California Home Sales on the Rise

by Tim Manni
One of the country’s hardest-hit housing markets has shown significant signs of improvement so far this year. According to the California Association of Realtors (C.A.R.), single-family home sales increased 100.8% in January from a year ago. With home prices at extremely low levels, California has drastically begun reducing their unsold inventory.

The median price of a single-family home dropped 40.5% in January. The C.A.R.’s index of unsold homes depleted from 16.6 months in January of 2008, to just 6.7 months in 2009.

“The strength in California home sales in recent months signifies that the market is gradually working its way through the large numbers of distressed sales that have followed in the wake of the troubled mortgage problem. With favorable home prices and historically low mortgage rates, affordability in the California housing market is now at its highest since the start of the decade,” said C.A.R. President James Liptak.

Sales in Southern California’s six-county region continued to improve last month as well. The L.A. Times reported that homes sales increased 41% in February from 2008.

The recent uptick in housing reports hasn’t been limited to just the west coast. National housing starts rose 22% in January according to the Commerce Department. Indicators for new construction are also on the rise. Applications for building permits jumped 3% in February.

Economists are quick to warn against getting too excited over the news. However, if these statistics hold in the coming months, especially in foreclosure-ridden states like California, we may be witnessing a significant turnaround.

What We’re Hearing

January 2, 2009

By Paul Muolo

Capitalism is a wild and wacky game. And it’s not for those with weak guts, which brings me to the case of IndyMac whose long awaited sale was announced by the Federal Deposit Insurance Corp. Friday afternoon. The new “owners” of IndyMac are essentially a bunch of hedge funds that are well known for some of their contrarian bets in financial services. First and foremost among those private hedge funds is Paulson & Co., led by hedge fund guru John Paulson, who made a killing (a $15 billion killing) by shorting the ABX Index back in 2007 and early 2008. The ABX gauges the value of subprime bonds and we all know what happened there, don’t we? For some reason the FDIC didn’t mention Mr. Paulson’s $15 billion winning bet against the B&C market in its press release. The FDIC’s original investment banker on the sale of IndyMac was Lehman Brothers, which went bust a few months after getting the assignment. The advisor to the consortium? That would be Merrill Lynch & Co., which helped cause the subprime crisis by financing dozens of subprime lenders, buying their loans and packaging them into securities (CDOs) for sale to institutional investors in the U.S. and overseas. (Lehman did that too.) Like I said, capitalism is a wild and wacky game. But who knows any more, really? If John Paulson is putting his reputation (and a little bit of his money) on the line, maybe this actually signals a “bottom” in the mortgage and credit crisis. For the full story on the sale of IndyMac visit: http://www.nationalmortgagenews.com/…

How’s the refi boom looking these days? Answer: it depends on who you ask. On Friday I interviewed Brian F. Benjamin who runs Two River Mortgage & Investment of Red Bank, N.J. Last week, Brian said he received 15 calls for jumbo mortgages where the loan amount was north of $1.5 million. But of those 15 it looks like he will only be able to close two loans. Brian, who operates as a broker, said many lenders have tightened jumbo guidelines by so much that borrowers don’t have a chance. “Some will only do the loans if the LTV is 50% or better,” he said. He also complained about Fannie Mae “adders” where the GSE charges extra points and fees for low FICO score mortgages. He gave an example on a $275,000 mortgage where the borrower has a 659 FICO. The total “adders” (fees) came to 2.55 points. I asked him if the fees were going to the lender or Fannie. His reply: “It’s going to Fannie one way or the other — directly or indirectly,” he said. Meanwhile, one rank and file retail LO for a top ten ranked lender — who requested his name not be used — told us he’s getting “lots of calls” on refinancings via the company’s 800-number. But it’s not a slam dunk by any means. The biggest problem with the applicants who are looking to refinance is “not enough equity,” he said, “or poor credit.” Stay tuned…

What We’re Hearing

December 26, 2008

By Paul Muolo

Want to Help a Struggling Mortgagor? Give Him a Job

Plenty of ink has been spilled in the trade press about loan modifications. And plenty more will be spilled throughout 2009 and then some. Do loan mods work? Should the government spend taxpayer money to restructure thousands, if not hundreds of thousands of delinquent mortgages? Good questions one and all.

The devil, as always, is in the details. Loan mods can be tricky and complicated because of the legal ramifications. First, off, what type of loan mod plan are we talking about? If a lender/servicer holds a troubled mortgage in portfolio and the note has not been securitized it’s then up to that lender/servicer to make a decision on a loan mod. But if a mortgage has been securitized and resides in a legal “trust” that’s where matters get complicated.

Some investors (fearing lost income) will not grant permission to modify a note. They fear that they will lose money on not only delinquent loans but that it sets a precedent. They worry that if they grant permission on nonperforming loans what’s next: subperforming and current mortgages that could go delinquent?

There’s an easy solution to getting around investor concerns. The Treasury Department can use some of the $700 billion of TARP money to purchase MBS backed by delinquent subprime loans. Once these securities and trusts are in the hands of Uncle Sam they can break apart the ABS/MBS into whole loans and do what they like with them. (That’s how one mortgage bottom fisher explained it to me.)

The “buy ’em and break ’em” concept sounds promising but then again, Treasury has nixed the idea of purchasing MBS and ABS as part of the $700 billion bailout. Of course, that was the Bush Treasury Department. By the time you read this the Obama team will be just about in place and they can do what they want with the remaining $350 billion, that is, if Henry Paulson doesn’t spend it all before Jan. 20.

It’s sort of funny. What started out as a mortgage crisis has now grown into a pan-business crisis affecting homebuilding, insurance, automobile companies and the list goes on and on. And it all started with the little old 30-year mortgage, the “subprime” of the species. The “virus” has infected the entire mortgage body and then some.

But getting back to loan modifications. I remember interviewing Faith Schwartz of the Hope Now alliance back in the summer. The alliance was marveling at what a wonderful job its members (lenders and servicers mostly) had been doing on helping hundreds of thousands avoid foreclosure. It all sounded wonderful but then I asked her if Hope Now knew how many of its two million in modified loans had gone south again? Her reply: we don’t know.

At press time, the Office of the Comptroller of the Currency had just released a study showing that modified loans restructured in 1Q 2008 had a 36% delinquency rate in the 30-plus-day category and 53% in the 60-plus-day category. The 2Q loan mod numbers were about the same: not good. These figures do not take into account the much ballyhooed IndyMac loan mod program which became operative late this summer when the FDIC took control of that once high flying alt-A lender. Who knows, maybe the IndyMac rewrites will be better. (Agency chief Sheila Bair is counting on it.)

For the mortgage industry and government loan modifications boil down to this: Does it make financial sense to rewrite thousands upon thousands of loans if they wind up going bad eventually? It’s a fair question. Consumers do not go belly-up just because their house becomes “under water.” The payments stop when they lose their jobs. One solution might be to get more Americans back to work, which is a tall task given that the unemployment rate is just shy of 7%.

Any veteran mortgage executive knows there are two basic ingredients driving loan demand (and delinquencies): employment and interest rates. Mortgage rates are starting to fall but without blue- and white-collar industries creating new jobs all the loan modification ideas in the world won’t save the industry, or the nation.

What We’re Hearing Daily

By Paul Muolo

It’s official: we’re in a recession! (Twelve months and running, apparently.) Historically, recessions usually spell good news for mortgage bankers because the Federal Reserve (in an attempt to work the nation out of the economic morass) usually cuts short-term rates drastically, which is what we saw earlier in the decade under Alan “The Maestro” Greenspan. But short term rates are already at 1% and the mortgage and housing markets (as we all painfully know) are hardly booming. The question on everyone’s mind is this: when will home values stop falling? The key to answering that question is the unemployment rate, not interest rates. This Friday the new monthly employment figures come out, and based on the headlines of the past four weeks don’t be surprised to see the figure north of 7%. As for interest rates, look for the Fed to cut another 50 basis points off the overnight borrowing rate at its next FOMC meeting…

NAR: New Fed plan will drive down interest rates and help stabilize housing

WASHINGTON – Nov. 26, 2008 – Calling it great news for homebuyers, home sellers and the U.S. economy, the National Association of Realtors® (NAR) praised a plan announced yesterday by the Federal Reserve. Under the plan, the Fed will purchase housing-related debts of Fannie Mae and Freddie Mac, thus freeing up mortgage money on Main Street. The move is one of four points advocated by NAR in a recent Call-to-Action.

“This is one of the key actions we’ve been advocating ever since the Treasury altered its course on how it would use the $700 billion recovery package passed in September,” says NAR President Charles McMillan. “This is great news for homebuyers and sellers, and we applaud the Fed for taking this historic step. Housing recovery is the key to economic recovery in this country and it always has been.”

In a four-point plan submitted to Congress last month, NAR called for the Treasury Department to purchase mortgage-backed securities (MBS) from banks to provide price stabilization for housing. The Fed yesterday said it would purchase mortgage-backed securities from Fannie Mae, Freddie Mac and Ginnie Mae for up to $500 billion.

“This will be critical to a housing recovery,” McMillan says.

Lawrence Yun, NAR chief economist, agrees that purchasing the debt obligations of Fannie and Freddie is an important move.

“We commend the Fed decision because it will directly bring down long-term interest rates,” Yun says. “The level of investment should be aggressive enough to bring interest rates down in a meaningful manner. As we’ve seen in past recessions, home sales rise when mortgage interest rates fall.” Yun says that interest rates on 30-year fixed-rate mortgages are too high given the present state of the mortgage market.

“If Fed action brings down mortgage interest rates by even 1 percentage point, it would increase homes sales by 500,000 units,” Yun says. “That should help to draw inventory down and stabilize prices.” Yun says that the U.S. needs higher home sales to absorb inventory and stabilize prices. “Only with stabilization in home prices can we have a healthy housing and economic recovery.”

In its announcement, the Fed said it would purchase up to $100 billion of Fannie, Freddie and Ginnie debt from primary dealers through a series of competitive auctions that will begin next week. Selected asset managers will conduct purchases of up to $500 billion in MBS before year-end. Both the direct obligations and MBS purchases are expected to take place over several quarters.

© 2008 FLORIDA ASSOCIATION OF REALTORS®