market in 2007, but second home sales still accounted for 33 percent of all new and existing home sales. The combination of these two sales accounted for 36 percent of the total in 2006.
21 percent of all homes purchased in 2007 were for investment purposes compared to 22 percent the year before. An additional 12 percent of the home purchases were vacation homes, down from 14 percent in 2006.
In terms of numbers, the Investment and Vacation Home Buyers Survey showed that the total number of primary sales declined 10 percent to 4.34 million in 2007 from 4.82 million the year before. Vacation home sales dropped 30.6 to 740,000 from what had been a record-setting 1.07 million homes in 2006. Investment property sales accounted for 1.35 million transactions compared to 1.65 million in 2006, a drop of 18.1 percent.
The median price spent on a vacation home in 2007 was $195,000, 2.5 percent lower than the median of $200,000 in 2006. Investment property was purchased at a median price of $150,000, unchanged from 2006.
Vacation homes were most popular in the South where 41 percent of them were purchased; 25 percent were bought in the West, 19 percent in the Northeast, and 16 percent in the Midwest. 30 percent of the homes purchased were in rural areas, 20 percent each in resort areas or suburbs, and 14 percent in a city neighborhood.
Investment properties were also disproportionally located in the South (38 percent) with 23 percent in the Northeast, 21 percent in the West, and 19 percent in the Midwest; 39 percent were purchased in a suburb, 21 percent in a small town, and 20 percent in an urban area.
The typical vacation-home buyer in 2007 was 46 years old, had a median household income of $99,100, and purchased a property that was a median of 287 miles from his or her primary residence; while the typical investor was 42, earned an income of $92,900, and bought a home that was relatively close to his or her primary residence - a median distance of 27 miles. Sixty-five percent of vacation home buyers and 71 percent of investment home buyers purchased existing homes, while the remainder purchased new homes.
Lawrence Yun, NAR chief economist, said the findings suggest different cycles for each of the sectors over the past two years. "Investment-home sales declined sharply in 2006 as speculators disappeared, leaving the market to serious buyers, with the pattern continuing in 2007," he said. "Vacation-home sales rose to a new record in 2006 because there was a pent-up demand from buyers who couldn't find a property as a result of tight supplies in preceding years."
The overall sales decline in 2007 resulted from a combination of factors. "Certainly, second homes are discretionary purchases and there is a natural tendency to pull back from big-ticket items in periods of uncertainty," Yun said. "The other factor is the disruption in the mortgage market, with a significant tightening of credit during the second half of 2007. Some buyers simply adopted a wait-and-see attitude."
Yun said lifestyle factors and strong demographics remain positive for the vacation home market. "Investment considerations are secondary for vacation-home buyers, so there is some dormant underlying demand," he said. "A peak of population is moving through the prime years for buying recreational property. It is welcoming to see investment sales returning to pre-boom sales activity."
NAR's 2007 Investment and Vacation Home Buyers Survey, conducted in March 2008, includes answers from 1,965 usable responses. The survey controlled for age and income, based on information from the larger 2007 National Association of Realtors® Profile of Home Buyers and Sellers, to limit any biases in the characteristics of respondents.
Recession: A great time to buy!
By Glenn Roberts Jr.
While housing sales are slumping nationally, the monthly Reuters/Zogby Index released today found that most of a group of 1,049 likely voters believe it is a good time to buy a home. The survey, which was conducted April 10-12 and has a margin of error of plus or minus 3.1 percentage points, found that 53.8 percent of participants believe it is a good buying opportunity, while 41.6 percent said it is not a good time to buy and the remainder were unsure, Reuters reported. The error margin and 4.6 percent "unsure" respondents, though, make this somewhat of a tossup.
The overall Reuters/Zogby Index climbed to 95.5 percent this month after hitting a low of 87.7 percent in March. This index is based on responses to 10 poll questions about the state of the nation and the economy. This index was launched in August 2007, and the baseline rating established for that month was 100.
About 71 percent of index participants said they believe the U.S. economy is now in a recession, down from 74 percent in last month's index. The National Association of Home Builders' chief economist this week threw his hat into the recession ring, declaring in his latest forecast that the nation is already in a recession and that he expects this "mild recession" to fade away at the close of the second quarter.
About 81 percent of survey participants view U.S. economic policy as fair or poor, and about 53 percent rate their personal financial situation as excellent or good. About two-thirds of survey participants said the nation is on the wrong track, down from 73 percent in March -- about 83 percent of Democrats expressed pessimistic views in this area, while 48 percent of Republicans said the nation is going the wrong way.
Is Congress doing its job? About 16 percent of survey participants gave positive marks to Congress, compared to 13 percent in last month's survey.
On the heels of the poll results, online real estate advertising site ForSaleByOwner.com sent out a statement today about the importance of consumer confidence. "The missing ingredient to recovery within the housing market has been consumer confidence," a company spokesman said, adding that the survey results "are a great sign of growing consumer confidence and awareness that market conditions have provided unique buying opportunities."
But can consumer confidence override a recession (if we are in fact in one)? And do polls speak louder than pocketbooks? The U.S. Census Bureau and Housing and Urban Development Department today reported that housing starts and new-home building-permit authorizations hit the lowest rate since 1991, and single-family starts and permits have been in decline for 12 straight months. NAHB is forecasting a 30 percent decline this year in housing starts, and the National Association of Realtors has forecast a 4.7 percent dip in sales of resale homes compared to 2007, and a 25.7 percent drop in new single-family home sales.
While housing sales are slumping nationally, the monthly Reuters/Zogby Index released today found that most of a group of 1,049 likely voters believe it is a good time to buy a home. The survey, which was conducted April 10-12 and has a margin of error of plus or minus 3.1 percentage points, found that 53.8 percent of participants believe it is a good buying opportunity, while 41.6 percent said it is not a good time to buy and the remainder were unsure, Reuters reported. The error margin and 4.6 percent "unsure" respondents, though, make this somewhat of a tossup.
The overall Reuters/Zogby Index climbed to 95.5 percent this month after hitting a low of 87.7 percent in March. This index is based on responses to 10 poll questions about the state of the nation and the economy. This index was launched in August 2007, and the baseline rating established for that month was 100.
About 71 percent of index participants said they believe the U.S. economy is now in a recession, down from 74 percent in last month's index. The National Association of Home Builders' chief economist this week threw his hat into the recession ring, declaring in his latest forecast that the nation is already in a recession and that he expects this "mild recession" to fade away at the close of the second quarter.
About 81 percent of survey participants view U.S. economic policy as fair or poor, and about 53 percent rate their personal financial situation as excellent or good. About two-thirds of survey participants said the nation is on the wrong track, down from 73 percent in March -- about 83 percent of Democrats expressed pessimistic views in this area, while 48 percent of Republicans said the nation is going the wrong way.
Is Congress doing its job? About 16 percent of survey participants gave positive marks to Congress, compared to 13 percent in last month's survey.
On the heels of the poll results, online real estate advertising site ForSaleByOwner.com sent out a statement today about the importance of consumer confidence. "The missing ingredient to recovery within the housing market has been consumer confidence," a company spokesman said, adding that the survey results "are a great sign of growing consumer confidence and awareness that market conditions have provided unique buying opportunities."
But can consumer confidence override a recession (if we are in fact in one)? And do polls speak louder than pocketbooks? The U.S. Census Bureau and Housing and Urban Development Department today reported that housing starts and new-home building-permit authorizations hit the lowest rate since 1991, and single-family starts and permits have been in decline for 12 straight months. NAHB is forecasting a 30 percent decline this year in housing starts, and the National Association of Realtors has forecast a 4.7 percent dip in sales of resale homes compared to 2007, and a 25.7 percent drop in new single-family home sales.
Eyeing a home loan? Current mortgage rates are about as low as they’ll go this year.
By Jerome Idaszak
Mortgage rates aren't likely to ease the rest of the year. The edgy credit markets are taking a toll, severing the link between yields on 10-year Treasuries, down a half point this year, and 30-year fixed rate home loans, which have dipped only a quarter point.
Nervous investors flocking to Treasuries are trimming those yields, but equally nervous mortgage lenders aren’t loosening their purse strings. And the series of interest rate cuts by the Federal Reserve don't affect fixed-rate mortgages because long-term rates are sensitive to broad economic trends. The Fed's moves aren't totally irrelevant but have a delayed and indirect impact.
Look for the 30-year fixed mortgage to end the year at around 6%, up a tick from the current 5.88%. Why? Investors in bonds will fret about higher inflation and push interest rates upward. Bond buyers will also pay more attention to the fiscal stimulus passed by Congress, which will help boost the federal budget deficit to around $500 billion. As Congress borrows to raise money for that rising deficit, the added supply of Treasuries will also hike long-term rates higher.
Mortgage rates aren't likely to ease the rest of the year. The edgy credit markets are taking a toll, severing the link between yields on 10-year Treasuries, down a half point this year, and 30-year fixed rate home loans, which have dipped only a quarter point.
Nervous investors flocking to Treasuries are trimming those yields, but equally nervous mortgage lenders aren’t loosening their purse strings. And the series of interest rate cuts by the Federal Reserve don't affect fixed-rate mortgages because long-term rates are sensitive to broad economic trends. The Fed's moves aren't totally irrelevant but have a delayed and indirect impact.
Look for the 30-year fixed mortgage to end the year at around 6%, up a tick from the current 5.88%. Why? Investors in bonds will fret about higher inflation and push interest rates upward. Bond buyers will also pay more attention to the fiscal stimulus passed by Congress, which will help boost the federal budget deficit to around $500 billion. As Congress borrows to raise money for that rising deficit, the added supply of Treasuries will also hike long-term rates higher.
Five Questions to Ask Before Renovating Your Home
by Marshall Loeb Spending on remodeling is expected to reach $316 billion this year alone and the number is still climbing, according to the Home Improvement Research Institute. So make sure you know exactly how big a renovation you can afford and whether it justifies the time you intend to spend in your revamped home.
The Nest, a home-improvement Web site, says before making any big changes to your home you should ask yourself these big questions:
1. How long do I plan to stay in my house after the renovations? The longer you plan to live there, the more creative you can be. But if you're planning on selling the house in the next five years, keep potential buyers in mind with your choices. In the latter case, for instance, go with neutral colors in the kitchen and bathroom, and consider maple cabinets. Some people hate oak, others hate cherry, but the majority can live with maple.
2. Am I doing just cosmetic fixes or am I ready for an all-out overhaul? It's OK to make small changes one at a time, but think long-term about the next step. For example, if you're buying a new sink, buy one with enough holes on the deck for the faucet, sprayer and soap dispenser you might want to add on later. (Cutting more holes into stainless steel or porcelain after the sink is installed is an onerous job you don't want to get stuck with.) And if you know you're going to buy new cabinets later, don't replace the countertop with expensive granite now. The chances of reusing it are very slim -- either it breaks when you try to remove it, or it doesn't match the footprint of the new cabinets.
3. Am I prepared for the home upheaval? Be realistic about how long these changes might take. Renovations can go on for months, so you need to be prepared to make do without that bathroom, kitchen or bedroom. When checking references before you hire your contractor, be sure to ask if the company finished the work on time. You'd be surprised how quickly a week can turn into a month. And if you're bunking up with your in-laws during renovation, that month can seem like a year.
4. Are the renovations keeping with the style of my home? Any big changes you make to a home inside should reflect what future buyers will expect from the outside. If you live in a Victorian house, don't make it too contemporary. People who see a historical exterior will expect a historical interior, so stay true to the details. The same goes for a contemporary or modern home, where future buyers may not expect old-fashioned details like antique crown molding.
5. Are my DIY choices reasonable? You may consider yourself handy, but many do-it-yourself jobs demand your time more than anything else. If you have a full-time job, are you capable of taking on a second one? Some makeovers that are not technically difficult can take longer than you think. For that reason, if you start any job yourself, try to sample it before committing to the whole thing. For example, while refinishing cabinets with a new stain isn't rocket science, sanding down each one can take forever.
A final tip: if you do plan to follow through with a large-scale renovation, do the smallest room in the house from start to finish -- the insulating, rewiring, painting, refinishing, tiling -- so you gain a sense of accomplishment.
The Nest, a home-improvement Web site, says before making any big changes to your home you should ask yourself these big questions:
1. How long do I plan to stay in my house after the renovations? The longer you plan to live there, the more creative you can be. But if you're planning on selling the house in the next five years, keep potential buyers in mind with your choices. In the latter case, for instance, go with neutral colors in the kitchen and bathroom, and consider maple cabinets. Some people hate oak, others hate cherry, but the majority can live with maple.
2. Am I doing just cosmetic fixes or am I ready for an all-out overhaul? It's OK to make small changes one at a time, but think long-term about the next step. For example, if you're buying a new sink, buy one with enough holes on the deck for the faucet, sprayer and soap dispenser you might want to add on later. (Cutting more holes into stainless steel or porcelain after the sink is installed is an onerous job you don't want to get stuck with.) And if you know you're going to buy new cabinets later, don't replace the countertop with expensive granite now. The chances of reusing it are very slim -- either it breaks when you try to remove it, or it doesn't match the footprint of the new cabinets.
3. Am I prepared for the home upheaval? Be realistic about how long these changes might take. Renovations can go on for months, so you need to be prepared to make do without that bathroom, kitchen or bedroom. When checking references before you hire your contractor, be sure to ask if the company finished the work on time. You'd be surprised how quickly a week can turn into a month. And if you're bunking up with your in-laws during renovation, that month can seem like a year.
4. Are the renovations keeping with the style of my home? Any big changes you make to a home inside should reflect what future buyers will expect from the outside. If you live in a Victorian house, don't make it too contemporary. People who see a historical exterior will expect a historical interior, so stay true to the details. The same goes for a contemporary or modern home, where future buyers may not expect old-fashioned details like antique crown molding.
5. Are my DIY choices reasonable? You may consider yourself handy, but many do-it-yourself jobs demand your time more than anything else. If you have a full-time job, are you capable of taking on a second one? Some makeovers that are not technically difficult can take longer than you think. For that reason, if you start any job yourself, try to sample it before committing to the whole thing. For example, while refinishing cabinets with a new stain isn't rocket science, sanding down each one can take forever.
A final tip: if you do plan to follow through with a large-scale renovation, do the smallest room in the house from start to finish -- the insulating, rewiring, painting, refinishing, tiling -- so you gain a sense of accomplishment.
Is It Time to Buy Real Estate?
by Vicki Gerson
Investing in real estate used to be considered a "no brainer," a can't-miss investment.
But these days, this sure thing isn't so sure. Home prices keep falling. Standard & Poor tracking shows prices down 7.7 percent nationally in November 2007.
The National Association of Realtors, or NAR, reports that sales of single-family homes were down by 13 percent in 2007, the biggest drop since a 17.7 plunge in 1982.
Representatives of the NAR say that this makes it the best buyer's market in a long time. Prices are down, interest rates are near a 45-year low and the supply of houses is high.
But others argue that with the real estate market in a tailspin, it might be a very long time before prices rebound -- making it a poor market at this time.
Even those who advocate real estate investing concede that you need the right circumstances before you take the plunge.
Who Should Buy a Home?
"Dual-income customers should definitely buy a home now," says George Kaiser, vice president of banking operations for Northbrook Bank and Trust and West America Mortgage Co., its sister company. "People with assets in reserve and a credit score of at least 680 should buy as well. Anyone with a credit score less than that will have to verify their income."
Renters who have stable jobs might find this a good time to try homeownership because of the lower prices, says Scott Rose of Coldwell Banker in Deerfield, Ill.
William Chu, senior mortgage loan consultant, American Chartered Bank, suggests it's a particularly good time to look at the higher end properties if you can afford them because with the pool of buyers shrinking, upper market sellers are lowering their prices to attract a larger pool.
"So if you qualify, you could purchase a more expensive home at a much lower price than you could a few years ago," he says.
However, as always, consumers need to shop intelligently, avoid risk and buy what they can afford.
Kaiser warns that potential homebuyers must not get in over their heads. They should feel comfortable with their mortgages and be confident they can handle the payments along with taxes and insurance.
Those with lower credit scores will find it a little tougher.
"If you have some credit challenges or less than 20 percent down, be prepared for higher interest rates due to risk-based lending," says Rose.
Who Should Not Buy Now?
While prices are more attractive these days, not everyone should be in the market.
"There is no hard and fast rule that applies in all cases, whether it be a good market for real estate or a down market, such as we are currently experiencing," says Valerie Anderson-Jones, CPA, JD, CVA at Kessler Orlean Silver & Co. PC. "Tax advantages can make the ownership of real estate quite appealing, but the decision whether or not to own a home should be based on many factors.
"The size of the down payment and resulting mortgage will play a large part in this decision, as well as the amount of any other assets and debt one currently has."
Brent Kalka, Certified Funds Specialist, or CFS, and financial adviser at Mueller Financial Services Inc., Elgin, Ill., points out there are times a person or couple should not consider buying in this market.
"For example, if a retired couple is thinking of selling their home in order to downgrade and gets less than fair market value, they will lose more financially then what they gain by getting a good deal on a less expensive house and are better off financially by waiting until the market turns around."
A second consumer who ought not consider changing residences is a homeowner who, prior to the market downturn, had 20 percent equity in their home and didn't have private mortgage insurance, or PMI payments.
"With home values down," he says "their equity has dropped, and they no longer would have the 20 percent down payment necessary in a lateral or upgrade purchase to avoid PMI, which can run anywhere from $50 to $150 per month."
Kalka also believes that potential homebuyers should consider the fact that the real estate market could be no better or even worse a year from now, so they have to decide if they want to wait it out.
People whose jobs are shaky should wait until their situation is more secure.
"To buy on what you are making now if future income is not stable is asking for trouble," Rose says.
Also, if you are experiencing a life change, such as an upcoming job transfer, getting married, planning to move geographically within the next two years or struggling financially, you should wait.
"People who are thinking of flipping a home should not buy," says Walter Molony, spokesman for the National Association of Realtors. "Housing is a long term investment, and if you're only planning to be there for a year or two, keep renting."
According to Karen L. DeRose, CFP, DeRose & Associates, Chicago, renovating and flipping homes is much harder today and not something she is recommending to any of her clients. She says several of her clients now have to sit on these properties and the gains they thought they would get have been eaten away by the decline in home prices.
People with heavy credit card debt should not consider buying now. "They must clean up their credit first," Chu says.
Should You Buy a Home in Foreclosure?
The Census Bureau reported that the number of vacant homes in 2007 climbed to 2.8 million from 2.07 million. This is the biggest one-year jump on record. What does that mean to potential homebuyers?
Although property is available, Marsha Schwartz, a broker associate from Coldwell Banker Residential Brokerage in Northbrook, Ill., and Rose believe that buying a home in foreclosure can be a challenge and not always a good deal. Sometimes the home has been neglected for a long time due to financial reversals. Be prepared to invest money in the property.
Before you purchase it, have a professional inspection done, even though most of the time the home is being sold "as is." It also pays to research comparable prices to make sure the price of the foreclosure is significantly below values in the area.
"You can always buy a home in foreclosure, but it depends on how much the lender is willing to lose to get rid of the property," Kaiser adds. "Sometimes you can get a good deal."
Is Raw Land or Commercial Real Estate a Good Alternative Now?
"Now is a great time to acquire land, because when you look at the residential market, many homebuilders are looking to get their existing inventory off the books," says Ben Reinberg, Alliance Equities LLC, headquartered in Chicago.
"However, if you are going to buy land, you must have the ability to hold that piece of land until you have an opportunity for the next cycle to come around."
When purchasing land, investors should investigate if it has sewer and water, what type of zoning it has and what you can do with it as well as the location of the property. When buying a piece of land, lenders require 30 percent to 60 percent equity depending on where it's located and what the selling price is.
Reinberg believes if you have the opportunity to purchase the land at a discount (less than it would have sold for three to five years ago), buy it.
"There will be opportunities to buy land within the next 12 to 18 months, especially if we go into a recession," Reinberg says. "The market is correcting itself, and was very inflated. Now it's adjusting."
In addition, Reinberg expects the rental market to be strong compared to the condo market, so multifamily properties will be in strong demand as well.
But he does issue a word of caution. "Be careful what you buy in this down market. Due diligence is important, and if you are a novice you may want to hire a commercial real estate broker."
Why Not Wait Until the Economy Turns Around?
"If you wait till the economy turns around, the interest rates may not be as favorable, nor in all probability will there be as much inventory," says Schwartz.
She feels it's hard to predict when the market will bottom out, just as you can't predict when a stock has "bottomed out" until it has started to rise again.
Homes are starting to sell because prices have been lowered, but Kaiser doesn't anticipate home prices dropping much more. Interest rates are also dropping, and that is changing consumers' outlook.
When Will the Housing Market Turn Around?
The National Association of Realtors is projecting that home sales will trend up this year.
"The timing of the recovery is a bit ambiguous because there are buyers looking for a bargain, while others are looking for more signs of stability. Still others are looking for interest rates to keep lowering, with prices still bottoming out in their area," says Molony.
However, he suggests the window of opportunity for buying is within the next six months.
But there is serious disagreement on that point.
"Overall my consensus is to wait another year to see how the housing market settles and see how capital gains plays out," says DeRose. She bases her thoughts on the fact that Census Bureau Data indicates this is the highest housing inventory in history with 17.9 million housing units available. In addition, foreclosures are at an all time high.
"I am recommending to my clients that they do not purchase another home or one on contingency unless their home sells first. Otherwise, they could end up carrying two mortgages."
"Over all, the real estate market won't be strong till the spring of 2009," says Bob Mecca, CFP, MBA, RIA, of Robert A. Mecca & Associates LLC. He recommends that people look now, establish a list of priorities and amenities and do their homework. Then, negotiate.
"Of course, Realtors will say to buy now, but the investment has to make sense and have appreciation potential," he adds.
Mecca believes people should wait and see if the economic stimulus package takes hold as well as keeping an eye on the Federal Reserve rate. "If the Fed starts hinting that interest rates are done with, then is the time to start investing and flipping homes."
"Many people believe that the earliest turn around will be in the second half of 2008," Schwartz says, "while others believe it will not be till the first half of 2009. Other people think people will have a wait and see attitude until after the presidential election, which would prolong the market turnaround."
The bottom line, Molony points out, is that all real estate is local, and people need to understand what is going on in their local market area before they buy. Internet research is an important first step, and you need to know if it is a buyer's or seller's market locally or if it is balanced.
Molony projects that home prices will stay flat this year, but 2009 will lead back to more normal market conditions with prices rising 3.1 percent.
Investing in real estate used to be considered a "no brainer," a can't-miss investment.
But these days, this sure thing isn't so sure. Home prices keep falling. Standard & Poor tracking shows prices down 7.7 percent nationally in November 2007.
The National Association of Realtors, or NAR, reports that sales of single-family homes were down by 13 percent in 2007, the biggest drop since a 17.7 plunge in 1982.
Representatives of the NAR say that this makes it the best buyer's market in a long time. Prices are down, interest rates are near a 45-year low and the supply of houses is high.
But others argue that with the real estate market in a tailspin, it might be a very long time before prices rebound -- making it a poor market at this time.
Even those who advocate real estate investing concede that you need the right circumstances before you take the plunge.
Who Should Buy a Home?
"Dual-income customers should definitely buy a home now," says George Kaiser, vice president of banking operations for Northbrook Bank and Trust and West America Mortgage Co., its sister company. "People with assets in reserve and a credit score of at least 680 should buy as well. Anyone with a credit score less than that will have to verify their income."
Renters who have stable jobs might find this a good time to try homeownership because of the lower prices, says Scott Rose of Coldwell Banker in Deerfield, Ill.
William Chu, senior mortgage loan consultant, American Chartered Bank, suggests it's a particularly good time to look at the higher end properties if you can afford them because with the pool of buyers shrinking, upper market sellers are lowering their prices to attract a larger pool.
"So if you qualify, you could purchase a more expensive home at a much lower price than you could a few years ago," he says.
However, as always, consumers need to shop intelligently, avoid risk and buy what they can afford.
Kaiser warns that potential homebuyers must not get in over their heads. They should feel comfortable with their mortgages and be confident they can handle the payments along with taxes and insurance.
Those with lower credit scores will find it a little tougher.
"If you have some credit challenges or less than 20 percent down, be prepared for higher interest rates due to risk-based lending," says Rose.
Who Should Not Buy Now?
While prices are more attractive these days, not everyone should be in the market.
"There is no hard and fast rule that applies in all cases, whether it be a good market for real estate or a down market, such as we are currently experiencing," says Valerie Anderson-Jones, CPA, JD, CVA at Kessler Orlean Silver & Co. PC. "Tax advantages can make the ownership of real estate quite appealing, but the decision whether or not to own a home should be based on many factors.
"The size of the down payment and resulting mortgage will play a large part in this decision, as well as the amount of any other assets and debt one currently has."
Brent Kalka, Certified Funds Specialist, or CFS, and financial adviser at Mueller Financial Services Inc., Elgin, Ill., points out there are times a person or couple should not consider buying in this market.
"For example, if a retired couple is thinking of selling their home in order to downgrade and gets less than fair market value, they will lose more financially then what they gain by getting a good deal on a less expensive house and are better off financially by waiting until the market turns around."
A second consumer who ought not consider changing residences is a homeowner who, prior to the market downturn, had 20 percent equity in their home and didn't have private mortgage insurance, or PMI payments.
"With home values down," he says "their equity has dropped, and they no longer would have the 20 percent down payment necessary in a lateral or upgrade purchase to avoid PMI, which can run anywhere from $50 to $150 per month."
Kalka also believes that potential homebuyers should consider the fact that the real estate market could be no better or even worse a year from now, so they have to decide if they want to wait it out.
People whose jobs are shaky should wait until their situation is more secure.
"To buy on what you are making now if future income is not stable is asking for trouble," Rose says.
Also, if you are experiencing a life change, such as an upcoming job transfer, getting married, planning to move geographically within the next two years or struggling financially, you should wait.
"People who are thinking of flipping a home should not buy," says Walter Molony, spokesman for the National Association of Realtors. "Housing is a long term investment, and if you're only planning to be there for a year or two, keep renting."
According to Karen L. DeRose, CFP, DeRose & Associates, Chicago, renovating and flipping homes is much harder today and not something she is recommending to any of her clients. She says several of her clients now have to sit on these properties and the gains they thought they would get have been eaten away by the decline in home prices.
People with heavy credit card debt should not consider buying now. "They must clean up their credit first," Chu says.
Should You Buy a Home in Foreclosure?
The Census Bureau reported that the number of vacant homes in 2007 climbed to 2.8 million from 2.07 million. This is the biggest one-year jump on record. What does that mean to potential homebuyers?
Although property is available, Marsha Schwartz, a broker associate from Coldwell Banker Residential Brokerage in Northbrook, Ill., and Rose believe that buying a home in foreclosure can be a challenge and not always a good deal. Sometimes the home has been neglected for a long time due to financial reversals. Be prepared to invest money in the property.
Before you purchase it, have a professional inspection done, even though most of the time the home is being sold "as is." It also pays to research comparable prices to make sure the price of the foreclosure is significantly below values in the area.
"You can always buy a home in foreclosure, but it depends on how much the lender is willing to lose to get rid of the property," Kaiser adds. "Sometimes you can get a good deal."
Is Raw Land or Commercial Real Estate a Good Alternative Now?
"Now is a great time to acquire land, because when you look at the residential market, many homebuilders are looking to get their existing inventory off the books," says Ben Reinberg, Alliance Equities LLC, headquartered in Chicago.
"However, if you are going to buy land, you must have the ability to hold that piece of land until you have an opportunity for the next cycle to come around."
When purchasing land, investors should investigate if it has sewer and water, what type of zoning it has and what you can do with it as well as the location of the property. When buying a piece of land, lenders require 30 percent to 60 percent equity depending on where it's located and what the selling price is.
Reinberg believes if you have the opportunity to purchase the land at a discount (less than it would have sold for three to five years ago), buy it.
"There will be opportunities to buy land within the next 12 to 18 months, especially if we go into a recession," Reinberg says. "The market is correcting itself, and was very inflated. Now it's adjusting."
In addition, Reinberg expects the rental market to be strong compared to the condo market, so multifamily properties will be in strong demand as well.
But he does issue a word of caution. "Be careful what you buy in this down market. Due diligence is important, and if you are a novice you may want to hire a commercial real estate broker."
Why Not Wait Until the Economy Turns Around?
"If you wait till the economy turns around, the interest rates may not be as favorable, nor in all probability will there be as much inventory," says Schwartz.
She feels it's hard to predict when the market will bottom out, just as you can't predict when a stock has "bottomed out" until it has started to rise again.
Homes are starting to sell because prices have been lowered, but Kaiser doesn't anticipate home prices dropping much more. Interest rates are also dropping, and that is changing consumers' outlook.
When Will the Housing Market Turn Around?
The National Association of Realtors is projecting that home sales will trend up this year.
"The timing of the recovery is a bit ambiguous because there are buyers looking for a bargain, while others are looking for more signs of stability. Still others are looking for interest rates to keep lowering, with prices still bottoming out in their area," says Molony.
However, he suggests the window of opportunity for buying is within the next six months.
But there is serious disagreement on that point.
"Overall my consensus is to wait another year to see how the housing market settles and see how capital gains plays out," says DeRose. She bases her thoughts on the fact that Census Bureau Data indicates this is the highest housing inventory in history with 17.9 million housing units available. In addition, foreclosures are at an all time high.
"I am recommending to my clients that they do not purchase another home or one on contingency unless their home sells first. Otherwise, they could end up carrying two mortgages."
"Over all, the real estate market won't be strong till the spring of 2009," says Bob Mecca, CFP, MBA, RIA, of Robert A. Mecca & Associates LLC. He recommends that people look now, establish a list of priorities and amenities and do their homework. Then, negotiate.
"Of course, Realtors will say to buy now, but the investment has to make sense and have appreciation potential," he adds.
Mecca believes people should wait and see if the economic stimulus package takes hold as well as keeping an eye on the Federal Reserve rate. "If the Fed starts hinting that interest rates are done with, then is the time to start investing and flipping homes."
"Many people believe that the earliest turn around will be in the second half of 2008," Schwartz says, "while others believe it will not be till the first half of 2009. Other people think people will have a wait and see attitude until after the presidential election, which would prolong the market turnaround."
The bottom line, Molony points out, is that all real estate is local, and people need to understand what is going on in their local market area before they buy. Internet research is an important first step, and you need to know if it is a buyer's or seller's market locally or if it is balanced.
Molony projects that home prices will stay flat this year, but 2009 will lead back to more normal market conditions with prices rising 3.1 percent.
Investor Confidence Could Lead to New Asset Awareness
MBA (4/24/2008 ) Murray, Michael
Investors remain the key catalyst in turning around the credit-crunched capital markets and—after the smoke clears—a more sophisticated investor could eventually emerge in a new, similar securitization model.
Deloitte Consulting LLP, New York, expects the beginning of the end for the credit crunch only when "thousands of investors" begin to find distressed assets valuable, begin acquiring these assets and answer questions on how to invest and the value of their returns.
“Investors are the fundamental source of capital that will begin to clear the market and move us out of a credit crunch situation to, hopefully, a credit recovery situation. They’re the source of stability,” said Adam Schneider, principal of Deloitte Consulting LLP.
Deloitte Consulting expects future investors in the mortgage markets to become more sophisticated about mortgage products and begin to understand more about underlying collateral rather than depending on ratings of securities.
“They will be particularly focused on piercing the various collateralized structures as a core investment capability,” Schneider said, noting that the current investment community is still very liquid.
Investors, after this crisis, will worry less about the description of the security but more about the asset or collateral underlying the security and any relevant guarantees as they seek returns. The creation of new mechanisms and cross-checks will improve pricing, not only for mortgages but for other products if they “lock up,” Schneider said.
The securitization model also will need to change, including stronger underwriting with more clear, focused and transparent products and new guarantors to emerge and price loans at a point with positive returns.
The ratings agencies will continue to enhance processes to become better at changes in underlying collateral and greater risk monitoring. “We think that the attraction of investor capital...is a key part to redeveloping and moving the market into a positive direction right now,” Schneider said.
Deloitte Consulting forecasts a more sound market environment after the mortgage industry rebounds, without "exotic" securitizations but with more traditional products in the near future.
“We expect something that is similar to processes today but more sound [processes], more controlled, better risk, better lending [and] better disclosure,” Schneider said. “We expect strong lenders to survive. We suspect there will be much more in-house production. We suspect there will be much more balance sheet lending. The securitization process will clearly evolve, essentially adding more compliance, more check-out and more transparency.”
Involvement from “thousands of investors” in the credit crunch created a significant difference to the “infinite balance sheet” during the savings and loan crisis, which evolved into the Resolution Trust Corp. [RTC].
Schneider said weak underwriting, low teaser rate products, packaging that increased risk in some instances, mortgage insurers and guarantors subject to “great speculation in the marketplace” and ratings agencies that “did not get the information quite so perfect” all played a part in losing investor confidence.
“The markets will recover over time—perhaps not as fast as the equivalent of the RTC formed to swoop up [commercial mortgages] but, again, with thousands of investors, it is not obvious how to form such an entity or how it will go forward, so we do expect it to take some time,” he said.
The recovery process will include financial institutions rebuilding their balance sheets and creating sound financial practices. “We have seen mortgage products get more interesting in terms of pricing, risks being taken out of the system and prices for various types of credit insurance improving,” Schneider said.
“The financial institutions, per se, have to strengthen up and toughen up,” he said.
Deloitte forecasts government intervention on a global basis to support the market because “they do not want this to balloon much further,” and the government would support portfolios and balance sheets “too large to fail” but not necessarily stockholders, Schneider said.
He viewed the Federal Reserve’s assistance with J.P. Morgan Chase’s purchase agreement of Bear, Stearns & Co. Inc. in March as an inflection point in the liquidity crisis because it showed a portfolio that survived as existing transactions, collateralizations and cash balances were “successfully moved” and the impact on the rest of the market was contained.
“From a confidence point of view, I thought that it was an extraordinary step,” Schneider said. “But with support is going to come additional regulation, and—probably—fairly [or] dramatically different [regulation].”
Investors remain the key catalyst in turning around the credit-crunched capital markets and—after the smoke clears—a more sophisticated investor could eventually emerge in a new, similar securitization model.
Deloitte Consulting LLP, New York, expects the beginning of the end for the credit crunch only when "thousands of investors" begin to find distressed assets valuable, begin acquiring these assets and answer questions on how to invest and the value of their returns.
“Investors are the fundamental source of capital that will begin to clear the market and move us out of a credit crunch situation to, hopefully, a credit recovery situation. They’re the source of stability,” said Adam Schneider, principal of Deloitte Consulting LLP.
Deloitte Consulting expects future investors in the mortgage markets to become more sophisticated about mortgage products and begin to understand more about underlying collateral rather than depending on ratings of securities.
“They will be particularly focused on piercing the various collateralized structures as a core investment capability,” Schneider said, noting that the current investment community is still very liquid.
Investors, after this crisis, will worry less about the description of the security but more about the asset or collateral underlying the security and any relevant guarantees as they seek returns. The creation of new mechanisms and cross-checks will improve pricing, not only for mortgages but for other products if they “lock up,” Schneider said.
The securitization model also will need to change, including stronger underwriting with more clear, focused and transparent products and new guarantors to emerge and price loans at a point with positive returns.
The ratings agencies will continue to enhance processes to become better at changes in underlying collateral and greater risk monitoring. “We think that the attraction of investor capital...is a key part to redeveloping and moving the market into a positive direction right now,” Schneider said.
Deloitte Consulting forecasts a more sound market environment after the mortgage industry rebounds, without "exotic" securitizations but with more traditional products in the near future.
“We expect something that is similar to processes today but more sound [processes], more controlled, better risk, better lending [and] better disclosure,” Schneider said. “We expect strong lenders to survive. We suspect there will be much more in-house production. We suspect there will be much more balance sheet lending. The securitization process will clearly evolve, essentially adding more compliance, more check-out and more transparency.”
Involvement from “thousands of investors” in the credit crunch created a significant difference to the “infinite balance sheet” during the savings and loan crisis, which evolved into the Resolution Trust Corp. [RTC].
Schneider said weak underwriting, low teaser rate products, packaging that increased risk in some instances, mortgage insurers and guarantors subject to “great speculation in the marketplace” and ratings agencies that “did not get the information quite so perfect” all played a part in losing investor confidence.
“The markets will recover over time—perhaps not as fast as the equivalent of the RTC formed to swoop up [commercial mortgages] but, again, with thousands of investors, it is not obvious how to form such an entity or how it will go forward, so we do expect it to take some time,” he said.
The recovery process will include financial institutions rebuilding their balance sheets and creating sound financial practices. “We have seen mortgage products get more interesting in terms of pricing, risks being taken out of the system and prices for various types of credit insurance improving,” Schneider said.
“The financial institutions, per se, have to strengthen up and toughen up,” he said.
Deloitte forecasts government intervention on a global basis to support the market because “they do not want this to balloon much further,” and the government would support portfolios and balance sheets “too large to fail” but not necessarily stockholders, Schneider said.
He viewed the Federal Reserve’s assistance with J.P. Morgan Chase’s purchase agreement of Bear, Stearns & Co. Inc. in March as an inflection point in the liquidity crisis because it showed a portfolio that survived as existing transactions, collateralizations and cash balances were “successfully moved” and the impact on the rest of the market was contained.
“From a confidence point of view, I thought that it was an extraordinary step,” Schneider said. “But with support is going to come additional regulation, and—probably—fairly [or] dramatically different [regulation].”
Technology Vendors Leverage Partnerships with Lenders
MBA (4/24/2008 ) Palaparty, Vijay
Technology vendors increasingly leverage partnerships with other technology companies to provide higher quality systems, reduce development expenses and streamline customer service and problem resolution. The approach enables lenders to offer better quality services while driving down costs, especially to survive current market conditions.
“The pendulum swings back and forth all the time,” said Larry Huff, co-founder and co-CEO of Optimal Blue, Plano Texas. “As the mortgage industry continues to evolve through this massive consolidation, it has created an enormous amount of change which puts more stress on each individual vendor’s domain knowledge. It goes from cradle to grave where lenders want everything under one roof, one point of contact and one source for technology and services. But it’s swinging strongly back towards the other way right now, which is best of breed partnerships, thus, good integration.”
Huff said because all entities in the mortgage market are trying to maximize profits on every transaction, they have to constantly focus on improveming.
“Partnerships make a whole lot more sense as integrations are getting easier—the nature of technology including software-as-a-service and web services are becoming easier to implement," Huff said. "The experience is better for the lender and yes, they may have to make different phone calls to different vendors, but that’s usually the way a business operates anyway.”
Leonard Ryan, president and founder of QuestSoft, Laguna Hills, Calif., said he designed his company around partnerships. The company’s Home Mortgage Disclosure Act software and other compliance products are based on receiving information from loan origination and software vendors. He reported a 90 percent to 95 percent time efficiency rating on the HMDA products.
“What we end up doing because of partnerships aims to save time for lenders,” Ryan said.
Rob Katz, president of Del Mar Database, San Diego, believes in a cross-offering approach to partnerships where vendors offer each other’s products and services on their respective web sites.
“Where I see the industry going today with partnerships and the acceptance of those in this space is through seamless interface,” Katz said. “It’s not reselling the product or marking it up—not costing more for the lender to access it. Lenders work directly with the vendor that is providing service so that their overall experience saves money and they get better service than if one company were trying to private label it all and do it on their own.”
Technology vendors remain focused on lenders’ experiences and feel partnerships can provide a better experience overall, an idea that seems to have evolved in recent times.
“In the old days, vendors used to blame each other if something didn’t go well,” Katz said. “In today’s environment, that doesn’t happen. All of us who partner together walk into it with very clear understanding that we’re never going to point fingers at each other. That’s not what the lenders want and it’s not going to make us any more successful. So we are all much more cooperative. The lender’s experience is not one of confusion because we’re all working together to help lender to have a really good experience."
From a risk management perspective, which could vary between vendors in terms of approach, partners seem to have a united understanding on what lenders look for and require—an important area that has evolved as the risk landscape increased.
“It’s very difficult to be the best in everything. And that’s especially true in product and pricing in secondary marketing automation,” Huff said, “Inventory management is the profit center and the actual component of the mortgage flow process—the product of a price from which revenue is derived. We are pricing off of the investors’ pricing, translating it and passing it on to the lender. If we do that poorly, we’re going to cost them a lot of money. Partnerships have started to mature and technology is a better enabler.”
Monte Larsen, senior vice president and chief marketing officer at DocuTech Corp., Idaho Falls, Idaho, sees an opportunity to provide technology to support lenders in compliance and regulatory areas.
“We know that all the increased scrutiny with the recent downturn in the market is coming to fruition,” Larsen said. “So if lenders can look to partners that can gather technology together and package it, helping implement it into an easy-to-use package, that’s where they’re going to see their success moving forward.”
Larsen is optimistic about future market conditions, saying lenders constantly evaluate their workflow, process and technology to prepare for the next upswing in the market. “Convergence of technology has taken place somewhat in our industry, but lenders have ran into some roadblocks. That’s why it’s important for partners to work together to make sure lenders can meet all these compliance and regulatory requirements, and at the same time, increase their speed and reduce staff.”
As far as a technology implementation model, Optimal Blue operates a SaaS model but Huff does not see it as a primary function of partnerships.
“The key enablers are web services and standardization of those web services in terms of the MISMO format for XML and the corresponding definitions,” Huff said. “We are big supporters of MISMO and what they are at least conceptually trying to accomplish. There are always challenges with any adoption of any new sort of standards but those drive the business and efficiencies, making partnerships easier to execute as well. There are so many different data fields in this convoluted mortgage fulfillment process that no one person or vendor can manage all of that. Using expertise, the interoperability is greatly enhanced by MISMO and web services, at least from our perspective as a SaaS provider.”
Ryan said that a movement online has really impacted the way information is shared in his business and the speed at which it can be shared. “On the compliance end, laws are changing constantly and in order to get all of that information out to everybody requires ability to update information on our servers and instantly have it available to everybody,” he said. “The ability to provide a guarantee, warranty and assurance to lenders is necessary.”
Ryan said lenders look to enter data only once, in one location, creating efficiency to focus their attention on other more important areas such as compliance and regulation. “The industry is becoming complicated and at the same time and there are more tools to help the amount of data that has to be integrated” he said. “With technology and integration, lenders are able to fund loans at a far quicker speed.”
“Consolidation is a macro event of the economy, driving businesses out that aren’t able to sustain a downturn in the industry,” Huff said. “And by definition, vendors drive partnerships. Coupled with rapid pace of change of compliance, rules and products, everything in this industry is moving at a pace that is unprecedented in terms of change. Therefore, it emphasizes the need for domain knowledge or specific niche expertise that drives need for partnering and best o breed management. The macro economics, as well as the micro, are driving more and more need for this. I don’t see that changing. It’s just too hard to be too good at more than one or two things at a time.”
Del Mar recently went through a deconsolidation. Formerly part of Fiserv, Brookfield, Wis., the company was sold as a private entity to serve small and medium-sized mortgage bankers.
“It opened the door for us to start embracing partnerships again,” Katz said. “If you’re good at what you do, there’s a niche that you’re going after. To consolidate with other companies to try to do more is counterintuitive versus trying to be the absolute best and then partner with the other companies that have the same outlook. Best of breed was the buzzword six years ago and it is deservingly now again. It’s what’s right for the lenders. The one thing lenders can grab onto to in today’s changing market is their ability to provide customer service. If I were a lender, I don’t know how else I’d compete. It has to come down to customer service.”
Technology vendors increasingly leverage partnerships with other technology companies to provide higher quality systems, reduce development expenses and streamline customer service and problem resolution. The approach enables lenders to offer better quality services while driving down costs, especially to survive current market conditions.
“The pendulum swings back and forth all the time,” said Larry Huff, co-founder and co-CEO of Optimal Blue, Plano Texas. “As the mortgage industry continues to evolve through this massive consolidation, it has created an enormous amount of change which puts more stress on each individual vendor’s domain knowledge. It goes from cradle to grave where lenders want everything under one roof, one point of contact and one source for technology and services. But it’s swinging strongly back towards the other way right now, which is best of breed partnerships, thus, good integration.”
Huff said because all entities in the mortgage market are trying to maximize profits on every transaction, they have to constantly focus on improveming.
“Partnerships make a whole lot more sense as integrations are getting easier—the nature of technology including software-as-a-service and web services are becoming easier to implement," Huff said. "The experience is better for the lender and yes, they may have to make different phone calls to different vendors, but that’s usually the way a business operates anyway.”
Leonard Ryan, president and founder of QuestSoft, Laguna Hills, Calif., said he designed his company around partnerships. The company’s Home Mortgage Disclosure Act software and other compliance products are based on receiving information from loan origination and software vendors. He reported a 90 percent to 95 percent time efficiency rating on the HMDA products.
“What we end up doing because of partnerships aims to save time for lenders,” Ryan said.
Rob Katz, president of Del Mar Database, San Diego, believes in a cross-offering approach to partnerships where vendors offer each other’s products and services on their respective web sites.
“Where I see the industry going today with partnerships and the acceptance of those in this space is through seamless interface,” Katz said. “It’s not reselling the product or marking it up—not costing more for the lender to access it. Lenders work directly with the vendor that is providing service so that their overall experience saves money and they get better service than if one company were trying to private label it all and do it on their own.”
Technology vendors remain focused on lenders’ experiences and feel partnerships can provide a better experience overall, an idea that seems to have evolved in recent times.
“In the old days, vendors used to blame each other if something didn’t go well,” Katz said. “In today’s environment, that doesn’t happen. All of us who partner together walk into it with very clear understanding that we’re never going to point fingers at each other. That’s not what the lenders want and it’s not going to make us any more successful. So we are all much more cooperative. The lender’s experience is not one of confusion because we’re all working together to help lender to have a really good experience."
From a risk management perspective, which could vary between vendors in terms of approach, partners seem to have a united understanding on what lenders look for and require—an important area that has evolved as the risk landscape increased.
“It’s very difficult to be the best in everything. And that’s especially true in product and pricing in secondary marketing automation,” Huff said, “Inventory management is the profit center and the actual component of the mortgage flow process—the product of a price from which revenue is derived. We are pricing off of the investors’ pricing, translating it and passing it on to the lender. If we do that poorly, we’re going to cost them a lot of money. Partnerships have started to mature and technology is a better enabler.”
Monte Larsen, senior vice president and chief marketing officer at DocuTech Corp., Idaho Falls, Idaho, sees an opportunity to provide technology to support lenders in compliance and regulatory areas.
“We know that all the increased scrutiny with the recent downturn in the market is coming to fruition,” Larsen said. “So if lenders can look to partners that can gather technology together and package it, helping implement it into an easy-to-use package, that’s where they’re going to see their success moving forward.”
Larsen is optimistic about future market conditions, saying lenders constantly evaluate their workflow, process and technology to prepare for the next upswing in the market. “Convergence of technology has taken place somewhat in our industry, but lenders have ran into some roadblocks. That’s why it’s important for partners to work together to make sure lenders can meet all these compliance and regulatory requirements, and at the same time, increase their speed and reduce staff.”
As far as a technology implementation model, Optimal Blue operates a SaaS model but Huff does not see it as a primary function of partnerships.
“The key enablers are web services and standardization of those web services in terms of the MISMO format for XML and the corresponding definitions,” Huff said. “We are big supporters of MISMO and what they are at least conceptually trying to accomplish. There are always challenges with any adoption of any new sort of standards but those drive the business and efficiencies, making partnerships easier to execute as well. There are so many different data fields in this convoluted mortgage fulfillment process that no one person or vendor can manage all of that. Using expertise, the interoperability is greatly enhanced by MISMO and web services, at least from our perspective as a SaaS provider.”
Ryan said that a movement online has really impacted the way information is shared in his business and the speed at which it can be shared. “On the compliance end, laws are changing constantly and in order to get all of that information out to everybody requires ability to update information on our servers and instantly have it available to everybody,” he said. “The ability to provide a guarantee, warranty and assurance to lenders is necessary.”
Ryan said lenders look to enter data only once, in one location, creating efficiency to focus their attention on other more important areas such as compliance and regulation. “The industry is becoming complicated and at the same time and there are more tools to help the amount of data that has to be integrated” he said. “With technology and integration, lenders are able to fund loans at a far quicker speed.”
“Consolidation is a macro event of the economy, driving businesses out that aren’t able to sustain a downturn in the industry,” Huff said. “And by definition, vendors drive partnerships. Coupled with rapid pace of change of compliance, rules and products, everything in this industry is moving at a pace that is unprecedented in terms of change. Therefore, it emphasizes the need for domain knowledge or specific niche expertise that drives need for partnering and best o breed management. The macro economics, as well as the micro, are driving more and more need for this. I don’t see that changing. It’s just too hard to be too good at more than one or two things at a time.”
Del Mar recently went through a deconsolidation. Formerly part of Fiserv, Brookfield, Wis., the company was sold as a private entity to serve small and medium-sized mortgage bankers.
“It opened the door for us to start embracing partnerships again,” Katz said. “If you’re good at what you do, there’s a niche that you’re going after. To consolidate with other companies to try to do more is counterintuitive versus trying to be the absolute best and then partner with the other companies that have the same outlook. Best of breed was the buzzword six years ago and it is deservingly now again. It’s what’s right for the lenders. The one thing lenders can grab onto to in today’s changing market is their ability to provide customer service. If I were a lender, I don’t know how else I’d compete. It has to come down to customer service.”
Freddie Mac Deploys $10.5 Million to Helping Borrowers Through Foreclosure
RISMedia (04/24/08)
Freddie Mac has awarded $10.5 million in grants to housing counseling organizations working to keep borrowers from losing their homes to foreclosure. Part of a settlement between the Office of Federal Housing Enterprise Oversight and former Freddie Mac CEO Leland Brendsel, the grants include disbursements of $6.385 million to the HOPE NOW Alliance, $500,000 to the Neighborhood Assistance Corporation of America and $500,000 to Don't Borrow Trouble. "Freddie Mac's mission to expand homeownership includes helping delinquent borrowers avoid foreclosure whenever possible," says Richard Syron, CEO and chairman of Freddie Mac. The money will be used by the nonprofits for outreach campaigns that help borrowers make their mortgage payments, staff training and other expenses.
Freddie Mac has awarded $10.5 million in grants to housing counseling organizations working to keep borrowers from losing their homes to foreclosure. Part of a settlement between the Office of Federal Housing Enterprise Oversight and former Freddie Mac CEO Leland Brendsel, the grants include disbursements of $6.385 million to the HOPE NOW Alliance, $500,000 to the Neighborhood Assistance Corporation of America and $500,000 to Don't Borrow Trouble. "Freddie Mac's mission to expand homeownership includes helping delinquent borrowers avoid foreclosure whenever possible," says Richard Syron, CEO and chairman of Freddie Mac. The money will be used by the nonprofits for outreach campaigns that help borrowers make their mortgage payments, staff training and other expenses.
Mortgage Rates Up, Demand Falls
Investor's Business Daily (04/24/08) P. A2
The Mortgage Bankers Association reports that its index of mortgage applications fell to 637.2 for the week ended April 18, and the 14.2 percent decline represents the low point for the measure so far this year. Refinancing applications tumbled 20.2 percent to a 2008 low of 2286.3, and applications for purchase loans declined 6.4 percent to 537.2. The decline in demand for mortgage applications can be tied to a jump in the 30-year fixed-rate mortgage to 6.04 percent.
The Mortgage Bankers Association reports that its index of mortgage applications fell to 637.2 for the week ended April 18, and the 14.2 percent decline represents the low point for the measure so far this year. Refinancing applications tumbled 20.2 percent to a 2008 low of 2286.3, and applications for purchase loans declined 6.4 percent to 537.2. The decline in demand for mortgage applications can be tied to a jump in the 30-year fixed-rate mortgage to 6.04 percent.
The Brighter Side of Housing
Wall Street Journal (04/24/08) P. D1; Hagerty, James R.
The housing slump is making it possible for home buyers who could not afford to live close to their jobs during the housing boom to take advantage of falling home prices, though tighter lending standards and the possibility of additional price declines have made some buyers hesitant. Huge inventories of unsold homes are putting downward pressure on prices, with the Wall Street Journal's most recent quarterly housing-market survey of 28 metropolitan areas indicating only modest declines in supply. Florida reports the largest housing inventory, with enough homes to last 34 months in Miami-Fort Lauderdale, 21 months in Orlando and 18 months in Tampa. These inventory levels have resulted in double-digit median-price declines in some markets, with Zillow.com reporting a 25 percent drop in Las Vegas and a 19 percent decrease in Miami and Orlando. Affordability has improved as a result, and Goldman Sachs chief U.S. economist Jan Hatzius reports that the percentage of income necessary to afford mortgage payments on a median-priced home has dropped to 20 percent from 26 percent in 2006. Hatzius notes a 15 percent decline in average home prices nationwide since the 2006 second quarter, predicting that prices will stabilize in late 2009 after dropping another 10 percent or more, depending on foreclosures.
The housing slump is making it possible for home buyers who could not afford to live close to their jobs during the housing boom to take advantage of falling home prices, though tighter lending standards and the possibility of additional price declines have made some buyers hesitant. Huge inventories of unsold homes are putting downward pressure on prices, with the Wall Street Journal's most recent quarterly housing-market survey of 28 metropolitan areas indicating only modest declines in supply. Florida reports the largest housing inventory, with enough homes to last 34 months in Miami-Fort Lauderdale, 21 months in Orlando and 18 months in Tampa. These inventory levels have resulted in double-digit median-price declines in some markets, with Zillow.com reporting a 25 percent drop in Las Vegas and a 19 percent decrease in Miami and Orlando. Affordability has improved as a result, and Goldman Sachs chief U.S. economist Jan Hatzius reports that the percentage of income necessary to afford mortgage payments on a median-priced home has dropped to 20 percent from 26 percent in 2006. Hatzius notes a 15 percent decline in average home prices nationwide since the 2006 second quarter, predicting that prices will stabilize in late 2009 after dropping another 10 percent or more, depending on foreclosures.
Fannie Mae Rethinks Rules Critics Labeled as Discriminatory
Boston Globe (04/24/08)
A letter from the Consumer Mortgage Coalition stating that new down-payment requirements and mortgage fees discriminate against women and minorities has prompted Fannie Mae to reconsider the new guidelines, which are effective June 1. In response to higher default rates, weak home sales and price declines, Fannie Mae plans to boost down-payments for borrowers who have low credit scores or those who are purchasing homes in declining markets by 5 percent. The coalition takes issue with the government-sponsored enterprise defining declining markets by ZIP code rather than metropolitan area, insisting that it puts certain neighborhoods at a disadvantage and will force minorities into higher-cost loans. According to Fannie Mae spokesman Brian Faith, "We have met extensively with advocates, listened to their concerns and are considering making changes to our [declining markets] policies."
A letter from the Consumer Mortgage Coalition stating that new down-payment requirements and mortgage fees discriminate against women and minorities has prompted Fannie Mae to reconsider the new guidelines, which are effective June 1. In response to higher default rates, weak home sales and price declines, Fannie Mae plans to boost down-payments for borrowers who have low credit scores or those who are purchasing homes in declining markets by 5 percent. The coalition takes issue with the government-sponsored enterprise defining declining markets by ZIP code rather than metropolitan area, insisting that it puts certain neighborhoods at a disadvantage and will force minorities into higher-cost loans. According to Fannie Mae spokesman Brian Faith, "We have met extensively with advocates, listened to their concerns and are considering making changes to our [declining markets] policies."
Fed Weighs Pause After Next Rate Cut
Wall Street Journal (04/24/08) P. A1; Ip, Greg; Kingsbury, Kevin
The Federal Reserve has cut the federal-funds rate to 2.25 percent from 5.25 percent, amounting to seven reductions over a span of eight months, and experts anticipate another 0.25 percentage point cut at its April 29-30 meeting. However, experts think the central bank could take a breather after the next rate cut to give officials time to assess the impact of rate reductions, upcoming tax rebates and other measures on the economy during the latter half of the year. Moreover, there are concerns that further reducing the federal funds rate could increase inflationary pressure and weaken the dollar even more. Despite rising food and oil prices, officials point to some improvements in the financial markets, with the 30-year mortgage rate on the decline; but they note that stricter lending standards could worsen the downturn. The statement issued by the Federal Reserve after its meeting likely will point to ongoing concerns about economic growth and inflation and state that additional rate cuts will be made as necessary.
The Federal Reserve has cut the federal-funds rate to 2.25 percent from 5.25 percent, amounting to seven reductions over a span of eight months, and experts anticipate another 0.25 percentage point cut at its April 29-30 meeting. However, experts think the central bank could take a breather after the next rate cut to give officials time to assess the impact of rate reductions, upcoming tax rebates and other measures on the economy during the latter half of the year. Moreover, there are concerns that further reducing the federal funds rate could increase inflationary pressure and weaken the dollar even more. Despite rising food and oil prices, officials point to some improvements in the financial markets, with the 30-year mortgage rate on the decline; but they note that stricter lending standards could worsen the downturn. The statement issued by the Federal Reserve after its meeting likely will point to ongoing concerns about economic growth and inflation and state that additional rate cuts will be made as necessary.
FHA Bill's Vote Nears, Questions Still Linger
American Banker (04/24/08) P. 1; Kaper, Stacy
The House Financial Services Committee is expected to vote on a bill proposed by Chairman Barney Frank, D-Mass., that would allow cash-strapped mortgage borrowers to refinance into FHA loans after lenders and investors write down the loans by 15 percent or more below the market value, despite the fact that numerous questions about the legislation have yet to be answered. Given that the bill permits participation only by those borrowers who cannot afford their mortgages, who live in their homes, who have mortgage debt-to-income ratios higher than 35 percent and who obtained their loans before the start of the year, there are questions surrounding the number of borrowers who would benefit. While Frank believes as many as 2 million borrowers would be helped, private industry experts think just 300,000 to 500,000 borrowers are eligible. There also are concerns about whether lenders will take part in the program--as investors would need to approve the write downs--as well as questions about how market values would be calculated and how second liens would be handled. Market psychology is another consideration, according to Steve O'Connor, head of government relations at the Mortgage Bankers Association. O'Connor states, "At some point what you need to do is restore the investor and homebuyer confidence that prices aren't going to continue to drop. . . . So even if the number of borrowers isn't large, is it enough to kind of change the psychology? Can these rescue plans be a catalyst?"
The House Financial Services Committee is expected to vote on a bill proposed by Chairman Barney Frank, D-Mass., that would allow cash-strapped mortgage borrowers to refinance into FHA loans after lenders and investors write down the loans by 15 percent or more below the market value, despite the fact that numerous questions about the legislation have yet to be answered. Given that the bill permits participation only by those borrowers who cannot afford their mortgages, who live in their homes, who have mortgage debt-to-income ratios higher than 35 percent and who obtained their loans before the start of the year, there are questions surrounding the number of borrowers who would benefit. While Frank believes as many as 2 million borrowers would be helped, private industry experts think just 300,000 to 500,000 borrowers are eligible. There also are concerns about whether lenders will take part in the program--as investors would need to approve the write downs--as well as questions about how market values would be calculated and how second liens would be handled. Market psychology is another consideration, according to Steve O'Connor, head of government relations at the Mortgage Bankers Association. O'Connor states, "At some point what you need to do is restore the investor and homebuyer confidence that prices aren't going to continue to drop. . . . So even if the number of borrowers isn't large, is it enough to kind of change the psychology? Can these rescue plans be a catalyst?"
House Panel Approves $15 Billion Foreclosure Bill
New York Times (04/24/08)
The House Financial Services Committee recently passed two bills that aim to ease the housing crisis. The first bill supported by Democrats seeks to avoid blight in neighborhoods hit hard by foreclosures by giving $15 billion in loans and grants to states, which would distribute the money to cities, counties and town to purchase and repair foreclosed homes. The measure was opposed by Republicans who insisted that private lenders who have taken ownership of these properties will be the main beneficiaries. The committee also passed a bill proposed by Rep. Michael Castle, R-Del., and Rep. Paul Kanjorski, D-Pa., that would prevent investors from filing suit against mortgage holders who assume losses by permitting struggling borrowers to refinance.
The House Financial Services Committee recently passed two bills that aim to ease the housing crisis. The first bill supported by Democrats seeks to avoid blight in neighborhoods hit hard by foreclosures by giving $15 billion in loans and grants to states, which would distribute the money to cities, counties and town to purchase and repair foreclosed homes. The measure was opposed by Republicans who insisted that private lenders who have taken ownership of these properties will be the main beneficiaries. The committee also passed a bill proposed by Rep. Michael Castle, R-Del., and Rep. Paul Kanjorski, D-Pa., that would prevent investors from filing suit against mortgage holders who assume losses by permitting struggling borrowers to refinance.
Thursday, April 24, 2008
For CRE Assets, It’s ‘Dislocation, Dislocation, Dislocation’
MBA (4/23/2008 ) Murray, Michael
Distressed paper and non-distressed assets are causing dislocations in commercial real estate pricing and valuations with wider gaps between buyers and sellers.
Meghan Gorman, senior research analyst at CBRE/Torto Wheaton Research, Boston, said the LIBOR rate (London InterBank Offered Rate) is spiking while the 10-year Treasury note had its largest weekly decline in four years and CMBS issuance dropped 92 percent in March from last year.
"Dislocations in the debt market continue to persist," Gorman said.
Despite a credit crunch and dislocation in the capital markets, commercial real estate prices increased 2.1 percent in February, offsetting most of the losses posted since October in Moody's/REAL Commercial Property Price Indices (CPPI).
"We interpret the CPPI's increase in February as a continuation of the process of price discovery, which is likely to continue over a protracted period, possibly a few more quarters," said Sally Gordon, vice president at Moody’s Investor Services. "Few foreclosures or other forced sales at market clearing prices have occurred to help tease out the impact of the credit crunch on current property prices."
“While there is some distress at the paper level, it was clear that there was very little distress at the hard asset level,” said Jay Rollins, president of JCR Capital, Denver, following a conference on distressed commercial real estate assets. “There are very little distressed hard assets trading hands.”
Fitch Ratings, New York, reported an increase in delinquencies for commercial mortgage-backed securities in the United States by three basis points (bps) during March, up to 0.33 percent following a similar increase during February. In its loan delinquency index, Fitch noted an uptick in loans not refinancing precisely at their maturity date, as the number of non-performing matured loans increased year over year from 11.6 percent in March compared to 2.9 percent of the index in March 2007.
Many industry analysts focusing on distressed markets said it is still early for condominiums to hit bottom as developers continue to deliver in South Florida, San Diego and other markets.
“These construction loans need to run out of interest reserves and miss their pre-sale closings before they go non-performing,” Rollins said. “Mezzanine debt in many of these deals is wiped out, but action has not yet been taken.”
Moody's expects commercial property prices to fall nearly 15-20 percent before bottoming out, but it said that a longer average holding period for property sales in the past year slows the process and supports the assertion that recent sales are weighted toward "winners" that have realized more appreciation.
Based on Fitch’s report, 44 loans were considered non-performing matured loans, consisting of $213.2 million, with seven non-performing matured loans in 2007 at $37.3 million. More loans are reaching maturity without financing in place, but loans are continuing to payoff near maturity, Fitch added.
“The majority of fixed-rate non-performing matured loans pay in full or extend their terms within 60 days of being transferred to special servicing,” said Susan Merrick, managing director and CMBS group head at Fitch.
Multifamily drove increases in the delinquency index, followed by office, retail, hotel, manufactured housing and mixed-use properties for March—with more delinquencies than at the end of February.
Rollins noted that distressed capital is “out there” seeking unleveraged 20 percent returns from distressed commercial real estate assets, but a wide bid-ask gap in the market leads to “very little trading.”
Moody’s also noted the large gap between buyers and sellers as fewer repeat transactions occurred in February compared to previous months.
The ratings agency said volume could be down based on prices not yet adjusting to market conditions. The increase in February’s CPPI in put the year-over-year price increase at 4.2 percent with a two-year change in price up 12.9 percent for February.
Meanwhile, the industrial, healthcare, self storage and other sectors moved in the opposite direction, their smaller contribution to the universe having a minimal impact on the overall index, Fitch added.
"The return of securitization will take liability commitments off balance sheet and inject liquidity back into the banking system, stabilizing LIBOR, the TED spread and the cost of debt," Gorman said. "Restored confidence in the monoline insurers will result in accurate pricing of the low default probabilities of municipal and triple-A-rated paper."
Rollins said falling LIBOR is helping many properties stay current and make their net operating income extension tests. “Many lenders with hard assets do not have to mark to market,” he said. “Lenders want to extend these loans, which helps performance and avoids write downs."
"When CMBX begins to price CMBS deals based on the fundamentals of the underlying properties as opposed to reflecting the increased risk in the credit default market, structured finance will return as a capital source to commercial real estate,” Gorman said. “As the health of these indicators improves and liquidity returns to the market, we predict that the state of debt flow will drive cap rate compression and the return of stable commercial real estate value.”
Distressed paper and non-distressed assets are causing dislocations in commercial real estate pricing and valuations with wider gaps between buyers and sellers.
Meghan Gorman, senior research analyst at CBRE/Torto Wheaton Research, Boston, said the LIBOR rate (London InterBank Offered Rate) is spiking while the 10-year Treasury note had its largest weekly decline in four years and CMBS issuance dropped 92 percent in March from last year.
"Dislocations in the debt market continue to persist," Gorman said.
Despite a credit crunch and dislocation in the capital markets, commercial real estate prices increased 2.1 percent in February, offsetting most of the losses posted since October in Moody's/REAL Commercial Property Price Indices (CPPI).
"We interpret the CPPI's increase in February as a continuation of the process of price discovery, which is likely to continue over a protracted period, possibly a few more quarters," said Sally Gordon, vice president at Moody’s Investor Services. "Few foreclosures or other forced sales at market clearing prices have occurred to help tease out the impact of the credit crunch on current property prices."
“While there is some distress at the paper level, it was clear that there was very little distress at the hard asset level,” said Jay Rollins, president of JCR Capital, Denver, following a conference on distressed commercial real estate assets. “There are very little distressed hard assets trading hands.”
Fitch Ratings, New York, reported an increase in delinquencies for commercial mortgage-backed securities in the United States by three basis points (bps) during March, up to 0.33 percent following a similar increase during February. In its loan delinquency index, Fitch noted an uptick in loans not refinancing precisely at their maturity date, as the number of non-performing matured loans increased year over year from 11.6 percent in March compared to 2.9 percent of the index in March 2007.
Many industry analysts focusing on distressed markets said it is still early for condominiums to hit bottom as developers continue to deliver in South Florida, San Diego and other markets.
“These construction loans need to run out of interest reserves and miss their pre-sale closings before they go non-performing,” Rollins said. “Mezzanine debt in many of these deals is wiped out, but action has not yet been taken.”
Moody's expects commercial property prices to fall nearly 15-20 percent before bottoming out, but it said that a longer average holding period for property sales in the past year slows the process and supports the assertion that recent sales are weighted toward "winners" that have realized more appreciation.
Based on Fitch’s report, 44 loans were considered non-performing matured loans, consisting of $213.2 million, with seven non-performing matured loans in 2007 at $37.3 million. More loans are reaching maturity without financing in place, but loans are continuing to payoff near maturity, Fitch added.
“The majority of fixed-rate non-performing matured loans pay in full or extend their terms within 60 days of being transferred to special servicing,” said Susan Merrick, managing director and CMBS group head at Fitch.
Multifamily drove increases in the delinquency index, followed by office, retail, hotel, manufactured housing and mixed-use properties for March—with more delinquencies than at the end of February.
Rollins noted that distressed capital is “out there” seeking unleveraged 20 percent returns from distressed commercial real estate assets, but a wide bid-ask gap in the market leads to “very little trading.”
Moody’s also noted the large gap between buyers and sellers as fewer repeat transactions occurred in February compared to previous months.
The ratings agency said volume could be down based on prices not yet adjusting to market conditions. The increase in February’s CPPI in put the year-over-year price increase at 4.2 percent with a two-year change in price up 12.9 percent for February.
Meanwhile, the industrial, healthcare, self storage and other sectors moved in the opposite direction, their smaller contribution to the universe having a minimal impact on the overall index, Fitch added.
"The return of securitization will take liability commitments off balance sheet and inject liquidity back into the banking system, stabilizing LIBOR, the TED spread and the cost of debt," Gorman said. "Restored confidence in the monoline insurers will result in accurate pricing of the low default probabilities of municipal and triple-A-rated paper."
Rollins said falling LIBOR is helping many properties stay current and make their net operating income extension tests. “Many lenders with hard assets do not have to mark to market,” he said. “Lenders want to extend these loans, which helps performance and avoids write downs."
"When CMBX begins to price CMBS deals based on the fundamentals of the underlying properties as opposed to reflecting the increased risk in the credit default market, structured finance will return as a capital source to commercial real estate,” Gorman said. “As the health of these indicators improves and liquidity returns to the market, we predict that the state of debt flow will drive cap rate compression and the return of stable commercial real estate value.”
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