The Home Front
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Why Foreclosures Rise Even as the Economy Expands
Continue reading… 4 CommentsEven as the U.S. economy expanded in the third quarter, the nation's eroding labor market sent the mortgage delinquency rate to new heights and created fresh headaches for the Obama administration. About 1 in every 7 home loans in the country was either past due or in foreclosure at the end of the third quarter, according to the Mortgage Bankers Association's most recent National Delinquency Survey. That's the highest delinquency rate in the survey's history (the data begin in 1972). "Despite the recession ending in midsummer, the decline in mortgage performance continues," said Jay Brinkmann, the MBA's chief economist. "Job losses continue to increase and drive up delinquencies and foreclosures because mortgages are paid with paychecks, not percentage point increases in GDP." Here are six things you need to know about the development:
1. Moving upstream: The MBA report provides an inside look into the evolution of the foreclosure crisis. Initial problems in the mortgage market were largely rooted in subprime loans and other exotic products. But with the national unemployment rate hitting 10.2 percent last month, the eroding labor market has emerged as the most fundamental factor behind the mortgage crisis. A job loss, after all, can prevent even borrowers with sound credit histories from paying the mortgage. "The infection is spreading out, and it is now prime borrowers that are in trouble," says Mark Zandi, the chief economist at Moody's Economy.com. From the third quarter of 2008 through the same period this year, the rate of foreclosure starts increased 0.53 percentage points for prime loans—made to borrowers with good credit—while it fell 0.47 percentage points for subprime loans, the MBA said in the survey.
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Behind the Home Building 'Shocker'
Continue reading… 0 CommentsThe fitful nature of the housing sector's healing process was apparent Wednesday when a government report on new-home construction came in much weaker than economists had expected. The Commerce Department reported that October housing starts dropped nearly 11 percent from September and almost 31 percent from a year earlier. "The headline number is a shocker," Patrick Newport, U.S. economist at IHS Global Insight, said in a report. Here are four things you need to know about the development:
1. Single and multifamily drop: While single-family housing starts dropped nearly 7 percent from the previous month, multifamily-housing starts—that's condominium, townhouse, and apartment projects—fell off a cliff, plunging more than 34 percent and hitting an all-time low. Newport says the multifamily sector is being hammered by broader problems that are plaguing the market for commercial real estate. "Property values are down, rental vacancy rates are at an all-time high and rising, too many units were put up during the good years, the securitization market imploded in 2008, banks are not lending, the job market is still in recession, and a tax credit is encouraging renters into becoming first-time homeowners," he said in his report. "Going forward, multifamily starts should start growing later this year—but only because new construction in this sector is at rock-bottom levels. The recovery will also last two to three years."
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Cheaper Prices—More Than Tax Credit—Motivating Home Buyers
Continue reading… 4 CommentsAs the deadline approached, the National Association of Realtors urged lawmakers to extend the $8,000 first-time home buyer tax credit, insisting that the perk had played such a vital role in the housing market's recent stability that its expiration was too risky. "Without congressional action now, the market and our national economy may freeze again—possibly as soon as this month," Ron Phipps, NAR's first vice president, told a Senate panel on October 20.
Congress complied, passing bills to generously extend and expand the credit. The legislation—which President Obama signed on November 6—means $10.8 billion in lost revenue for Uncle Sam on top of the more than $10 billion that first-time home buyer tax credits have already cost.
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What's Behind the Foreclosure Decrease
Continue reading… 1 CommentEven as the housing market continues to stagger, foreclosure filings in October declined for the third month in a row. Foreclosure filings were reported on 332,292 properties last month, or 3 percent fewer than September's tally, real estate firm RealtyTrac said today. Even though filings remained 19 percent higher than a year earlier, "[t]hree consecutive monthly declines is unprecedented for our report," RealtyTrac CEO James Saccacio said in a statement. But with unemployment busting through the 10 percent threshold and a slew of state and federal initiatives against foreclosures in place, foreclosure trends aren't as optimistic as they may appear in this report. Here are five things you need to know:
1. Obama rescue: The monthly foreclosure decline comes as the Obama administration ramps up its sweeping effort to get as many as 4 million struggling homeowners into more affordable mortgages. On Tuesday, the Treasury Department said it had extended more than 650,000 trial loan modifications through October, putting it on track to meet its ambitious goals. However, mortgage modifications have a checkered history of success, and it remains unclear how many of these borrowers will simply fall behind on their new loans. The concern is that the program may be delaying foreclosures rather than preventing them. "Every loan servicer or lender I have spoken to in the last couple months has basically told me that they have had to slow down foreclosure initiations because they have had to re-evaluate their portfolio of loans to see which ones qualify for [a rescue program]," says Rick Sharga, RealtyTrac's vice president of marketing. "There are about 5.5 million delinquent loans. It just takes an awful lot of time to go through each loan individually."
[Check out Obama's Loan Modification Plan: 7 Things You Need to Know.]
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How Struggling Homeowners Can Stay in Their Homes as Renters
Continue reading… 8 CommentsWith foreclosures continuing to mount, housing finance giant Fannie Mae has introduced a fresh approach to keeping struggling borrowers in their homes: turning them into tenants. Fannie Mae—which, along with Freddie Mac, owns or guarantees nearly $5.5 trillion in mortgages—announced last week its Deed for Lease initiative, in which property owners facing foreclosure can remain in their homes as renters. Under the program, a borrower who qualifies can transfer the deed for a home over to the lender and lease the home back for up to 12 months. "The Deed for Lease Program provides an additional option for qualifying homeowners who are facing foreclosure and are not eligible for [loan] modifications," Jay Ryan, vice president of Fannie Mae, said in a statement. "This new program helps eliminate some of the uncertainty of foreclosure, keeps families and tenants in their homes during a transitional period, and helps to stabilize neighborhoods and communities."
Here are five things you need to know about the program:
[See Foreclosure Epidemic Reaching More Expensive Homes.]
1. Soften the blow: The program is designed to soften the blow that foreclosures can have on families and neighborhoods by giving borrowers time to plot their next step, says Keith Gumbinger of HSH.com. Only borrowers with loans owned or guaranteed by Fannie Mae can participate. (Borrowers can use this tool to find out if Fannie Mae owns their loan.) Interested borrowers with loans owned by Fannie Mae should call their loan servicer, who will contact a property manager to determine eligibility.
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Expanded First-Time Home Buyer Tax Credit Becomes Law
Continue reading… 81 CommentsIn the hopes of sustaining the real estate market's recent momentum, Uncle Sam has made more than two-thirds of current homeowners and nearly all first-time buyers eligible for thousands of dollars in tax perks when they purchase a house. President Obama signed the Worker, Homeownership, and Business Assistance Act of 2009 into law Friday, a day after the House of Representatives approved it by a 403-to-12 vote. The legislation includes language that significantly expands the popular first-time home buyer tax credit that was enacted in February. The development represents a big victory for the real estate and home building industries, which had to overcome concerns about the measure's costs while rallying support for its enactment. Here are five things you need to know about the development:
[See First-Time Home Buyer Tax Credit Gets Obama Nod.]
1. For first-time home buyers: While the value of the credit remains as high as $8,000, the new law pushes back the deadline by which qualified first-time home buyers must make their transaction in order to claim it. (The legislation defines "first-time home buyers" as anyone who has not owned a principal residence in the three years prior to making the purchase.) Under the previous law that went into effect in February, buyers needed to close the transaction by Nov. 30. However, under the terms of the new law, home buyers must have a signed sales contract before May 1, 2010, but they have until the end of June to actually close the transaction. At the same time, the new law raises the annual income limits from $75,000 to $125,000 for singles and from $150,000 to $225,000 for married couples. The changes make nearly all first-time home buyers eligible for the credit, according to Goldman Sachs economist Alec Phillips.
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Fed Not Raising Rates Anytime Soon: 5 Things to Know
Continue reading… 1 CommentAs the once free-falling economy shows tentative signs of stability, economists and investors are wondering when the Federal Reserve will reverse course and begin raising interest rates. But in a statement Wednesday after its meeting in Washington, the central bank's Federal Open Market Committee moved to maintain its benchmark interest rate at as low as zero percent, and pledged to keep rates at "exceptionally low levels" for "an extended period" of time. "While the language was subtle, the clear message is to keep inflationary concerns to a minimum and to curb talk of higher rates," Michael Woolfolk, a senior currency strategist at The Bank of New York Mellon, said in a report. "The Fed has no intention of reversing its zero interest rate policy or quantitative easing measures before the end of the year." Here are five things to know about the development.
[Check out Mortgage Rates Seen Below 6% Through 2010]
1. Extended period: While reiterating its plans to keep rates low for quite some time, the Fed on Wednesday went a step further than it had in previous statements by laying out three key factors--"low rates of resource utilization, subdued inflation trends, and stable inflation expectations"--behind its outlook. By communicating its reasons for keeping rates so low, the Fed is also calling attention to the specific factors it will use to determine when--and by how much--to increase rates. "The Fed will reconsider this stance over time if growth utilization rates rise significantly, or if inflation or inflation expectations begin to increase in a way that threatens the Fed's price stability objective," Dean Maki, of Barclays Capital Research, said in a report. "Importantly, the statement suggests the Fed will not be raising rates in the near term even as economic growth picks up, given that levels of resource utilization are likely to remain low for some time even if growth is solid."
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Are Home Sales Headed for a Late Fall Slide?
Continue reading… 0 CommentsA gauge of home-purchasing activity came in stronger than expected in September as buyers moved to take advantage of falling home prices, attractive mortgage rates, and a tax perk from Uncle Sam. The National Association of Realtors said Monday that its pending home sales index for September increased 6 percent from August and was more than 21 percent higher than in September of 2008—the largest year-over-year jump on record. (Pending home sales are measured by contract signings, as opposed to closings.) The index has now posted eight monthly increases in a row, representing the longest winning streak in its eight-year history. "Contract signings haven't been running this hot in almost three years," analyst Mike Larson of Weiss Research said in a report. Here are three things you need to know about the development:
1. Low prices, attractive mortgage rates: Home sales have firmed up in recent months as falling property values and cheap mortgage rates have increased the affordability of the housing stock. Through August, home prices in 20 major U.S. cities had returned to autumn 2003 levels, down more than 29 percent from their 2006 peaks, according to the most recent S&P/Case-Shiller report. Rates on 30-year fixed mortgages, meanwhile, dropped to an average of 5.18 percent in the last week of September, down from 6.22 percent a year earlier, according to HSH.com.
