Real estate economics

Housing Bottom Now Expected in 2013, Recovery Looks Weaker, by Colin Robertson, Thetruthaboutmortgage.com

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There’s been a lot of interesting housing-related news over the past week, with some good and some bad.

The first bit is that economists finally believe the national housing bottom is near.

Yes, we’ve heard that before, several times, but per Zillow, the economists surveyed are all “largely” on-board this time.

So that’s good news. The bad news is that more than half of the same respondents believe the homeownership rate will continue to fall from the 65.4% level seen in the first quarter.

In fact, one in five think homeownership will be at or below 63% in coming years, which will test the all-time low established in 1965.

For the record, some areas of the nation have already appeared to bottom, and are actually up quite a bit.

In hard-hit Phoenix, home prices are already up 12% from their bottom. In San Francisco, prices are up 10% from bottom.

But New York, Atlanta, and Chicago are still waiting for the bounce.

Housing Recovery Not Looking Too Hot

Meanwhile, future home appreciation isn’t looking as good as it once was.

Back in June 2010, Zillow-surveyed economists expected cumulative appreciation of 10.3% from 2012 to 2014.

Now, the experts only see home prices appreciating a paltry 3.5% for the same period.

That’s $1.25 trillion less in housing wealth than previously expected. Yikes.

So expect an “L” shaped recovery…in other words, a steep decline, followed by many, many flat years. Sure, it may a be “squiggly L” with little ups and downs, but an “L” nonetheless.

That said, make sure you actually like the place you buy, don’t just buy it because you think you’re going to make a killing off it as an investment.

The good news is mortgage rates continue to be absurdly low, with the 30-year fixed matching a record low 3.48% this week, per Zillow.

I didn’t see rates falling that low, so I’ll start eating my hat now.

But I still think the low rates could be a major artificial stimulus, which has led to homeowners listing the worst properties out there of late.

Why the Housing Recovery Will Take Time

If you’re wondering why the housing market won’t bounce back immediately, you merely need to consider all the ineligible buyers.

Let’s start with the millions of underwater homeowners, who won’t be able to move unless they’re rich enough to buy a new house and short sell or bail on their current property.

There aren’t many people this lucky, especially now that lenders actually document income.

Then there are those who still haven’t gone through foreclosure yet, but are hanging on by a thread.

There are plenty who still haven’t been displaced, but will be in the next several years. So there’s a ton of shadowy shadow inventory yet to materialize.

Even those who received loan modifications are in serious trouble. A recent study released by credit bureauTransUnion found that a scary 60% of those who received loan mods re-defaulted just 18 months later.

So there’s a lot of bad news that just isn’t making it to the presses, largely because we are riding the “good news train” right now in the housing world.

All of these former homeowners will also have difficulty qualifying for a mortgage in the future, so they’re essentially out of the mix.

Let’s not forget the millions that are unemployed…they obviously won’t be able to buy a home either, so this explains the dip in homeownership as well.

And it doesn’t bode well for home prices going forward. Consider that as home prices rise, more would-be home sellers will list their properties. This should keep downward pressure on prices for a long time.

It also makes one question if the bottom is really as close as some think, or even for real. We saw misleading upticks with the homebuyer tax credit too, so it’ll be interesting to see if this latest rally has legs

The Truth About Mortgage

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Promoting Housing Recovery Part 3: Proposed Solutions For The Housing Market

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This is the final part of a three-part, two-post series.  Click here to read parts I and II, which focus on recognizing the fundamental economic problems, and fixing the underlying economic issues (such as unemployment)

Part Three – Proposed Solutions For The Housing Market

Home Prices

Home prices in many parts of the country are still inflated. People cannot afford the homes and cannot refinance to lower payments, so the homes go into default and are foreclosed up. Other homes remain on the market, vacant because there are no qualified buyers for the property at that price. This is a problem that can take care of itself over time, if the government gets out of the way.

Currently the government, in cooperation with banks, is doing everything to support home prices instead of letting them drop. Doing so prevents homeowner strategic defaults, and others going into defaults. It also lessens the losses to lenders and investors. In the words of Zig Zigler, this is “stinkin thinkin”.

Maintaining home prices artificially high will not stabilize the market. It is mistakenly thought this is the same as supporting home values. But inflating a price does not increase value, by definition. It just delivers an advantage to the first ones in at the expense of those coming later (think of the first and second homebuyer tax credits, which created two discernible “bumps” in home prices and sales in 2009 and 2010, both of which reversed).

We must allow home prices to drop to a more reasonable level that people can afford. Doing so will stimulate the market because it brings more people into the market. Lower home prices mean more have an ability to purchase. More purchases mean more price stability over a period of time.

To accomplish a reduction in home prices several steps need to be taken.

Interest Rates

The first thing to be done is that the fed must cease its negative interest rate policy. Let interest rates rise to a level that the market supports. Quit subsidizing homeowner payments on adjustable rate mortgages by the lower interest rates.

Allowing interest rates to return to market levels would initially make homeownership more difficult and would result in people qualifying for lower loan amounts. However, this is not a bad thing because it eventually forces home prices down and all will balance out in the end. Historically, as interest rates decrease, home prices increase, and when rates increase, home prices drop. So it is time to let the market dictate where interest rates should be.

Furthermore, by allowing interest rates to increase, it makes lending money more attractive. Profit over risk levels return, and lenders are more willing to lend. This creates greater demand, and would assist in stabilizing the market.

Fannie & Freddie

We have to eliminate the Federal guarantee on Fannie and Freddie loans. The guarantee of F&F loans only serves to artificially depress interest rates. It does nothing to promote housing stability. Elimination of the guarantees would force rates up, leading to lower home values, and more affordability in the long run.

It is seriously worth considering privatizing Fannie and Freddie. Make them exist on their own without government intervention. Make them concerned about risk levels and liquidity requirements. Doing so will make them responsive to the profit motive, tighten lending standards, and lessen risk. It will over time also ensure no more government bailouts.

Allow competition for Fannie and Freddie. Currently, they have no competition and have not had competition since the early 1990s. Competition will force discipline on F&F, and will ultimately prove more productive for housing.

The new Qualified Residential Mortgage rules must not be allowed to occur as they stand. If the rules are allowed to go forward, it will only ensure that Fannie and Freddie remain the dominant force in housing. Make mortgage lending a level playing field for all. Do not favor F&F with advantages that others would not have like governmental guarantees. We must create effective competition to counter the distorting effects of F&F.

Government Programs like HAMP

When government attempts to slow or stop foreclosures, it only offers the homeowner false hopes that the home can be saved. The actions will extend the time that a homeowner remains in a home not making payments, and also extend the length of time that the housing crisis will be with us. Nothing else will generally be accomplished, except for further losses incurred by the lender or investor.

When modifications are advanced to people who have no ability to repay those modifications, when the interest rates adjust in five years, all that has happened is that the problem has been pushed off into the future, to be dealt with later. This is what government programs like HAMP achieve.

If the government wants to play a role in solving the housing crisis, it must take a role that will be realistic, and will lead to restoration of a viable housing market. That role must be in a support role, creating an economic environment which leads to housing recovery. It must not be an activist and interventionist role that only seeks to control outcomes that are not realistic.

Portfolio Lenders

Usually, the portfolio lender is a bank or other similar institution that is subject to government regulations, including liquidity requirements. Because of liquidity issues and capital, it is not possible for many banks to lend, or in sufficient numbers to have a meaningful effect upon housing recovery at this time. Additionally, the number of non-performing loans that lenders hold restricts having the funds to lend do to loan loss reserve issues. Until such is addressed, portfolio lending is severely restricted.

To solve the problem of non-performing loans, and to raise capital to address liquidity requirements, a “good bank – bad bank scenario” scenario must be undertaken. Individual mortgage loans need to be evaluated to determine the default risk of any one loan. Depending upon the risk level, the loan will be identified and placed into a separate category. Once all loans have been evaluated, a true value can be established for selling the loans to a “purchase investor”. At the same time, the “bank investor” is included to determine what capital infusion will be needed to support the lender when the loans are sold. An agreement is reached whereby the loans are sold and the new capital is brought into the lender, to keep the lender afloat and also strengthen the remaining loan portfolio.

The homeowner will receive significant benefit with this program. The “purchase investor” should have bought the loans for between 25 and 40 cents on the dollar. They can then negotiate with the homeowner, offering them significant principal reductions and lowered payments, while still having loans with positive equity. Default risk will have been greatly reduced, and all parties will have experienced a “win-win” scenario.

However, portfolio lending is still dependent upon having qualified borrowers. To that end, previous outlined steps must be taken to create a legitimate pool of worthy borrowers to reestablish lending.

MERS

Anyone who has followed the foreclosure crisis, the name MERS is well known. MERS (Mortgage Electronic Registrations System) represents the name of a computerized system used to track mortgage loans after origination and initial recording. MERS has been the subject of untold articles and conspiracy theories and blamed for the foreclosure process. It is believed by many that the operation of MERS is completely unlawful.

To restart securitization efforts, a MERS-like entity is going to be required. (MERS has been irrevocably damaged and will have to be replaced by a similar system with full transparency. Before anyone gets upset, I will explain why such an entity is required.)

Securitization of loans is a time consuming process, especially related to the tracking and recording of loans. When a loan is securitized, from the Cut-Off date of the trust to the Closing Date of the trust when loans must be placed into the trust, is 30 days. During this 30 day period of time, a loan would need to be assigned and recorded at least twice and usually three times. To accomplish this, each loan would need assignments executed, checks cut to the recorder’s office, and the documents delivered to the recorder’s office for recording.

Most recorder’s offices are not automated for electronic filing with less than 25% of the over 3200 counties doing electronic filing. The other offices must be done manually. This poses an issue in that a trust can have from several hundred to over 8000 loans placed into it. It is physically impossible to execute the work necessary in the 30 day time period to allow for securitization as MERS detractors would desire. So, an alternative methodology must be found.

“MERS 2.0″ is the solution. The new MERS must be developed with full transparency. It must be designed to absolutely conform with agency laws in all 50 states. MERS “Certifying Officers” must be named through corporate resolutions, with all supporting documentation available for review. There can be no question of a Certifying Officer’s authority to act.

Clear lines of authority must be established. The duties of MERS must be well spelled out and in accordance with local, state, and Federal statutes. Recording issues must be addressed and formalized procedures developed. Through these and other measures, MERS 2.0 can be an effective methodology for resolving the recording issues related to securitization products. This would alleviate many of the concerns and legal issues for securitization of loans, bringing greater confidence back into the system.

Securitization & Investors

Securitization of loans through sources other than Fannie and Freddie represented 25% of all mortgage loans done through the Housing Boom. This source of funding no longer exists, even though government bonds are at interest rates below 1%, and at times, some bonds pay negative interest. One would think that this would motivate Wall Street to begin securitization efforts again. However, that is not the case.

At this time, there is a complete lack of confidence in securitized loan products. The reasons are complex, but boil down to one simple fact: there is no ability to determine the quality of any one or all loans combined in a securitization offering, nor are the ratings given to the tranches of reliable quality for the same reasons. Until this can be overcome, there can be no hope of restarting securitization of loans. However, hope is on the way.

Many different companies are involved in bringing to market products and techniques that will address loan level issues. Some products involve verification of appraisals, others involve income and employment verification. More products are being developed as well. (LFI Analytics has its own specific product to address issues of individual loan quality.)

What needs to be done is for those companies developing the products to come together and to develop a comprehensive plan to address all concerns of investors for securitized products. What I propose is that we work together to incorporate our products into a “Master Product”, while retaining our individuality. This “Master Product” would be incorporated into each Securitization offered, so that Rating Agencies could accurately evaluate each loan and each tranche for quality. Then, the “Master Product” would be presented to Investors along with the Ratings Agency evaluation for their inspection and determination of whether to buy the securitized product. Doing so would bring confidence back into the market for securitized products.

There will also need to be a complete review of the types of loans that are to be securitized, and the requirements for each offering. Disclosures of the loan products must be clear, with loan level characteristics identified for disclosure. The Agreements need to be reworked to address issues related to litigation, loan modifications, and default issues. Access to loan documentation for potential lender repurchase demands must be clarified and procedures established for any purchase demand to occur.

There must be clarification of the securitization procedures. A securitized product must meet all requirements under state and Federal law, and IRS considerations. There must be clear guidance provided on how to meet the requirements, and what is acceptable, and what is not acceptable. Such guidance should seek to eliminate any questions about the lawfulness of securitization.

Finally, servicing procedures for securitization must be reviewed, clarified, and strengthened. There can no longer be any question as to the authority of the servicer to act, so clear lines of authority must be established and agency and power of attorney considerations be clearly written into the agreements.

Borrower Quality

Time and again, I have referenced having quality borrowers who have the ability to buy homes and qualify for loans. I have outlined steps that can be taken to establish such pools of buyers and borrowers by resolving debt issues, credit issues, and home overvaluation issues. But that is not enough.

Having examined thousands of loan documents, LFI Analytics has discovered that not only current underwriting processes are deficient in many areas still, but the new proposed Qualified Written Mortgage processes suffer from such deficiencies as well. This can lead to people being approved for loans who will have a high risk of default. Others will be declined for loans because they don’t meet the underwriting guidelines, but in reality they have a significantly lower risk of default.

Default Risk analysis must be a part of the solution for borrower quality. Individual default risk must be determined on each loan, in addition to normal underwriting processes, so as to deny those that represent high default risk, and approve those that have low default risk.

This is a category of borrower that portfolio lenders and securitization entities will have an advantage over the traditional F&F loan. Identifying and targeting such borrowers will provide a successful business model, as long as the true default risk is determined. That is where the LFI Analytics programs are oriented.

Summary

In this series of articles, I have attempted to identify stresses existing now and those existing in the future, and how the stresses will affect any housing recovery. I have also attempted to identify possible solutions for many of the stresses.

The recovery of the housing market will not be accomplished in the near future, as so many media and other types represent. The issues are far too complex and interdependent on each other for quick and easy remedy.

To accurately view what is needed for the housing recovery, one must take a macro view of not just housing, but also the economic and demographic concerns, as I have done here. Short and long term strategies must be developed for foreclosure relief, based upon the limiting conditions of lenders, borrowers, and investor agreements.

Lending recovery must be based upon the economic realities of the lenders, and the investors who buy the loans. Furthermore, accurate methods of loan evaluation and securitization ratings must be incorporated into any strategy so as to bring back investor confidence.

Are steps being taken towards resolving the housing crisis and beginning the housing recovery? In the government sector, the answer is really “no”. Short term “solutions” are offered in the form of different programs, but the programs are ineffective for most people. Even then, the “solutions” only treat the symptom, and not the illness. Government is simply not capable of taking the actions necessary to resolve the crisis, either from incompetence or from fear of voter reprisal.

In the private sector, baby steps are being taken by individual companies to resolve various issues. These companies are refining their products to meet the needs of all parties, and slowly bringing them to market.

What is needed now is for the private sector to come together and begin to offer “packages of products” to meet the needs of securitizing entities. The “packages” should be tailored to solve all the issues, so that all evaluation materials are complete and concise, and not just a handful of different reports from different vendors. This is the “far-sighted” view of what needs to be done.

If all parties cannot come together and present a unified and legitimate approach to solving the housing crisis, then we will see a “lost decade” (or two) like Japan has suffered. Housing is just far too important of an economic factor for the US economy. Housing has led the way to recovery in past recessions, but it not only lags now, it drags the economy down. Until housing can recover, it shall serve to be a drag on the economy.

I hope that I have sparked interest in what has been written and shall lead to a spirited discussion on how to recover. I do ask that any discussion focus on how to restore housing. Recriminations and blame for what has happened in the past serves no purpose to resolution of the problems facing us now, and in the future.

It is now time to move past the anger and the desire for revenge, and to move forward with “can-do” solutions.

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Promoting Housing Recovery Parts 1 and 2, by Patrick Pulatie

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Previously, I have posted articles regarding housing and foreclosure issues. The purpose was to begin a dialogue on the steps to be taken to alleviate the foreclosure crisis, and to promote housing recovery.   Now, we need to explore how to restart lending in the private sector.  This will be a three part article, with parts I and II herein, and III in the next post.

To begin, we must understand how we got to the point of where we are today, and whereby housing became so critical a factor in the economy. (This is only an overview. I leave it to the historians to fill in all the details.)

Part One – Agreeing On The Problems

Historical Backdrop

At the beginning of the 20th century, the U.S. population stood about 76,000,000 people. By the end of 2000, the population was over 310 million. The unprecedented growth in population resulted in the housing industry and related services becoming one of several major engines of wealth creation during the 20th century.

During the Depression, large numbers of farm and home foreclosures were occurring. The government began to get involved in housing to stop foreclosures and stimulate housing growth. This resulted in the creation of an FHA/Fannie Mae– like program, to support housing.

WWII led to major structural changes in the U.S., both economically and culturally. Manufacturing and technological changes spurred economic growth. Women entered the work force in huge numbers. Returning veterans came back from the war desiring to leave the rural areas, begin families, and enter the civilian workforce. The result was the baby boom generation and its coming influence.

From the 1950s through the 1970s, the US dominated the world economically. Real income growth was occurring for all households. Homeownership was obtainable for ever increasing numbers of people. Consumerism was rampant.

To support homeownership, the government created Fannie Mae and Freddie Mac so that more people could partake in the American Dream. These entities would eventually become the primary source of mortgages in the U.S. F&F changed the way mortgages were funded, and changed the terms of mortgages, so that 30 year mortgages became the common type of loan, instead of 5 to 15 year mortgages.

Storm clouds were beginning to appear on the horizon at the same time. Japan, Korea, Germany, and other countries had now come out of their post war depressions. Manufacturing and industrial bases had been rebuilt. These countries now posed an economic threat to the U.S. by offering improved products, cheaper labor costs, and innovation. By the end of the 1970s, for many reasons, US manufacturing was decreasing, and service related industries were gaining importance.

In the 1980s and 1990s, manufacturing began to decline in the U.S. Service Industries were now becoming a major force in the economy. With the end of the Cold War in 1989, defense spending began to decline dramatically, further depressing the economy.

In the early 1990s, F&F engaged in efforts to increase their share of the mortgage market. They freely admitted wanting to control the housing market, and took steps to do so, undermining lenders and competition, and any attempts to regulate them.

In 1994, homeownership rates were at 64% in the US. President Clinton, along with Congress and in conjunction with Fannie and Freddie, came out with a new program with the intent to promote a 70% homeownership rate. This program was promoted even though economists generally considered 64% to be the maximum amount of homeownership that an economy could readily support. Above 64%, people would be 

“buying” homes, but without having the financial capabilities to repay a loan. The program focused upon low income persons and minorities. The result was greater demand for housing and homeownership, and housing values began to increase.

Lenders and Wall Street were being pushed out of the housing market by F&F, and had to find new markets to serve. F&F did not want to service the new markets being created by the government homeownership programs. The result was that Wall Street would naturally gravitate to that market, which was generally subprime, and also to the jumbo market, which F&F could not serve due to loan amount restrictions. This was the true beginning of securitized loan products.

The events of 9/11 would ultimately stoke the fires of home ownership even further. 9/11 occurred as the US was coming out of a significant recession, and to keep the country from sliding back into recession, the Fed lowered interest rates and kept them artificially low until 2003. Wall Street, recognizing the promise of good financial returns from securitized loans, freed up more and more capital for banks and mortgage bankers to lend. This led to even greater demand for homes and mortgages.

To meet the increased demand, home construction exploded. Ancillary services did well also, from infrastructure, schools, hospitals, roads, building materials, and home decor. The economy was booming, even though this was “mal-investment” of resources. (Currently, as a result of this activity, there are estimated to be from 2m to 3.5m in excess housing units, with approximately 400k being added yearly to housing stock.)

It did not stop there. Buyers, in their increasing zeal, were bidding for homes, increasing the price of homes in many states by 50 to 100,000 dollars more than what was reasonable. The perception was that if they did not buy now, then they could never buy. Additionally, investors began to purchase multiple properties, hoping to create a home rental empire. This led to unsustainable home values.

Concurrently, the Fed was still engaged in a loose money policy. This pumped hundreds of billions of dollars into the housing economy, with predictable results. With increasing home values, homeowners could refinance their homes, often multiple times over, pulling cash out and keeping the economy pumped up artificially. A homeowner could pull out 50,000 to 100,000 dollars or more, often every year or two, and use that money to indulge themselves, pretending they had a higher standard of living than what existed. The government knew that this was not a reasonable practice, but indulged in it anyway, so as to keep up an appearance of a healthy economy. Of course, this only compounded the problem.

The end result of the past 40 years of government intervention (and popular support for that intervention) has been a housing market that is currently overbuilt and still overvalued. In the meantime, real wages have not increased since the mid 1990s and for large numbers of the population, negative income growth has been experienced. Today, all segments of the population, homeowners especially so, are saddled with significant mortgage debt, consumer debt, and revolving credit debt. This has led to an inability on the part of the population to buy homes or other products. Until wage and debt issues are resolved, employment increases, and housing prices have returned to more reasonable values, there can be no housing recovery.

Current Status

As all know, the current status of housing in the US is like a ship dead in the water, with no ability to steer except to roll with the waves. A recap:

Private securitization once accounted for over 25% of all mortgage loans. These efforts are currently nonexistent except for one entity, Redwood Trust, which has issued one securitized offerings in 2010 and one in 2011. Other than this, Wall Street is afraid to invest in Mortgage Products (to say nothing of downstream investors).

Banks are unable to lend their own money, which represented up to 15% of all lending. Most banks are capital impaired and have liquidity issues, as well as unknown liabilities from bad loans dating to the bubble.

Additionally, banks are suffering from a lack of qualified borrowers. Either there is no equity in the home to lend on, or the borrowers don’t have the financial ability to afford the loan. Therefore, the only lending that a bank can engage in is to execute loans and sell them to Fannie Mae, Freddie Mac, or VA and FHA. There are simply no other options available.

F&F are buying loans from the banks, but their lending standards have increased, so the loan purchases are down. F&F still distort the market because of government guarantees on their loans (now explicit instead of implicit), and they are still able to purchase loans above $700k, which was implemented in response to the housing crisis.

F&F are still having financial issues, with the government having bailed them out to the tune of $140b, with much more to come.

VA is buying loans and doing reasonably well, but they serve a tiny portion of the market.

FHA has turned into the new subprime, accepting credit challenged borrowers, and with loan to values of 95% or greater. Default rates on FHA loans are rising significantly, and will pose issues for the government when losses absorb all FHA loss reserves, which may have already happened (depending on how you look at the accounting).

The Mortgage Insurance companies are financially depressed, with PMI being forced to stop writing new policies due to loan loss reserves being depleted. Likely, they will cease business or be absorbed by another company. Other companies are believed to be similarly in trouble, though none have failed yet.

The US population is still overburdened with debt. It is believed that the household consumer debt burden is over 11%, for disposable income. This is far too high for effective purchasing of any products, especially high end. (There has been a lessening of this debt from its high of 14% in 2008, but this has primarily been the result of defaults, so most of those persons are not in a position to buy.)

Patrick Pulatie is the CEO of LFI Analytics. He can be reached at 925-522-0371, or 925-238-1221 for further information. http://www.LFI-Analytics.com, patrick@lfi-analytics.com.

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RATES WAY DOWN, APPS WAY UP… THAT’S GOOD, RIGHT?, by Diane Mesgleski, Mi–Explode.com

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Last week mortgage applications rose a whopping 21.7% from the previous week according to the Mortgage Bankers Association’s Weekly Mortgage Applications Survey.  Great news for the industry to be sure.  Great news for the housing market?  Not so much, when you consider that the bulk of the applications are refinances, not purchases.  Refis rose 31% from the previous week, while purchases remain low. Actually they dropped a skooch.  Low purchase numbers mean continued stagnation in the housing market and continued increase in inventory as foreclosures continue to be added to the count.  Which means lower values. Kind of a vicious cycle.  Those of us in the mortgage biz were not surprised by last week’s numbers, since low rates spur refis and rising interest rates signal a purchase market.  You don’t even need to understand the reason why, you just know that is how it works. It is comforting to know that something is working the way it always has.

What is not comforting is the bewildered Fed chairman, and many baffled economists who don’t understand why the present policies are not working.  Even if rates could go lower it would not have an impact on the housing market.  There is no lack of money to lend, there is a lack of qualified borrowers.  And that situation is not improving with time, it is getting worse.   At the same time Washington is tightening their stranglehold on lenders with ever increasing regulation, then wondering why banks are not lending.  No matter what you believe should be the course, whether more regulation or less, you have to agree that government intervention has not and is not helping.

Has anybody else noticed, the only winner in this current climate are the Too Big To Fail banks?   They have plenty of cash, since they cannot lend it.  One article I read put it this way, their balance sheets are “healing”.   Sounds so soothing you almost forget to be angry.

There is one other factor in the current housing crisis worth mentioning: the lack of consumer confidence.  Nobody is going to buy a house when the prices are continuing to fall.  And even in areas where the prices are stable, people have no confidence in the economy or in Washington’s ability or willingness to fix it. They are simply afraid to make the biggest investment of their lives in this climate.   If our leaders would actually lead rather than play political games we might actually start seeing change.

But only if we give them another four years.   No wonder Ben does not think that anything will get better until 2013….now I get it.

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FHA Loan Limits Can Drop Much Further, Study Finds, by Mortgageorb.com

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Logo of the Federal Housing Administration.

Image via Wikipedia

The Obama administration‘s proposal for Federal Housing Administration (FHA) loan limits to reset to lower levels in October will have only a small impact on the agency’s current market share, a new study suggests. According to researchers at George Washington University (GW), larger reductions may be necessary to return the FHA to its traditional role as a lender to first-time and low- to moderate-income borrowers.

The report, titled “FHA Assessment Report: The Role and Reform of the Federal Housing Administration in a Recovering U.S. Housing Market,” concludes that the FHA still could serve 95% of its historic targeted market even if the maximum FHA loan limits were reduced by nearly 50%. To serve its target population, the report concludes that the FHA only needs a market share of somewhere between 9% and 15% of total mortgage originations. Currently estimates by the administration show that nearly one-third of new originations have FHA backing.

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

As part of its broader proposals to reshape the housing finance industry, the Obama administration wants to reduce the FHA’s high-end loan limit of $729,750 to $629,500. The GW report says an FHA limit of $350,000 in the high-cost markets and a limit of $200,000 in the lowest-cost markets is sufficient to satisfy more than 95% of the FHA’s target population.

The report also finds that the administration’s proposed reductions in loan limits would affect only 3% of loans endorsed last year.

“We find that FHA’s current market share exceeds what is needed to serve these markets,” says Van Order. “In the wake of significant declines in home prices, we believe the FHA could reduce its loan limits by approximately 50 percent and still almost entirely satisfy its target market. That would reduce its currently large market share, which is difficult for FHA to manage.”

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Shadow Inventory Raises 10 Percent, Thetruthaboutmortgage.com

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The so-called shadow inventory of residential property increased 10 percent year-over-year, according to a report released today by CoreLogic.

As of August, there were 2.1 million units, representing eights month of supply, of shadow inventory, up from 1.9 million units, or five months of a supply, a year ago.

“With visible inventory remaining flat at 4.2 million units, the change in shadow inventory increased the total supply of unsold inventory by 3 percent,” the company said in a release.

CoreLogic estimates its shadow inventory, sometimes referred to as pending supply, by adding up properties that are seriously delinquent (90 days or more behind in mortgage payments), inforeclosure, or owned by mortgage lenders but not currently listed on multiple listing services (MLSs).

These properties typically don’t show up in official numbers released by the Census Bureau and other outlets, meaning housing supply is worse than it looks.

And the visible months’ supply increased to 15 months in August, up from 11 months a year earlier due to the decline in sales volume during the past few months (expiration of homebuyer tax credit).

Now the total visible and shadow inventory stands at 6.3 million units, up from 6.1 million a year ago.

As a result, the total months’ supply of unsold homes was 23 months in August, up from 17 months a year ago.

Typically, a reading of six to seven months supply is considered normal, meaning current inventory is roughly three times the norm.

Translation: Continued downward pressure on home prices.

 

 

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MIT Economist Sees Housing Market Roaring Back, by Dakota, curbed.com

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Picking up on the news that housing starts–ie, the start of construction of new buildings and homes–picked up in August, rising to the biggest levels seen November, Fortune says the housing market “is still far from recovery” but also points out its on “bullish take on the housing market,” a piece centered largely around a 2009 paper by economist Bill Wheaton at the Massachusetts Institute of Technology‘s Center for Real Estate. Yes, stop all those stories about how the days of seeing our homes as money-generating nest eggs are over. In short, Wheaton thinks the market will come roaring back, partly because so little construction is going on. Via Fortune: “The crux of Wheaton’s argument lies in the rate of residential construction today. It’s been historically low – so low that he believes demand is actually exceeding the level of building going on. This helps set the grooves for a relatively large comeback in residential investment. Here’s how Wheaton backs the imbalance of demand for housing units and residential construction. He estimates that housing demand in 2009 was at about 1.1 million units – more than twice construction at the time. At this rate, the excess inventory will eventually be absorbed. “It’s going to be a long time before construction picks up with demand,” Wheaton says, adding that this should help housing prices.”
· Housing market shows glimmer of hope [Fortune]
· A housing rebound? Yes, it’s possible [Fortune]

http://la.curbed.com/archives/2010/09/mit_economist_sees_housing_market.php