“The one piece of advice I can give you is, do what turns you on. Do something that if you had all the money in the world, you’d still be doing it. You’ve got to have a reason to jump out of bed in the morning.” — Warren Buffett: American investor and philanthropist
NEWS & HEADLINES
The U.S. Court of Appeals in Washington granted emergency motions from NAMB and NAIHP which argue the rule unfairly penalize brokers, who won’t be able to pay loan officers from consumer-paid fees. “The purpose of this administrative stay is to give the court sufficient opportunity to consider the merits of the motions for emergency relief and should not be construed in any as a ruling on the merits of those motions,” the court said in its order yesterday. The Appellate Court stay was granted, and a date of appeal was set for Tuesday, April 5. What lenders actually do with this information remains to be seen, however – you’ll have to figure that one out on your own. For example, Stearns Lending told its clients that it will be conducting “BUSINESS AS USUAL” until the Federal Courts issue additional rulings. One can view NAMB or what the press is reporting: CompRuling.
On the eve of being enacted, in a surprise move, Senator Dodd called on Congress to rescind the Dodd-Frank legislation, saying the rules and regulations not only has ground residential lending to a halt, but has, and will, also cost the consumer billions of dollars. Without the Dodd-Frank regulations to rally against, many groups are now left searching for a new objective. In a move that was expected by many, the Mortgage Bankers Association of America is requiring that newspapers and magazines use capitals when describing their members. Brett Benjamin, with the MBA, exclaimed, “Look, if ‘Realtors’ is capitalized, and even has a little fancy trademark thing after it, then Mortgage Bankers deserve the same treatment. Especially if they have to do all that licensing stuff.” Rumors are swirling about making commissions identical to whatever loan agents earn from processing and funding a loan. Teams of expensive attorneys have been brought in by each side in the matter.
With the future of HAMP uncertain, the state of California, in conjunction with the federal program, today is expected to roll out HEMP (Helping Everyone Make Payments), a pilot program that would allow a group of distressed, but very relaxed, homeowners to make mortgage payments through profits from the legalized sale of marijuana. Fortunately the underwriting guidelines includes Foreign Nationals, self-employed borrowers, agricultural and rural land owners, etc. “We feel that this is a neglected segment of our potential borrower population,” noted Chrissie Sollay, with HEMP. Teams of expensive attorneys have been brought in by each side in the matter.
“Handshakes for Homeowners” launched its program to reward on-time mortgage payments. A long-rumored federal Handshakes for Homeowners program is expected to be unveiled today as an incentive for underwater homeowners who avoid mortgage default. The program is expected to extend a hand, quite literally, to as many as 200,000 homeowners within the next 12-18 months. According to insiders, Handshakes for Homeowners will involve the creation of regional centers with a staff of “Handshake Helpers” who will be deployed to area neighborhoods based on need. Staff will reportedly be trained to offer greetings, a certificate, and a sturdy handshake to select homeowners who continue to pay their mortgage on time. Those homeowners who have not missed a payment for the past five years will also allegedly be eligible for an “I pay my mortgage – back off” T-shirt or a name-brand wristwatch etched with the slogan, “I pay on time.” Lenders will reportedly be incentivized to participate in the program with free offers of tickets to sporting events and casino concerts, though participation will be entirely voluntary. “For too long we’ve been hearing from diligent homeowners who’ve asked, ‘Where’s my bailout?’ Well, now it’s time to give them a hand,” said Scott Smurthwrite, the newly appointed administrator for the Treasury Department’s Division of Economic Recovery and Prevention of Future Downturns.
While foreclosure is a national problem, it has not been evenly distributed across the country. Four states (AZ, CA, FL, and NV) have suffered the highest foreclosure rate and account for 42% of the foreclosure inventory today. If one adds in the next tier, adding Illinois, New York, and New Jersey, that represents 60% of all foreclosures.
Until this morning Wall Street traders were noticing a significant lack of volatility in MBS prices, and in turn, mortgage rates. Volatility is the lowest it has been all year, which, when combined with higher yields/rates, light origination, and continued demand for agency product, mortgages have done very well relative to Treasury rates. (And very few originators would be unhappy with stable rates.) REITS and banks continue to be the big buyers of MBS’s. Yesterday Factory Orders fell .1% in February, as did the Chicago Purchasing Manager’s Survey results. At the end of the day MBS prices had improved, and the 10-yr yield closed at 3.45%.
Well, volatility picked up today after the unemployment data, and unfortunately for anyone waiting to lock a loan it moved rates in the wrong direction. Non-farm Payroll came out better/higher than expected, at 216,000, with 230,000 private jobs being created and the government losing 14,000 jobs. The headline Unemployment Rate dropped to 8.8% (the lowest in 2 years) but this is primarily due to the labor force not growing. Hourly earnings and hours worked were pretty stable. After the number we find that rates have crept up: early on the 10-yr is at 3.51% and MBS prices are worse by .250 or more, depending on coupon.
DON’T BELIEVE EVERYTHING YOU READ
Many headlines in the media right now are proclaiming the total collapse of the housing market. What makes it seem very believable is the headlines are based on two reports from the National Association of Realtors (NAR): the Existing Home Sales Report and the Pending Home Sales Report. However, all is not what it seems.
Both reports look at two different sets of data:
- A year-over-year comparison of transactions (Y-O-Y)
- A month-over-month comparison of transactions (M-O-M)
The negative headlines you have been reading are based on the Y-O-Y statistics. They are horrific. There is a logical explanation for this however. Last year, at this time, we were headed toward the expiration of the Homebuyer Tax Credit, one of the greatest buyer tax incentives in American history. There were people rushing to get their home into contract and/or to a closing. This dragged demand forward. People who would have normally closed later in the year moved their closing up in order to take advantage of the tax credit. Comparing sales in the first four months of this year to the same time last year wouldn’t be comparing similar situations. That wouldn’t make sense.
Sales dropped dramatically after the expiration of the tax credit in April 2010. Then sales began to slowly rebuild and are now increasing nicely.
The market is gaining momentum not losing ground. Headlines sell papers. Actually knowing what is truly happening in the real estate market is what’s important.
‘LONG WAY TO GO’ IN NEW FORECLOSURE RULES
The nation’s five largest banks met with government officials and state attorneys general on Wednesday to resolve allegations of wrongdoing in mortgage lending and lay the framework for new foreclosure rules. Both the banks and state attorneys general have come up with proposals in changes to mortgage servicing to help improve the system but now they must hash out a settlement.
The five banks participating in Wednesday’s talks were Bank of America, Wells Fargo, Citibank, Chase, and GMAC.
Scant details were released about what the talks on Wednesday centered on during the meeting, but one thing officials did say was that the settlement was going to take a long time.
“Obviously this is a very large set of issues, and it’s going to take some time to work through,” said Thomas J. Perrelli, associate U.S. attorney general.
Government officials and regulators have been seeking solutions to prevent future lending abuses after the “robo-signing” scandal set off last fall, which led to reports of foreclosures that were done without proper reviews of paperwork.
In proposals submitted prior to the meeting, regulators and state attorneys general have called for banks to include mortgage principal writedowns as part of the proposed settlement.
However, banks have argued that cutting the mortgage debt of foreclosed home owners would create a moral hazard and prompt more home owners to default in order to get a better deal.
“Principal writedown for people who could pay their mortgages? Yeah, that’s off the table,” JPMorgan Chase CEO Jamie Dimon told reporters after the meeting.
Analysts say lengthy negotiations could work in the banks’ favor.
“The banks” strategy is to run the clock,” speculates Adam Levitin, a Georgetown University law professor. “The chances of a settlement that meaningfully reforms mortgage servicing and makes the banks pay an appropriate price for illegal conduct are rapidly slipping away.”
About two million households in the U.S. are in foreclosure.
Banks are expected to face fines and penalties following the upcoming release of a report by the Federal Reserve, the Office of the Comptroller of the Currency, and other banking regulators that is to further outline lending abuses. Any fines and penalties imposed would be separate from any monetary settlement that results the state attorneys general meetings.
HOUSING SHORTAGE ON THE HORIZON?
Mike Castleman, founder and CEO of Metrostudy, which tracks real-time data of the county’s inventory of new homes, says a housing shortage is looming that will soon will create a huge surge in demand for new homes. As such, now is the time to buy, he says.
In the 41 cities Metrostudy covers, 78,000 houses are either vacant and for sale, or under construction – that is less than a quarter of the new homes that fell in that category during the housing boom in 2006 and way below the level of a decade ago.
“If we had anything like normal levels of buying, those houses would sell in 2½ months,” says Castleman. “We’d see an incredible shortage. And that’s where we’re heading.”
The historic drop in new construction mixed with the decline in housing prices is laying the foundation for a dramatic recovery in residential real estate, Castleman told CNN. Castleman expects home owners soon will start returning, which will drive up prices in many markets later this year.
While demand remains low for new construction, he expects that to change. He foresees the recovery following a similar path as previous ones: A severe housing shortage will drive a big increase in demand.
“We’ll get a big surge in demand and the drywall companies will take a long time to ramp up, and it will take years to get new lots approved,” he predicts. “Buyers will show up looking for a house in a subdivision, and all the houses will be sold. The builders will tell them it will take six months to deliver a house.” But they’ll want the house so bad that they’ll “bid the prices up.”