Monday, November 29, 2010
These new rules will allow buyers to use gifts and grants from nonprofit groups for their minimum 5 percent down payment. Freddie Mac is also considering similar new guidelines, according to spokesman Brad German. Borrowers previously were required to contribute a minimum 5 percent down payment from their own funds, with additional down payment money permitted from a gift.
These new rules are "definitely going to help upgrade buyers and young couples who for whatever reason don’t have enough money and are getting some from their families," said Edward Ades, the owner of broker Universal Mortgage. The gift rules apply only to single-family principal residences and cover mortgage amounts in excess of 80 percent of the property’s value. The loan balance also has a limit of $729,000 in high-cost areas like New York City and $417,000 in other areas.
At the same time, Fannie Mae is cracking down on debt-to-income ratios, with the maximum ratio for those seeking a conventional mortgage set to drop from 55 percent to 45 percent under the new guidelines. Fannie Mae is also increasing its scrutiny of payment histories on revolving debt, and buyers who have missed a payment will have 5 percent of the total balance added to their ratios.
Under the new rules, borrowers who have gone through foreclosure will be excluded from obtaining a Fannie-backed loan for seven years, an increase from the previous limit of four years.
Source: The New York Times, Lynnley Browning (11/21/10)
REALTOR® Magazine-Daily News-New Lending Guidelines Benefit Young Borrowers
An attack by North Korea on a South Korean island caused global investors to shift funds to relatively safer assets on Tuesday. As usual, this hurt stocks and helped bonds, including mortgage-backed securities, pushing mortgage rates a little lower. The conflict did not escalate or spread, though, and investors reversed their actions on Wednesday, moving mortgage rates higher.
On Tuesday, the detailed minutes from the November 3 Fed meeting revealed a high level of disagreement between Fed officials about the new $600 billion quantitative easing program. With high unemployment and low inflation, Fed officials would like to take action. The problem is that the options available to the Fed to help boost economic growth have potentially negative consequences. According to the minutes, some Fed officials pointed out that the quantitative easing program could weaken the dollar or lead to undesirably high future inflation. In the end, 10 out of 11 Fed officials decided that the expected benefits justified the risks and was better than doing nothing, but many officials considered it a very close call. The relatively weak support within the Fed further clouds the future of the program, and the uncertainty for investors has added to already high levels of volatility in mortgage rates.
The biggest economic event next week will be the important Employment report on Friday. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month. Early estimates are for an increase of about 150K jobs in November. Before the employment data, the Chicago PMI manufacturing index will be released on Tuesday. The ISM manufacturing index and the Fed's Beige Book will come out on Wednesday. Pending Home Sales, a leading indicator for the housing market, will be released on Thursday. Factory Orders, ISM Services, Productivity, Construction Spending, and Consumer Confidence will round out the schedule.
Major banks must repurchase a mortgage from Fannie Mae if it was not written to the GSE's guidelines and went into default. These mortgage repurchase obligations could cost banks as much as $43 billion, according to recent estimates from Standard & Poor's.
According to servicer guidance issued Monday by Fannie Mae, the GSE allows the redelivery of a mortgage loan that was repurchased by the lender so long as the bank corrected the loan to fit Fannie's underwriting standards.
But the GSE clarified in the guidance that any mortgage that was repurchased by investors or another GSE such as Freddie Mac are not eligible to be sold back to Fannie Mae.
However, a mortgage that a lender had to repurchase from another investor or GSE that was delivered in error to that investor or GSE can be sent to Fannie Mae if it meets all of its requirements.
Even though S&P said the banks are roughly one-fourth through the combined buybacks, the credit rating agency does not see a threat to capital levels.
"In all cases, we believe that the representations and warranties matter is an earnings issue and is not likely to affect our view of the banks' capital adequacy," S&P said.
by Jon Prior HousingWire November 29, 2010
Fannie Mae cuts off investors from redelivering mortgage putbacks
Sunday, November 28, 2010
But a year from now, things could be different.
The bond market has been safe and secure for so long that investors could run around the farmyard and throw money at bonds with little chance of harm. Those old goats in the stock market, outside the corral, always faced the danger of getting dragged off by a wolf, but not bond investors.
At least that's been the thinking for years, as bonds benefitted from a lengthy trend of lower interest rates and mild inflation. But the protective pen that has sheltered bond investors doesn't look so secure anymore.
William Gross, managing director at California investment firm PIMCO, lately has warned of the "end of a great 30-year bull market in bonds."
Considering that Gross and his team oversee about as much bond money as anyone and have a vested interest in seeing bonds perform well, that's a caution worth heeding.
Roy Papp of L. Roy Papp & Associates, one of Arizona's more successful long-term investors, describes the situation for bonds as among the most treacherous he's seen in a career spanning five decades.
"Economic conditions around the world will improve, particularly in the U.S. and Asia," Papp said. "As that happens, prices on bonds will go down."
He now views stocks as "considerably" more attractive than bonds.
The portfolio managers at Ariel Investments in Chicago recently declared that bonds had reached "bubble territory."
In their view, three traits are characteristic of bubbles, and the bond market is showing signs of all three now.
The first is a surge of new money that inflates prices. Mutual funds that hold bonds have attracted more than $600 billion in net new cash since the start of 2009 and now are in their 23rd straight month of inflows.
By contrast, investors on balance have pulled money out of stock funds in each of the past three years.
The second is a tendency for prices to climb into unchartered territory. With bonds, this is usually described in terms of yields, which move inversely to prices. The recent numbers portray investors as willing to accept almost nothing in return for the privilege of owning bonds. Case in point: The government sold two-year Treasuries yielding just 0.4 percent in late October.
"When judged against historical valuations, bonds are in nosebleed territory," Ariel wrote in its commentary.
The third warning sign is a pattern of risks and returns getting out of whack. As evidence, Ariel cites yields that are now so low as to provide virtually no cushion in the event inflation rises even modestly.
Ariel adds that bond-market volatility could be worsened in the next downturn by the rise of Internet trading and easy-to-exit exchange-traded funds - neither of which was around during the last bond bear market.
Somewhat-naive investors often dismiss the riskiness of bonds by noting that they can recoup their principal provided they're willing to hold to maturity, regardless of what happens to interest rates.
That's true, assuming the issuer doesn't default. But there's still an opportunity cost in the sense bondholders would be stuck with an unattractive, below-market yield in the meantime.
In other words, in a rising-rate environment, investors must pick their poison: Sell their bonds and take a loss, or accept a below-market yield until their bonds mature and proceeds can be reinvested at higher, prevailing interest rates.
The point of all this isn't to scare investors into making rash decisions but to nudge them to prepare for some unpleasant possibilities, sooner or later.
In a diversified portfolio, it's difficult to avoid bonds altogether. It's also true that certain types of bonds and bond funds, such as high-yield and foreign debt, aren't as sensitive to U.S. interest-rate changes and might hold up well if rates jump.
But these alternatives also tend to be more risky than the plain-vanilla municipal, high-grade corporate and U.S. government bonds that most income investors favor.
If you have jumped onto the bond bandwagon, it's time to consider how you might get off if the 30-year bull market is indeed nearing an end.
Or as Gross put it in a recent bond-market outlook: "Run, turkey, run."
by Russ Wiles The Arizona Republic Nov. 28, 2010 12:00 AM
Bonds not looking so attractive
Republicans said Democrats continue to pursue their agenda as if the midterm elections, in which the GOP gained control of the House and expanded its ranks in the Senate, did not happen.
Republicans will not have their enhanced numbers until the new Congress convenes in January. But GOP opposition in the Senate will be fortified when Mark Kirk of Illinois is sworn in as expected Monday, leaving Democrats with a diminished majority.
The prospect is for a standoff on core issues in this lame-duck session, including extension of the tax cuts passed during the George W. Bush administration. Congress could remain in session until days before Christmas.
President Barack Obama expects to meet with congressional leaders from both parties on Tuesday evening to chart a path forward, particularly on the tax-cut issue.
"The president is committed to sitting down and dealing openly and honestly with Republican leaders," deputy press secretary Bill Burton said.
Republicans want to extend the tax cuts permanently for all households, including those with incomes beyond $250,000. Democrats have held firm on extending cuts only to those with incomes below that amount, saying the country cannot afford the additional $700 billion cost of tax breaks for the wealthy.
Votes are expected on both scenarios, but neither is expected to pass. Obama has hinted at a willingness to compromise.
"He's going to continue to be open and honest and hope that we can make progress on things that are important to the American people, like extending these tax cuts for the middle class," Burton said.
Even relatively popular bipartisan measures have run into opposition in the aftermath of the midterm elections.
When Congress returns Monday, the Senate is expected to vote on the long-stalled Food Safety Modernization Act, which has widespread support - but not before considering a list of Republican-led amendments. The act would increase agricultural inspections and require enhanced industry record-keeping.
Among the amendments is a largely unrelated measure to ban all earmarks - specially directed spending items lawmakers send to their home states. Ending earmarks was a GOP campaign theme, but the ban is also supported by some Democrats.
Attention will also focus this week on Obama's deficit-reduction commission, which is due to release a report Wednesday aimed at reducing the deficit and coping with rising Social Security and Medicare costs. It's unclear whether the commission can meet the Wednesday deadline and issue a final report.
By week's end, Congress needs to vote to continue funding the federal government because the existing measure expires on Friday. Congress could consider a one- or two-week extension to avoid a shutdown, as Democrats pursue a broader spending bill to keep the government funded through the end of the fiscal year in September.
Other items on a long list are vying for attention during the compressed calendar. The House is expected to vote early in the week on an annual adjustment for doctors who treat Medicare patients, and it could consider a censure of Rep. Charles B. Rangel, D-N.Y., over ethics violations.
The Senate is expected to hold hearings Thursday and Friday on a Pentagon report on repealing the ban on gays serving openly in the military, with a promised vote on the floor to follow.
Senate Majority Leader Harry Reid also has promised a vote on the Dream Act, an immigration measure that would provide young people in this country illegally a path to citizenship if they attended college or joined the military.
UCLA student David Cho, a Korean immigrant who said his parents brought him to the U.S. as a child and he is undocumented, is among those pressing Congress to vote. He plans to enlist in the Air Force. "It's been one of my dreams to don that uniform and serve this country," he said.
Obama is also pushing Congress to approve a nuclear treaty with Russia, called New START, that has been embraced by NATO allies but faces opposition led by Sen. Jon Kyl, R-Ariz.
Democrats see in the weeks ahead a final opportunity to pass priority legislation before Republicans have an emboldened presence in Washington.
But a spokesman for Sen. Mitch McConnell of Kentucky, the Republican leader, said voters are not interested in the Democrats' priorities.
"It's like the election didn't happen - if you look at what their priorities are," spokesman Don Stewart said. "The American people's priorities are not the Dream Act, 'don't ask, don't tell' repeal and the START treaty. Their priorities are not getting a tax hike - and keeping spending under control."
by Lisa Mascaro Tribune Washington Bureau Nov. 28, 2010 12:00 AM
Congress heading for a standoff on some key issues
There were no other bidders at the trustee sales.
The Arizona Cardinals' Bidwill family planned to build a $1.2 billion "urban community" at the property dubbed cbd101, at Loop 101 and Bethany Home Road. The plan included building the tallest skyscraper in Arizona outside of Phoenix, 850 residential units, a public market, a working farm and solar panels above parking garages.
Not a shovel of dirt has been turned on the vacant farmland.
Last week, at auction, the lender, an investment fund run by Maryland-based Walker & Dunlop, took possession of the land, valuing it at $16 million. The Bidwills, through subsidiary Bethany Land Partners LLC, had used a loan of up to $46 million from the firm to buy the property for $55 million in 2007, near the height of the market.
The family made all its payments until the remainder of the loan came due in full this year, said spokesman Steve Roman. The family tried to restructure financing with the lender, he said, but "the parties were unable to arrive at a mutually agreeable resolution."
Roman said the subsidiary was independent of other Bidwill companies, such as the Cardinals, and will have no effect on them.
The Bidwill family continues to own other nearby parcels, including 129 acres made of grassy areas and parking lots near University of Phoenix Stadium known as Sportsman's Park East and West. The group recently received approval from Glendale to build ambitious projects on the two pieces of land over the next few decades. They would include a total of 4.5 million square feet of office and retail, 350 residential units and two hotels and buildings as tall as 200 feet.
The second foreclosed property involved Westgate City Center developer Ellman Cos. Ellman built a two-story, glass-front office building near Jobing.com Arena and high-end condominiums at 91st Avenue and Coyotes Boulevard. The building has sat empty for the past two years.
The lender, Minnesota-based Home Federal Savings Bank, took back the offices at auction in October for $5.6 million. Ellman Cos., through subsidiary Westgate Garden Office 1 LLC, had taken out an $8.4 million loan with the bank in 2008.
The foreclosure affected a limited portion of Westgate, spokeswoman Nicole Traynor said.
"Consequently, there is no negative effect on the future of Westgate City Center or on the financial health of the Ellman Cos.," she said.
Another Ellman subsidiary defaulted in May on a $177.1 million loan for 2,450 acres east of Fountain Hills, where 1,000 luxury homes and a resort were planned.
It's not unusual for foreclosed commercial projects to go to auction without bidders, unless properties are unique or valuable.
Some developers in the down economy let projects fall into foreclosure because "values declined so far there's no point in even trying to save your asset," said Iain Vasey, a Valley real-estate expert. Others bid for their properties at auction, attempting to repossess the property for its current worth.
Still other developers face foreclosure because banks demand repayment of commercial loans instead of renewing terms when they expire, which happens more quickly than home mortgages, typically in two to five years.
by Rebekah L. Sanders The Arizona Republic Nov. 27, 2010 12:00 AM
Lenders take back 2 Glendale office projects
Last week, sales resumed on the 4.8-acre mid-rise development near the northeastern corner of Camelback and Scottsdale roads. The seven-building complex was completed in 2007, but after 15 units were sold, sales were halted when the economy went south.
In October 2009, ST Residential acquired all assets of Corus Bank, and now owns and manages Safari Drive. ST Residential is a consortium of private equity groups that include investors Starwood Capital, TPG Capital, WLR LeFrak and Perry Capital.
ST Residential hired Geoffrey H. Edmunds & Associates to relaunch and market Safari Drive, and Geoffrey H. Edmunds Realty, a sister company, will handle all sales.
All units in the complex have been completed. Safari Drive is on the former site of the Safari Hotel and Resort.
"There's seven buildings and 89 units, with 15 previously sold," said Geoffrey Edmunds, company president. "There's 74 to sell and we sold two last week. The market has really been going down for the past six months, so it's continued to deteriorate. But there are sales for unique product, so where we're going to compete is with the Waterfront, Optima or another project like ours."
Unit prices start at about $370,000 with three units priced around $1 million. The majority of units are 1,200 to 2,100 square feet.
"We're giving (buyers) real high-end product at a competitive price for today in a unique location, and we believe there's a market in 2011 for this product," Edmunds said.
ST Residential and Edmunds' goal is to have Safari Drive sold out by the end of 2012.
"We're talking about a two-year sell-off period and we believe we can achieve that if the market remains stable or improves a little bit," Edmunds said. "I think that we're going to find that 2011 will be a little bit better than 2010."
A second, smaller phase is being planned that would be built in front of the project closer to Scottsdale Road.
"At this time, assuming the market is there in 2012 . . . then there would be a second phase," Edmunds said. "We're going to get Phase II kind of in design phases starting in January."
Mike Leipart, ST Residential's senior vice president of sales and marketing, said Safari Drive now is on solid financial footing.
"It's a beautiful property in a great location and prospective buyers should take great comfort in the financial stability of ST Residential," he said. "In fact, we know of no other company besides ST that offers the combination of financial stability with the highest standards of design aesthetic, quality and proven brand building capabilities"
In the meantime, ST Residential remains opposed to Gray Development Group's proposal to build a luxury apartment complex on acreage west and southwest of Safari Drive. Gray's Blue Sky complex would include five buildings with a maximum building height of 133 feet and 867 apartments.
ST Residential filed a legal protest with the city against Gray's proposal, which would force a supermajority City Council vote of 6-1 for approval. ST Residential hasn't withdrawn that protest.
Edmunds couldn't comment on Gray's proposal and its impact on Safari Drive's future. Leipart wasn't available to comment on that issue.
by Edward Gately The Arizona Republic Nov. 26, 2010 07:19 AM
Safari Drive condo sales resume with new marketing effort
The latest progress report from the Federal Deposit Insurance Corp. shows banks nationally are returning to health much faster than those in Arizona, offering the prospect that lending might pick up soon.
U.S. banks earned a combined $14.5 billion during the quarter ended Sept. 30. That was up from $2 billion in profits one year earlier and marked the fifth straight quarter of year-over-year gains. It also left just 19 percent of banks unprofitable.
"The industry continues making progress in recovering from the financial crisis," said FDIC Chairman Sheila C. Bair in a statement. "Lower provisions for loan losses are driving bank earnings by allowing a larger share of revenues to reach the bottom line."
By contrast, Arizona banks lost a combined $101 million during the quarter, although that was better than the $299 million shortfall for the third quarter of 2009. Some 64 percent of banks with Arizona charters or licenses remained unprofitable at last count, with local institutions suffering much more severely from real estate weakness.
"The economy has been more one-dimensional here," said Paul Hickman, the new president and chief executive officer of the Arizona Bankers Association. "But hopefully the bloodletting is over."
Hickman said he's encouraged by the decline in year-over-year losses for Arizona banks and said more local institutions appear ready to lend.
Roughly half the banks operating in Arizona, including most of the biggest players, are federally chartered and not included in the state report.
Nationally, banks reported progress in several other measures, including lower bad-loan chargeoffs and reduced provisions to cover loan losses. Banking-industry employment rose for the second straight quarter, after falling the 12 prior quarters.
Also, the proportion of overdue loans declined for a second straight quarter. Credit-card accounts that were 90 days or more overdue fell 11 percent, while past-due residential loans dipped 1 percent.
Bair voiced hope that bank lending would rise in coming quarters.
While the FDIC reported more banks on its "problem list" - 860 compared with 829 at midyear - the combined assets at problem banks fell 6 percent, a good sign. The FDIC doesn't disclose which firms are on the list.
The report shows significant shrinkage in Arizona's banking industry. The latest tally had just 42 institutions with $13.9 billion in assets, $11.6 billion in deposits and 3,700 employees. Those figures compared with 52 banks with $15.9 billion in assets, $12.9 billion in deposits and 4,100 employees as of Sept. 30, 2009.
Arizona has suffered 11 bank failures since August 2009, including two in the current quarter.
by Russ Wiles The Arizona Republic Nov. 23, 2010 05:35 PM
Banks in Arizona lag in the industry's general recovery
Short sales, unlike foreclosures, are not typically covered by Arizona's anti-deficiency law.
That law protects most distressed homeowners if lenders foreclose. It bars lenders from seeking payment from the borrower if the home doesn't sell for as much as the amount owed on the mortgage.
Some lenders apply the same protection to borrowers who complete a short sale.
But a growing number of former homeowners in metro Phoenix are receiving unwelcome calls and letters from lenders or collection agencies telling them they still owe on mortgages for houses they no longer own.
Because the short-sale concept is designed specifically to help homeowners avoid having to pay their lenders more money, some sellers have been careful to negotiate their deals so the lender, by contract, can't later seek payment. Those who haven't done so are at risk.
"I know that there is a great deal of confusion and uncertainty about this issue," said Michelle Lind, general counsel for the Arizona Association of Realtors. She said that real-estate lawyers differ on which situations are subject to the anti-deficiency statutes but that, depending on the kind of loan and the terms of the short-sale contract, the seller can be liable.
"The law is unclear," she said, "and there are many variables that factor in."
Sellers should tread carefully
Tricia Goldblatt sold her Phoenix home through a short sale last year after losing her job as an executive assistant at an engineering firm. A few months ago, she started receiving calls from a collection agency.
"They are telling me I owe $10,000. I did a short sale to get out from under my mortgage," she said. "I don't have that money. I had to move in with my mom."
Goldblatt said she thought the documents for her short sale specifically stated her liability for both her first and second mortgage would be terminated. But the collection agency said it bought the note on her home-equity loan from her lender and wants to be paid.
Home-equity loans, or second mortgages, appear to be the biggest pitfall in such cases.
Plunging home values in metro Phoenix left many homeowners unable to sell their homes for enough money to cover what they owed on their first mortgages, let alone a second mortgage. In short sales, lenders agree to let homeowners sell for less than what they owe. The seller typically gets nothing, but the lenders are at least paid a portion of the original principal.
Some homeowners can work out deals to close their second mortgages. Often, lenders who issued a home-equity loan will accept $2,000 to $5,000 to let the homeowner walk away from the debt.
Some lenders also seek to recoup more of the debt, requiring sellers to sign promissory notes to pay a portion later.
But many sellers think that once the short sale is completed, they are free of liability. That's when the unwelcome calls can begin.
There usually is a lag between a short sale and when a lender will try to collect on unpaid debt or sell it to a collection agency. It was almost a year after Goldblatt's short sale when she was contacted by the collection agency.
Many real-estate agents working with homeowners on short sales refer them to attorneys or make sure the deal calls for the dismissal of all the debt related to the house. The sales require more paperwork and negotiations and are still relatively new to many agents. And, with short sales at record levels in metro Phoenix and nationally, lenders are continuously updating their guidelines.
"It's tough to figure out who owes what to whom in a short sale," said Margie O'Campo De Castillo, a Phoenix real-estate agent. She said she advises sellers to visit an attorney before closing their deals.
'Deficiency issue is muddy'
Real-estate agents and attorneys say some lenders are forgiving all portions of mortgages not covered by the home's resale. But homeowners shouldn't count on it.
"The short-sale contract controls the liability between the seller/borrower and the lender. The anti-deficiency statutes apply only to trustee sales and judicial foreclosures," said Diane Drain, a Phoenix real-estate attorney. "If the short-sale contract does not provide for a full release of personal liability, then the seller has a high probability of receiving a demand for the deficiency."
Kevin Kauffman of Keller Williams Arizona Realty said some of the big lenders, including Bank of America, have said they are applying Arizona's anti-deficiency law to short sales.
"But it's still important to get it in a signed contract. The deficiency issue is muddy, to say the least," said Kauffman, who has closed 120 short sales this year. "You can talk to 10 different lawyers or real-estate agents and get 10 different answers."
Andrew Houglom hired Kauffman to handle the short sale of his Queen Creek home last year.
"We made sure it said in my documents that the deficiency on my loan was paid in full with the short sale," Houglom said. "I did a lot of research before I did the deal and knew lenders were holding some homeowners liable for part of their loan after a short sale."
Lawsuits are stemming from deficiency judgments. Lenders sue homeowners who don't pay, and then homeowners sue their real-estate agents, accountants or other consultants for not protecting them for the liability.
"My warning is that short sales are very dangerous for the seller," Drain said. "They must get legal and tax advice from someone who does not profit from the short sale."
by Catherine Reagor The Arizona Republic Nov. 26, 2010 12:00 AM
Some Arizona homeowners still owe after short sale
In October, there were 5,489 metro Phoenix homeowners in "trial" modifications, according to the monthly U.S. Treasury report on the Home Affordable Modification Program, or HAMP. In September, there were 6,470 trial modifications under way in the region.
Part of the slowdown could be because of big lenders focusing more of their attention on problems with foreclosure documents from "robo-signers" during the past month. But the problems with HAMP and concern over its effectiveness in slowing foreclosures aren't new.
During the past 18 months, payments on 20,335 mortgages in the Phoenix area have been permanently lowered through the federal program. Nationally, about 520,000 home loans have been modified. About 2.9 million U.S. mortgages are still eligible for the government program.
From April to July, 10,000 HAMP trial loan modifications in metro Phoenix were canceled. Some of those borrowers did receive help from other programs. But many other homeowners were denied permanent modifications after making several months of trial payments.
Some Valley homeowners feel like they were led on with trial modifications under the government's program, when their lender planned to foreclose all along. Lenders defend their trial modifications, saying they didn't know all the rules for the new federal program when it was announced, so they placed many homeowners in temporary modifications to help them avoid imminent foreclosure.
The government requires lenders to reduce payments to no more than 31 percent of the incomes of homeowners in need. On average, loan modifications done through HAMP have lowered mortgage payments by $500 a month.
New-home sales in metro Phoenix continue to slow. There were 553 new-home closings in October, compared with 620 in September, according to the "Phoenix Housing Market Letter." Through October, new-home sales are 20 percent behind last year's pace for the same period.
"Foreclosures will be flushed through the system. Inventories will rebalance. Prices will begin to see upward pressure. Legislation will eventually be forthcoming to help defaulters repair their credit. Jobs will flow as business confidence grows with a different and prudent federal attitude," said RL Brown, the newsletter's publisher. "When? Beginning in 2011."
by Catherine Reagor The Arizona Republic Nov. 24, 2010 12:00 AM
Federal home-loan modifications may be slowing down
The prosecutors want lenders to standardize their practices to reduce the chances of improper foreclosures and create a fund to help homeowners who have been foreclosed on illegally.
The nation's state attorneys banded together last month to investigate mortgage practices, including lenders' use of "robo-signers" who may have signed off on thousands of foreclosure documents without checking their accuracy.
A national strategy for settling cases of lenders improperly taking back homes could have a big effect in metro Phoenix, which has one of the highest rates of foreclosure in the nation.
Negotiations with the nation's biggest banks are still in the early stages. But Arizona Attorney General Terry Goddard, who has taken a leading role in the probe into lender practices, outlined for The Arizona Republic potential outcomes the officials are seeking.
"We need to make the loan-modification process more transparent and stop the outrageous practices that are costing people their homes," said Goddard. "There are too many homeowner horror stories in Arizona and across the country."
The state attorneys plan to seek agreements on issues including:
- Loan modifications. News coverage has been filled with stories of homeowners who are in the midst of modifying a loan only to find themselves foreclosed upon. Others claim they have been improperly denied federally supported loan modifications and then lost their homes to foreclosure.
Goddard said the industry needs a standard procedure for loan modifications as well as third-party arbitrators for homeowners who believe that they have been wrongly denied help.
"Homeowners should be able to receive an answer on their loan modification within 30 days and be notified promptly if they are missing paperwork," said Goddard. "The delays in the process now are ridiculous and are costing people their homes."
- A lender-funded pool of money. People who have lost their homes due to improper handling of foreclosures or have been unfairly denied a loan modification could be compensated through this fund.
For those who have already lost homes, Goddard said, it's not practical in most cases to repurchase or otherwise return those homes because they already have been resold after foreclosure. The fund would make another form of compensation available. It also would pay for arbitrators.
Iowa Attorney General Tom Miller was in Washington, D.C., on Tuesday discussing the nation's foreclosure problem with government leaders and said issues with lenders are much bigger than robo-signing. He has already met with the nation's biggest lender, Bank of America, to discuss a settlement that would include the fund.
During a hearing Tuesday in front of the Senate Committee on Banking, Housing and Urban Affairs, executives from JPMorgan Chase & Co. and BofA said they are working to fix problems they have had in processing foreclosures.
The head of Chase's lending division, David Lowman, was interrupted by angry protesters during his testimony.
Senators from both parties voiced frustration with lenders and regulators over the foreclosure mess and called for more investigations.
Republican Sen. Richard Shelby of Alabama said there needs to be more supervision of financial regulators who are overseeing the big lenders, including Fannie Mae and Freddie Mac.
Democrat Sen. Michael Bennet of Colorado said it was unclear why it has been so hard for lenders' servicers to handle loan modifications.
"This is a bipartisan issue," said Goddard. "For the first time I can re- member, all the AGs are in agreement over an issue."
He said if lenders don't agree to a settlement, then they could be facing lawsuits in 50 states.
An agreement with lenders won't likely include a nationwide foreclosure moratorium. Goddard said there are foreclosures being handled legally and ethically that need to go forward so lenders can continue to operate and housing markets can move toward a recovery.
Separately, last month Goddard called for legislation to create a "borrowers' bill of rights" in Arizona. The bill would require mortgage firms to act in good faith with debt-strapped homeowners, communicate promptly and make loan-modification decisions within 30 days.
by Catherine Reagor The Arizona Republic Nov. 22, 2010 12:00 AM
States put heat on mortgage lenders
Saturday, November 27, 2010
Worldwide attention could focus on the commission’s options paper, due to be published in the spring. Its publication will coincide with the next round of talks on revisions to the Basel III rules on bank capital that are expected to bring in extra charges for banks considered “systemically important”.
One source said: “No one out there is doing anything like the work the commission is currently undertaking and there is a lot of interest in what they will be saying, particularly as they will have a credible body of facts, figures and evidence behind anything that they say.”
How to regulate banks with global operations is considered one of the most important items on the agenda for the overhaul of the international financial system, as politicians, central bankers and regulators attempt to make the banking industry safer.
The IBC report is likely to include detailed suggestions on what additional capital charges big banks should be hit with as well as ideas on how to ensure that the failure of one of these institutions does not risk the entire financial system.
Sir John Vickers, chairman of the commission, has already met with top US policy makers, including former Federal Reserve chairman, Paul Volcker, architect of the eponymous Volcker Rule.
Sir John has also met with the European Union’s senior regulators, and more trips are planned, with other commissioners set to visit Australia, Canada, China, as well as France and Germany.
The UK has been at the forefront of moves to update financial regulation and was the first major country to introduce a bank levy, while Britain’s rules on financial sector compensation are already tougher than in many other jurisdictions.
This has raised alarm within the banking industry and wider financial sector with compliants that Britain risks damaging the sector by moving out of step with international peers.
by Harry Wilson The Telegraph November 28, 2010
World turns to UK's Independent Banking Commission for financial regulation - Telegraph
NEW YORK (AP) -- An insider trading case last year that federal authorities said was the biggest ever is providing a recipe for another case that may be even bigger.
The current case is largely an extension of work that led to the arrest of Galleon Group founder Raj Rajaratnam in October 2009. The Galleon investigation marked the first time that federal authorities used wiretaps in an insider trading probe.
Similarly, wiretaps led to the first arrest in the latest case. Don Ching Trang Chu, a consulting firm executive, was arrested Wednesday for allegedly providing private information about a company's corporate earnings to a hedge fund.
The FBI this week searched the offices of three hedge funds and subpoenaed some of Wall Street's most influential firms, including Janus Capital Group and SAC Capital.
The Galleon case has resulted in 23 arrests and 14 guilty pleas. Many of those arrested are cooperating in the latest investigation.
The cases represent an offensive by U.S. Attorney Preet Bharara against white collar crime in the securities industry. One aim of the current case: unearthing those who helped match employees at public companies with large-scale traders hoping to profit from information that wasn't available to the public.
Authorities have said little about the current investigation. But a study of Bharara's comments over the past year show how it has progressed.
Bharara said when he announced the arrests in the Galleon case last year that the use of wiretaps marked a turning point in investigations of insider trading. Wall Street insiders, he said, will be forced to wonder if every conversation is recorded.
"When sophisticated business people begin to adopt the methods of common criminals, we have no choice but to treat them as such," he said.
A month later, as he announced more arrests, he said "the alarm bells have only grown louder."
"How pervasive is insider trading?" he asked. "Is this just the tip of the iceberg? We don't have an answer yet. But we aim to find out."
Two weeks later, in November 2009, he said white-collar fraud had caused a "lack of faith in the economic system; a lack of belief in the markets; and a lack of trust that the playing field is level."
By last month, Preet was holding nothing back, saying that insider trading is "rampant and may even be on the rise."
Now, at least two defendants in the initial probe seem headed for trial. Rajaratnam, a former billionaire and the richest Sri Lankan-born person in the world, and Danielle Chiesi, a former consultant at New Castle Funds, have pleaded not guilty to charges of securities fraud.
Rajaratnam is a Wall Street analyst who built Galleon into a high-flying hedge fund that specialized in trading stock of technology companies such as IBM Corp., Advanced Micro Devices Inc. and Google Inc. Authorities say he built a web of contacts throughout the technology industry who provided him with inside information that allowed Galleon to earn millions of dollars in profits.
Rajaratnam has said through his lawyers that his trades were all based on public information. Both face potential penalties of more than 100 years in prison.
Prosecutors have given nearly all the defendants an opportunity to cooperate so that the government can uncover new instances of insider trading. Harlan Protass, a lawyer who represented one of the Galleon defendants, said the number of defendants who pleaded guilty and cooperated was not surprising and there is ample incentive for them to do so.
"The benefit that a defendant stands to gain from cooperating with federal prosecutors is directly linked to the quality and quantity of information he can provide," said Protass, who teaches a class on federal sentencing at Cardozo Law School. "Thus, once a defendant decides to flip, the more wrongful conduct in which he was involved, the better off he ultimately will be when it comes time for sentencing."
His client, Ali Hariri, was a former vice president of Atheros Communications, a chipmaker based in California. He was sentenced earlier this month to 18 months in prison after pleading guilty to securities fraud and conspiracy to commit securities fraud. He is not cooperating in the other investigation.
The crackdown on insider trading has been a boost for the pocketbooks of white-collar defense attorneys, said Eric Snyder, a former federal prosecutor. He was at a traditional gathering of about 1,000 white-collar crime defense lawyers the day before Thanksgiving at a midtown Manhattan hotel.
"Everybody was talking about how they're going to get a piece of it," he said of the arrests expected to result from the latest probe. "Every firm in the city is expecting they're going to become involved in that case."
The first arrest turned out to be Chu of Somerset, N.J. It apparently was rushed after investigators who interviewed him on Sunday learned that he was supposed to fly to Taiwan days later, a trip that he makes frequently.
His lawyer, James DeVita, said only: "We will have an opportunity to present a defense, and we'll pursue that."
According to court records, the case against him was built when a cooperator from the Galleon probe engaged him in conversations in which he talked about inside information and how to prevent federal authorities from learning about it electronically.
The wiretaps on a hedge fund phone were cited in a criminal complaint filed in U.S. District Court in Manhattan, where a judge on Wednesday upheld the government's right to use wiretaps. The judge rejected defense contentions that they were unconstitutional because they were not specifically authorized under rules written by Congress regarding wiretaps.
Marc Mukasey, a former federal prosecutor who now represents white-collar defendants, said prosecutors will still need to be selective about when to seek court authorization for wiretaps.
"I would not necessarily assume that further investigations mean that it's wiretaps gone wild," he said.
by Larry Neumeister Associated Press November 26, 2010
Big New York insider trading probe spawns another - Yahoo! Finance
Sunday, November 21, 2010
While a housing recovery will be sustained, home prices, which have plunged by about a third since their 2006 peak, will barely rise next year. Medians from the poll showed a mere 1.1% rise in 2010 and 1.0% in 2011.
Expectations for next year haven't budged from the August poll, and won't even keep up with the expected 1.6% rise in the consumer price index next year.
Expectations for a stable year will provide little joy for the 11 million Americans who now owe their banks more than their home is worth, preventing them from refinancing their loan or buying a new house without coming up with more cash.
"Housing activity has likely bottomed, but the recovery will be slow and long-developing," David Berson, chief economist at California-based mortgage insurer PMI Group, said.
Donald Ratajczak, an Atlanta-based economist consulting for Morgan Keegan, said the gain in prices needed to return from where they are now to 2006 levels--some 35%-- is a decade or more away.
But only one-fifth of economists who answered the question said house prices would not return to those lofty levels.
It is clear, however, that the housing market is still under pressure. Housing starts slumped to their lowest in 1-1/2 years in October, mainly due to sharply reduced building of multi-unit homes.
But Fairly Valued
The poll showed U.S. homes are currently fairly valued, the same as in the last poll, assigning a score of 5 on a 10-point scale where 1 is extremely undervalued. But medians from the poll suggest they have 5% still to fall from here.
Negative housing sentiment has grown with the U.S. unemployment rate lingering at 9.6%.
A soft jobs market has traditionally been the main driver of defaults, and took only a temporary back seat to the faulty underwriting and excessive credit that first tripped up the $11 trillion mortgage market.
"The simple fact is that prices will not be able to rise when poor economic conditions continue to undermine demand and when foreclosures will continue to boost supply," said Paul Dales, U.S. economist at Capital Economics in Toronto.
Meanwhile, signs that foreclosures are running at a record pace are keeping homeowners nervous, unwilling to buy an asset that could quickly depreciate.
Government efforts to address underwater mortgages have also fallen flat, in part because banks are fearful they would have to accept another round of write-downs.
"Growing foreclosure supply is weighing on a market already rife with slack demand, and the only clearing mechanism the market has is price," said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia, who was amongst the most bearish of the poll respondents.
More foreclosures are likely on the way as the proportion of national delinquencies rose in the last quarter for the first time this year, to 2.7% of current mortgage balances from 2.6% in the prior period, according to the Federal Reserve Bank of New York.
Faults in the foreclosure process plaguing banks will initially slow the pace of homes put on the market, preventing an immediate price downturn.
But the time it takes for Bank of America (BAC: 11.67 ,0.00 ,0.00%), JPMorgan Chase (JPM: 39.50 ,0.00 ,0.00%) and others to fix their errors is delaying the inevitable and actually increasing losses to investors who hold the loans, analysts said.
After one or two months of delayed foreclosures, the country is likely headed for a record 1.2 million bank repossessions this year, said Rick Sharga, a vice president at RealtyTrac, a foreclosure listings and data firm in California.
by Reuters November 18, 2010
Poll: Housing Market Troubles Won't End for 2011 - FoxBusiness.com
Saturday, November 20, 2010
The checks will go to 957,928 people over the next two weeks. Recipients have 60 days to cash them, the FTC said.
The settlement comes after LifeLock told consumers it could provide absolute protection from identity theft if they signed up for its identity-protection service, the FTC said. Customers pay $10 to $15 a month.
In March, officials announced LifeLock agreed to pay $11 million to the FTC and $1 million to 35 state attorneys general, including Arizona's, to settle charges the company used false claims to promote its identity-theft-protection services. The money awarded to states went to cover investigative costs.
LifeLock's services were advertised widely in TV commercials, billboards and on sides of trucks featuring company Chairman and CEO Todd Davis' Social Security number.
The FTC charged that LifeLock provided less protection against identity theft than promised and made claims about its data security that were not true.
Davis denied the company misled customers at the time of the settlement. He also said it likely wouldn't have much of an impact on business because it already altered much of its advertising and practices.
"We still stand by our previous comments about this redress situation," said Mike Prusinski, senior vice president of corporate communications, on Friday. "We have developed a very good working relationship with the FTC and now the entire industry is being held to a higher standard, which we applaud."
All eligible consumers will receive checks and no further claims will be accepted, the FTC said. Consumers with questions may call 1-888-288-0783 or visit ftc.gov/refunds.
by John Yantis The Arizona Republic Nov. 20, 2010 12:00 AM
Refunds mailed to LifeLock customers
It's hard to keep all the financial balls in the air when the floor starts buckling, and the floor underneath Nitis this year felt like a water slide.
For seven months, the 66-year-old widow says, Wells Fargo representatives assured her that they could work something out. Then the bank auctioned off her condo.
On Tuesday, Nitis faces eviction.
She has lots of company. An estimated 4,500 Valley properties will be foreclosed on and auctioned off this month. Nitis is likely better off than many who lose their homes. She owns other property elsewhere and says she could have sold something had she realized what was about to happen.
"I was foolish to believe them," she said. "I was going through chemotherapy and didn't have the strength to fight, so I believed them and I trusted them. That was my mistake."
I put off telling this story for several days, at Wells Fargo's request. A spokesman wanted time to respond so I waited because I wanted the bank's side of the story. I had a hard time believing that a bank - my bank - would foreclose on a cancer patient - especially one who hopes to be back at work early next year and able to resume her payments.
I had a hard time understanding why a bank owed $136,000 would settle for a fraction of that at auction. I wanted to see how putting Hazel Nitis out makes sense - if not from a humanitarian point of view then a financial one.
Finally, on Thursday, Wells Fargo got back to me with its response: No comment.
Nitis lived in California and bought the two-bedroom Mesa condo as a second home in 2006. She put down $35,000 and took out a loan for $135,920. She was here last November when she found the lump on her arm.
The diagnosis: lymphoma. Nitis decided to stick with her Arizona doctors to fight the cancer. She took a leave of absence from her job and turned her California home over to her sister. The bills mounted quickly because she had to pick up the full cost of her health-insurance premiums while living on lower disability pay. By March, she realized she would soon be unable to pay her $798 mortgage and called Wells Fargo's loan-modification division.
Over the next months, she says, she talked to a dizzying array of Wells Fargo representatives, all of whom assured her that they could work it out. She says she offered partial payments but was told that wouldn't help.
Alarms should have begun ringing wildly in August, when the bank's lawyers notified her that her condo would be auctioned on Nov. 2.
But she was sick and says she believed the bank when its employees continued to reassure her that they could work something out until the final hour. "I had 48 years as a customer of Wells Fargo (and a predecessor). I had no reason not to believe them," she said.
That is, until Oct. 22. It was a little after 5 p.m. on a Friday when the call came. Her request for a modified payment was denied. Her condo would be sold in 11 days.
She went to several attorneys but didn't have $10,000 for a retainer. If she'd had $10,000, she wouldn't have needed an attorney.
Finally, she went to court on her own and got a temporary restraining order but it came too late to stop the sale. At 10 a.m. on Nov. 2, BAC Investments LLC snapped up her condo for $37,000. Within hours, the investors taped a note on her door. "Written Demand of Surrender and Possession," it began.
So now comes her eviction hearing, at 8 a.m. Tuesday in East Mesa Justice Court. She is scared, but mostly she is angry.
She should be. Had the bank told her sooner that they wouldn't work with her, Nitis says, she could have sold her rental property.
Had they given her a few more months, she says, she could have resumed her payments when she returns to work in January.
Her cancer is now in remission, although she is still getting follow-up treatment.
Instead, she will likely be tossed out Tuesday.
I don't know what Wells Fargo would say. That is, if they responded with something other than silence. I can only quote from the banks' last communication with Nitis, a letter written by a guy in default-operations support, just one day before the bank put her condo on the auction block.
"We're happy to have you as our customer," the letter said, "and look forward to helping you with your financial needs."
by Laurie Roberts The Arizona Republic Nov. 20, 2010 12:00 AM
A cancer victim's chilling foreclosure story
The bank is one of several big mortgage lenders that recently suspended foreclosures temporarily because of concern over flawed documents. Bank of America found in its review that its foreclosure decisions weren't based on inaccurate documents but did see ways the paperwork could be improved, a bank executive said in testimony prepared for a hearing Tuesday by the Senate Banking Committee.
Among the changes, the legal documents used in the process will each be reviewed by the signer and promptly notarized, said Barbara Desoer, president of the bank's home-loans division.
Desoer said the bank is replacing and resubmitting affidavits that were filed previously in about 102,000 foreclosure cases that haven't yet gone to judgment in the 23 states where courts play a role in the process. Also, Charlotte, N.C.-based Bank of America is putting in new procedures for selecting and monitoring the law firms it retains to process foreclosures.
"We are taking the need for improvement very seriously and are implementing changes accordingly," Desoer said in her testimony.
The Senate banking panel was examining the issue amid growing concern over the disarray stemming from flawed foreclosure documents. A congressional watchdog said in a report issued Tuesday that the disarray could threaten major banks with billions of dollars in losses, deepen the disruption in the housing market and hurt the government's effort to keep people in their homes.
Revelations that several big mortgage companies sped through thousands of home foreclosures without properly checking paperwork already have raised alarm in Washington. If the irregularities are widespread, the consequences could be severe, the Congressional Oversight Panel said in the report. The full impact is still unclear, the report cautions.
Employees or contractors of several major banks have testified in court cases that they signed, and in some cases backdated, thousands of certifying documents for home seizures. Financial firms that service a total $6.4 trillion in mortgages are involved.
by Marcy Gordon Associated Press Nov. 17, 2010 12:00 AM
Bank of America will tweak its foreclosure procedures
The region's median home price is projected to be $120,000 for November and then slip to $117,000 next month based on the home sales under contract tracked by the ARMLS Pending Price Index. If the median price falls below $119,000 next month, it will be a new 10-year low for the Valley and signal a double dip in prices.
The index is forecasting that Phoenix's median will climb back to $120,000 in January but then drop to $105,000 in February. But the index is less accurate for months farther out. Many home sales that will close in February haven't yet been negotiated.
Foreclosure resales and short sales are pulling down metro Phoenix's housing values. In October, almost 65 percent of all the home sales in the area were foreclosures and short sales. But that number is down from September, when those distressed home sales made up a record 74 percent of all closings.
Growth think tank
Urban Land Arizona has a new executive director. Deb Sydenham has taken over for George Bosworth, a real-estate veteran who had led the group since 1996.
Sydenham was previously deputy director of P3 Initiatives at Arizona Department of Transportation. In that position, she was involved in building the state's program to use public-private partnerships to work on Arizona's transportation needs. Before that, she led community development and planning for the Arizona Department of Commerce.
Urban Land Arizona recently received a $25,000 grant to help support its Livable Phoenix project, which is working on promoting communities along the Metro light-rail system. Washington, D.C.-based Urban Land Institute awarded the grant to ULI Arizona.
Nominations for the group's Arizona Smart Growth Award and Smart Growth Legacy Award are being taken at arizona.uli.org/Awards.aspx until Dec. 13.
by Catherine Reagor The Arizona Republic Nov. 17, 2010 12:00 AM
Home prices expected to dip
When the new City Council is seated in January, the future of Scottsdale's skyline will be in its hands.
Council members Wayne Ecton and Marg Nelssen will depart, and newly elected Linda Milhaven and Dennis Robbins will begin their terms.
The council will face a growing number of rezoning proposals that call for greater building heights within the downtown area, spurred by the downtown infill-incentive district and plan. The district allows buildings of up to 150 feet north of the Arizona Canal and surrounding the Scottsdale Healthcare Osborn Medical Center.
Gray Development Group is seeking approval for a two-building, luxury apartment complex near Camelback and Scottsdale roads, with at least one building close to 150 feet tall. That would match the AmTrust Bank building at 69th Street and Camelback Road.
The Blue Sky proposal has since been scaled back to a maximum height of 133 feet. The council has yet to consider the plan because of legal protests filed by surrounding property owners.
Other projects calling for greater heights in the downtown area have been filed with the city.
One calls for increasing the maximum height from 36 to 90 feet at Scottsdale Road and Angus Drive. Another proposes raising the maximum height from 36 to 65 feet on Scottsdale Road just south of the Arizona Canal.
Meanwhile, the owner of the Scottsdale Waterfront wants the final phases to include a building nearly 150 feet in height. The Waterfront is located in its own infill-incentive district.
"It's all up to the council," said Dan Symer, senior city planner, referring to those requests prompted by the downtown infill-incentive district.
"They can ask for additional heights and densities, and intensities," he said of developers. "The community wanted a case-by-case analysis done. And if at the end of the day the council doesn't agree that it's a good application, it will deny it. Or if they think it is a good application, they will approve it. It all comes down to the (applicant) convincing the council."
Defining council's vision
Councilman Ron McCullagh would like the council to determine its vision for the city before considering proposals that would alter the skyline.
"The things that are being proposed right now pursuant to the infill-incentive district really aren't relative, they're extreme in their scale relative to the things around them," he said. "And when you have that kind of a difference between what is proposed and what was ever contemplated, then you have really a difference in vision, not just a difference in policy and not just an issue of design or height."
Councilman Bob Littlefield not only is against greater heights in the downtown area, but would like the council to eliminate the infill-incentive district and plan.
"I'm opposed to greater heights and density . . . because it's inconsistent with what voters said they want downtown Scottsdale to look like," he said. "It's not downtown Tempe or downtown Phoenix, and to allow (greater heights and density) will simply make it look like those other towns."
Nelssen has made it clear that she is opposed to greater heights and density in the downtown area. She also thinks Blue Sky is too high and dense, and that the project is not scaled correctly for the size of the parcel and the area.
Ecton hasn't taken an official stand on building heights.
"We have to take into consideration both sides of the issue," he said.
Chamber: Downtown evolving
A 2008 voters attitude study commissioned by the Scottsdale Area Chamber of Commerce showed 46 percent of respondents agreed that "to provide open space, parks and a people-friendly environment downtown, it is appropriate for the city to allow greater heights in return for a smaller building footprint so those amenities can be provided." Thirty percent of respondents disagreed with the assertion.
According to chamber President and CEO Rick Kidder, there is "very strong" community support for greater building heights in the periphery surrounding downtown's neighborhoods.
"We would be loathed to see height in the unique districts of downtown that make downtown so special," he said. "But we also recognize that the periphery is emerging as an urban area . . . and is attracting young professionals and bringing in new talent. We need to provide housing options for that talent."
Milhaven and Robbins would favor greater heights under the right circumstances and in the right locations.
"If you look at the downtown plan, it talks about having more people living downtown and I completely agree," Milhaven said. "And all those areas they're talking about are either on empty lots or on the edge. The historic part of downtown, I don't see (where) there would be any changes there."
Robbins said many people want to make sure Scottsdale maintains its character and doesn't end up looking like Tempe or Phoenix.
"But I also think there are some places where height would work," he said. "You certainly want to have increased activity and vibrancy throughout our downtown, and yet you don't want to have a negative impact on those already here. So you have to be careful in how you allow certain things to happen."
by Edward Gately The Arizona Republic Nov. 16, 2010 09:13 AM
Scottsdale proposals call for greater skyline heights
Sales of existing detached single-family homes usually taper off when the mercury falls each year, said ASU associate professor of real estate Jay Butler, but a significant decline in activity from the previous October supports the theory that many would-be homebuyers have lost confidence, though perhaps temporarily, in the benefits of owning a house.
The decline is at least partly the result of misgivings about homeownership, mortgages, lenders and the way foreclosures are carried out, he said.
"We keep getting hit with things like procedural errors in foreclosure . . . basically just enhancing people's disbelief in the system," said Butler, of ASU's W.P. Carey School of Business.
Maricopa County home-resale activity in October declined by about 24 percent compared with a year earlier, according to Butler's most recent monthly housing report, issued Monday.
There were 4,695 existing-home sales recorded in October, the report said, down from 6,140 sales in October 2009. Resale volume also decreased slightly from September, in which 4,895 sales were recorded in the county.
The median sale price in October for existing homes remained steady from the previous month at $135,000, according to the report. It was down just slightly from the median price of $140,000 in October 2009.
Given the negative reports about some lenders' rapid foreclosure-processing methods, a national moratorium on foreclosure resales by Bank of America, and a pessimistic outlook on employment, Butler said he expects the median home price to drop even further than he had anticipated previously.
"Hopefully better," he said about the housing market's near future, "but I'm not convinced."
Foreclosure activity in October was down from the previous month, Butler's report said. There were about 3,400 foreclosures recorded in October, compared with 4,100 in September and 3,800 in October 2009.
Butler said the decrease could be due to fewer high-end-home foreclosures, but he concluded that lenders simply were delaying some of them because of the weak demand for such homes.
Foreclosures continued to account for about two-thirds of all housing-market transactions, Butler said, split about equally between new foreclosures and the resale of recently foreclosed-on homes.
by J. Craig Anderson The Arizona Republic Nov. 15, 2010 04:42 PM
Oct. home resales dip 24% from year ago
Tuesday, November 16, 2010
The Fed's new quantitative easing program which was announced last week initially helped mortgage rates drop to decade lows, but investor concerns stalled further improvement. The quantitative easing program pumps dollars into the economy, and the increased supply weakens the value of the dollar relative to other currencies. When foreign investors sell US securities, they must convert the US dollars they receive into their own currency. If the value of the dollar falls, then the value of their US investment falls in relative terms to their own currency. As a result, foreign investors may reduce their purchases of US securities, including mortgage-backed securities (MBS), which would cause yields to increase. This fear of weaker foreign demand hurt mortgage rates this week.
The latest forecast from the Mortgage Bankers Association (MBA) projects an increase in home sales in 2011. Modest economic growth, pent-up demand, and stabilizing home prices are the main reasons for the expected gains. According to the MBA, both purchase originations and existing home sales will increase in 2011 from 2010. The MBA also forecasts that fixed mortgage rates will rise during 2011.
The most significant economic data next week will be the monthly inflation reports. The Producer Price Index (PPI) focuses on the increase in prices of "intermediate" goods used by companies to produce finished products and will come out on Tuesday. The Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Wednesday. CPI looks at the price change for those finished goods which are sold to consumers. In addition, Retail Sales, an important indicator of economic growth, will be released on Monday. Retail Sales account for about 70% of economic activity. Industrial Production, another important indicator of economic growth, is scheduled for Tuesday. Housing Starts will come out on Wednesday. Empire State, Leading Indicators, and Philly Fed will round out the week.
The Dollar has been the focus of the media, whether it be the Fed’s QE2, the G20 meetings or even sovereign debt problems. The common denomitaor of virtually all news of late, has been the (once) all-mighty Greenback. The same is true for the markets.
Over the past few months it seems as though everything has been tied to the dollar. Simple inter-market analysis makes it obvious that almost everything in the financial market eventually has an affect on stocks and commodities in some way. But recently trading has really been all about the dollar. If you watch the SP500 and gold prices you will notice at times virtually every tick the dollar makes directly affects the price and direction of gold and the SP500 index.
Let’s take a look at some charts to see the underlying trends and what they are telling us…
Dollar Index – Daily Chart
As you can see the trend is clearly down. Currently the dollar is trying to find a bottom as it bounces and pierces the previous high. The question everyone wants to know is if the dollar is about to rally and reverse trends or was Friday’s pierce of the October high just a shake out before the next leg down?
Back in late August the dollar pierced the July high on an intraday basis (shake out) just before prices dropped sharply. I think this could very easily happen again but when you see what gold volume is doing, it’s a different story.
Those who follow me closely know I focus on trading with the underlying trend, but manage my risk by trading smaller position sizes when the market has more uncertainty than normal with is what we are currently experiencing.
GLD – Gold Fund – Daily Chart
Gold and the dollar are almost inverse charts when comparing the two. Gold happens to be testing a key support level and its going to be interesting to see how the price holds up going forward. The one thing that has me concerned is the amount of selling taking place. The chart shows heavy volume selling and could be warning us of a possible trend change in the dollar, gold, oil and equities in the coming weeks.
Again the trend for gold is still up, so I would not be trying to short it at this time, rather look to buy into dips until the market trend proves us wrong. That being said, with the selling volume giving off a negative vibe and the fact that gold has rallied for such a long time, any new positions should be very small…
Crude Oil – Daily Chart
Oil looks to be forming a possible cup and handle pattern. If the Dollar continues to consolidate for another 1-3 weeks and breaks down, then we should see the price of oil trade in the range shown on the chart and eventually breakout to the upside. I have a $95-100 price target on oil if the dollar continues to trend down. Until we see some type of handle form here I am not trading oil.
SPY – SP500 Fund – Daily Chart
The equities market looks to have had one of those days which spooked the herd. Friday the price dropped triggering protective stops with rising volume. I was watching the intraday chart as the SP500 broke below the weeks low, and this triggered protective stops which can be seen on the 1 minute charts. In an uptrend I prefer watching stops get triggered because it means traders are getting taking out of long positions and most likely looking to play the short side. When the masses become bearish on the market, that’s when I start looking to play the upside in a bull market (buy the dip).
The chart below clearly shows the days when the shake outs/running of the stops took place. Most traders were exiting their positions and/or going short because the chart looked bearish. One thing I find that helps my trading is that if the chart looks rally scary (bearish) then I start looking at a shorter term time frame for a possible entry point to go long using price and volume analysis.
Weekend Market Trend Trading Conclusion:
In short, I feel the market is at a critical point which will trigger a very strong movement in the coming days or weeks. Because the dollar, gold, oil and the equities market have had such big moves I think trading VERY DEFENSIVE is the only way to play right now. That means trading small position sizes. Right now I am trading 1/8 – 1/4 the amount of capital I generally use on a trade. Meaning if I typically put $40,000 to work, right now I am only taking positions valued at $10,000.
Remember not to anticipate trend reversals by taking a position early. Continue to trade with the underlying trend with small positions or skip a couple setups if you feel strongly of a possible reversal. Once the trend reverses and the volume confirms, only then should you be playing the new trend. Picking tops can be expensive and stressful.
by Jordi Perez Marketspace Trading November 15, 2010
Sunday, November 14, 2010
The deals work in a variety of ways, but all involve the same basic strategy. An investor persuades a lender to agree to a short sale, buying a house for less than what the lender is owed. But the investor has another buyer lined up who is willing to pay more.
The bank, usually unaware of the other waiting buyer, accepts a lower price from the investor, who then quickly resells the home - for a higher price - to the waiting buyer.
The deals, which have become more common as short sales have increased, are now drawing the attention of real-estate and financial regulators.
Most lenders object to such deal-making because, had they been aware of the other waiting buyer, they would have taken the higher price. Banks take a loss on short sales, and the deals can make their losses greater.
Real-estate professionals disagree over the nature of the deals. Some insist they are a smart way to make a profit in a tough market. Others call them unethical at best and question whether investors violate the law if they conceal information from a lender.
Many real-estate market watchers agree that the deals have negative impacts. Neighborhood housing values suffer because, while the second sale might be for the home's true market value, the first sale represents an artificially low price.
In the industry, the deals have been dubbed "flops."
In a rising market, investors "flip" houses, buying them and then reselling for a profit as overall values rise.
"Flopping is the opposite of flipping," said Amy Swaney, regional Arizona sales managers for Citywide Home Loans and a past president of the Arizona Mortgage Lenders Association. "It is the art of profiting off the devaluation of property rather than an increase in value of a property."
It is impossible to know how many homes have been "flopped" since short sales began to be widely accepted by lenders in the past year.
But a key indicator is how quickly short-sale homes are resold. An owner who buys in a short sale and sells the home again within a few days most likely had the second buyer lined up in advance.
In the past year, nearly 20,000 short sales closed in metro Phoenix. Of those, at least 1,000 were flops, according to an analysis by Tom Ruff of the real-estate research firm Information Market. A few examples: a Tolleson home sold for $90,000 through a short sale and then was flopped within 20 days for $106,000; a northwest Phoenix home was purchased first through a short sale for $28,500 and then resold through a flop within two weeks for $50,000; and a Scottsdale house sold via short sale for $90,000 and then for $122,000 through a subsequent flop less than a month later.
The Arizona Department of Real Estate, mortgage giants Fannie Mae and Freddie Mac and the FBI are all investigating flopping deals.
"Short-sale flopping is one of our real-estate industry's biggest issues right now," said Judy Lowe, Arizona Department of Real Estate commissioner. "We are all looking at the legality and ethics of these deals. And it varies by flop because it appears every deal is done a little differently."
The art of the deal
Short sales slowly have grown more common as more homeowners in the region face losing their homes to foreclosure.
In some ways they are more attractive to lenders and sellers. A short sale does less damage to the seller's credit record than a foreclosure. And a lender typically is paid more money in a short sale than it could make on the home after foreclosing, partly because it has to incur costs related to taking back the home before reselling it.
But as short sales have expanded, so have the strategies some investors appear to use to make a profit. Investigators and industry professionals describe several common approaches.
- Price high, then sell low: A real-estate agent lists a home for a short sale but knowingly prices the house too high so it sits on the market for several months. As the homeowner edges closer to foreclosure, the agent recommends reducing the offering price. A buyer appears who is willing to pay less than the reduced price. The lender is persuaded to accept the deal, arguing that the home has been on the market for so long because it is overpriced and that foreclosure is imminent. The lender agrees, and the short sale is completed.
But the new buyer already has a plan to resell the house and often already has a second buyer lined up ready to pay more. The key to the arrangement is the price-setting. The high price keeps other potential buyers away and sets the lender up to be more agreeable to a low offer at the end.
The agent can receive a quick two commissions on the same property.
The lender gets less for the house than it otherwise might, and the seller may be damaged, too. The more time that passes before the sale, the more damage is done to the seller's credit from missing monthly payments.
- Steering the deal: A third party working with the seller to help facilitate the deal or a real-estate agent representing the seller ignores higher offers for a short sale. An investor buys the property without the lender ever knowing what other offers the home might have drawn. The investor then quickly resells the property for a higher price.
If a third party was in on the flop to steer the deal away from the open market and to the investor, the agent often doesn't know. If the agent was in on the flop, the agent may have received an additional payment from the investor.
The deals rely on finding a second buyer, usually another investor, willing to pay more after the short sale. In some cases, the second buyer doesn't even know that an investor is orchestrating a short sale before reselling. In other cases, buyers are looking for deals but are reluctant to deal with the paperwork hassle and uncertainty of a short sale. A flop allows them to pay a low price for the home, while the interim buyer deals with the short-sale technicalities.
The deals also require people to coordinate the arrangement and sometimes conceal information. Arizona regulators are concerned that loan officers, appraisers and real-estate and escrow agents could be acting unethically and even illegally, and some may be getting caught up in these deals without realizing it.
Many in Arizona's real-estate and lending industries are against flopping.
"I hate flop deals," said Kevin Kaufmann, a Phoenix real-estate agent specializing in short sales with Keller Williams Realty. "The deals look like a great way to make fast money, but they aren't usually in the best interest of the seller who is dealing with financial hardships and facing foreclosures."
Investigators also are watching for another type of short-sale deal that is a short-sale version of a fraud scheme used in boom times.
A buyer or buyers use a "straw buyer" to purchase a home. The buyer uses fake identification and financial information to obtain a mortgage and then never makes payments, triggering foreclosure proceedings. Immediately before foreclosure, the people running the scheme offer to buy the home in a short sale. The lender isn't aware of the connection between the original buyer and the short-sale buyer. The people in on the deal buy the house for a low price and can resell it.
A pair of Connecticut real-estate agents were convicted on fraud charges for a flopping scheme earlier this year. Both agents admitted to providing their own appraisals for the homes, acting as straw buyers to purchase homes through short sales and then reselling the homes at higher prices.
Homes listed for short sale are at a record high in metro Phoenix, so the potential for more flops is significant.
In an effort to stop potential short-sale fraud, Fannie Mae and Freddie Mac recently issued warnings that homes it approves for short sale can't be resold within at least 30 days.
Mortgage research firm CoreLogic estimates that lenders will lose at least $50 million from the deals nationally this year.
The FBI has identified the deals as one of the nation's top mortgage scams now, but they are difficult to investigate and prove.
State regulators talked to the real-estate industry about foreclosure and short-sale schemes at a conference held by the Arizona Real Estate School in September.
Lauren Kingry, superintendent of the Arizona Department of Financial Institutions, said because there are so many different ways flops are handled, it's difficult to determine if the deals are illegal.
"Though many Valley attorneys say flopping is completely legal as long as it's disclosed, it's still a growing problem for the real-estate market and lenders," Swaney said. "Some deals may skirt the law, but that doesn't make them ethical. We as professionals in the industry have to watch out for our clients, whether they are homeowners, buyers or lenders."
She said some Valley escrow agents are turning away deals that require them to process the documents on a short sale and then a second sale of the same home for a higher price within days of each other.
Some groups involved in the deals say they disclose the planned resale up front so they aren't defrauding the lender or acting unethically. Some mortgage servicers may be agreeing to the deals to avoid a foreclosure. But big lenders say they are opposed to flopping.
"I am telling people flopping homes they must give full disclosure to lenders," said Phoenix real-estate attorney Scott Zwillinger. "If banks don't know about all the deals involved, then a flopper is committing fraud. That's the bottom line."
Even if deals do take advantage of lenders, public sentiment is not necessarily on the banks' side. With banks awash in criticism of how they have handled foreclosures and refused to modify loans for many needy homeowners, consumers are less likely to be outraged at a deal that takes advantage of a lender.
But in some deals, taxpayers - not lenders - may be the ones taking a loss.
For mortgages that are federally backed, lenders can seek some federal funds to cover their losses on short sales.
So if a flopping deal drives down the selling price, the lender may seek more money from the federal backer to cover the loss. It is unclear how much money lenders have been paid to recover losses in short sales.
"Flopping may be legal if all the deals are disclosed to everyone involved, but they make me furious," said Ruff, the real-estate analyst. "The money flopping deals are costing lenders ultimately is money the taxpayers are going to have to cover on mortgages that are government- backed."
Versions of the 'flop'
Price high, then sell low
A house is originally listed for $200,000 but doesn't sell for six months. The real-estate agent lowers the price to $150,000 and provides appraisals showing that the amount is the property's current market value. An investor then makes an offer of $100,000 for the house, which the lender is persuaded to accept. The house is then resold by the investor for $120,000 to make a quick profit of $20,000.
Steering the deal
A real-estate agent is hired by a homeowner to handle a short sale. Rather than seek offers from other buyers, the agent presents the home to an investor who is interested in buying short sales. The investor makes an offer and handles the paperwork. The agent may even ignore other offers that come in from potential buyers. The investor pays the real-estate agent a fee or commission for steering the home to the investor. The investor then quickly resells the home at a higher price for a profit.
by Catherine Reagor The Arizona Republic November 14, 2010
Phoenix real estate strategy of 'flopping' examined
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