The Home Front
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Principal Writedowns Make for Better Loan Modifications--But Nobody Does it
Continue reading… 58 CommentsPresident Barack Obama's loan modification plan gives servicers all kinds of options for getting a borrower's debt-to-income ratio down to that 31 percent threshold. They can extend the terms of the loan, lower the interest rate, and even--if they are so inclined--trim the unpaid principal balance of the loan itself. But the administration has been criticized for not mandating that servicers write down the principal balance when they modify a loan, which, some argue, would improve the effectiveness of the program.
"For underwater loans, if you don't write down the balance to be less than the value of the house, people still have an incentive to default," Richard Green, the director of the Lusk Center for Real Estate at USC, told me when the details of the plan were unveiled in early March. "Writing down the principal first instead of last—which is what [the Obama administration is] proposing—makes sense to me."
[See Obama's Loan Modification Plan: 7 Things You Need to Know]
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What the Fed's Decision Means for Mortgage Rates
Continue reading… 20 CommentsThe Federal Reserve today left its benchmark interest rate unchanged at virtually zero as it indicated that the economy—while still fragile—appears less imperiled than it did several months back. "Information received since the Federal Open Market Committee met in April suggests that the pace of economic contraction is slowing," the central bank said in its statement. "Conditions in financial markets have generally improved in recent months." The announcement comes amid growing concern over mortgage rates, which have surged in recent weeks. Elevated mortgage rates threaten to upend President Barack Obama's plans to revive the housing market—and the economy as a whole—by limiting home loan refinancings and putting additional downward pressure on residential real estate prices. To that end, here is a step-by-step way to evaluate what today's announcement from the Fed could mean for mortgage rates:
1. Mortgage rate trends: Thirty-year fixed mortgage rates plunged to new lows after the Fed announced a series of initiatives beginning last fall, such as purchasing Fannie Mae and Freddie Mac mortgage-backed securities and long-term treasury bonds. But late last month, rates began to spike, surging from 5.03 percent on May 26 to 5.81 percent on June 11, according to HSH.com. The run-up was sparked by mounting concerns over government spending and potential inflation, which pushed yields on 10-year treasury notes—which fixed mortgage rates typically track—sharply higher. More recently, rates have retreated modestly, hitting 5.59 percent yesterday. Still, they remain significantly higher than the all-time lows of less than 4 percent reached during the winter.
[Mortgage Rates Head for 6 percent: 5 Reasons They Might Retreat]
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Housing Sector 'No Longer in Freefall': 5 Things You Need to Know
Continue reading… 5 CommentsAlthough May home sales fell 3.6 percent from a year earlier, they increased more than 2 percent from April, the National Association of Realtors said Tuesday in its existing-home sales report. The report came as a bit of a disappointment to some economists, who had expected a larger increase. Still, "a gain is a gain, we suppose," Ian Shepherdson, chief U.S. economist at High Frequency Economics, said.
Here are five things you need to know about the May existing-home sales report:
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America's 4 Nastiest Regional Housing Busts
Continue reading… 1 CommentAs homeowners everywhere search frantically for signs of a real estate recovery, it's worth taking a look at how markets recovered from previous regional busts. To that end, the Federal Housing Finance Agency--that's Fannie Mae and Freddie Mac's spanking new regulator--has released a research report examining just that. By looking at real estate crashes that occurred between the first quarter of 1975 and the first quarter of 2009 in inflation-adjusted terms, researchers uncovered some ominous findings:
First, house price downturns have tended to be long. The median time required to return to prior peak prices was 10½ to 20 years. Second, it tends to take longer for prices to rise from the trough to their former peak than it takes prices to decline from peak to trough. While the difference is small for Census Divisions and states, FHFA’s Metropolitan Statistical Area and Division (MSA) indexes suggest that the time from peak to trough tends to be about 3¾ years, whereas the median recovery period (from trough to prior peak) was 6⅔ years.
[See 2010 Home Price and Mortgage Rate Outlook: 5 Things to Know]
The paper went on to examine four distinct regional housing busts in greater detail. The authors, however, caution that comparisons between these regional busts and the current national one are limited. After all, while sharp spikes in unemployment tended to play leading roles in triggering the regional busts, such factors didn't spark the current one. (The authors used the agency's home price index in for research.)
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How Obama's Consumer Protection Agency Is Rattling Bankers
Continue reading… 8 CommentsAs President Barack Obama's recently introduced blueprint for financial regulatory reform prepares to wind its way through Congress, industry lobbyists are gearing up to fight one of its key provisions: the establishment of a standalone consumer protection agency. The new agency would be charged with ensuring that consumers have clear information about the financial products or services they purchase and protect them from deception. The agency would accomplish this by requiring lenders to make safer, "plain vanilla" products clearly available to consumers, while stepping up scrutiny on "alternative" products. The new agency would have broad authority to write rules and enforce compliance through fines or penalties.
[See Obama's Financial Regulation Reform: 7 Things You Need to Know.]
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Obama's Financial Regulation Reform: 7 Things You Need to Know
Continue reading… 40 CommentsEver since the credit markets began seizing up in the late summer of 2007, the federal government has worked franticly to prevent a full-scale financial meltdown. The Fed has slashed its benchmark interest rate to as low as zero percent and has welcomed dodgy assets onto its balance sheet. The Treasury Department, meanwhile, has taken the once-unthinkable step of buying large ownership stakes in some of the nation's biggest banks. But now, as the financial system begins to stabilize, President Barack Obama faces a second—but equally imposing—task: preventing the next banking crisis from ever occurring. To that end, the administration has pledged to overhaul the nation's outdated financial regulatory structure, which has been blamed for failing to prevent the reckless risk-taking that helped trigger the whole mess.
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2010 Home Price and Mortgage Rate Outlook: 5 Things to Know
Continue reading… 12 CommentsAmid growing optimism about a recovery, economists from some of the nation's largest banks have unveiled their outlook for mortgage rates, home prices, and economic growth through the end of 2010. The American Bankers Association's Economic Advisory Committee—which is made up of top economists from financial firms across the country—predicts that the recession will come to an end in the third quarter of this year, despite high unemployment and uncomfortably large federal deficits. "The impetus of the recovery as we see it comes from two key sources," Bruce Kasman, the chief economist for JPMorgan Chase, said at a press conference yesterday. "The first is the successful steps taken to contain the financial crisis ... and the second point is that the consumer has stabilized during the first half of the year." Still, the group expects a sluggish recovery with slower than normal growth through spring 2010.
Here's what the bankers believe is in store for the real estate and mortgage markets:
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Will the $8,000 First-Time Home Buyer Tax Credit Expand to $15,000?
Continue reading… 204 CommentsIn an effort to jump-start the ailing housing market, Sen. Johnny Isakson, a Republican from Georgia (and a former real estate professional) has introduced legislation that would beef up the tax credit for first-time home buyers. Under the terms of his bill, which was introduced Wednesday, the size of the credit would expand to a maximum of $15,000 from the previous cap of $8,000, and it could be taken by anyone who buys a primary residence, instead of only by first-time home buyers. The bill would also remove the income limits that had prevented individuals making more than $75,000 a year from claiming the credit, which would be available for a year after the date of the bill's enactment.
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Mortgage Rates Head for 6 percent: 5 Reasons They Might Retreat
Continue reading… 19 CommentsOnly a couple of months ago, exceptionally low mortgage rates were one of the few optimistic landmarks in an otherwise bleak economic outlook. After the Federal Reserve unveiled a series of initiatives beginning last fall—such as purchasing Fannie Mae and Freddie Mac mortgage-backed securities and long-term treasury bonds—mortgage rates plunged to all-time lows. In early April, with 30-year fixed mortgage rates dropping to less than 5 percent, President Barack Obama beseeched homeowners everywhere to capitalize on the development by refinancing their mortgages. "The main message we want to send today is there are 7 to 9 million people across the country who right now could be taking advantage of lower mortgage rates," the president said, according to the Associated Press. "That is money in their pocket."
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Man Mistakenly Boarded into Foreclosed Home
Continue reading… 9 CommentsHere's a new one: A Minneapolis man was accidentally boarded into a foreclosed home--in which he had lived for his entire life--after the property was believed to be vacant, the Minneapolis Star Tribune reports. (Via The Real Estate Bloggers):
Monica Castrejon, a representative of the contractor, Castrejon Inc., said her company was directed to board the front and back doors.
"We do the job," she said. "We don't make the decisions."
