Big banks could tighten lending following FHFA lawsuit: FBR Capital

-Housingwire

The decision of the Federal Housing Finance Agency to sue major banks under representation and warranties clauses prompted Paul Miller with FBR Capital Markets to criticize the plan, saying it will likely further drain capital from the banking system.

Miller's criticism is pointed mostly to the unintended negative impact the lawsuit may have on the average American. As banks tighten purse strings further, for whatever reason, future qualified borrowers continue to stay on the sidelines.

Miller's analysis arrives days after FHFA announced it would sue 17 banks – including Bank of America (BAC: 7.40 +5.87%), Citigroup, (C: 28.78 +3.90%), Goldman Sachs (GS: 107.33 +2.65%) and JPMorgan Chase (JPM: 34.59 +3.44%) among others – for selling toxic mortgages that became part of the securitization process that eventually led to the housing market meltdown.

Miller wrote: "Because there is no centralized housing policy coming out of Washington, housing agencies (Fannie Mae, Freddie Mac, and Federal Housing Authority) are acting in their own self interest as opposed to that of the broader U.S. economy. For Fannie Mae and Freddie Mac, this means minimizing losses by digging through their loan books and pushing back loans barely delinquent on their mortgages under reps and warrants clauses."

Miller said suing banks for securitization issues would further pressure the housing markets, delaying a recovery and draining capital from the banking system, keeping many borrowers out of the market.

In his report, Miller claims "we believe the banks have developed overly cautious residential lending standards as a result of concerns over reps and warrants claims, even as they struggle to grow revenues."

His report estimates repurchase losses could reach as high as $121 billion, with 60% of those losses being incurred by the nation's top four banks – Bank of America, JPMorgan Chase, Wells Fargo and Citibank. That is up from previous estimates which said the industry would see $54 billion to $106 billion in losses, with the nation's top four banks facing 40% of those losses.

Keefe, Bruyette & Woods estimated that a remedy to the claims could cost the defendants as much as $60 billion, but added it's likely a settlement will be reached between mortgage originators and the FHFA for a smaller amount.

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FHA mortgage delinquencies resurge in second quarter

-Housingwire

After a hitting a three year low earlier in 2011, the Federal Housing Administration delinquency rate jumped more than a full percentage point in the second quarter, according to analysis from investment bank Keefe, Bruyette & Woods.

The Mortgage Bankers Association reported delinquency rates on all outstanding mortgages ticked up 12 basis points in the second quarter to 8.44%. KBW analysts said resurging FHA delinquencies drove the increase as its larger book of business began to season.

"We believe that an increase in delinquencies in the FHA program was the biggest contributor to the pickup in overall national delinquencies in the second quarter," KBW said.

From the start of 2009 to the end 2010 the amount of loans, current or delinquent, in the FHA servicing portfolio increased from 3.8 million to nearly 5.7 million as the frozen mortgage market depended upon it, Fannie Mae and Freddie Mac to finance and guaranty 95% of the market.

At the same time, delinquencies began to fade. The percentage of past-due loans declined from a high of 14.5% in the third quarter of 2009 to a low of 10.6% in the first quarter of 2011, still 60 bps above the low in the first quarter in 2007.

"While this could partially reflect an improving book of business, we believe that much of it reflected the sharp growth in new loans," KBW said.

But in the second quarter, the delinquency rate jumped to 11.7%. Seasonally adjusted, the increase was 59 bps to 12.62%.

Mirroring the MBA report, the FHA second-quarter delinquencies increased the most in the early stages of default, according to KBW. For instance, 30-day delinquencies increased 87 bps to 5.27% in the second quarter, while those in 90-day delinquency dropped 5 bps to 4.55%. Seriously delinquent loans, those in 90-plus day delinquency or foreclosure dropped 13 bps to 7.65%.

"FHA delinquency rates fell in 2010 as the FHA loans outstanding grew very sharply. We believe that the moderation in FHA loan growth will likely result in further increases in delinquencies on this portfolio which will likely push up the national averages," KBW analysts said. "However, this credit risk resides with the government since these loans are guaranteed by FHA."

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20 Percent Down For Home Purchase The New Standard, Again?

-The Real Estate Bloggers

The housing market may be getting a little tighter in a couple of months. The bureaucrats working on enacting some of the provisions of the Dodd-Frank reforms have interpreted the loosely written laws to require homes that qualify for the best interest rates to have a minimum of a 20 percent down payment.

That sound you just heard is agents across the country gulping in panic.

The homes that have a 20 percent down payment will get the best interest rates, those buyers that do not have 20 percent to put down will be held to a much higher standard for approval and face higher interest rates.

The fact that the real estate industry is still muddling along with historically low interest rates, high inventories, and significantly lower prices is bad enough news for the millions of agents out there. Now adding the prospective of tougher loan approvals and the reduction of potential buyers the real estate industry has another hurdle to cross.

Some Dodd-Frank reforms are already in place, but Congress left details of others to regulators. The down payment rule is currently in a “public comment” period that’s been extended to Aug. 1.

The proposal would split home loans into two categories. One would be loans to buyers who put 20 percent down, and lenders would face few regulatory hurdles bundling those loans to sell as investment securities. It was the volume of subprime loans in such securities that helped precipitate the financial crisis.

The other loan category would allow smaller down payments but would require lenders to maintain at least 5 percent of the total value of their loans so they shoulder part of the risk. The intent is to ensure lenders thoroughly vet borrowers.

Isakson and others believe the second category would be subject to higher interest rates and could shut lower-income buyers out of the market.

“Loan rates would go up 3 percent because of the scarcity of the loans,” said Isakson, who ran a real estate company in metro Atlanta before his days in Washington. “With the housing market in the shape it is, it’s just ridiculous.”

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Senate steps toward new mortgage servicing standard

-Housingwire

The Senate Banking Committee will hold a hearing Tuesday to develop a new national mortgage servicing standard.

In January, federal regulators announced a new initiative to develop a set of servicing standards following weaknesses in the process that arose last year.

The industry immediately began pushing for a unified approach, and regulators are at work with the 50 state AGs to align new requirements, especially for servicing nonperforming loans.

Already, Congress is hearing from those who would like to be exempted from guidelines they see as too burdensome, especially for smaller institutions.

B. Dan Berger, the executive vice preside of the National Association of Credit Unions, sent a letter to Senate committee leaders Monday asking for an exemption.

"In short, credit unions have not participated in the practices that have led to discussions about the worthiness of national mortgage servicing standards and should not be unjustly punished for the shortcomings of institutions that have," Berger said. "While it is important that the bad actors who failed thousands of their borrowers are held accountable, we would oppose extending any new compliance burden stemming from national mortgage servicing standards onto good actors such as credit unions."

A review of more roughly 2,800 foreclosure files at the 14 largest mortgage servicers last year led regulators to conclude that although the issues were indeed widespread, the largest institutions showed the most signs of activities such as robo-signing, dual-track foreclosures and unnecessarily delayed modifications.

Sen. Olympia Snow (R-Maine) and Sen. Jeff Merkley (D-Ore.) introduced legislation in May that would establish federal standards for mortgage servicers, but it was attached as an amendment to another bill and has yet to make it out of committee.

Testifying before the committee Tuesday will be representatives from the Hope Now alliance of industry servicers, investors and counselors and a member of the Independent Community Bankers of America.

No one from the major mortgage servicers will be taking questions at the hearing, however.

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Mortgage Bankers Reverse Course on Loan Limits

-CNBC

It was barely a few months ago, albeit a few thousand degrees ago, that I moderated a panel of mortgage types from the major banks, including the Mortgage Bankers Association's new president David Stevens, formerly FHA commissioner.

Stevens and I have been talking housing for many years now, so I'm well aware that he is not exactly the ambivalent type.

When I suggested to the panel that the risk of a double-dip in housing was great and that winding down Fannie Mae and Freddie Mac now could be detrimental to the housing market, Stevens was adamant that housing was well into recovery, and all those home price and mortgage delinquency reports I was citing were backward looking and not indicative of the current state of the market.

Now Stevens is reversing course.

This morning he put out a statement advocating a continuation of the higher loan limits at the GSE's (Fannie and Freddie) and the FHA for one more year. “The temporary loan limits authorized by Congress have benefited consumers and the housing market during what has been a turbulent period for our nation’s economy,” Stevens said in the statement. “That decline is not over yet.”

The statement was a little dry for me, knowing the source, so I called Stevens for a little elaboration. He stated right from the get-go that he is still bullish about the future of the housing market, which is not exactly saying he feels great about it right now.

"It looked very clear at the beginning of the year that we were heading toward a flattening of the market, but we've seen clearly an impact to the housing market which is not solely a result of the U.S. economy. It's brought on by general uncertainties: Oil prices spiked for a while, which hit confidence, there were a lot of impacts both domestically and internationally," he continued. "I think the view right now that I have is that this is a relatively inexpensive initiative that could support the housing market at a time when pulling back makes no sense."

When I suggested that this was in direct opposition to the MBA's stand on GSE reform, which includes reducing loan limits in order to bring private capital back to the market, he said there was always a "caveat in the white paper for market conditions." He also says private capital is still too nervous about the state of housing to come back in force now. As for the FHA, which he has maintained consistently has far too large a market share right now, "If FHA is still too big, it is the sign of an unhealthy system, but it doesn't mean pulling back is the right answer. We must continue providing support."

Lowering the current loan limits (a maximum of $729,750 in the most expensive markets) would really affect just 5 percent of the housing market, although that percentage is far higher in certain local markets. Stevens says that's enough to hurt the overall market right now, and that we still need another year of recovery before we take such a risk. He notes over an over that it really costs the government nothing and doesn't "score" in the budget.

I'm wondering when the banking industry starts putting its money where its mouth is, now that it's making money again. There has been all this talk about getting government out of the housing/mortgage market, but no real movement in that direction. There have been some hikes in fees, but nothing really dramatic. The change in the loan limits was supposed to be the first step, something everyone agreed on. Now, not so much. There is certainly risk in lowering the limits, given that we are operating in a housing market that was beaten to a pulp and is still limping. But rehab takes some pain; if we really want a private sector mortgage market, and I'm not advocating one way or the other, but that has been the party line in both parties, then we need to start somewhere.

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Beware US real estate scammers

-Globes

Many Israelis are now buying and selling American real estate, trying to take advantage of a strong shekel and a weak United States real estate market.

However, real estate scams are probably as old as real estate itself, and savvy investors can make mistakes, especially if they are deceived by their attorneys and real estate advisors.

With investors pooling their money into real estate trust funds, there are multiple opportunities for con artists to conceal theft from the trust fund. As the trust fund managers collect monies from an ever-increasing circle of clients, they pay out “dividends” based not on returns, but on new investments.

In one real estate ponzi scheme, investors purchased deeds (interests in land) that were marketed as being secured by California real estate. In fact, the deeds were either unsecured or far more risky than promised. Many of the “investment counselors” were not licensed as required, and the appraisals were inflated. The ponzi scheme promised rates of return of 18% to 22%, with loans not exceeding 80% of the value of the property. It was all a multi-million dollar fraud.

In another case, a Harvard Law graduate, who was a former US Attorney, teamed up with a tax shelter specialist to defraud property owners. The owners provided a limited power of attorney over two residential properties to a relative of the tax shelter specialist. The attorney promised that the relative with the power of attorney was as honest “as the day is long.” A short time later, while the owners were in Israel, the “honest” relative and various acquaintances obtained outside loans on the properties and moved another relative into one of the homes. When the property owners demanded to be made whole, the scam artists threatened to “grind the owner into the ground.” And, when the owners took legal action, the attorney had another tenant manufacture a claim of sexual harassment against the owners.

Sometimes, an enterprising buyer will pay a small deposit to tie up a property in escrow, perhaps for ninety days, while looking for another purchaser. When the transaction closes, the original seller is paid by the ultimate purchaser through the escrow. This kind of transaction is sometimes referred to as a “double escrow,” and often the original seller has no idea about the additional premium collected by the middleman.

This arrangement can become fraudulent where the attorney represents multiple parties in the transaction and conceals the facts from the seller. Generally speaking, attorneys only represent one side in a transaction, especially in a real estate transaction, to avoid conflicts of interest. The attorney should disclose all the facts about the transaction and obtain written consent.

A real estate scam artist often has a certain flair. The scammer gains the confidence of the victim with brash self-assurance and by displaying badges of success: money, cars, and an impressive home. Then, the scammer confuses the investor with a get-rich-quick scheme that is incomprehensible, yet delivered with such bravado that otherwise prudent, successful people write enormous checks to buy something they do not understand.

As a young attorney, I remember sitting in a meeting with a brilliant transactional and tax lawyer who was being sued for fraud in Los Angeles. He was dazzling. He had the entire defense team in the palm of his hand. We thought he was a genius, we admired his character, and we could not believe that he had done anything wrong. As the case proceeded closer to trial and after the defense team considered the evidence, it became clear that like the investors we had also been fooled.

Some simple rules apply: Understand how the transaction works: what is being bought, what is being sold and how the investment makes money. If it looks too good to be true, it probably is. Be careful about trusting strangers. A power of attorney is a potentially dangerous instrument. Finally, always have qualified third parties, who are not interested in the transaction, review the deal.

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Mortgage bankers push for conforming loan limit extension

-Housingwire

Mortgage Bankers Association CEO David Stevens sent a letter to House leaders Thursday urging lawmakers to extend the elevated conforming loan limits for government-backed mortgages.

In 2008, Congress allowed Fannie Mae, Freddie Mac and the Federal Housing Administration to guarantee or buy mortgages worth as much as $729,750 in most neighborhoods. The limits will expire Oct. 1 and drop to $625,500, varying by county.

Stevens, the former director of the FHA, said he would like to see the limits extended through the end of 2012.

"While we had hoped improved economic conditions could warrant a return to the loan limits established by the Housing and Economic Recovery Act of 2008, the reality is that the temporarily higher loan levels are still needed. A number of bills have been introduced that would extend these limits and we urge Congress to address this important issue," Stevens said in the letter to Rep. John Boehner (R-Ohio) and Rep. Nancy Pelosi (D-Calif.).

Rep. John Campbell (R-Calif.) and Rep. Gary Ackerman (D-N.Y.) introduced just such a bill last week, which would extend the limits for another two years.

Extending the limits would run contrary to what the Obama administration proposed when it released its white paper on the future of housing finance in February. Officials suggested to Congress that the first step toward winding down Fannie and Freddie would be to allow the loan limits to expire in October.

But mortgage originations are set to fall to around $1 trillion in 2011 with new home sales falling 23% and existing home sales slipping 13% from last year, according to the MBA.

"The temporary loan limits authorized by Congress have benefited consumers and the housing market during what has been a turbulent period for our nation’s economy," Stevens said. "That decline is not over yet.".

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More Americans to exit homeownership

-Housingwire

Political deadlock mixed with terrible housing market conditions will eventually turn America into a society of renters, according to the latest Housing Market Insights report from Morgan Stanley (MS: 21.58 +2.86%).

High rates of mortgage delinquency, foreclosures and liquidations are turning homeowners into renters, analysts at the investment banking giant said, lowering homeownership rates and increasing demand for rentals.

And it appears even federal institutions are giving up on implicitly supporting what used to be the cornerstone of the ideal American life.

In the Treasury Department white paper on reforming the government-sponsored enterprises, a suggested change to housing policy was put forward: "The administration believes that we must continue to take the necessary steps to ensure that Americans have access to an adequate range of affordable housing options. This does not mean our goal is for all Americans to be homeowners."

During the housing bubble, homeownership rates increased from 66% to 69%, an all-time high. Today, that number is just below 65%, according to Morgan Stanley researchers Oliver Chang, James Egan and Vishwanath Tirupattur.

The analysts expect this will decline further to 59.7%, driving multifamily vacancies down and rents up. The researchers derived this estimate by taking the number of delinquent homeowners likely to be foreclosed, and moving them into the rental category.

Nonetheless, American payroll and household formation numbers are actually on the rise (see chart below):

Traditionally, this would mean that these households, with increasing capital, would naturally look to invest in a home, but getting the loan to do so is on a downward trajectory (see chart below):

The above two graphs will come as no surprise to those following the rental markets.

The National Multi Housing Council, a trade group representing the apartment industry, pushed for clearer housing policy in regard to renting at the group's mid-year conference in May.

Developers speaking at the conference said the recession has made it easier to get new apartments approved for financing from Fannie Mae and Freddie Mac. During the housing boom, it was difficult to get approvals from the government-sponsored enterprises for rental housing, but localities are reducing the barriers and restrictions that have hampered rental development to encourage the revenue and jobs new development brings.

The NMHC called the trend "the new normal," and it appears demand will continue to surge.

Furthermore, a lack of credit and falling home prices continue to negatively impact the desire to own a home.

And it's not just these factors pulling down the ability of Americans to get a mortgage.

"GSE reform, Dodd-Frank securitization rules, mortgage interest deduction reform, continued home price declines and a long workout period for distressed homes, will likely make it harder to buy an owner-occupied home," the Morgan Stanley report states.

"As such, we believe that the U.S. will become a Rentership Society, in which the homeownership rate will keep falling, the home rentership rate will conversely rise, and the rental market will dominate the investment landscape in housing for years to come," according to the analysts.

They made clear the interpretation of their results are not necessarily equal to a negative outlook. They point to improvement to the multifamily sector as an example. However, performance of single-family dwellings, often owned by one landlord, are more difficult to project.

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Just one catch in this good Virginia deal

-Curbed DC

For anyone thinking about dipping his or her toes into the real estate investment market, this Chesterfield, Va., house would be a good place to start. For the low price of $690,000, you get five acres of land with five different buildings. The main house has five bedrooms and four bathrooms (one is handicapped accessible) and totals 6,100 square feet.

The other buildings on the property are a guest house, a three-car garage, a green house and a pool house (yes, there's a pool that goes with it). We first mentioned it back in March, and it is still on the market, so it looks like the paint job is a major turn-off. That's where, you, the real estate investor, could swoop in and snag this good deal before someone else realizes the potential.

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Behold a $100,000 parking space in Washington, D.C.

-Yahoo! News

Washington is in the top 10 most expensive cities for parking, according to an annual study by Colliers International, but Curbed found a few mind-blowing prices for parking spaces that could easily surpass those at the top of the list (New York, Boston and San Francisco). We found a few hiding out on Zillow, including one for a full six figures at the building pictured at right as well as a few in the $50,000 range.

When we called to confirm that these weren't typos, Zillow said that they were indeed parking spaces but that they would be removing the listings because they don't allow them on their site. A closer inspection of the descriptions shows how the owners sneak these things on to Zillow in the first place. We took screen shots of the ones we found, all $50,000 or above.

Here is the $100,000 space, but note that the description describes it as a condo home. The size of the "home" is listed at only 74 square feet. Zillow confirmed to Curbed that it is a parking space and not a residence. Here's the original link where we found the listing, but Zillow has removed it. Click the posting to enlarge.

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Kennedy family divided over Mass. family compound

-Yahoo!

HYANNIS PORT, Mass. (AP) — For the Kennedys, the family compound has long been a place to relax, to celebrate and to grieve. Members of America's most glamorous political dynasty played touch football on the lawn, walked the beach and sailed the sound. The cluster of white-clapboard homes on Cape Cod served as the summer White House when Jack was president.

It was there that the family retreated after his assassination. And it was there that Caroline held her wedding reception and Ted spent his final days.

Now, as the Kennedys gather for another wedding there, the family is divided over the future of the compound.

On Friday, Patrick Kennedy, a former eight-term congressman from Rhode Island and the son of the late Sen. Edward Kennedy, will marry New Jersey schoolteacher Amy Petitgout in a small, private ceremony presided over by Supreme Court Justice Stephen Breyer. At the same time, the Kennedys are split over what is to become of this Camelot-by-the sea.

Sen. Edward Kennedy's widow, Vicki Kennedy, and his three children plan to transfer the main house at the compound to the Edward M. Kennedy Institute for the United States Senate, perhaps for use as a scholarly retreat or a museum.

Some Kennedys have raised concerns about those plans, according to a family associate who spoke on condition of anonymity because he was not authorized to speak publicly. They are worried about protecting the privacy of family members who will continue to live on the grounds, maintaining the overall character of the compound and ensuring access to the beachfront property, the family associate said.

Family members are discussing the concerns in hopes of resolving the issue before the property changes hands, the family associate said.

A statement on Thursday from the Edward M. Kennedy Institute, of which Vicki Kennedy is a co-founder and trustee, said the compound's future use will be in line with what the senator wished for the property.

"Senator Kennedy understood the historical importance of the family home, as well as its cherished place in a small residential community," the statement said. "He addressed all of those issues in giving his immediate family the rights to the property for their lives and a remainder interest in the property to the Edward M. Kennedy Institute for the United States Senate.

"Any future plans for the family home will be consistent with the wishes of Senator Kennedy. However, no changes are imminent," it added.

Patrick Kennedy declined to comment.

Whatever becomes of it, the compound remains a link to the Kennedy legacy.

Here is where John F. Kennedy learned to sail and played football with his brothers. Just down the road is where he delivered his first speech after winning the White House. It was here, 12 years ago next week, that the Kennedy clan retreated to mourn the death of John F. Kennedy Jr. in a plane crash. And it is here where Edward Kennedy succumbed to brain cancer in 2009.

"This was their getaway," said Jessica Sylver, chief executive at the Hyannis Area Chamber of Commerce, which operates the John F. Kennedy Hyannis Museum. "This was where the family came to be together, to escape."

Just as the Kennedys made a mark on America, the Cape made its mark on them.

"I always come back to the Cape and walk on the beach when I have a tough decision to make," JFK once said. "The Cape is the one place I can think, and be alone."

The homes that make up the Kennedy compound are not open to the public. According to the National Park Service, the main house contains nearly two-dozen rooms, including seven bedrooms for residents and guests and four rooms for servants. The basement holds a movie theater and sauna. The grounds feature an enclosed pool, a tennis court and a four-car garage.

The Kennedys' presence here began in 1926 when Joseph Kennedy Sr. and his wife, Rose, rented a summer cottage with sweeping ocean views. A few years later, the Kennedy patriarch purchased the property and expanded it to suit his growing family. Twenty years after that, JFK and his brother Robert expanded the family footprint when they bought homes nearby. Edward Kennedy made the main house his home for decades.

Ethel Kennedy, Robert's widow, still keeps a house next to the main residence.

The dense collection of white clapboard houses blends seamlessly into the wealthy neighborhood.

Signs remind visitors that the compound is private, hidden largely away by fences, driveways and the green sea of Nantucket Sound. Still, sightseers try their best to spy a glimpse.

"I've heard about it all my life," said Sarah Buck of Mechanicsville, Va., who stopped by the compound Thursday with three friends. Buck, 29, was on the Cape for a friends' wedding and wanted to see what she could of the Kennedy home. "They're an American institution."

The best views of the compound are from the sea. And Hyannis Port boat operators are happy to oblige.

"We used to carry 1,500 people a day or more in 60s and '70s," said Murray Scudder, whose father helped found a tour boat business after JFK was elected president. "Now it's a couple of hundred. It doesn't have the cachet it once did."

Still, to the many Americans who lived through the Kennedy era, the compound and Hyannis are a place where ghosts whisper in the salt spray.

Photos in the Hyannis museum show Kennedy arriving in a Marine helicopter; welcoming the Canadian prime minister to his family's home; being interviewed on the manicured lawn by Walter Cronkite; learning that his brother Ted had won a Senate seat; sailing with Jackie just after their marriage; playing with John Jr.

"It's still emotional to me," said Marcia Diamant, visiting Hyannis from New York. Standing outside the Kennedy museum, she fought back tears as she remembered JFK's 1963 assassination. "I was in high school. I was on a bus, and they announced it. No one could believe it. It's something I'll never forget."

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Loan Limit: Will It or Won't It Hurt Housing?

-CNBC News

A few weeks ago the National Association of Home Builders put out a report asserting that new lower loan limits going into effect in October at Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA) "will reduce housing demand and place downward pressure on home prices in major housing markets."

On the blog that day, I wrote that the games were only beginning.

Now another report, this time from researchers at George Washington University, is suggesting just the opposite, that lower loan limits may raise cost for a very few borrowers, but overall will not affect most mortgage shoppers.

The report focuses on the FHA, claiming, "The FHA still could serve 95 percent of its historic targeted market even if the maximum FHA loan limit were reduced by nearly 50 percent." Its market share right now (30 percent) far exceeds its target population.

“FHA’s expansion played a major role in keeping the housing market afloat during the economic collapse of 2008 and 2009,” said Robert Van Order, co-author of the report. “However, we now are left with large loan limits that were set when home prices at the top of the bubble. They don’t reflect current market conditions and are unlikely to assist the FHA in reaching its historical constituencies – first time, minority and low income homebuyers."

After analysis, researchers concluded that a loan limit of $350,000 in high cost markets at $200,000 in the lowest cost markets would, "satisfy more than 95 percent of FHA's target constituency."

Economist Paul Dales at Capital Economics extrapolates to Fannie and Freddie, and agrees, albeit with concerns: "The scheduled reduction in conforming mortgage loan limits at the start of October is unlikely to trigger a further precipitous fall in house prices as some have suggested. Nevertheless, it certainly won't help the market at a time when millions of households already can't obtain a mortgage."

Dales cites FHFA (the overseer of Fannie and Freddie) studies which find that the lower loan limits, "will only affect 250 counties, or just 8 percent of the 3,000 counties in the U.S.…in 2010 the GSE's provided just 50,000 mortgages ($3b) where the loan amount was above the new limits. That's just 5 percent of all new mortgages provided by the GSE's last year and 3-4 percent of new loans issued by all lenders."

He then adds that those left on the outside of the loan limits will just go get jumbo loans, even though they come at a higher price. I would add that they also come with even tougher credit standards, not that conforming loans these days aren't tough enough to obtain.

A big issue, though, is who will fund this jumbo loan market that is about to get many more customers. Also, the bulk of the sales action right now is on the lower end of the market.

If we're going to return to a "normal" housing market, we need those move-up buyers. Yes, the distress is on the low end, but the mid range is stalled, and that's not healthy. I'm sure we'll be hearing more as we near the fall.

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When the Seller Is the Lender

-The New York Times

MORTGAGE underwriting is tight, and home sellers are anxious to unload properties into a stagnant market — it sounds as if it could be time to consider seller financing.

But such transactions remain rare, according to market participants, largely because of eroding home equity.

In seller financing, the owner of a property holds the mortgage for the buyer, usually for about five years, with a balloon payment after that. For individuals who don’t need all the cash from a sale up front, the arrangement provides interest income, can delay or reduce capital-gains taxes, and gets a property off their hands.

For the buyer without a bank loan, it makes a purchase possible. Such deals were popular in the 1980s when mortgage rates topped 17 percent. (In New York, there have been recent instances of developers’ offering financing, especially in newer condominiums, but that’s a different market dynamic.)

Because a seller who acts as a bank has to be able to clear his own mortgage without the buyer’s cash, he needs equity — that is, he needs to own most or all of the property. Falling home prices in recent years have cut equity dramatically, said Mike Litzner, the owner/broker of Century 21 American Homes, which has 12 offices on Long Island. In this market, “the average seller lost 25 percent of equity from the peak of the market to today,” he said. “That loss of equity makes it harder for the average person to even consider financing.”

Century 21 recently released a survey of its franchisees and salespeople nationally; it found that 89 percent reported some customers’ having difficulty obtaining loans in the last six months.

Seller-financed deals do sometimes pop up, said Neil B. Garfinkel, a Manhattan real estate lawyer. His firm is handling a co-op purchase for a buyer whose mortgage from an institutional lender fell through. There was a quirk in the building’s finances that meant it didn’t meet underwriting standards. The seller stepped in, and it appears the deal will close.

That situation, he said, underlines a question that both buyers and sellers should ask as they consider owner financing: Why won’t the bank put up the money?

For the buyer, that may mean weighing whether the discovery of an environmental problem cools ardor for a house, or whether a low appraisal signals that an offer merits renegotiation.

For a seller who is in a position to provide financing, the biggest concern is whether the buyer is truly creditworthy. “Presumably the seller does not want to end up with the property back,” Mr. Garfinkel said.

Keep in mind that although such a transaction might seem less formal than bank financing, it shouldn’t be treated that way, said Ilona Bray, a lawyer and the co-author of “Selling Your House in a Tough Market,” published by Nolo.com.

“Get ready to really delve in and investigate” the buyer’s finances, she advises would-be sellers. Self-employed people are having a tough time getting mortgages now, even though they might otherwise be good risks. The seller should ask for several years of financial records, plus explanations for any less-than-perfect credit report.

Make sure deeds and other legal papers are filed according to local laws, Ms. Bray said, and ensure that documents lay out exactly how and when payments are due and what the penalties will be for late payments. “This is the kind of relationship where people could feel it’s casual,” she said. It’s not, and everyone involved must understand that defaults can lead to foreclosure.

From the buyer’s perspective, she said, if you’re considering such a deal, it’s probably because you realize you might have trouble securing a conventional loan. If that’s so, get your financial documents in order, and be prepared to ask sellers if they have flexibility. “Everything’s open to negotiation in the real estate world,” she added.

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Private mortgage insurers write $3.7 billion worth of new policies in April

-HousingWire

As private mortgage insurers continue to fight for a future in the mortgage origination space, the industry is reporting that insurance firms wrote $3.691 billion in primary insurance on newly originated, conventional mortgages during the month of April.

Mortgage Insurance Companies of America — which represents member firms such as Genworth Mortgage Insurance, Mortgage Guaranty Insurance, PMI Mortgage Insurance, Radian Guaranty and Republic Mortgage Insurance — said all of the firms had a total of $615.7 billion of primary insurance in force during the same month.

During the same month-long period, about 17,400 borrowers used private mortgage insurance to buy or refinance a home, according to MICA.

In addition, mortgage insurance companies received 20,733 insurance applications in April and reported 40,875 defaults as well as 43,362 cures.

The mortgage insurance industry has continued to advocate for the proposed 'qualified residential mortgage' standard to include a role for private mortgage insurance. The current proposal does not create an exemption for private mortgage insurance when a borrower falls short of the proposed minimum standard. Instead, QRMs are defined narrowly, requiring a 20% down payment in the current proposed form. Standard & Poor's believes the rule as written will cut into the private mortgage insurers' business.

Standard & Poor's credit analyst Ron Joas, said in a recent report "as the QRM definition is currently written, mortgage insurance is not included as a credit enhancement. Absent the GSE exemption, this would significantly limit the loans on which MIs could write mortgage insurance."

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Condo Associations Get Tough on Fees

-Wall Street Journal

Three years ago, Claudia Pinchasson defaulted on two mortgages used to purchase apartments at Spring West condominiums here. The units have been turned into rental property, but not by Ms. Pinchasson or her lender. They are being rented out by the condo association.

Condo associations, which have been struggling as troubled homeowners stop paying their condo assessments, are becoming increasingly aggressive about finding ways to recoup unpaid fees. And they have lawmakers on their side.

In Nevada, homeowners associations recently tallied a victory when state legislators quashed two laws that would have limited the amount of fees that the associations can assess on delinquent borrowers.

Florida's state legislature earlier this month passed a law that makes it easier for homeowner associations to collect rent from tenants in delinquent units, with monthly payments going to the associations, instead of the units' owners, until all unpaid fees are covered.

"Two years ago, there would have been a lot more complacency" about homeowners not paying dues, says Donna D. Berger, a partner with Katzman, Garfinkel & Berger, one of several Florida law firms that lobbied for the law. Now, "frustration over seeing people continuing to live in their homes for years without paying" or seeing condos sit empty for years without producing fees, has driven more associations to take action, she says.

Florida, with 60,000 homeowner and condo associations, is at the center of debate over unpaid fees. In many cases, questions have been raised about the rights of homeowners versus those of homeowner associations. The associations have the right to collect fees and assessments to pay for maintenance, utilities and other services, and now, they also have the right to take control of a unit and rent it out when fees on the unit go unpaid. But that right clashes with the rights of delinquent homeowners, who may want to rent out the units themselves and pocket the cash.

Ms. Pinchasson has charged, in a complaint sent by her lawyer to her homeowner association, that the group illegally took possession of her condos, and she wants all the rent on the two units—about $10,000—given to her. She says she is worried that with tenants in her units, she may be liable in case of an accident or other problems. "I just want the tenants out, and I want the bank to foreclose" so she doesn't have to worry about liability, Ms. Pinchasson says.

Leaders of the association declined to comment, but in February, they filed to foreclose on Ms. Pinchasson's units, citing unpaid association fees of more than $12,000.

Typically, associations let lenders deal with nonpaying members. That often meant waiting a few months for lenders to foreclose and resell the unit. But five years into the foreclosure crisis, buyers are scarce and banks are having more trouble foreclosing in a timely manner, due in part to challenges by some who believe lenders acted improperly when seizing property.

The time it takes lenders to foreclose has grown longer each year. Nationwide, residential properties are in foreclosure an average of 400 days, up from 151 days four years ago, according to foreclosure-data firm RealtyTrac Inc. In Florida, it is even longer, growing to an average of 619 days as of the first quarter of 2011, from 169 days in 2007.

The banks are "letting these properties sit, and it's killing the associations," says Steven F. Cohen, who runs A&N Management, a company in Boca Raton that manages properties on behalf of about 50 South Florida homeowners and condo associations. "We're just trying to help these associations fight back."

Mr. Cohen said nearly every association he represents has had an instance where they were forced to foreclose on a homeowner or ask a judge to appoint a receiver for the unit.

Until the new law, homeowner associations could seek a lien in court against a property, based on the unpaid fees. Now, associations can demand that rent payments on delinquent units be paid to the association simply by sending a letter to the tenant. If the association wants to evict a delinquent homeowner and find its own tenants, or find new renters for a unit abandoned by its owner, it must foreclose on the unit ahead of the bank and take title to the property.

At the Gulfside luxury condominium in Naples earlier this year, its condo association foreclosed on a unit with a $710,000 mortgage because its owners owed the association $19,000.

When a unit-owner stops paying, "you've got to stop the bleeding as quickly as possible," said Ewing Sutherland, president of Gulfside's owners association. The group has foreclosed on two of its 112 units for unpaid condo fees.

Tom Salomone, a Coral Springs real-estate agent, says associations' foreclosing on units are problematic because they have no obligation to pay off the mortgage debt on the unit, and that might make lenders reluctant to make future loans on properties in that community.

At Ironwedge, in Boca Raton, its association recently blocked a short sale arranged by Mr. Salamone—in which he convinced the lender to accept a price lower than the debt on the house—in favor of foreclosing and renting the house out. Now, the house's fate is in limbo, and it likely won't be sold until the bank, which holds the first lien on it, decides to foreclose. "It's an absolute mess," Mr. Salamone said.

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How the $8,000 Tax Credit Cost Home Buyers $15,000

-SmartMoney

The government's recent $8,000 cash incentive for first-time home buyers has proved even more costly for recipients than for taxpayers, according to data released Monday. Typical buyers have lost twice as much to price declines as they received from the program.

The median home value fell to about $170,000 in March from $185,000 a year earlier, according to Zillow.com. That means a buyer who closed on a house just before the tax-credit program expired in April 2010 collected $8,000 but has since lost $15,000 in value. Those who bought earlier in the program have done worse; the median price is down $20,000 from March 2009.

"The $8,000 first-time home buyers tax credit . . . has brought many new families into the housing market," the White House boasted in November 2009 upon announcing an extension and expansion of the program. Judging by sales declines since, that seems beyond doubt. Over the past year, the pace of existing home sales has fallen more than 6% and that of new home sales has fallen 22%.

The credit wasn't great for taxpayers, either. IRS says it paid $26 billion in home buyer credits in 2009 and 2010, enough to cover the maximum $8,000 credit for more than 3 million buyers. (It says at least $513 million went for fraudulent claims. Some claimants hadn't bought houses. Some filed twice. Some were under age 18 or incarcerated.)

In October 2009, when the extension of the $8,000 credit for homebuyers was under consideration, I outlined five reasons the U.S. didn't need more housing perks. These included already-high prices and an abundance of benefits, the questionable stimulus value of home subsidies and a gaping budget deficit. In January 2010, with the extension passed, I recommended that eager buyers wait at least nine months and purposely miss the $8,000 tax credit deadline to take advantage of price declines after. The median price fell about $8,000 over the next nine months and another $8,000 since.

I realize that writing an apology for this program's failure probably isn't high on Congress's or the President's list of priorities right now. But just in case someone's conscience is bothering them, let me offer a simple draft:

"We thought the $8,000 tax credits would raise house prices and spur the economy. We were wrong. For starters, it makes no sense for a housing affordability program to have the stated goal of raising prices, because higher prices mean less affordability, not more. Another thing: The program didn't work. We squandered taxpayer cash, increased the debt and lured many Americans into losses. We're deeply sorry. We'll try not to repeat the mistake. If anything, in light of America's daunting fiscal challenges, we're going to consider sun-setting costly, existing programs that lure house buyers, like the mortgage interest deduction and capital gains exemption, which together are more than 10 times as expensive as the expired tax credit program, costing about $1,200 per household last year alone."

For homeowners who are wondering if prices are done falling, and for renters who want to know if now is the time to buy, here's my best guess. In April 2007, when I first wrote that renting had come to make more financial sense than home-ownership, I calculated that prices would have to decline by half to restore the historic relationship between prices and rents. Since then, they've fallen 30% nationwide. Inflation has eaten another 8% of their value. So the worst of the plunge seems done, but prices might drift lower or lose ground to inflation in coming years. In some hard-hit markets, of course, houses are a good deal. For a very rough gauge of value in a specific area, divide recent sale prices by the yearly amount charged to renters for comparable properties. If the result is over 20, prices are probably too high. If it's less than 10, houses might be a steal. If it's in between, well, it's in between.

For another take on prices, consider something I and others have argued about the natural rate of price increase for houses. It's exactly the rate of inflation. Houses, after all, are sticks and stones and other ordinary things, and inflation by definition is the gradual rise in the price of ordinary things. If house prices forever rose faster than the rate of inflation, they'd become infinitely expensive relative to rents, incomes and the cost of building materials.

House prices indeed tracked the rate of inflation during the 1970s, 1980s and 1990s, straying only slightly and briefly and returning each time. In 2000, house prices began to detach from the inflation rate and race ahead of it. Therefore, normalcy might be restored once the house price rise since 2000 matches the rate of inflation since then.

Houses are up 41% since 2000. Inflation has increased other costs by 32%. By this measure, too, prices on a national level seem nearly back to normal but not quite there yet.

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Five Things Potential Home Buyers Don’t Know

-Zillow Blog

Zillow Mortgage Marketplace‘s most recent survey indicates that there are many aspects of the home buying process that continue to elude prospective home buyers. Here are some of the more surprising results of the findings, along with five things home buyers don’t know, but should:

Mortgage rates vary daily

A whopping 55 percent of prospective home buyers don’t realize that mortgage rates, which are determined by a slew of factors, can – and do – change daily (and sometimes more than once a day if certain economic reports are released.) To get the best rates, you have to monitor them (watch the movement of the 10-year Treasury bond; that’s your best indicator.) and shop around. After all, a change in a rate of a mere .125% to .25% could mean thousands of dollars in savings each year.

Lender fees are negotiable

When you apply for a mortgage, the bottom line is that you’re going to have to pay lender fees. And these fees — from origination fees to credit report fees to appraisal fees and more — can add up quickly. But the good news — and what 34 percent of prospective home buyers don’t know — is that fees not only vary from one lender to the next, but that they’re negotiable. All the more reason to shop around for different mortgage rates from various lenders.

FHA loans are available to all buyers

More than two in five (42%) prospective home buyers think that only first-time buyers qualify for an FHA loan, a mortgage insured by the Federal House Administration. That’s not the case. In fact, these loans are available to all buyers who meet eligibility requirements. Among the key benefits: minimal down payments, relaxed credit score requirements, low costs, and attractive interest rates.

Interest rates on ARMs don’t always reset higher

While interest rates on 5/1 ARMs do commonly increase after 5 years, rates could decrease. Prospective home buyers may not realize this because so many of us — some 57 percent, in fact – simply don’t know how adjustable rate mortgages work. FYI: the interest rate on this product is made up of two parts — the margin, which is fixed percentage; and the index, which goes both up and down with the general movement of interest rates.

Pre-qualified doesn’t mean much

Just because you’ve been “pre-qualified” for a loan doesn’t mean you’ve secured financing,  yet 37 percent of prospective home buyers think it does. When a lender “pre-qualifies” you, they simply approximate how much you can afford, but don’t run your credit or request any sort of documentation to verify the information you provide. It is not until a lender has approved your loan application without conditions that you’ve got a firm commitment.

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In these troubled times, more Americans come current on mortgages

-Housingwire

Even in an environment of declining home values, the number of Americans making good on their mortgage continues to grow.

The first-quarter national mortgage delinquency rate decreased to 6.19%, according to credit-reporting agency TransUnion. The numbers are down 3.4% from 6.41% in the fourth quarter and down 8.6% compared to 6.77% a year earlier.

The rate encompasses borrowers delinquent 60 days or more.

According to Standard & Poor's, U.S. consumers also reduced their revolving credit card debt by 18% since mid-2008 through default, borrowing less or paying down debt outstanding. This is the longest and fastest credit card deleveraging since record keeping began in January 1968.

Americans remain unlikely to take on more debt, despite the news that there are growing less risky.

"Currently, 28% of homeowners are 'underwater,' meaning that they owe more than the value of their houses," said S&P analyst Erkan Erturk. "Economic factors such as these, as well as high oil prices and weak consumer confidence, will likely continue to pressure U.S. consumers and constrain consumer debt growth."

Tim Martin, vice president of TransUnion's U.S. Housing Market group, said the recent trend seems counterintuitive. For example, as prices fall he said, the mortgage delinquency rate should rise as more and more homeowners find themselves in negative equity.

"While many homeowners still face pressure to make ends meet, they have lived in their homes for a long time and have diligently been paying their mortgage each month," Martin commented. "The fact that mortgage delinquency continues to decline despite this situation demonstrates that today’s borrowers are less risky."

The average borrower held about $190,115 in mortgage debt during the first quarter, according to TransUnion. While that is up 0.6% from the fourth quarter, average mortgage debt per borrower is down 1.4% compared to the first quarter of 2010.

The area with the highest average mortgage debt per borrower was Washington D.C. at $375,579, followed by California at $338,792 and Hawaii at $313,770. Borrowers in West Virginia have the lowest amount of mortgage debt at $99,640.

TransUnion predicts delinquency rates will fall further throughout 2011, as improving economic conditions and tighter lending standards offset the impact of home prices declines.

Earlier in May, TransUnion said its credit risk index fell for the fifth straight month in the first quarter, "indicating consumers are increasingly likely to repay their debt obligations and are managing new credit more responsibly."

The company said its index decreased about 5% from the fourth quarter and was down 1.6% from a year earlier. The quarterly decline was the largest since the third quarter of 2008, TransUnion said.

Consumer demand for credit also fell during the first quarter and "remains historically low."

"The broad and steady decline in the Credit Risk Index, coupled with a moderate decrease in the demand for credit over the previous year suggests that consumers continue to live within their means, tending to acquire new credit only for larger, specific purchases," said Chet Wiermanski, global chief scientist at TransUnion.

Still, S&P reports that it expects the rate of household deleveraging to slow.

"The long downward trend in credit card debt may soon bottom as the household debt service and financial obligation ratios are near their historical averages," said the S&P report. "Also, declining consumer default and charge-off rates and increased willingness to lend at large banks signal that revolving debt deleveraging is slowing down."

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Professional Mortgage Fraud Down 41 Percent, Overall Fraud Up 5 Percent

-The Real Estate Bloggers

If you are looking to get your mortgage broker to look the other way when applying for a loan, forget about it. The instances of mortgage fraud by professionals is down by 41 percent from 2009 to 2010. The days of liars loans going through and pressure by mortgage lenders to find a way of making the loan work have passed.

But there is a flip side to this. Mortgage fraud overall has increased. The misrepresentations and scams being committed overall is picking up as the economy continues to struggle. With 9 percent unemployment, and 18 percent underemployment, people are struggling. And when they are struggling they will do whatever it takes to look after themselves and their family.

And in this environment fraud will run rampant. If the options in someone’s mind is to commit a serious crime or scam a bank to put food on the table you know what the person will most likely do.

The institutions are getting wise to the costs of mortgage fraud also. Instead of just considering it a cost of doing business they are aggressively attacking the problem with new technology and analytics.

“Fraudsters thrive on inadequacies within lengthy loan-related processes and a lack of consistency across organizations and/or industries that help them hide their true motives,” the LexisNexis analysts said. “Technology has enabled faster loan production through automation, ease of processing, and analytics. Industry professionals have keen knowledge of those processes, which makes it much easier to manipulate protocols in place to thwart adverse activities.”

James said mortgage businesses “are quickly trying to implement new procedures to detect emerging frauds while, at the same time, focusing their energies on recovering the huge financial losses of recent years.”via Housing Wire

Mortgage fraud will always be around. There is too much money at stake and to be honest the penalties are low compared to other ways people could steal at this level. What is reassuring is that the industry now is actively confronting the problem and that the instances are declining rapidly.

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