Mortgage Purchase Applications Increase
The Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending March 26, 2010, increased 1.3 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 1.5 percent compared with the previous week. “Purchase applications have increased over the past month, and are now at their highest level since last October when many homebuyers were rushing to get loans closed before the expected expiration of the homebuyer tax credit,” said Michael Fratantoni, MBA’s Vice President of Research and Economics. “We may be seeing a similar pattern now, as the extended version of the tax credit ends next month.”
The Refinance Index decreased 1.3 percent from the previous week and the seasonally adjusted Purchase Index increased 6.8 percent from one week earlier. This is the highest Purchase Index since the week ending October 30, 2009. The unadjusted Purchase Index also increased 6.8 percent compared with the previous week and was 9.3 percent lower than the same week one year ago. While both conventional and government purchase indexes saw increases this week, the government purchase index and the government share of purchase applications are at their highest levels since October 2009. The government share of purchase applications is currently 47.2 percent. The four week moving average for the seasonally adjusted Market Index is up 2.2 percent. The four week moving average is up 5.4 percent for the seasonally adjusted Purchase Index, while this average is up 0.9 percent for the Refinance Index. The refinance share of mortgage activity decreased to 63.2 percent of total applications from 65.0 percent the previous week. This is the lowest refinance share recorded in the survey since the week ending October 23, 2009. The adjustable-rate mortgage (ARM) share of activity increased to 5.2 percent from 4.8 percent of total applications from the previous week.
More jobs lost in the private sector
Automatic Data Processing, which processes paychecks for one in every six U.S. employees, said private-sector employers cut payrolls by 23,000 jobs in March, marking the smallest monthly decline since February 2008. The decline surprised many economists. A consensus of economists surveyed by Briefing.com had forecast a gain of 40,000 jobs in the month. The number of job cuts in February was revised to a loss of 24,000 jobs from the previously reported 20,000. The service sector reported an increase of 28,000 jobs in March, marking the second consecutive monthly increase and the highest job growth since March of 2008.
However, that growth was offset by a loss of 51,000 jobs in the goods-producing sector and a drop of 9,000 manufacturing jobs. Large businesses, those with 500 or more workers, saw employment decline by 7,000 jobs, while small-size businesses with fewer than 50 workers had a drop of 12,000 workers. Employment among medium-size businesses, defined as those with between 50 and 499 workers, declined by 4,000. Many economists view the ADP report as a proxy for the government’s monthly jobs report, which comes out Friday. That report is expected to show a gain of 190,000 jobs in March, compared to a loss of 36,000 jobs in February. The unemployment rate is expected to remain unchanged at 9.7%. Some economists may revise their estimates in light of Wednesday’s report.
DSNews.com – CMBS Delinquencies Increase to 6%
The delinquent unpaid balance for commercial mortgage backed securities (CMBS) increased to $47.82 billion in February, soaring $1.87 billion from January, according to the latest Monthly CMBS Delinquency Report released Sunday by investment rating agency Realpoint, LLC. The overall delinquent unpaid balance was up almost 300% from February 2009, when only $11.98 billion of delinquent unpaid balance was reported. In addition, it was more than 21 times the low point of $2.21 billion in March 2007. The distressed 90-plus day, foreclosure, and REO categories grew in aggregate for the 26th straight month—up 9% from January and 420% higher than the same month in 2009. Overall, the total unpaid balance for CMBS pools reviewed by Realpoint for the February 2010 remittance was $797.06 billion, down slightly from $797.3 billion in January. The resultant delinquency ratio for February jumped to 6%, up from 5.76% reported one month prior. This was more than four times the 1.43% reported one year ago and more than 21 times the Realpoint-recorded low point of 0.283% from June 2007.
Auto sales up
All of the top six selling automakers are expected to post sales increases in March from a year earlier except for Chrysler. Automakers report March U.S. sales on Thursday. Most forecasters late in March expected U.S. auto sales of 12 million to 12.5 million vehicles in the seasonally adjusted annualized rate (SAAR) economists use, up from an anemic 9.7 million in March 2009. “I think we could probably surpass a 13 million SAAR for the month,” Autoconomy.com analyst Erich Merkle said.
Merkle said March sales could be supported by Toyota’s incentives, plus pent-up demand from the U.S. recession and snowy weather in the Northeast during February that had hampered sales across the industry. Toyota posted a 16% sales drop in January from the year-earlier month and a 9% drop in February, pressured by production halts, stop-sale orders of some of its best-selling models, congressional hearings and negative news reports regarding the automaker’s quality and safety. Ford’s sales are expected to rise 40% year-on-year, Toyota sales 33%, and GM sales by 31%, IHS Global Insight analyst Chris Hopson said.
Mortgage rates on the rise
Conventional mortgage rates continued to rise in February, according to the Federal Housing Finance Agency’s (FHFA) monthly rate report. The average interest rate entered on a conventional 30-year fixed-rate mortgage (FRM) of $417,000 or less ticked up 3 basis points (bps) in February to 5.13%, from 5.1% in January. The average rate on 15-year FRMs rose 11bps to 4.65% in February, FHFA said. The average contract rate on all loans — fixed- and adjustable-rate mortgages — rose 4bps to 5.03% in February. FHFA calculated these average rates based on purchase-only mortgage loans closed during the February 22-26 period. Because interest rates are typically determined 30-45 days before loan closing, these rates represent market conditions prevailing in mid- to late-January. In a separate report, FHFA said that in January the national average contract mortgage rate for the purchase of previously occupied homes was 5.05%, up 4bps from 5.01% in December. This rate is commonly used to adjust ARM rates and previously was the only index rate that federally chartered savings and loan associations could use as an adjustable-rate mortgage index in the early 1980s, FHFA said.
HAFA coming April 5
Short sales are already picking up in the distressed-property market, and the trend is expected to explode in coming weeks, when the government starts handing out cash to encourage lenders to close these deals. “Banks have ramped up short sale approvals,” said Duane Legate of House Buyer Network. “They’re hiring a lot of the people who once worked in the mortgage-lending industry and moved them over to short sales.” Short sales accounted for 17% of all residential real estate sales in February, up from nearly 13% in November, according to a monthly real estate market survey by Campbell/Inside Mortgage Finance.
And Bank of America, the country’s largest mortgage servicer, has more than doubled the number of short sales it processed in recent months. This is a huge change from even just six months ago when the short-sale market was stalled and most people would describe the process has real estate hell. Because lenders stand to lose so much on these transactions, they have been reluctant to make short sales happen, often waiting months before getting back to potential buyers. But that has been changing.
For one thing, banks realize that they make out far better financially with a short sale than a foreclosure. “The lenders lose 50% on a foreclosure and only 30% on a short sale,” said Glenn Kelman, founder of the real estate Web site Redfin. “And short sales offer a way to get distressed properties off their books quickly.” And on April 5, lenders and mortgage investors will have even more incentives to offer troubled borrowers short sales instead of foreclosing. Under the new Home Affordable Foreclosure Alternatives (HAFA) program, borrowers will earn a $3,000 “relocation incentive” and servicers will get $1,500 for handling a short sale. The investors who actually own the mortgage notes will get $2,000 in exchange for sharing proceeds of the short sales with any second-lien holders. And, finally, those second lien holders will receive up to $6,000 for releasing their claims. Lenders participating in the program must also determine the market values of properties early on and inform the owners of just what price they’re willing to accept. Then, if owners come back to the lenders with bonafide offers, they have to be accepted within 10 days.
What’s in HAFA?
The coming boom in short sales may accelerate the end to the foreclosure crisis by cleaning out the overhang of borrowers in distress and replacing them with more stable homeowners. Plus, these sales are better for distressed borrowers because their credit scores suffer less. Going through a foreclosure can knock 200 points off a FICO score, twice as much as the penalty for a short sale. I’ll provide details as they come along, but here’s a primer from the National Association of Realtors (NAR):
- Complements HAMP by providing a viable alternative for borrowers (the current homeowners) who are HAMP eligible but nevertheless unable to keep their home.
- Uses borrower financial and hardship information already collected in connection with consideration of a loan modification.
- Allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds).
- Prohibits the servicers from requiring a reduction in the real estate commission agreed upon in the listing agreement (up to 6%).
- Requires borrowers to be fully released from future liability for the first mortgage debt (no cash contribution, promissory note, or deficiency judgment is allowed).
- Uses standard processes, documents, and timeframes/deadlines.
- Provides financial incentives: $1,500 for borrower relocation assistance; $1,000 for servicers to cover administrative and processing costs; and up to $1,000 for investors for allowing a total of up to $3,000 in short sale proceeds to be distributed to subordinate lien holders (on a one-for-three matching basis).
- Requires all servicers participating in HAMP to implement HAFA in accordance with their own written policy, consistent with investor guidelines. The policy may include factors such as the severity of the potential loss, local markets, timing of pending foreclosure actions, and borrower motivation and cooperation.
DSNews.com – Treasury to sell Citigroup shares
The U.S. Department of the Treasury announced Monday that it is ready sell off its 27% ownership stake in Citigroup. Treasury said it plans to fully dispose of its 7.7 billion shares of Citigroup common stock over the course of 2010. The shares were acquired under a June 2009 agreement between Treasury and Citi, which allowed the bank to exchange the preferred stock the government received for its bailout into common shares and made taxpayers the company’s largest common shareholder. The Treasury’s $25 billion original investment in Citi now carries a market value of $33.2 billion. According to Thomson Reuters, it would be one of the biggest stock deals in history, bested only by the 1987 stock offering of Japan’s Nippon Telegraph and Telephone, which raised $36.8 billion. Treasury officials say they intend to sell off the Citigroup common shares “through various means in an orderly and measured fashion,” and noted that the timing of the disposition would be dependent on market factors. The planned sale does not affect Treasury’s holdings of Citigroup trust preferred securities or warrants for its common stock, which were acquired through bailout transactions. But when the deal does go through, it will represent a major step for Citigroup in severing its ties to the federal government.
Home prices firm up
In January the Standard & Poor’s/Case-Shiller 20-city home price index fell just 0.7% from last year on a seasonally adjusted basis, showing the smallest annual decline in almost three years. The index reading of 146.32 was almost in line with analysts expectations, according to a survey by Thomson Reuters. Better still, prices rose 0.3% from December to January, the eighth consecutive monthly gain. Among the 20 cities in the index, 12 rose. “The housing market still has something of the blahs,” David Blitzer, an S&P managing director, told CNBC in an interview. “It’s a mixed report—one or two cities going better than last month—but overall ‘flat’ is probably a better description.” The index, released Tuesday, is up nearly 4% from its bottom in May 2009, but still almost 30% below its May 2006 peak. Many analysts expect that the Case Shiller number will eventually turn downward. “It is only a matter of time before the index records a double-dip in prices,” wrote Paul Dales, U.S. economist with Capital Economics, who forecasts a 5% drop. The market will be tested in the second half of the year, he wrote, when a tax credit that has boosted sales is gone.
Half of all commercial mortgages to be underwater
Elizabeth Warren, chairperson of the TARP Congressional Oversight Panel, says that by the end of 2010 about half of all commercial real estate mortgages will be underwater. “[The mortgages] are [mostly] concentrated in the mid-sized banks,” Warren told CNBC. “We now have 2,988 banks—mostly midsized, that have these dangerous concentrations in commercial real estate lending.” As a result, the economy will face another “very serious problem” that will have to be resolved over the next three years, she said, adding that things are unlikely to return to normalcy in 2010. Speaking on troubled mortgage lenders, Warren said it’s time for the government to “pull the plug” on mortgage lenders Fannie Mae and Freddie Mac. “I’m one of those people who never liked public-private partnership to begin with. I think what they did was use public when public was useful and private when private was useful,” she said. “And I think we’ve got to rethink that whole thing. There is no implicit guarantee anymore,” she added. “I don’t care how big you are, if you make serious enough mistakes, then your business can be entirely wiped out.”
Underwater till 2014 – 2020
First American CoreLogic estimates that the typical US homeowner who is in negative equity will not experience positive equity until late 2015 to early 2016. In severely depressed markets, the typical borrower in negative equity may not experience positive equity until 2020 or later. CoreLogic projects more than 11.3 million — or 24% — of all residential properties with mortgages had negative equity at the end of the Q409. While the largest decreases in home prices appear to have already happened, it remains to be seen when borrowers will return to positive equity. To predict how much long borrowers will remain in negative equity, CoreLogic projected future home values and unpaid principal balances for a selected set of Core Based Statistical Areas (CBSAs) to gauge how long it will take for the average underwater borrower to return to positive equity.
According to the projections, it will take the typical borrower until late 2015 or early 2016 for negative equity to disappear. But in severely depressed markets, like Detroit, negative equity won’t dissipate even by 2020, because of its depressed economy. Negative equity is widely considered a trigger to strategic default, and a Treasury Department program announced Friday attempts to address the problem by pushing lenders and servicers to offer borrowers principal reductions on their mortgages. And although house price appreciation will, over time, offset negative equity, amortization — the paying down of loan balances — will in most cases be a more significant remedy to negative equity, a research note from CoreLogic economists states. Over the next 10 years, the average loan balance will decrease by an annual rate of 3.3%; meanwhile home price are expected to increase at a 3% annual rate over the next decade, they claim.
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